Income Tax Appellate Tribunal - Mumbai
Ito-4(3)(1), Mumbai vs Pink Pepper Trading Private Limited, ... on 27 November, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL "C", BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN, JM ITA No.4280/Mum/2017 (Assessment Year :2009-10) ITO-4(3)(1) Vs. M/s. Pink Pepper Trading Pvt.
th
Room No.648, 6 Floor Ltd.,
Aayakar Bhavan Office No.7, 294/B,
M.K. Road, Kalbadevi Road,
Mumbai-400020 Govindwadi,
Mumbai - 400 002
PAN/GIR No.AAECP3172B
(Appellant) .. (Respondent)
Revenue by Shri Chaitanya Anjaria
Assessee by Shri Kapil Shah &
Shri Ajay Tulsiyan
Date of Hearing 16/11/2018
Date of Pronouncement 27/11/2018
आदे श / O R D E R
PER R.C.SHARMA (A.M):
This is an appeal filed by the Revenue against the order of CIT(A)-
9, Mumbai dated 20/03/2017 for A.Y.2009-10 in the matter of order passed u/s.143(3) r.w.s. 147 of the IT Act, 1961.
2. Following grounds have been taken by the Revenue.
1. "On the facts and in the circumstances of the case and in law, The Ld. CIT(A) erred in directing to AO to delete the addition made towards unexplained share application / share premium of Rs.4,07,30,0007- u/s 68 of the I.T.Act."
2. "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary."
2 ITA No.4280/Mum/2017M/s. Pink Pepper Trading Pvt. Ltd.,
3. Rival contentions have been heard and record perused.
4. Facts in brief are that the assessee company E-filed its return of income for AY 2009-10 on 16.09.2009 declaring an income of Rs. 8915/-
as per normal provisions of computation. The case was re-opened u/s 147 and a notice u/s 148 was issued on 21.03.2014 which was served on 31.03.2014. In response the company again filed its return of income on 30.04.2014. Vide letter dated 05.05.2014 filed on 16.05.2014, the assessee requested the AO to provide the certified copy of reasons recorded for initiating the re-assessment proceedings u/s 147. A notice u/s 143(2) was issued on 05.06.2014 served on 02.07.2014. The assessee company vide letter dated 17.07.2014 filed on 01.08.2014 complied with the requirements of the notice issued u/s 143(2) and again requested the AO to supply the reasons of re-opening.
5. Vide letter dated 18.08.2014 the AO provided the reasons recorded for issuance of notice u/s.148. The assessee company filed the objections to the reasons as well as to the re-Opening proceedings vide letter dated 12.01,2015 filed on 16.01.2015, The objections raised by the assessee were partly disposed off by the AO vide letter dated 06.02,2015, in so far as all the issues raised in the objections were not addressed.
6. The assessment proceedings were attended from time to time, detailed and elaborate written submissions along with necessary evidences were filed in respect of share capital and share premium. It has been observed in the assessment order that the details of share capital and share 3 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., premium of Rs. 4,07,30,000/- received during the year, were filed. Notice u/s 133(6) were issued to all the share applicants, which were served and were duly complied with by the share applicants. The transactions were also verified by AO from the bank statements of the assessee and the respective parties.
7. The assessee company has filed detailed submissions wherein the justification of share premium received was also filed. The allegations in the assessment order that the share premium is not correct as per the net worth of the share of the company and also the intrinsic value of the share in comparison to the premium received on the shares is not substantiated, are not correct. Ignoring all the submissions, the assessee was required to state as to why the share premium should be allowed.
The assessee's contention in this behalf were already on record, particularly on the issue of share premium, its justification including the valuation.
8. Being not satisfied with the assessee's reply, AO added that the entire amount of share capital and share premium received by the assessee totalling to Rs.4,07,30,000/-.
9. Before the CIT(A), assessee challenged the action of the AO in holding the credits received in the form of share capital and share premium is non genuine and there is escapement of income on this issue and thereby making an addition of Rs.4,07,30,000/- u/s. 68 of the I T Act, 1961.
4 ITA No.4280/Mum/2017M/s. Pink Pepper Trading Pvt. Ltd.,
10. The AO has discussed the issue in the assessment order in para 8, 9 & 10 of the assessment order. The relevant observation of the AO is reproduced as under:-
" SHARE APPLICATION MONEY:
On perusal of the Balance sheet of the assessee from details of reserves and Surplus it is seen that on account of securities premium and share capital account during the year addition was made totalling of Rs.4,07,30,000/-. During the course of assessment proceedings the representative of the assessee was asked to produce / submit the details of Share Capital & Share Premium received during the year under consideration. The representative of the assessee vide letter dated 13.01.2015 has submitted the details of Share Capital and Share Premium and the relevant portion of the reply as under.
• The entire share application money has been received from body corporates and shares have been allotted during the same year. There is no outstanding balance of share application money as on 31.03.2009. Copy of duly filled share application from allotment letters duly confirmed by the shareholders, confirmations, bank statement of the share applicant depicting respective payment entry, list of directors of the share applicant companies. Memorandum of Association and Articles of Association of share applicant companies and copy of ITR acknowledgements of most of the share applicants are enclosed at page no. 03 to 291.
• Copy of bank account of the assesses company for the period under review is enclosed at page no. 292 to 305 from which the relevant entries are verifiable.
• All the share applicants are regular tax assessee's and are filing their income tax returns regularly. Copies of their Income Tax Acknowledgements, PAN, MOA/AOA, copies of Bank Statement and other relevant documents are enclosed herewith as stated above, which clearly establishes their identify and credit worthiness. Further PAN of each and every share applicant is available in the list and the credentials can easily be verified by the department through these PAN in this era of e-filing.
• Moreover, all the transactions have been routed through proper banking channels as reflecting in bank statements of both share applicants and the assessee company, enclosed herewith as stated above 5 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., and the said entries are duly confirmed by the share applicants. Thus, the genuineness of the transactions is also very well established. The assessee company has issued 2,03,650 equity shares of Rs. 10/- each to various parties at a share premium of Rs. 190/- per share during the year relevant to AY 2009-10 which is line with the existing book value. We earnestly hope that the details- and the explanation filed as above will be upto Your Honour's satisfaction. It is requested that in case the- assessee company has not been able -to clarify any issue upto Your Honour's satisfaction, it is requested that one more opportunity may very kindly be provided before taking any adverse view in the matter.
It is seen from the details furnished by the representative of the assessee on account of share -capital and share premium was received from twelve parties (viz. M/s. Fedder Tie- Up Ltd., M/s. Cosmat Vinimay P Ltd., M/s. Bliawani Vanijya P Ltd., M/s. MSK Vyapaar P Ltd. M/s Amuk Tie-Up P. lie. M/s Remo Engg. Works P Ltd., m/s Reaccn Traders p Ltd., M/s Quiz Infotech P Ltd., M/s. Quiz Packers & Movers P Ltd. M/s Twilight Reality & Developers P Ltd. M/s Asia Financial Services Ltd. And M/s Deepsikha Advisory Services P Ltd.) of Rs.4,07,30,000/-. During the year under scrutiny notices u/s'l33(6) was issued to these parties from whom the assessee has received the above said share application money of Rs. 4,07,30,000/- these notice was served on the said parties and in response to the notices these parties reply were received. On perusal of the reply furnished by the party it is seen form the bank details the transaction were made and the amount were credited to the assessee, company account. Thereafter, vide order sheet noting 05.03.2015 the representative of the assessee was asked to why share application premium should be allowed. The representative of the assessee has not filed any replied in regard to the show cause it seems that the assessee has nothing to say about this.
At this juncture, it would be worthwhile to mention the following facts:-
RECOURSE UNDER SECTION 68 OF THE INCOME TAX ACT, 1961:
The resource available for the AO to tackle the cases of such accommodation entries being brought back in the books of account as cash credit is within the meaning of Section 68 of the Income-tax Act 1961. The provision relating to cash credit' as in Section 68 was provided for the first time in the Income Act 1961 (Act No'43 of 1951) as there was no corresponding provision in the Income Tax Act' 1922. It would be pertinent to note that Section 58 is a new section in comparisons with the provision of OK Income Tax Act 1922 and it is a culmination of a series of judicial pronouncements under the precisions of the Income Tax Act, 1922.
For the purpose of better comprehension the Section 68 may be divided as below:6 ITA No.4280/Mum/2017
M/s. Pink Pepper Trading Pvt. Ltd.,
(i) Where any sum is found credited in the books of an assessee;
(ii) Maintained for any previous year; and .
(iii) Assessee offers no explanation about the nature and source thereof; or
(iv) The explanation offered by him, is not, in the opinion of the Assessing officer satisfactory;
(v) The sum so credited may be charged to Income tax;
(vi) As the income of the assessee, of that previous year' ' The initial catchphrase of the section is "Where any sum is found credited in the books of account of the assessee" meaning thereby that section 68 is attracted where an entry relating to a sum is found to have been credited in the books of the assessee, which thus implies, existence of books and recording of a sum which the' Assessing Officer considers as doubtful. Perusal of Section 68 would show that in relation to the expression 'books', the emphasis is on the word 'assessee'.
The question is what is the true nature and scope of section 68 of the Act? When and in what circumstances section 68 of the Act would come into play? A bare reading of section 68 suggests that there has to be credit of amounts in the books maintained by assessee; that such credit has to be of a sum during the previous year; and that the assessee offer no explanation about the nature and source of such credit found in the books or the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory. It is only then the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression 'the assesses offer no explanation' means where the assessee offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee.
Such opinion found itself constitutes a prima facie evidence against the assessee, viz., the receipt of money, and if the assessee fail to rebut the said evidence, the same can be used against the assessee by holding that it was a receipt of an income nature.
In Sumati Dayal v/s. CITI9951 Supp. (2) SCC 453 this Court held:-
''.In all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if a receipt in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. But, in view of section 69 of the Act, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing 7 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., Officer, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut, the said evidence being un-rebutted, can be used against him by holding that it was a receipt of an income nature."
IDENTITY OF THE PERSON The identification of the person would include the place of work, the staff, the fact that it was actually carrying on business and recognition of the said company in the eyes of Public. Merely producing PAN number or assessment particulars did not establish the identity of the person. The actual and true identity of the person or a company was the business undertaken by them. This according is the correct and true legal position, as identity, creditworthiness and genuineness have to be established. PAN numbers are allotted on the basis of applications without actual de facto verification of the identity or ascertaining active nature of business activity. PAN is a number which is allotted and helps the Revenue keep track of the transactions. PAN number is relevant but cannot be blindly and without considering surrounding circumstances treated as sufficient to discharge the onus, even when payment is through bank account.
CREDIT WORTHINESS AND GENUINENESS OF THE TRANSACTIONS
On the question of creditworthiness and genuineness, it was highlighted that the money no doubt was received through banking channels, but did not reflect actual genuine business activity. The company merely rotated money, which was coming through the bank accounts, therefore, did not reflect their creditworthiness or even genuineness of the transaction. Similarly, creditworthiness was not proved by mere issue of a cheque/by furnishing a copy of statement of bank account. Circumstances might require that there should be some evidence of positive nature to show that the share application transaction is a genuine transaction. The assessee is a private limited company. It is not the case of the assessee that their Directors or persons behind the companies, who had purportedly received money were related' or known to them. What were placed on record were certain papers which showed that the assessee had taken care to ensure legal compliances. The said evidence is primarily documentary evidence. The correct position of law is to prove and substantiate the identity, creditworthiness and genuineness Of the transaction. The onus to prove the three factum is on the assessee as the facts are within the assessee's knowledge. Mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work 8 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, controls and manage them.
SURROUNDING & CORROBOMTIVE DETAILS: . .
It would be incorrect to state that the onus to prove genuineness of the transaction and creditworthiness of the investor stands discharged in all cases if payment is made through banking channels. Surrounding and corroborative factual details are equally important and may justify further proof or details before it is held that onus is discharged.
Thus, mere reliance on neutral documentary evidence cannot always be regarded as satisfactory discharge of onus.
It is important, to segregate cases of bonafide or genuine payment by third persons in a private limited company, from cases where receipt-of money is only a facade for conversion of unaccounted for money or money laundering. The said question cannot be decided without taking notice of the surrounding facts and circumstances, by merely relying upon paper work which at best in some cases would be a neutral factor. The paperwork though important may not be always conclusive or determinative of the final outcome or finding whether the transaction was genuine. When and under what circumstances onus is discharged, cannot be put in a strait jacket universal formula. It will depend upon several relevant factors. Cumulative effect has to be ascertained and understood before forming any objective opinion whether or not onus has been discharged by the assessee. Of course suspicion or doubts may not be sufficient and care and caution has to be taken that the assessee has limitations but this cannot be a ground to ignore contrary. Incriminating evidence or material which when confronted, meets silence or no answer. As per the information received from Director of Income Tax (Intell. & CR. Inv.), Mumbai that the party has issued shares at a price which is over and above the nominal value of the shares by cash. The sale price of the preference/equity shares having face value of Rs. 10/- and a premium ofRs.190/- per share is not correct as per the net worth of the shares of the company. The intrinsic value of the shares in comparison to the premium received on the shares is not substantiated. Therefore, the large premium received by the assessee company amounting to Rs. 4,07,30,000/- is unconvincing and unjustified. So, the share capital and share premium introduced during the impugned year is absolutely non-genuine and there is escapement of income on this issue. Penalty proceedings under section 274 r.w.s. 271(l)(c) are separately initiated for concealing particulars of income."9 ITA No.4280/Mum/2017
M/s. Pink Pepper Trading Pvt. Ltd., 6.2. During the course of appellate proceedings, the AR of the appellant filed written submissions, extract of the same is reproduced hereunder:
Ground No.2
2. The second ground of appeal is regarding the addition made under section 68 of the entire amount of share capital and security premium received by the appellant totaling to Rs. 4,07,30,000/-. 2.1 During the year under consideration, the appellant received share application money from certain registered corporate entities to the tune of Rs. 4,07f30,000/-, against which the appellant allotted 2036500 equity shares of face value of Rs 10/-at a premium of Rs 190/- per share. 2.2 The appellant was required, to furnish various information in respect of the amount of share application money received and allotment of the shares vide notice issued under section 142(1) dated 12.01.2015, compliance to which was properly made, by the appellant. The appellant provided all the "•desired information in respect of all the share applicants, which are also enclosed in the paper book. As Regards Identity of Investors 2.3 The appellant humbly submits that the following details were filed to establish the identity of investor companies:
2. ' Name, address, date of incorporation, PAN details, Income tax jurisdiction of investor companies;
2. Form of application of equity shares filled by the applicants;
3. Copy of Director Report, Audit Report and Balance Sheet of the share applicants;
4. Bank Statements of applicants Colonies reflecting the transactions of share application money;
5. Acknowledgement of Income Tax returns filed by the applicants;
6. Board Resolutions regarding allotment of share capital to applicants;
7. MOA, AOA and balance sheets of the applicants etc It is very important to note that the on the basis of the details furnished, the Learned AO, . independently initiated enquires under section 133(6) with the applicants. That all the applicants were 2 at the address and made the complete compliance to all the informations desired by the learned This fact is also acknowledged and appreciated in the order passed by the Learned AO at page no.10 the assessment order. That this fact establishes not only the identity of the share applicants but also the genuineness of the transaction. It is worth mentioning here that the identity of the share was properly established and stands accepted in this case.
As Regards Genuineness of transaction 2.5 With regard to the transaction of the share application money received it was submitted that the amount of share application money 10 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., was received through proper banking channel, applications and amount paid was properly confirmed by the applicants and receipts are verifiable in the bank accounts of the applicant and appellant both. There are no cash deposits in the bank accounts of the investor companies.
2.6 That the transaction of the share application was confirmed by respective applicants and was furnished through the submissions made by the applicant and were also established in the independent enquiries made under section 133(6) by the Learned AO.
In this regards, the Appellant relies on the decision of the Rajasthan High Court in CIT V. Shree Barkha Synthetics Ltd. (270 ITR 477) wherein the Hon'ble High Court had deleted the addition u/s. 68 of the Share Application Money received by the assessee on the ground that the' money was received from proper banking channels and the assessee had provided the PAN of the parties from whom the share application money was received along with their confirmations. In this connection, the Appellant also relies on the decision of the Jurisdcitional High Court in the case of CIT vs, Creative World Telefilms Ltd. (ITA No. 2182 of 2009), wherein the addition of share application money made under section 68 was 'deleted by the HoribleHigh Court on the ground that once documents like PAN Card, bank account details were given by the assessee, onus shifts upon the Assessing Officer arid it's the duty of the AO to trace the share holders on the basis of their PAN etc.. Vie AO cannot simply make an addition on the ground that the summons issued by him was not attended.
Hence, in light of the above discussion it is stated that the appellant had duly discharged the onus casted upon, by providing adequate and satisfactory explanations to the AO, so as to prove the genuineness of the transaction. Here it can be submitted that the case of the appellant is on a better footing as the Learned AO also verified the information provided by the appellant by making independent enquires to his satisfaction which also did not resulted into any adverse finding.
As Regards Creditworthiness of Investor Companies 2.7 With regard to the creditworthiness of applicants following documents were submitted:
a. Balance Sheet and Profit and loss account of the Investor companies b. Bank Statements of Investor companies showing sufficient funds in account before making investment.
c. Income tax Returns of the Investor companies 11 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., 2.8 That the appellant furnished the financial statements of all the applicants during the assessment proceedings. From the balance sheets of the applicants for the year under consideration it is verifiable that all the applicants possess substantial capital, reserves, net worth and resources to make the investments in the appellant company.
2.9 The appellant relies upon the propositions laid out in the case of CIT vs. Samir Biotech Pvt Ltd. ITA No415/T200S by The Hon'ble Delhi High Court, wherein it was held that if subscribers are having bank accounts, issuing account payee cheque, assessed to income-tax shoiuing investment in the balance sheet, balance sheet were audited by the statutory auditors, their credit worthiness, identity and genuineness of the transactions are well established.
Rebuttal of the findings in the assessment order 2.10 A bare reading of the assessment order will reveal the fact that the Learned AO did not raised any disbelief regarding the identity and creditworthiness of the share applicants and the genuineness of the transactions which was properly established and accepted. In the assessment order, the learned AO discussed the flow of proceedings from Page no. 1 to page no.10 then discussed the provisions of section- 68 at Page no. 10. to Page 13 and finally concluded in Para 10 and made the huge addition harping solely on the alleged information received from the Director of Income Tax (Intell & Cr. Inv), Mumbai. For the sake of convenience relevant Para is reproduced here as under:
"10. .As per the information received from the Director of Income Tax (Intell & Cr. Inv), Mumbai that the party has issued shares at a 'price which is.over and above the nominal value of the shares. The sale price of the preference/equity shares having face value of Rs. 10 and premium of Rs. 190 per share is not correct as' pe~r the net worth of shares of the company. The intrinsic value of the shares in comparison to the premium received on the shares is not substantiated. Therefore, the large premium received by the assessee company amounting to Rs. 4,07,30,000/- is unconvincing and unjustified. So the sliare capital and share premium introduced during the impugned year is absolutely non-genuine and there is escarpment of income on this issue. "
2.11 That the Learned AO did not made any observation in the order passed as to on which ground tlie transaction of the share application was considered as non-genuine. Only a reference of unverified report/remark can not make any financial transaction between various parties non-genuine. That all the parties involved in the transaction are corporate entities, holding valid PAN, filing their returns and subject to compliance with the various statutory requirements such as ROC, Income Tax etc. The transactions are properly confirmed by the respective parties. The Learned AO made the independent enquires 12 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., which did not resulted in any negative finding. The Learned AO did not properly appreciate the facts of the case and vital evidence produced in support of the genuineness of the share capital received from corporate entities.
The appellant wish to place reliance upon the following settled propositions in its matter:
In the case of Nemi Chand Kothari vs CIT, reported in 264 ITR 254, (Gauhati HC), "it is not burden of the assessee to prove the genuineness of the transactions between creditors and sub-creditors or is it the burden of assessee to prove that sub-creditor had creditworthiness to advance credit to creditor from whom credit had been eventually received by assessee"
II. Similar view has been taken in the case of CIT .v. Nishan Indo Commerce Ltd.,(2014) 101 DTK 413 (Cal.(HC). Once the identity and other relevant particulars of shareholders are disclosed, it is for those shareholders to explain the source of their funds and not for the assessee company to show wherefrom these shareholders obtained funds. It was held that Tribunal was justified in deleting addition in the hands of Assessee Company.
III. Even .Hon'ble Supreme Court in the case of CIT vs Lovely Exports (P) Limited, reported in 216 CTR 195 has held, "that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law but no addition can be made in the hands of company receiving such sums".
IV. In the case of Labh Chand Bohra vs ITO, reported in 219 CTR 571 (Rajasthan HC), the Hon'ble High Court observed that where the assessee had received loans through account payee cheques and the creditors had confirmed the loans by making statement on oath, in such a situation, the assessee is not required to establish the capacity of the lenders to advance the money as that would amount to calling upon tlie assessee to establish the source of source.
V. Similar view has been taken in the case of ClT vs STL Extrusion P Ltd., reported in 333 ITR 269, "that where the assessee had provided, to the AO the name, address and details of share applicants, addition u/s 68 cannot be made"
VI. The Hon'ble Supreme Court in-the case of CIT Vs Orissa Corporation (P) Ltd. 159 ITR 78 (SC)_held as follows:13 ITA No.4280/Mum/2017
M/s. Pink Pepper Trading Pvt. Ltd., "13. In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under s. 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There ioas no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do anything further."
Considering the facts and discussions above and also in light of the decisions of the Honourable apex courts end-Honourable High courts the transactions of the appellant may very kindly be accepted, the addition made u/s 68 be deleted and 'appeal may very kindly be allowed and oblige".
11. By the impugned order, CIT(A) upheld the reopening. However, on merit, he has deleted the addition after observing as under:-
6.3.1. I have considered the stand of the AO in the assessment order as well as the submissions filed by the AR of the appellant. It has been observed by the AO that as per information received from the director of Income Tax (Intell. & CR. Inv.). Mumbai, vide letter No. DIT(I&CI)F.No. 233/ ROC/2013-14 dated 26.03.2014 through CCIT (CA). Mumbai, it was seen that the assessee had received shares at a price which is over and above the nominal value of the shares the details of which has been referred in the earlier paragraphs. Thus this was the beginning of the case and thereafter the AO has proceeded to examine the three aspects of section 68 of I Tact. 1961 in para 8,9 & 10. In para 8 , the AO has referred that the appellant company had received share capital including share premium amount from twelve different parties names of which have been given at page 9 of the assessment order. At page 10, the AO has mentioned that notice u/s.133(6) was issued to the parties from whom the appellant had received the above referred share application money amounting to Rs.4,07,30,000/-. The AO has further mentioned that these notices u/s.133(6) was served on the said parties and in response to these notices to these parties, the replies were received. Thus, there cannot be any dispute regarding the genuinity/identity of the persons/parties. The second aspect as mentioned by the AO is with regard to bank details which was examined by him and where the AO has observed that "it is seen from the bank details, the transactions were met and the amount were credited to the assessee company account", thus, there should not be any dispute that the transactions were through ban-king channel. However, the AO issued 14 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., show cause to the AR of the appellant vide order sheet noting dated 05.03.2015 as to- why the share premium should be allowed, (refer page 10-para 8). Thereafter, the AO has dealt on section 68 in page 10 to 13 i.e., in para 9. At page 13 and 14, vide para 10 of the assessment order, the AO has observed that as per the information received from the Director of Income-tax (Intell. & CR (Inv.), Mumbai that the party had issued shares at a price which was over and above the nominal value of shares. The sale price" of Preference/equity shares was Rs.10/- and it was at the premium price of 190/-. Thereafter, the AO has concluded that this high premium introduced during the impugned year was absolutely non genuine and there was escapement of income on this issue. Thus the AO has very briefly in one paragraph has discussed the facts of the case and his conclusion which is reflected in para 10 of the assessment order.
Here it will be very pertinent to mention that while making addition, the AO has not given his own independent findings as to why the share premium amount was to be added as unexplained income of the appellant. Further observations of the AO has already been discussed in earlier paragraphs.
The above being the basic thrust of the case against the appellant, the impugned assessment order needs to be examined to figure out the quality of appellant-specific evidence, if any available. Before proceeding further it will be pertinent to examine the following questions which may be helpful in deciding the issue.
a. What is the nature of evidence that has been brought on record to show that the lender parties, who advanced the impugned share capital/share application to the appellant, were not genuine? . b. Is there any material that has been brought out by the AO to show that the share - application money in question are paper entries purchased against payment of unaccounted cash?
c. Has the Assessing Officer brought any material on record to show that commission was paid to the respective parties who invested as share application money with the appellant?
6.3.2. First of all, it would be worthwhile to examine the impugned assessment order with regard to material that shows that share premium amount were not genuine. In this regard, it may be mentioned that: . , . a. In the assessment order, the AO has relied upon the general information regarding share premium amount issued at higher figure. b. The AO has not mentioned anywhere that the parties were not genuine rather the AO has not disputed the parties and there compliance with regard to share premium application money. :
c. When it comes to detailing the adverse material, if any, the AO, merely refers to general information regarding issuance of share at premium value.
6.3.3. Certain conclusions are obvious, One, the AO himself is not so clear about facts and has referred to mostly the issues which are not 15 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., relevant to the case. Two, the AO has not referred to any adverse material in the cases of share applicants.
6.3.4. Hence, it is to be inferred that the quality of evidence, specific to the appellant is but poor and not fully to be relied upon.
6.3.5. The appellant, had furnished various details-regarding the lenders
- their names, PAN, constitution, names of Proprietor / Partner/ Director before the AO. Further, the appellant copies of acknowledgement of respective income tax returns, balance sheets and relevant bank statements of all the share applicants.
The situation remained unaltered in the course of assessment proceedings, and the AO did not in any manner improved upon what had been done by the Investigation Wing.
6.3.6. Non-observance of Principles of Natural Justice Not making available material used against the appellant and denying opportunity to cross examine witnesses:
It has been submitted that the AO did not observe the principles of natural justice and the material relied upon is not made available to the appellant and denying the opportunity of cross examination of witnesses or did not make available to the appellant any adverse material, if at all there was any in the possession of the AO.
6.3.7. The facts of the appellant's case are identical to those of in the case of H.R.Mehta decided by the Bombay High Court through an order dated 30/06/2016 in ITA No.58 of 2001.
In that case, the assessee had adduced evidence by way of bank record to show that loan had been received from a creditor through banking channels. The creditor was not physically traceable, as much time had elapsed and his address had changed. The assessment had been reopened on the basis of third party evidence collected in a search action in the case of a charitable trust. Despite specific request in this regard, the AO concerned did not provide to H R Mehta a copy of the appraisal report and third party statement etc. and proceeded to treat the loan as unexplained. The Hon'ble High Court struck down the ordnr of reassessment by observing that revenue was justified in making the addition without having first given the^ assessee an opportunity to cross examine the deponents on the statements relied upon by the ACIT. The relevant discussion, contained in paragraphs 16 & 17 of the High Court's order, is reproduced below: ....
16 ITA No.4280/Mum/2017M/s. Pink Pepper Trading Pvt. Ltd., "16. In the instant case although the appellant assessee has called upon us to drawn inference that the burden shifted to the revenue in the present case once it was established that the payments were made and repaid by cheque we need not hasten and adopt that view after . * having given our thought to various issues raised and the decisions cited by Mr. Tralsliawalla and finding that on a very fundmental aspect, the revenue was not justified in making addition at the time of reassessment without first given the assessee an opportunity to cross examine the deponent on the statements relied upon by the ACIT. Quite apart from denial of an opportunity of cross examination, the revenue did not even provide the material on the basis of which the department sought to conclude that the loan was a bogus transaction. 17. In our view in the light of the fact that the monies were advanced apparently by the account payee cheque and was repaid vide account payee cheque the least that the revenue should have done was to grant an opportunity to the assessee to meet the case against him by providing the material sought to be used against assessee in arriving before passing the order of reassessment. This not having been done, the denial of such opportunity goes to root of the matter and strikes at the very foundation of the reassessment and therefore renders the orders passed by the CIT(A) and the Tribunal vulnerable. In our view the assessee was bound to be provided with the material used against him apart from being permitting him to cross examine the deponents. Despite the request dt. 15fh February, 1996 seeking an opportunity to cross examine the deponent and furnish the assessee with copies of statement and disclose material, these were denied to him. In this view of the matter we are inclined to allow the appeal on this very issue."
6.3.8. Opportunity .of cross examination of witnesses is an essential ingredient of the principle of natural justice. This has been affirmed by the Hon'ble Supreme Court in the case of Andaman Timber Industries [Civil Appeal NoA228 of 2006, Date of Pronouncement - September 02, 2015], In that case, the Hon'ble Supreme Court held that not allowing assessee the opportunity to cross-examine witnesses, whose statements were made the basis of a demand, is a serious flaw which makes order a nullity, as it amounts to violation of principles of natural justice.
6.3.9. In the case of Kishinchand Chellaram vs. CIT, Bombay City II [1980] 125 ITR 713 (SC), it "has been held by the Apex Court that in income tax proceedings when an evidence is to be used against the assessee and if it is not shown to the assessee and if no opportunity to controvert is given to the assessee, that evidence is not admissible. It further held the department ought to have called upon the manager to produce the documents and papers on the basis of which he made the statements and confronted the assessee with those documents and papers. Before the income tax authorities could rely upon the evidence, they were bound to produce it before the assessee so that the assessee 17 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., could controvert the statements contained in it by asking for an opportunity to cross examine the manager of the bank with reference to. the statements made by him.
6.3.10. On principles of Natural Justice, it has been held by the Apex Court in the case of Swadesh Cotton Mills vs Union of India in 1981 AIR 818 that phrase "Natural justice" is not capable of a static and precise definition." "Two fundamental maxims of natural justice have now become deeply and indelibly ingrained in the common consciousness of mankind as preeminently necessary to ensure that law is applied impartially objectively and fairly. These twin principles are (i) audialtermpartem and (ii) nemojudex in re sua. Audi altermpartem is a highly effective rule devised by the Courts to ensure that a statutory authority arrives at a just decision and it is calculated to act as a healthy check on the abuse or misuse of power." "The maxim audialtermpartem has many facets. Two of there are (a) notice of case to be met and (b) opportunity to explain. "In facts and circumstances of a particular case when non-compliance with the implied requirements of the audialtermpartem, rule of natural justice at the pre decisional stage, the impugned order can be struck down as invalid on that score alone."
6.3.11. It has been also held by the Apex Court in the case of Delhi Transport Corporation vs DTC Mazdoor Congress, in 1991 AIR 101 that the audialtermpartem, rule which is essence enforces the equality clause of Article 14 of the Constitution and is applicable not only to quasi- judicial orders but to administrative orders affecting prejudicially the party in question. -
6.3.12. A similar matter came up before the Hon'ble Supreme Court in the case of M/s. Gira Enterprises &. Another (Civil Appeal -Noss 433- 434 of 2006) Dated 21708/2014. In that case, it was alleged that prices declared for import purposes had been suppressed. The case was based on evidence contained in a computer printout, reportedly prepared on the basis of import data, allegedly collected from Mumbai Port. This print out showed import prices, higher than those declared by the assessee. This printout was not made available to the assessee in the course of adjudication proceedings. After hearing the matter, the Hon'ble Supreme Court went on to set aside the order with below extracted observations:
"22. ...the respondent (revenue) did not supply the information (alleged computer printout) which formed the basis of the conclusion that the appellants herein under- valued the goods imported. In such a situation, the appellants obviously cannot and did not have any opportunity of establishing that the claim -of the revenue is unsustainable in law. If the information, which formed the basis for the revenue to reject the 18 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., appellant's valuation is supplied to the appellants, the appellants perhaps will have the opportunity to dispute the comparability of the import transactions allegedly contained in the computer printout on various counts catalogue.
23. In the absence of any material produced by the revenue in proof of the alleged comparable imports at a higher value, the impugned order which eventually confirmed the original order of assessment ..... cannot be sustained for two reasons - (1) the mere existence of an alleged computer printout is not proof of the existence of comparable imports; (2) assuming such a printout exists and the contents thereof are true, the question still remains whether the transaction of the appellant. The appellant will have to be given reasonable opportunity to establish (if he can) that the transactions are not comparable."
6.3.13. Going by the discussion contained above, it is obvious that the inference draHvn by the AO against the appellant is not sustainable for the simple reason that the principles of natural justice have not been followed. First and foremost, the appellant has not been given any access to the material (reports, intimations, statements etc.) used against it. Secondly, by withholding the said material, the AO has denied of the appellant an opportunity to rebut the evidence by cross examining the witnesses, statements, if any made by whom, incriminated the appellant. On both counts the impugned assessment order fails squarely.
6.3.14. Absence of material to show that the share application money are unexplained:
From the forgoing, it is obvious that there is no scope for arriving at a conclusion that the "appellant had taken hawala entries -to incorporate the impugned loans in its books of account. Hence, the only issue that remains to be seen is whether on the basis of facts brought on record the impugned loans could be treated as unexplained with the fore corners of section 68 of the Act. At the outset, it will necessary to look at some legal precedents with regard to the intent and application of section 68. It needs no elaboration that through a catena of decisions the Courts have laid down the following 3 fundamental tests which have to be established to discharge the burden u/s.68 of the Act;
Identity of the creditors/share applicants .
Creditworthiness of the creditors/share applicants, and Genuineness of the transactions i.e, whether the transaction was through banking channel. .
6.3.15. The Hon'ble Supreme Court vs. P Mohankala [2007] 291 ITR 278/ 161 Taxman 169 held that the expression 'assessee offers no explanation' means where the 19 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., offers no proper, reasonable and acceptable explanation as regards the sum found --edited in the books maintained by the assessee. It further held that the opinion of the AO for r.c't accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the AO is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.
6.3.16. The law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him and where the nature and source of a receipt; whether it be of money or other property, cannot be satisfactorily explained by the assessee, it is open to the revenue to held that it is the income of the assessee and no further burden lies on the revenue to show that the income is from any particular source [Roshan Di Haiti vs. CIT [1997] W7ITR938(SC) 6.3.17. Further references are made and reliance are placed to the various recent judicial pronouncements of Jurisdictional ITAT of Mumbai as well as Jurisdictional High Court of Bombay where similar issue were decided in favour of assessee. ...... ..-.. ..
(i) In the case of Supreme Construction P Ltd. v/s.ITO 10f2jf4), Mumbai ITA No.3645/Mum/2014/ A. Y 2007-08 order dtd.30.11.2015, the Hon'ble ITAT observed and held as under:
2. This appeal has been filed by Revenue against the order of CIT(A) on following grounds:-
"1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in deleting addition of Rs.40,00,000/- made under section 68 of I T Act in respect of share application money without appreciating the fact that addition was based on specific information provided by the Investigation Wing of Income Tax Department that the investor companies had issued cheques towards the alleged share application money in return of cash. 2. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in not appreciating the fact that the assessee has failed to discharge the onus cast upon it to prove the credit entries of share application money as required under the statute."
2.1 Assessee is in the business of builder and developer. Assessment was completed under section 143(3) r.w.s. 147 of the Income Tax Act. During the year, the assessee-company received share application money to the tune of Rs.85 lakhs from, eight companies out of which Rs.40 lakhs was received from three companies viz. Mihir Agencies Pvt. Ltd., Alpha Cehmie Trade Agencies Pvt. Ltd. and Talent Infoway Ltd. The stand of the assessee has been that the reasons recorded did not whisper about 20 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., any tangible material which triggered re-opening u/s 147. The reassessment proceedings were initiated on the basis of information received from Directorate of Income-tax (Investigation) without recording Assessing Officer's own satisfaction and the information was accepted in a mechanical manner. In support of this, the assessee relied upon the recent ITAT decision in the case of India Terminal Connector System Ltd. However, the Assessing Officer did not agree with the above contention of the assessee and after completing the assessment u/s 143(3), the Assessing Officer received detailed report from the investigation wing alongwith copies of statement recorded from both ShriMukesh C. Choksi and Shri Jayesh Sampat. Thus, a tangible material in the form of statement recorded from the above individuals were available before the Assessing Officer after the assessment was completed. After receiving the report and the statements, the Assessing Officer had gone through the contents and then he formed an independent opinion and after satisfying himself had recorded the reasons for reopening.
2.2 After, reopening of.assessment u/s 147 of the Income-tax Act, the Assessing Officer made addition of Rs.40 lakhs received by the assessee from various corporate entities. Addition was made by the Assessing Officer on account of bogus share application money under the provisions of Section 68 of the Act, which was deleted by CIT(A) by following various judicial pronouncements in similar facts and circumstances. Same has been opposed ^on behalf of the Revenue inter alia submitted that the CIT(A) erred in deleting the addition made by the Assessing Officer in respect of share application money without appreciating the fact that addition was made based on specific information provided by Investigation Wing of Income Tax Department. That investor companies have issued cheques towards alleged share application money in return of cash. Assessee failed to discharge the onus cast upon it to prove the credit entries of share application money as required under statute.
Accordingly, the order 'of CIT(A:) be set aside and* that of Assessing Officer be restored. Before us the stand of the ld. Authorised Representative for the assessee has been that the facts of this case are similar to the following decided cases and pleaded that the ratio decided in those cases may be applied to this as well as the matter is covered the following decisions of ITAT.
i) ITO (10(2)(3) vs, J.J. Multitrade Pvt Ltd, in ITA No.2158/Mum/2014 :
AY 2007-08, J-Bench & ITA No.2159/Mum/2014 : AY 2008-09, J-Bench The relevant paragraph Nos. 8 & 9 are reproduced herein below:
"Applying to the facts of instant case to the proposition laid down by the co-ordinate bench, as discussed above, we do not find any merit in the 21 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., addition so made by treating the sale proceeds of shares as undisclosed income of the assessee. Accordingly, the Assessing Officer is directed to delete the same. In the result, appeal of the assessee is allowed in part, in terms indicated hereinabove, , .
ii) ITAT E Bench in M/s. SDB Estate Pvt Ltd vs. ITO-(5)(3)(2) in ITA No. 584/Mum/2015: AY 2008-09 has decided similar issue by observing as under:-
"In view of the above stated legal position and in the light of reliable evidences brought on record by assessee to substantiate identity, genuineness and creditworthiness of shareholders, which have not been controverted by the Revenue, the additions made solely on the basis of general of Shri Mukesh 'Chokshi cannot be held to be justified and the same are accordingly ordered to be deleted. In the result, the appeal of the assessee is partly allowed."
iii) It was further pointed out that ITAT-"D" Bench has decided the following cases in favour of the assessee on similar issue, a) ITO - 10(2){1) vs. M/s. Deep Darshan Properties Pvt Ltd in ITA. No, 2117/Mum/2014 : AY 2006-07 and ITA No.2118/Mum/2014 : AY 2007- 08 b) ITO -10(2)(3) vs. Aajivan Computers Pvt Ltd in ITA No.2160/Mum/2014 :AY 2006-07 c) ITO -10(2)(3) vs. Dignity Securities Trading Pvt Ltd in ITA No.2157/Mum/2014 :AY 2006-07 d) ITO - 10(2)(1) vs. M/s. Blue Hill Properties Pvt Ltd in ITA No.2119/Mum/2014 :AY 2006-07.
2.3 It was also pointed out in the case of CIT vs. M/s. Lovely Exports (Pvt) Ltd, reported in [2008] 216 CTR 195 (SC), it was held as under:-
"If the share application money is received by the assessee company from alleged bogus share holders who's name are given to the AO then the department is free to proceed to reopen their individual assessments in accordance with law but it cannot be regarded as undisclosed income of assessee company."
2.4 In this background, it was submitted on behalf of the assessee that the Assessing Officer failed to appreciate that there is no documentary evidence against the assessee company to support such impugned additions. It was further submitted by the assessee that the Assessing Officer failed to appreciate that the statements of any person recorded u/s 143(3) r.w.s. 147, the assessee-company has fully discharged the burden of proof, onus of proof and explained the source of share capital and advances received by established the identity, creditworthiness and genuineness of transaction by banking instruments with documentary evidences. The further stand of the assessee has been that the assessee company substantiated the details with the documentary evidences as extracted from the website of Ministry of Corporate Affairs, Government 22 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., of India before the Assessing Officer. These facts have not been rebutted on behalf of the Revenue.
2.5 In view of the facts and circumstances of the present case as well as considering the decisions as discussed above on the similar issue, we are not inclined to interfere with the findings of the CIT(A) who has rightly deleted the entire impugned additions of Rs.40 lakhs made by the Assessing Officer u/s 68 of the Act on account of share capital subscription received by the assessee company.
2.6 Accordingly, the appeal filed by the Revenue is dismissed."
ii) The Hon'ble ITAT Mumbai Bench in the case of M/s.SJtara Properties P Ltd.
vs. ITO 10(2U4), Mumbai ITA No.3644/Mum/2014/2006-07 in order dated 30.11.2015 on similar issue observed and decided as under:
"In this case, i.e. ITO vs. M/s. Sitara Properties Pvt. Ltd., the Assessing Officer made total addition of Rs.1,15,47,169/- under secti6n 68 of the Act, out of this amount RST85 lakhs was made in respect of share application money and remaining amount of Rs.30,47,169/- was made on account of unsecured loan. Both the aforesaid additions amounting to Rs.1,15,47,169/- was deleted by CIT(A).
3.1 The first issue in this appeal regarding the addition in respect of share application money of Rs.85 lakhs is similar to the issue we decided above in case of M/s. Super Construction Pvt Ltd. in ITA No. 3645/Mum/2014 for A.Y. 2007-08 vide para 2.1 to 2.5 of this order. Therefore, facts and issues being similar, so following same reasoning we are not inclined to interfere with the findings of CIT(A) who has rightly deleted the addition of Rs.85 lakhs made by the Assessing Officer on account of share application money. The same is upheld.
3.2 the next issue in this appeal is with regard to addition of Rs.30,47,169/- made by the Assessing Officer on account of unsecured loan which was deleted by the CIT(A). The Assessing Officer made this addition on account of unsecured loan as the assessee was not explained the source of cash credit. The Assessing Officer came to this conclusion mainly on the ground that the assessee-company failed to prove that the statement recorded from ShriMukesh C. Choksi and Shri JayeshSampat by the Investigation Wing was incorrect. According to the Assessing Officer, the genuineness of the transaction could not be proved. In appeal, the CIT(A), having considered the submission of assessee-company, has rightly deleted the addition on both accounts (i.e. Rs.85 lakhs on account of share application money and Rs.30,47,169/- on account of unsecured 23 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., loan) by holding that the assessee-company had duly discharged the initial burden in respect of identity, creditworthiness and genuineness of all transactions by relying on various judicial pronouncements. Moreover, similar issue was adjudicated by him in the case of M/s. Superline Constructions Pvt. Ltd for AY 2007-08 vide appeal No.CIT(A)- 22/IT-10(2)-4/IT-63/2013-14 wherein having considered all ingredient of Sec. 68 of IT Act, granted relief to assessee which has been approved by us in paragraph 3 of this order. Thus, this addition is not justified under the provisions of Section 68 of the Act. Therefore, we do not see any reason to interfere with the findings of the CIT(A) who has rightly deleted the amount .of Rs.30,47,169/- on account of unsecured loan which was made by the Assessing Officer u/s 68 of the Act 3.3 Accordingly this appeal filed by the Revenue is dismissed."
iii) Similarly, the Hon'ble IT AT Mumbai in the case'of Samsung Builders & Developers F Ltd, vs. ITO, ITA No.3646/Mum/2014/2006- 07 in its judgement dated 30.11.2015, observed and decided as under:
"In this case, i.e., ITO vs. M/s. Samsung Builders & Developers P. Ltd., the Assessing Officer made addition ofRs.25,23,426/- under section 68 of the Act in respect of share application money ofRs.10 lakhs and on account of unsecured loan ofRs.15,23,426/- which was deleted by CIT(A). The issue in this appeal is similar to the issue we decided above in case of M/s. Super Construction Pvt. Ltd. in ITA No. 3645/Mum/2014 for A.Y. 2007-08 and in the case of M/s. Sitara http://www.itatonline.org 13 ITA No. 3645/Mum/2014+6 others M/s. Superline Construction P. Ltd & Others Properties Pvt Ltd in ITA No. 3644/Mum/2014 (supra) in this order itself. Facts 'and issues being similar, so following same reasoning we are not inclined to interfere with the order of the CIT(A) who has rightly deleted the additions on both account i.e. Rs.10 lakhs (share application money) and Rs.15,23,426/- (unsecured loan) under the provisions of Section 68. 77ns view is fortified by our decision in M/s. Sitara Properties Pvt Ltd (supra) vide para 3.1 to 3.3 of this order. The same is upheld."
6.3.18. As regards issue involving addition of share premium amount alongwith share application money/share capital money, the jurisdictional ITAT, Mumbai has decided in many cases that it cannot be added. Further, the Hon'ble High court has also decided the issue that the addition of share -premium amount cannot be made in earlier years prior to amendment in the relevant provisions in the I.T.Act, 1961.In this regard, reference is made and reliance is placed to the various Judicial Pronouncements on the issue related to additions for share premium amount included in the share application money/share capital money. These are as under:
24 ITA No.4280/Mum/2017M/s. Pink Pepper Trading Pvt. Ltd.,
(i) In the case of M/s. Vodafone India Services Pvt. Ltd vs. Addl. CIT reported in 368 ITR 001, Hon'ble Bombay High Court decided that :-
"The amounts received on issue of share capital including the premium are undoubtedly on capital account. Share premium have been made taxable by a legal fiction under Section 56(2)(viib) of the Act and the same is enumerated as Income in Section 2(24)(xvi) of the Act. However, what is bought into the ambit of income is the premium received from a resident in excess of the fair market value of the shares. In this case what is being sought to be taxed is capital not received from a non-resident i.e. premium allegedly not received on application of ALP. Therefore, absent express legislation, no amount received, accrued or arising on capital account transaction can be subjected to tax as Income, Court finds considerable substance in the Petitioner's case that neither the capital receipts received by the Petitioner on issue of equity shares to its holding company, a non-resident entity, nor the alleged short-fall between the so called fair market price of its equity shares and the issue price of the equity shares can be considered as income within the meaning of the expression as defined under the Act."
(ii) The CBDT vide instructions No - 02/2015 dated 29/1/2015 directed the revenue not to file the SLP before Hon'ble to Supreme Court and directed Ld AOs to accept the High Court order. The relevant instructions is as under :-
"In reference to the above cited subject, I am directed to draw your attention to the decision of the High Court of Bombay in 'the case of Vodafone India Services Pvt. Ltd for A.Y.2009-10 (WPNo.871/2014) = 20l4-TII-19--HC Mum wherein:in the Court has held, inter-alia, that the premium on share issue was on account of a capital account transaction and does not give rise to income and, hence, not liable to transfer pricing adjustment. .. It is hereby informed that the Board has accepted the decision of the. High Court of Bombay in the above mentioned Writ Petition. In view of the acceptance of the above judgement, it is directed that the ratio decided of the judgement must be adhered to by the field officers in all cases where this issue is involved. Tins may also be brought to the notice of the IT AT, DRPs and CsIT (Appeals)."
(iii) In the case of ACIT vs. Gagandeep Infrastructure Pvt, Ltd bearing ITA No. 5784/Mum/2011 dated 23/4/2014, Hon'ble Mumbai IT AT decided that:
'We have carefully perused the orders of the lower authorities. In our considered view, the issue of shares at premium is always a commercial decision which does not require any justification, further the premium is a capital receipt which has to be dealt with in accordance with Sec.78 of the Companies Act, 1956. Further, the company is not required to prove 25 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., the genuineness, purpose or justification for charging premium of shares, share premium by its very nature in a capital receipts and is not income for its ordinary sense....... The entire dispute revolves around the fact that the assessee has charged a premium ofRs.190/- per share. No doubt a non~est company or a zero balance sheet company asking for Rs.190/- per share defies all commercial prudence but at the same time we cannot ignore the fact that it is a prerogative of the Board of Directors of the company to decide the premium amount and it is the wisdom of the share holders whether they want to subscribe to such a heavy premium. The Revenue authorities cannot question the charging of such huge premium without any bar from any legislated law of the land. The amendment has been brought in the Income Tax Act under the head "Income from other sources by inserting Clause (viib) to Sec.56 of the Act wherein it has been provided that any consideration for 'issue of shares, 'that exceeds the fair value of such shares, the aggregate consideration received for such shares as exceeds, the fair market value of the shares shall be treated as the income of the assessee but the legislature in its wisdom has made this provision applicable w.e.f. 1.4.2013 i.e. on and from A.Y.2013-14. In so far as the year under consideration is consideration is concerned, the transaction has to be considered in the light of the provision of Sec.68 of the Act. There is no dispute that the assessee has given details of names and addresses of the share holders, their PAN Nos. the bank details and the confirmatory letters... Considering all these undisputed facts, it can be safely concluded that the initial burden of proof as rested upon the assessee has been successfully discharged by the assessee. Even if it is held that excess premium has been charged, it does not become income as it is a capital receipt. The receipt is not in the revenue field. . Wliat is to be.
probed by the AO is whether the identity of the assessee is proved or not. In the case of share capital, if the identity is proved, no addition can be made u/s.68 of the Act. We draw support from the decision of the Hon'ble Supreme Court in the case of Lovely Exports Pvt Ltd. 317ITR
218. We, therefore do not find any error or infirmity in the findings of the Ld. CIT(A). Ground No.1 is accordingly dismissed."
.
(iv) In the case of Green Infra Ltd vs. ITO reported in 38 taxmann.com 253 (Mum-ITAT) dated 23/8/2013, Hon'ble Mumbai IT AT decided that:
"During previous year ending on 31-3-2009, it had collected share premium on allotment of shares of face value of F.s. 10 each at a premium of Rs. 490 per share - It had credited said amount in balance- sheet under head share premium account - It claimed that share premium was a capital receipt not exigible to tax - Assessing Officer had taxed share premium under section 56(1) as assessee's income from other sources - Whether since expenditure and receipts directly relating to share capital of a company are of capital in nature, share premium collected by assessee could not be taxed under section 56(1) as income 26 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., from other sources - Held, yes - Whether since entire transaction relating to allotment of shares had. been done through banking channel and assessee had invested share premium in its three subsidiary companies, provisions of section 68 as suggested by revenue had also not applicable to instant case - Held, yes.... No doubt a non est company or a zero balance company asking for a share premium ofRs.490 per share defies all commercial prudence, but at the same time one cannot ignore the fact that it is a prerogative of the Board of Directors of a company to decide' the premium amount and it is the wisdom of the shareholders whether they want to subscribe to such a very premium. The revenue authorities cannot question the charging of such of huge premium without any bar from any legislated law of the land."
(v) In the case of CIT vs. Goa Sponge and Power Ltd reported in Appeal No. 16 of 2012, Hon'ble Bombay High Court decided that:
"Once the authorities have got all the details,, including the name and addresses of the shareholders, their PAN/GIR number, so also the name of the Bank from which the alleged investors received money as share application, then, it cannot be termed as "bogus". The controversy is covered by the judgements rendered b y the Hon'ble Supreme Court in the case of Lovely Exports Pvt Ltd, vs. CIT, (2008) 216 CTR (SC) 195, as also by this Court in CIT vs. Creative World Telefilms Ltd, (2011) 333 ITR 100 (Bom). In such circumstances, we are of the view that the Tribunal's finding that there is no justification in the addition made under Section 68 of the Income Tax Act, 1961 neither suffers from any perversity nor gives rise to any substantial question of law."
(vi) In the case of CIT vs. Creative Worl telefilms Ltd reported in 333 ITR 100.
Hon'ble Bombay High Court decided that "...the Tribunal was pleased to follow the judgment of the. apex Court in the case of CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195 :
(2008) 6 DTR (SC) 308 : (2009) 319 ITR 5 (St.) wherein the apex Court observed that if the share application money is received by the assessee-
company from alleged bogus shareholders, whose names are given to the AO, then the Department can always proceed against them and if necessary reopen their individual assessments. In the case in hand, it is not disputed that the assesses had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank.. It was expected on the part of the AO to make proper investigation and reach the shareholders. Tlie AO did nothing except issuing summons which were ultimately returned back with an endorsement "not traceable". In our considered view, the AO ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the 27 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., relevant material details and particulars were given by the assessee to the AO. In the above circumstances, the view taken by the Tribunal cannot be faulted."
(vii) In the case of CIT vs. Lovely Exports (F) Ltd reported in 216 CTR 195, Hon'ble Apex court decided that:
"If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company."
(viii) In the case of CIT vs. Steller Investment Ltd reported in 251 ITR 263, Hon'ble Apex court decided that:
"That the increase in subscribed capital of the respondent-company could not be a device of converting black money into white with the help of formation of an investment company, on the round that, even if it be assumed that the subscribers to the increased capital were not genuine, under no circumstances could the amount of share capital be regarded as undisclosed income, an appeal was taken by the Department to the Supreme Court. The Supreme Court dismissed the appeal holding that the Tribunal had come to a conclusion on facts and no interference was
(ix) In the case of CIT vs. Expo Globe India Ltd., reported in 361 ITR 147, Hon'ble Delhi High Court decided that:
"It has been held by Hon'ble Supreme Court and various High Courts that no addition can be made on account of share application money once the. names of the share applicants are given, hi the instant case, identity of these persons are not or doubt and assessment particulars of all the persons are on record and there is no material to hold that credit worthiness of these persons are not established. The judgement of Hon'ble Supreme Court in the case of Lovely Export 216 CTR 195 and also the judgement of Hon'ble Delhi High Court in the case of CIT vs. Value Capital Services Pvt Ltd 307 ITR 334 are relevant on this issue. It was held by Hon'ble Madras High Court in the case of CIT.vs. Electro Polychem Ltd. 294 ITR 661 and Hon'ble Allahabad High Court in the case of jaya Securities Ltd 166 Taxman 7 that no addition can be made on account of share application money even if subscriber to capital are not genuine. Tlie above said judgements were challenged by the Department by way ofSLP before Supreme Court of India and SLP has been dismissed by Supreme Court in both the cases. In view of above said facts of case and position of law, I hereby direct the AO to delete the addition of Rs.69,75,000/-.28 ITA No.4280/Mum/2017
M/s. Pink Pepper Trading Pvt. Ltd.,
(x) In the case of CIT v. Vacmet Packaging (India) Pvt Ltd reported in 88 CCH 065, Hon'ble Allahabad High Court decided that:
"Held, assesses, had filed documentary evidence to prove genuineness of share application money consisting of (i) share application forms; (ii) copies of bank accounts of share applicants; (in) copies of income tax returns of share allottees; (iv)balance sheets; and (v) copies of share allotment certificates and of Board's resolution of the share applicants - Identity of applicants was established by production of copies of aPAN cards and registration certificate with the Registrar of Companies - Financial capacity was also proved by filing of copies of the bank accounts from where the share application money was transferred through banking channels to the assesses- Assessee had discharged onus placed upon him by 68-Concurrent finding of facts also rendered by CIT(A) and tribunal in this regard ~ No substantial question of law arises- Revenue's appeal Dismissed"
(xi) In the case of Jaya Securities Ltd vs. CIT reported in 166 Taxman 7 (SLP filed by department dismissed), Hon'ble Allahabad High Court decided that:
"Whether any addition under section 68 can be made in respect of investment made by different persons in share capital of assessee company, limited by shares, whether public or private - Held, no."
6.3.19. Thus, it may be noted that even for sake of argument, it is assumed that appellant had accepted the share premium in excess of the fair value, still such share premium cannot be taxed u/s 56(2)(viib) nor u/s. 2(24) since such amount received as Share premium is a Capital in nature and is required to be held as Capital receipt. The provision of Sec 56(2)(viib) had been inserted into Statue w.e.f 1/4/2013 which applies from Asst year 2013-14 onwards and cannot be applied retrospectively for the impugned year {ACIT vs. Gangadeep Infrastructure Pvt Ltd}.
Further, in recent Judicial decision delivered in the case of Vodafone India Services Pvt Ltd. vs. Addl CIT(2014) 368 ITR 001 (Bom), Hon'ble Jurisdictional Bombay High Court decided that Share premium is not of a revenue field but is a Capital receipt. Thereafter, Hon'ble CBDT vide instructions no. 02/2015 dated 29/01/2015 decided not to file an appeal before Hon'ble Supreme court and also directed the assessing officers to treat the Share premium as a Capital account.
In fact, after the decision of the Hon'ble Bombay High Court in the case of CIT vs. M/s. Green Infra Limited ITA No.1162 of 2014, the issue of addition with regard to premium on shares has got settled in the territorial jurisdiction within Maharashtra, until the same is modified by the Hon'ble Supreme Court. In this case, the Hon'ble Bombay High Court has observed as under:
29 ITA No.4280/Mum/2017M/s. Pink Pepper Trading Pvt. Ltd., "Mr. Chhotaray the learned counsel for the Revenue states that the impugned order itself holds that share premium of Rs./- per share defies all commercial prudence. Therefore it has to be considered to be cash credit. We find that the Tribunal has examined the case of the Revenue on the parameters of Section- 68 'of the Act and found on facts that it is not-so hit. Therefore, Section 68 of the Act cannot he-invoked. The Revenue has not been able to show in any manner the factual finding recorded by the Tribunal is perverse in any manner.
Thus, question no(ii) as formulated does not give rise to any substantial question of law and thus not entertained."
Thus the judicial decision on the issue of addition of share premium is in favour of the appellant/assessee in so far as jurisdiction of Maharashtra is concerned.
On the other hand, it is to be inferred that in a case where the assessee has supplied all possible information to the AO to explain the share application money transaction, he has satisfactorily discharged the burden cast on him, still the AO without bringing' any adverse material, except general statement of Pravin Jain, proceeded to make addition. From the assessment order it is seen that at no point of time the AO has brought any material to prove that the party was not genuine or not having own funds to invest in share capital or the transactions were not routed through banking channel.
As stated earlier, it has been explained by the Ld.AR that the companies who has invested share application money with the appellant company are existing company and they are verifiable on the website of Registrar of Company and they are having their own CIN Number, PAN Number and regularly filing returns.
6.3.20. In the case before me, the record also shows that to prove the genuineness of the impugned share application money from the said parties, the appellant has furnished to the AO the various details which has been also produced during the course of appellate proceedings and may be seen from the appellant's submissions reproduced above and therefore, for the sake of brevity not being repeated here.
In fact, the AO is not disputing the genuinity of the person as well as the nature of the transaction through banking channel. In so far as addition of share premium is concerned, in the present situation, the issue is covered by the decision of Hon'ble Bombay High court in the case of Green Infra Ltd (supra).
6.3. 21. Thus, it has 'to be said that the appellant had done everything in its power to prove the 3 ingredients required to prove the satisfactory 30 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., nature of the loan transactions. In these circumstances, the onus had shifted to the AO. If the AO was still not satisfied, he had the option of "making inquiries from the alleged share applicants by summoning them. However, as seen from the assessment order, he did not any such thing. Further, if the AO was not satisfied with what had been given to him by the appellant, he was duty bound to specify what more material he wanted the appellant to furnish. The AO never asked for any further material, though time and again the appellant asked in their submissions. This leads to the inescapable conclusion that the AO could not think of any further material to ask for and proceeded to reject the appellant's claims, relying upon the information/material, which he never even brought to the notice of the appellant £or any rebuttal. The unequivocal conclusion is that all the 3 ingredients having been satisfied, the impugned share application money have to be treated as explained satisfaction and the AO was not justified in having disregarded overwhelmingly supportive evidence. No cogent material was adduced by him to show that the loans were unexplained. Therefore, the impugned addition of under the heading share application money as made in the assessment order, fails on several counts - (1) reliance on evidence that is totally inadequate; (2) failure to make available incriminating material (reports, statements etc.) forming basis for action by the AO; (3) failure to give due opportunity to the appellant to cross examine witnesses, whose statement might have been relief upon; and (4) failure to recognize the satisfactory nature of the explanation /evidence tendered by the appellant to explain identity of creditors, creditworthiness of the creditors and the genuineness of the loan transactions. Hence the impugned addition cannot be sustained.
6.3.22. After considering the entire facts and circumstances of the case as well as the Judicial Pronouncements referred and relied above, I hold that AO is not justified in making the addition u/s 68 of share application/capital including premium money received by appellant The share premium received by appellant is of capital nature and does not constitute a revenue receipt. The provision of Sec.56{2)(viib) has been inserted w.e.f. 1/4/2013, accordingly would not apply for the impugned year. The appellant had filed documents to establish the identity and creditworthiness of shareholders and genuineness of transaction. The shareholders, being also directors of appellant company, had confirmed the transaction and AO had not found any fault in such documents. The AO has not brought any contrary material to disprove the transaction and has not established that appellant had introduced its unaccounted money in garb of share premium. The 'Judicial decisions relied by Ld AR of Jurisdictional High Court and ITATs applies to the facts of the case and support the case of the appellant.
6.3.23. Hence, it is to be inferred that in a case where the assessee has supplied all possible information to the AO to explain the share 31 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., application money transaction, he has satisfactorily discharged the burden cast on him, still the AO without bringing any adverse material, except general statement of Pravin Jain, proceeded to make addition. From the assessment order it is seen that at no point of time, the AO has brought any material to prove that the party was not genuine or not having own funds to invest in share capital or the transactions were not routed through banking channel.
As stated earlier, it has been explained by the Ld.AR that the companies who has invested share application money with the appellant company are existing company and they are verifiable on the website of Registrar of Company and they are having their own CIN Number, PAN Number and regularly filing returns. As regards genuineness of transactions of share application money through banking channel and credit worthiness of the party having sufficient own funds in their books/balance sheet, this may be seen from the charts given in subsequent paragraphs.
In the case before me, the record also shows that to prove the genuineness of the impugned share application money from the-said parties, the appellant has furnished to the AO the various details which has been also produced during the course of appellate proceedings and may be seen from the appellant's submissions reproduced above and therefore, for the sake of brevity not being repeated here.
The various facts and figures related to these issues can be seen from the various charts as narrated below:
CHART SHOVVING THE GENUINITY OF THE Share Applicants/Share Holders, transaction through banking channel and credit worthiness of the relevant parties who invested with m/s. Pink Pepper Trading Pvt.Ltd.:
The various facts and figures related to these issues can be seen from the various charts as narrated below: ..
Chart showing the genuinity of the share applicants of Pink Pepper Trading Pvt. Ltd. for AY. 2009-10 SL. Name of the party PAN CIN No. Whether No . Existing company . with ROC/ Latest Return filed 1 Fedder Tie-up Pvt. AAACF3773G U74140WB1996PLC078294 Yes/31.03.2015 Ltd.
New Name -Savi Media World Limited 32 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., 2 Cosmat Vinimay AABCC2775J U74110DL1995PTC291346 Yes/31.03.2016 Pvt. Ltd. New Name Harmonia, Consultants Private Limited 3 Bhawani AACCB6799E USP109WB2005PTC102523 Yes/31.03.2016 Vanijya Pvt. Ltd.
4 MS Vyapar AAFCM2579N U74900WB2009PTC136823 Yes/31.03.2016 Pvt.
Ltd.
5 Amuk Tie-up Pvt. AACCA1973N U51109WB1995PTC071377 Yes/31.03.2016 Ltd.
6 Remo AABCR5S48R U45100DL1993PTC291348 Yes/31.03.2016
Engineering Works
Pvt. Ltd. New
Name Adhyam
Buildwell Private
Limited
7 Reacon AABCR4151R U51109WB1996PTC078178 Yes/ 31 .03. 201 6 Traders Private Limited 8 Quiz Infotech Pvt. AAACQ0373A U26101WB2000FTC090917 Yes /31.03.2016 Ltd. New Name Krrome Glass Private Limited 9 Quiz Packers AAACQ1849C U51909WB2008PTC128982 Yes /31.03.2016 & Movers Pvt. Ltd.
10 Twilight Realty & AADCT0464F U45400GJ2008PTC081 622 Yes /31.03.2016 Developers Pvt. Ltd.
11 Asian AACCA5475A U67120WB1996PTC079357 Yes /31.03.2016
Financial Services -
Limited
12 DeepStkha AAACD9084E U51109WB1996PTC079224 Yes/31.03.2016
Advisory
Services Pvt . Ltd.
Chart showing the receipt of banking transaction of Pink Pepper Trading Pvt. Ltd. in respect of share application money received for AY 2009-10 ' S. No. Name of Bank Chq Date Amount Remark the party Details NO./DD in Lacs /Online 33 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., 1 Fedder Kotak 000054 10.05 10.00 Transaction Tie-up Pvt. Mahindra .08 is through Ltd. New Bank banking Name - channel. No Savi cash deposit Media is reflected World in the bank Limited account.
Preceding the issuance of cheque 2 Cosmat Axis Bank 687440 20.05 20.00 -- do--
Vinimay Limited 687465 .08 25.00
Pvt Ltd. 10.07
New Name .08
-Harmonia
Consultants
Private
Limited
3 Bhawani Kotak 000075 26.03 27,00 _do--
Vanijya , Mahindra .08
Pvt. Ltd. Bank
4 MS Kotak 000117 14.07 15.00 -- do--
Vyapar Pvt. Mahindra 000118 .08 10.00
Ltd. Bank 14.07
.08
5 Amuk Tie- Axis 687563 15.07 1.00 --do--
up Pvt. Ltd. Bank .08
Limited
6. Remo Kotak 000089 15.07 20.00 -- do--
Engineering Mahindra .08
Works Bank
Pvt. Ltd.
New Name
-
Private
Limited
7 Reacon Kotak 000028 15.10 10.00 -- do-
Traders Mahindra 000029 .08 13.00
34
ITA No.4280/Mum/2017
M/s. Pink Pepper Trading Pvt. Ltd.,
Private Bank 000059 20.10 19.00
Limited 000063 .08 51.50
28.03
.09
30.03
.09
8 Quiz Info Syndicate 215083 18.11 7.50 -- do-
tech Pvt. Bank (RTGS) .08
Ltd. New
Name -
Krrome
Glass Pvt.
Ltd.,
9 Quiz Oriental 870112 10.02 6.25 -do-
Packers & Bank of .09
Movers Pvt Commerce
Ltd.,
10 Twilight Oriental 870772 26.02 25.00 _do--
Realty Bank of .09
& Commerce
Developers
Pvt Ltd.
11 Asian Kotak 000129 20.03 8.00 -- do~
Financial Mahindra 000134 .09 9.00
Service 000136 26.03 35.00
Ltd., 000148 .09 70.00
26.03
.09
30.03
.09
12 DeepSikha Kotak 00053 30.03 25.05 -- do-
Advisory Mahindra .09
Services Bank
Pvt. Ltd.,
Chart showing the sources of funds of share applicants of Pink 'Pepper Trading Pvt. Ltd. for AY 2009-10 - ' S. Name of the Contributor's Nature of Amount of Remark No. party capital Amount of Share of fund in application preceding Balance contributed FY sheet by this 35 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., prior to of party to which contributor the contribution In Lacs applicant made in Lacs In Lacs 1 Fedder Tie-up 905.95 Own 10.00 The Pvt. Ltd., New Capital share Name - Savi applicant Media World has Ltd., sufficient own funds 2 Cosmat 833 03 Own 45.00 -do-
Vinimay Capital
Pvt. Ltd.
New Name
Harmonia
Consultants
Private
Limited
3 Bhawani 452.56 Own 27.00 ~do-
Vanijya Pvt Capital
Ltd.
4 MS Vyapar 67.75 Own 25.00 --do
Pvt. Ltd. Capital
5 Amuk Tie-up 546.40 Own 1.00 -do-
Pvt. Ltd. Capital
6 Remo 664.36 Own 20.00 ~do-
Engineering Capital
Works Pvt.
Ltd. New
Name Adhyam
Build well
Private
Limited
7 Reacon 996.31 Own 93.50 -do-
Traders Capital
Private
36
ITA No.4280/Mum/2017
M/s. Pink Pepper Trading Pvt. Ltd.,
Limited
8 Quiz 996..18 Own 7.50 --do-
InfoTech Pvt. Capita!
Ltd. New
Name -
Krromc Glass
Private
Limited
9 Quiz 476.02 Own 6.25 -- do
Packers & Capital
Movers Pvt.
Ltd.
10 Twilight 476.01 Own 25.00 --do-
Realty & Capital
Developers
Pvt. Ltd.
11 Asian 6072.31 Own 122.00 -do-
Financial Capital
Services
Limited
12 Deep Sikha 996.36 Own 25.05 -do-
Advisory Capital
Services Pvt.
Ltd.
The above chart has been culled out from various details filed by the appellant and will show that the relevant parties/companies were in existence since they were having PAN number and regularly filing IT returns and also having CIN number and were in existence in the records of Registrar of companies. The AO has not brought any adverse material against this.
As regards sufficiency of funds, it may be seen from the above chart that the respective parties had sufficient funds to advance loan or invest in share capital in any other entity including the appellant and the AO has not brought any material on record to prove that any undisclosed taxable income of the appellant company had gone to the above stated concerns in any specific manner and the same has come back in the form of share capital/share application money to the appellant.
As regards transaction, the AO has nowhere been able to bring on record that any undisclosed cash amount of the appellant company was 37 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., deposited in the bank account/any account of the share applicants and the same amount was utilized in issuing the cheque or RTGs or D.D by the share applicants to invest in the appellant's company. On the contrary, it has been submitted by the Ld.AR that the bank account show that no cash has been deposited before issuing the cheque/RTGs/D.D for the appellant.
6.3.24. Thus, it has to be said that the appellant had done everything in its power to prove the 3 ingredients required to prove the satisfactory nature of the loan transactions. In these circumstances, the onus had shifted to the AO. If the AO was still not satisfied, he had the option of making inquiries from the alleged share applicants by summoning them. However, as seen from the assessment order, he did not do any such thing. Further, if the AO was not satisfied with what had been given to him by the appellant, he was duty bound to specify what more material he wanted the appellant to furnish. The AO never asked for any further material, though time and again the appellant asked in their submissions. This leads to the ' inescapable conclusion that the AO could not think of any further material to ask for and proceeded to reject the appellant's claims, relying upon the information/material, which he never even brought to the notice of the appellant for any rebuttal. The unequivocal conclusion is that all the 3 ingredients having been satisfied, the impugned share application money have to be treated as explained satisfactorily and the AO was not justified in having disregarded overwhelmingly supportive evidence. No cogent material was adduced by him to show that loans were unexplained.-- Therefore, the -impugned addition 'of under the heading share application money as made in the assessment order, fails on several (founts - (1) reliance on evidence that is totally inadequate; (2) failure to make available incriminating material (reports, statements etc.) forming basis for action by the AO; (3) failure to give due opportunity to the appellant to cross examine witnesses, whose statement might have been relief upon; and (4) failure to recognize the satisfactory nature of the explanation /evidence tendered by the appellant to explain identity of creditors, creditworthiness of the creditors and the genuineness of the loan transactions. Hence the impugned addition cannot be sustained.
In view of the facts and circumstances of the case as well as judicial pronouncements referred and relied above by me and also certain judicial pronouncements relied upon by the appellant in its written submission which has been produced above, addition made by the AO . under the heading share capital/ share application money amount cannot be sustained and therefore the AO is directed to delete the amount of 4,07,30,000/-.
In the result, this ground of appeal to be treated as Partly Allowed."
38 ITA No.4280/Mum/2017M/s. Pink Pepper Trading Pvt. Ltd.,
12. Against the above order of CIT(A), Revenue is in further appeal before us.
13. We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us in the context of factual matrix of the case. From the record we found that during the year under consideration the assessee has issued 203650 equity shares of Rs.10 each at a premium of Rs.190 per share thereby received a fresh share capital of Rs.20,36,500/- and security premium of Rs.3,86,93,500/-. During the assessment proceedings the assessee was required to furnish various information in respect of share applicants, the amount of share application money received and allotment of the shares etc., The assessee provided all the desired details before the AO vide submission dated 13.01.2015 which are placed at page 37 to 152 of the paper book.
14. The details so filed included complete details of share application money received, shares allotted, full names of applicants, their addresses, PAN, no. of shares allotted, mode of payment, amount received etc copy of share application forms, allotments letters, confirmations by the share holders, bank statement of the share applicants depicting respective payment entries, list of directors of the share applicants, MOA and AOA of the share applicants companies, copies of their 1TR acknowledgements 39 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., were also filed. Copies of bank statements of the assessee company were also placed in record from which the relevant transactions were verifiable.
Through another submission dated 29.01.2015 the assessee company filed the balance sheets of all the share applicants.
15. Before the AO, it was submitted that all the share applicants are regular tax assessees and the credentials of such companies can easily be verified by the department through their PAN no. in the era of E-filing and online availability of the data. It was also explained that the shares issued during the year were issued around the existing book value of the shares.
16. The AO issued notices u/s 133(6) to all the share applicants which were duly served and in response to which all the share applicants made due compliance. These documents were verified by the Learned AO and it is categorically stated in the assessment order that the transactions were properly made from the bank accounts of the applicants.
17. In its order the CIT(A) recorded finding to the effect that the assessee company had filed all the documents to substantiate and establish all the three ingredients of section 68 in which no fault was found by the AO and these documents establishing the identity and creditworthiness of the share applicants and genuineness of the transactions stand accepted. The AO carried out independent enquiries, results of which were also upto his satisfaction and no adverse remarks in respect of the share applicants are made in the entire assessment order.
40 ITA No.4280/Mum/2017M/s. Pink Pepper Trading Pvt. Ltd.,
18. In Para 9 on page 10 to 13 of the assessment order the AO has discussed provisions of section 68 and also the three ingredients thereof and made very general observations. However, not a single observation in this entire discussion of the AO is 'assessee - specific'. Thus the transactions of the assessee duly stand accepted on the basis of documents filed and enquiries conducted by the AO from the share applicants.
19. In the order AO alleged that the assessee has not justified the premium charged and it seems that the assessee has nothing to say about this. This allegation is not correct as the assessee had already submitted before the AO that "the assessee company has issued 203650 equity shares of Rs. 10 each at a share premium of Rs. 190 per share during the year relevant to AY 2009-10 which is in line with the existing book value. This submission of the assessee has also been reproduced by the AO on page 9 of the assessment order.
20. The issue of share premium and valuation was the only reason recorded for reopening of this case as evident from the copy of reasons appended and while raising the objection, the assessee has emphasized that the premium charged is in accordance with the net worth of the share of the company and shares have been issued as per the existing book value.
41 ITA No.4280/Mum/2017M/s. Pink Pepper Trading Pvt. Ltd.,
21. In Para 10 on page 13 of the assessment order AO observed that the large premium received by the company is not justified as per the net worth of the shares of the company and the intrinsic value of the shares in comparison to the premium received by it is not substantiated and therefore the share, capital and share premium is non-genuine and made the addition.
22. The very premises and the foundation on the basis of which the AO has tried to lay his case is wrong and incorrect since the net worth of the share of the company before issuing the impugned shares was also above Rs. 190 per share as evident from its balance sheet. Therefore, the sole basis of assuming the transaction as non-genuine is incorrect.
23. From the record we found that assessee had filed following documents before the AO to establish the identity and creditworthiness of investor companies;
1. Name, address, date of incorporation, PAN details, Income tax jurisdiction of investor companies;
2. Form of application of equity shares filled by the applicants;
3. Copy of Director Report, Audit Report and Balance Sheet of the share applicants;
4. Bank Statements of applicants Companies reflecting the transactions of share application money and also showing sufficient funds in account before making the investment;
5. Acknowledgement of Income Tax returns filed by the applicants;
42 ITA No.4280/Mum/2017M/s. Pink Pepper Trading Pvt. Ltd.,
6. Board Resolutions regarding allotment of share capital to applicants;
7. MOA, AOA and duly audited balance sheets of the applicants, etc.
24. On the basis of the details furnished, the Learned AO, independently initiated enquires under section 133(6) with the applicants.
That all the applicants were found at the address and made the complete compliance to all the information desired by the learned AO. This fact is also acknowledged and appreciated in the order passed by the Learned AO at page no. 10 of the assessment order. That this fact establishes the identity of the share applicants. In order to justify the genuineness of transaction we found that share application money was received through banking channel and amount paid was confirmed by the applicants and transactions are verifiable in the bank accounts of the applicant and assessee company both. There are no cash deposits in the bank accounts of the investor companies. The genuineness of the transactions is further substantiated by the fact-that the shares of face value of Rs. 10 were allotted at a premium of Rs. 190/- per share against the existing intrinsic value of Rs. 190.86 per share.
25. The AO discussed the flow of proceedings from Page no. 1 to page no.10 then discussed the provisions of section 68 at Page no. 10 to Page 13 and finally concluded in Para 10 and made the addition harping on the alleged information received from the Director of Income Tax (Intell & Cr.
Inv), Mumbai that too without providing the said information to the 43 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., assessee. For the sake of convenience relevant Para is reproduced here as under:
"10.As per the information received from the Director of Income Tax (Intell & Cr. Inv), Mumbai that the party has issued shares at a price which is over and above the nominal value of the shares. The sale price of the preference/equity shares having face value of Rs. 10 and premium of Rs. 290 per share is not correct as per the net worth of shares of the company. The intrinsic value of the shares in comparison to the premium received on the shares is not substantiated. Therefore, the large premium received by the assessee company amounting to Rs. 4,07,30,000/- is unconvincing and unjustified. So the share capital and share premium introduced during the impugned year is absolutely non- genuine and there is escarpment of income on this issue. "
26. Nowhere the AO made any observation in the order passed uas to on which ground the transaction of the share application was considered as non-genuine. Only a reference of unverified report/ remark from a different officer, which too was never confronted, cannot brand the financial transaction between various parties as non-genuine. That all the parties involved in the transaction are corporate entities, holding valid PAN, filing their returns and subject to compliance with the various statutory requirements such as ROC, Income Tax etc. The transactions are properly confirmed by the respective parties. The Learned AO himself made the independent enquires which did not resulted in any negative finding. The Learned AO did not properly appreciated the facts of the case and vital evidence produced in support of the genuineness of the share capital received from corporate entities that too at the existing intrinsic value of the shares. The premium charged was in line with the current 44 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., book value of the shares and was in no way excessive or unreasonable to call for any explanation much less any justification. It is pertinent to mention here that provision of section 56(2)(viib) were not in the statue and were not applicable for the impugned assessment year as the same was inserted only w.e.f. 01.04.2013.
27. The observations of CIT(A) in para 6.3.1 to para 6.3.5 on page 19 to page 21 are regarding the assessment order and the observations of the AO discussed at length. Thereafter the C1T(A) has discussed the various case laws regarding non observation of principal of natural justice in Para 6.3.6 to Para 6.3.13 where he concluded that by not providing the reports, etc (of I&CI) and other material, the assessee was denied an opportunity to rebut the evidence.
28. In Para 6.3.14 to on para 6.3.17 on page 25 to 31, the CIT(A) has discussed that there was no material to show that the share application money was unexplained and has also elaborately discussed the various case laws.
29. In Para 6.3.18 to para 6.3.21 from page 31 onwards of his order the CIT(A) has discussed the issue involving addition of share premium and has taken support of the various decisions of the co-ordinate benches of ITAT and also of jurisdictional High Court such as:
(i) Vodafone India Services Pvt. Ltd. V/s Addl. CIT 368 1TR 001 Bombay and the related 45 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd.,
(ii) CBDT instruction no. 2/2015 dated 2015 issued with respect to the above decision.
(iii) ACIT V/s Gagandeep Infrastructure Pvt. Ltd.' ITA No. 5784/mum/2011 dated 23.04.2014.
(iv) Green Infra Ltd. V/s ITO 38 Taxmann.com 253 (Mum-ITAT)
(v) CIT V/s Goa Sponge and Power Ltd. ITA No. 16/2012 (Bombay)
(vi) CIT V/s Creative World Telefilms Ltd. 333 ITR 100 (Bombay)
(vii) CIT V/s Lovely Exports Pvt. Ltd. 216 CTR195 (SC)
(viii) CIT V/s Stellar Investment Ltd. 251 ITR 263 (SC)
(ix) CIT V/s Expo Globe India Ltd. 361 ITR 147 (Delhi)
(x) CIT V/s Vacmet Packaging (India) Pvt. Ltd. 88 CCH 065 (All) etc
30. In para 6.3.19 it is observed by CIT(A) that even if it is assumed for the sake of argument that the company has accepted the share premium in excess of the fair value, still the same cannot be taxed u/s 56(2)(viib) nor u/s 68 nor u/s 2(24) since the said premium is capital in nature and is held to be a capital receipt. The provision of section 56(2)(viib) are inserted into statute w.e.f. 01.04.2013 and therefore applies from AY 2013-14 onwards and cannot be applied retrospectively for the impugned year.
31. In view of the decisions of Honourable Bombay High Court in the case of Green Infra Ltd. (Supra) it is observed that the issue of addition of 46 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., share premium is settled in favour of the assessee in so far as the jurisdiction of Maharashtra is concerned.
32. On page 39 to 42 of the order, the CIT(A) has demonstrated the present status of the various companies along with details of their PAN no. and their latest filing with the ROC, also analyzed the bank statements of the share applicants and found that no cash is deposited in these accounts. CIT(A) has also abstracted the sources of funds of these share applicants.
33. Thus after a detailed discussion on the facts on record and a proper analysis of the judicial pronouncements of various High Court including the jurisdictional High Court and also of various coordinate benches, the CIT(A) deleted the addition on the merits of the case.
34. It is clear from the order of CIT(A) that he has dealt with the issue threadbare and after controverting all the findings of the AO reached to the following conclusion:-
The intrinsic value of the shares before issuing the impugned share capital was almost equal to the value at which the shares have been issued in this year.
At the beginning of the year i.e., as on 01/04/2008 the company had a share capital of Rs.22,80,000/- and reserves of Rs.
3,76,20,995/- totaling to Rs. 3,97,00,995/-in respect of total 208000 number of equity shares issued and paid up at that point of time, as evident from the figures of previous year reported in the 47 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., balance sheet enclosed at page 12 of paper book. The book value per share at the beginning of the year i.e. before the issue of fresh shares during the year was Rs. 190.87/- (Rs. 3,97,00,995 / 2,08,000).
The assessee filed elaborate documents to establish the identity, creditworthiness of share applicants and genuineness of transactions which all stand accepted and no defect / shortcoming is pointed out.
Independent enquiries were conducted by the AO from the share applicants, all of them were found existing and they also complied with by filing the required documents. There is no adverse finding with regard to their identity and creditworthiness in the assessment order. There is not even a whisper in the assessment order regarding the identity and creditworthiness of the share applicants.
There is no objection to the genuineness of the transactions except that the share of nominal value of Rs. 10 has been issued at a premium of Rs. 190 per share which was not according to the intrinsic value of the share, which allegation is apparently wrong on the facts of the case as the intrinsic value at the time of issuance was also above Rs. 190 per share.
The addition was made without bringing any adverse material on record. It is not the case of the AO that any undisclosed cash of the assessee was deposit in the bank accounts of the share applicants 48 ITA No.4280/Mum/2017 M/s. Pink Pepper Trading Pvt. Ltd., and the same was utilized in issuing the cheques by them for making investment in the assessee company.
35. The above findings of CIT(A) are as per material on record which has not been controverted by learned DR by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the order of CIT(A).
36. In the result appeal of the Revenue is dismissed.
Order pronounced in the open court on this 27/11 /2018
Sd/- Sd/-
(SANDEEP GOSAIN) (R.C.SHARMA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated 27/11/2018
Karuna Sr.PS
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A), Mumbai.
4. CIT
DR, ITAT, Mumbai
5.
BY ORDER,
6. Guard file.
सत्यापित प्रतत //True Copy//
(Asstt. Registrar)
ITAT, Mumbai