Merely for the reason that parties did not appear before AO or the assessee could not produce parties in person before AO, the whole set of documents produced to prove genuineness of transactions, could not be disregarded.

0
164

Merely for the reason that parties did not appear before AO or the assessee could not produce parties in person before AO, the whole set of documents produced to prove genuineness of transactions, could not be disregarded.

Short Overview : Except doubting genuineness of transaction for charging higher premium on shares, AO did not bring on record any other evidence to disprove voluminous evidences filed by assessee, therefore, addition made under section 68 based on mere suspicion, could not be sustained.

Assessee-company claimed to have received share capital along with premium. AO sought to treat the amount received as unexplained cash credit under section 68 on the ground that assessee had not justified charging of higher premium on shares without there being any corresponding business activity to justify projections and estimates relied upon for arriving at share premium. Assessee furnished complete details of share subscribers including their names and addresses, PAN, income-tax returns, copies of financial statements, bank statements, letter of allotment, etc. However, AO made addition on the ground that assessee failed to produce the parties before AO.

 it is held that Once assessee discharged initial burden cast under 68 by filing necessary evidences, then burden shifted to AO to prove otherwise. As apparent, AO except doubting genuineness of transaction for charging higher premium on shares did not bring on record any other evidence to disprove voluminous evidences filed by assessee. Therefore, merely for the reason that  parties did not appear before AO or the assessee could not produce  parties in person before AO, the whole set of documents produced to prove  genuineness of transactions, could not be disregarded when AO did not  have anything more than suspicion in his possession to doubt the transactions. Therefore, addition under section 68 was deleted.

Decision: In assessee’s favour.

Relied: CIT v.  Lovely Exports (P) Ltd. (2008) 216 CTR 195 (SC) : 2009 TaxPub(DT) 261 (SC) and CIT-1 v.  Gagandeep Infrastructure (P) Ltd. (2017) 394 ITR 680 (Bom) : 2017 TaxPub(DT) 1238 (Bom-HC).

Referred: CIT v. Gangeshwari Metal (P) Ltd. (2014) 361 ITR 10 (Del) : 2013 TaxPub(DT) 1319 (Del-HC), CIT v. Divine Leasing & Finance Ltd. (2008) 299 ITR 268 (Delhi) : 2008 TaxPub(DT) 400 (Del-HC), Hindustan Inks & Resins Ltd. v. Dy. CIT in (Tax Appeal No. 523 of 2004, dt. 17-6-2011) : 2011 TaxPub(DT) 2102 (Guj-HC), CIT v. K.C. Fibres Ltd.  ITA No. 701 of 2009 (Del), CIT v. STI- Extrusion (P) Ltd. (2011) 333 ITR 269 (MP) : 2011 TaxPub(DT) 574 (MP-HC), CIT v. Prayag Hospital & Research ITA No. 917of 2009, CIT v. TDI Marketing (P) Ltd. IT Appeal No. 340 of 2009 and CIT v. Gangour Investment Ltd. (2011) 335 ITR 359 (Del) : 2009 TaxPub(DT) 1400 (Del-HC).

IN THE ITAT, MUMBAI BENCH

SANDEEP GOSAIN, J.M. & G. MANJUNATHA, A.M.

ITO v. Anjali Millenium Tours Travels (P) Ltd.

ITA No. 5241/Mum/2017

8 February, 2019

Assessee by: Ajay R. Singh & Shri Ravindra Poojary

Revenue by: Satishchandra Rajore

ORDER

  1. Manjunatha, A.M.

This appeal filed by the Revenue is directed against the order of learned Commissioner (Appeal)- 16, Mumbai, dated 30-5-2017 and it pertains to assessment year 2012-13. The Revenue has raised the following grounds of appeal :–

“1. Whether in the facts and circumstances of the case and in law, the learned Commissioner (Appeals) was justified in deleting the addition made of Rs. 1,50,00,000 under section 68 of the Act, without appreciating the fact that the assessee is during the course of assessment proceedings failed to produce share holders from whom share premium was received.

  1. Whether in the facts and circumstances of the case and in law, the learned Commissioner (Appeals) was justified in holding that identity, creditworthiness and genuineness of the investor companies stand proved only on the basis of documentary evidence produced.
  2. Whether in the facts and circumstances of the case and in law, the learned Commissioner (Appeals) was justified in deleing the addition without appreciating the true nature of arrangements & ignoring the decision of Hon’ble Supreme Court in the case ofCIT v. P. Mohankala (2007)291 ITR 278 (SC) : 2007 TaxPub(DT) 1237 (SC).”
  3. The brief facts of the case are that the assessee company is engaged in the business of tours and travels, filed its return of income for assessment year 2012-13 on 8-12-2012 declaring loss of Rs. 38,445. The case was selected for scrutiny and notices under section 143(2) and 142(1) of the Act, were issued and served on the assessee. In response, the Authorised Representative of the assessee appeared from time to time and furnished various details, as called for. During the course of assessment proceedings, assessing officer noticed that assessee has issued fresh share capital amounting to Rs,1.5 crores with a huge premium of Rs. 990 per share for shares having face value of Rs. 10 each. Therefore, in order to ascertain the correctness and genuineness of share capital, called upon the assessee to file complete details of subscribers to the share capital along with confirmation letters, etc. In response to notice, the assessee, vide its letter dated 11-2-2015 and 27-2-2015 submitted certain details including copy of bank statement, copy of ITR acknowledgement alongwith financial statements, copy of annual return and other details. In order to verify correctness of claim, the assessing officer issued notice under section 133(6) to 5 parties from whom the assessee stated to have received share capital and asked them to file certain evidences. In response, all 5 parties replied to notices issued under section 133(6) and filed various details as called for by the assessing officer. The assessee also filed a valuation report justifying charging premium of Rs. 990 per share with necessary explanations and how such valuation has been arrived at, considering the nature and type of business carried out by the assessee.
  4. The assessing officer, after considering relevant submissions of the assessee and also by observing that although the assessee has filed complete details of subscribers alongwith their financial statements, but failed to provide any justification for charging huge premium with relevant industry experience or any track record towards managing successful business. Although/the assessee has filed a valuation report, but such valuation is based on assessee’s own calculations and projects which is neither decided nor proved with corresponding previous track record. Therefore, he opined that the assessee has failed to prove the genuineness of transactions in the backdrop of charging such a huge premium on shares, accordingly came to the conclusion that the share capital received from 5 parties has not passed the test of genuinity and accordingly by following certain judicial precedents including the decision of Hon’ble Supreme Court in the case ofCIT v. P Mohanakala (2007) 291 ITR 278 (SC) : 2007 TaxPub(DT) 1237 (SC) and the decision of Hon’ble Bombay High Court in the case of Major Metals Ltd. v. UOI (2013) 359 ITR 450 held that share capital received from 5 subscribers amounting to Rs. 1.50 crores is not genuine and it represents income of the assessee from undisclosed sources and accordingly he made addition of Rs. 1.5 crores under section 68 of the Income Tax Act, 1961.
  5. Aggrieved by the assessment order, assessee preferred appeal before the Commissioner (Appeals). Before the Commissioner (Appeals), assessee has filed elaborate written submissions on the issue and also referred evidences filed in respect of 5 subscribers before the assessing officer which has been reproduced at paras 2 to 10 of Commissioner (Appeals)’s order. The assessee also relied upon plethora of judicial pronouncements including decision of Hon’ble Supreme Court in the case ofCIT v. Lovely Exports (P) Ltd. (2008) 216 CTR 195 (SC) : 2009 TaxPub(DT) 261 (SC). The learned Commissioner (Appeals), after considering relevant submissions of the assessee and also on analysis of various details filed by the assessee in respect of 5 subscribers held that the assessee has satisfactorily proved identity of the investor, genuineness of transaction alongwith creditworthiness of the shareholders.

Further, share application money paid by them was duly reflected in the bank account of the assessee. The Commissioner (Appeals) further held that even though the assessing officer has questioned charging share premium on the shares, but fact remains that before amendment of section 56(2)(vii)(b) of the Act, by the Finance Act with effect from 1-4-2013, the provisions of rule 11U And 11UA were not applicable for the impugned assessment year and hence, the assessing officer has to examine only the identity, creditworthiness and genuineness of transaction.

Since the assessing officer has not doubted the identity of the subscribers and their capacity, merely for the reason of charging higher premium, genuineness of transaction cannot be questioned. Therefore, he came to the conclusion that the addition made by the assessing officer towards share capital received from 5 subscribers correct. The relevant observations of the learned Commissioner (Appeals) are as under :–

5.6 Now let’s discuss the identity, credibility and genuineness of transactions in respect to individual shareholders :–

In the case of Pashupati Enclave (P) Ltd.–Rs. 10,00,000, the financial statement of the-said company as on 31-3-2011 reveals the following :–

  1. Equity capital of Rs. 37,36,000 with high reserves and surplus of Rs. 8,73,33,683
  2. Thus the Net Worth of the company was Rs. 9,10,69,683

iii. The company has investment of Rs. 7,50,10,000

  1. The company has extended Loans & Advances of Rs. 1,19,00,000
  2. The above mentioned details prove the credibility of the company and capacity to make investment in the appellant’s company.
  3. Identity was proved by submitting PAN. Also notice under sections 133(6) were duly served.

vii. The bank account of the company reflects the payments made to the appellant company for investing in shares. There is no entry in the bank accounts which reflects that the appellant company has paid back the amount of investment.

viii. The company in its response to notice under sections 133(6) has confirmed of having applied for the shares at premium.

  1. Hence addition made in the assessment is not correct.
  2. In the case of Pushpanjali Trading (P) Ltd.-Rs. 25,00,000, the financial statement of the said company as on 31-3-2011 reveals as following.
  3. Equity capital of Rs. 20,77,500 with high reserves and surplus of Rs. 7,71,18,698
  4. Thus the Net Worth of the company was Rs. 7,91,96,198

iii. The company has made investment of Rs. 7,74,00,000

  1. The above mentioned details prove the credibility of the company and capacity to make investment in the appellant’s company.
  2. Identity was proved by submitting PAN. Also notice under sections 133(6) were duly served.
  3. The bank account of the company reflects the payments made to the appellant company for investing in shares. There is no entry in the bank accounts which reflects that the appellant company has paid back the amount of investment.

vii. The company in its response to notice under sections 133(6) has confirmed of having applied for the shares at premium.

viii. Hence addition made in the assessment is not correct.

III. In the case of Satvichar Dealers (P) Ltd.–Rs. 25,00,000, the financial statement of the said company as on 31-3-2011 reveals the following :–

  1. Equi ty capi tal of Rs. 7,05,250 wi th high reserves and surplus of Rs. 5,99,51,207
  2. Thus the Net Worth of the company was Rs. 6,06,56,457

iii. The company has made investment of Rs. 30,86,25,000

  1. The above mentioned details prove the credibility of the company and capacity to make investment in the appellant’s company.
  2. Identity was proved by submitting PAN. Also notice under sections 133(6) were duly served.
  3. The bank account of the. company reflects the payments made to the appellant company for investing in shares. There is no entry in the bank accounts which reflects that the appellant company has paid back the amount of investment.

vii. The company in its response to notice under sections 133(6) has confirmed of having applied for the shares at premium.

viii. Hence addition made in the assessment is not correct.

  1. In the case of Seva Infrastructure (P) Ltd.-Rs. 50,00,000, the financial statement of the said company as on 31-3-2011 reveals the following :–
  2. Equity capital of Rs. 5,85,000 with high reserves and surplus of Rs. 4,80,00,170
  3. Thus the Net Worth of the company was Rs. 4,85,85,170

iii. The company has made investment of Rs. 4,63,00,000

  1. The above mentioned details prove the credibility of the company and capacity to make investment in the appellant’s company.
  2. Identity was proved by submitting PAN. Also notice under sections 133(6) were duly served.
  3. The bank account of the company reflects the payments made to the appellant company for investing in shares. There is no entry in the bank accounts which reflects that the appellant company has paid back the amount of investment.

vii. The company in its response to notice under sections 133(6) has confirmed of having applied for the shares at premium.

viii. Hence addition made in the assessment is not correct.

V In the case of Founders Properties (P) Ltd. Rs. 40,00,000, the financial statement of the said company as on 31-3-2011 reveals the following :–

  1. Equity capital of Rs. 3,58,000 with high reserves and surplus of Rs. 2,55,42,000
  2. Thus the Net Worth of the company was Rs. 2,59,00,000

iii. The company has made investment of Rs. 2,57,00,000

  1. The above mentioned details prove the credibility of the company and capacity to make investment in the appellant’s company.
  2. identity was proved by submitting PAN. Also notice under sections 133(6) were duly served.
  3. The bank account of the company reflects the payments made to the appellant company for investing in shares. There is no entry in the hank accounts which reflects that the appellant company has paid back the amount Of investment.

vii. The company in its response to notice under sections 133(6) has confirmed of having applied for the shares at premium.

viii. Hence addition made in the assessment is not correct.

5.7 Letters were issued to the assessing officer’s of Puspanjali Trading (P) Ltd. and Satvichar Dealers (P) Ltd., the investee companies. The respective assessing officer’s has also confirmed the filing of returns and financials of the shareholders and no adverse remark were made.

5.8 The issue regarding additions under sections 68 on share application money has been considered by various Hon’ble Courts. Besides the cases quoted by the appellant following are some of the relevant findings of Courts which are also considered as under :–

CIT v. Gangeshwari Metal (P) Ltd. (2014) 361 ITR 10 (Del) : 2013 TaxPub(DT) 1319 (Del-HC)

(i) The Hon’ble High Court of Delhi has held that the genuineness of the transactions is established as the transactions are routed through banking channels It was seen that the share application money was received through account payee cheques, detail of which had been filed by the assessee by filing the copy of the bank account of the share applicants. Thus where the return of income was filed by the creditors of the assessee and was accepted by the AG and payments were through account payee cheques the genuineness of the transaction cannot be doubted. The revenue could not prove that the money received by the appellant in the form of share application has come from its own sources. No evidences regarding this have been brought on record by the assessing officer.

(ii) In CIT v. Divine Leasing & Finance Ltd. (2008) 299 ITR 268 (Delhi) : 2008 TaxPub(DT) 400 (Del-HC) the Hon’ble Delhi High Court held that burden of proof can seldom be discharged to the hilt by the assessee. If the AG. harbours doubts of the legitimacy of any subscription he is empowered, rather duty bound, to carry out thorough investigations. But ((the assessing officer. fails to unearth any wrong or illegal dealings, he can/lot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company. If relevant details of address and identity of the subscribers are furnished to the department alongwith copies of the shareholders register, share application forms, share transfer register etc. it would constitute acceptable proof or explanation by the assessee.

(iii) In Hindustan Inks & Resins Ltd. v. Dy. CIT in (Tax Appeal No. 523 of 2004, dt. 17-6-2011) : 2011 TaxPub(DT) 2102 (Guj-HC) the Hon’ble Gujarat High Court has held as under

“From the concurrent findings recorded by the authorities below, it is apparent that none of the parties have recorded any findings to the effect that the identity of the depositors had not been established by the assessee. The case of the respondent is that the assessee has failed to explain the source of such cosh as well as creditworthiness of the deposits. It is not the case of the revenue that the subscribers are bogus./the case of the revenue is that the source. of such cash as well as creditworthiness of the depositors has not been explained. In the circumstances, the department is free to proceed to reopen the individual assessments of the deposits named by the assessee, however, under no circumstances, can the amount of share capital be regarded as the undisclosed income of the assessee.”

  1. InCIT v. K.C. Fibres Ltd.in IT Appeal No. 701 of 2009 the Hon’ble Delhi High Court held that in so far as assessing company is concerned, it is not disputed that money was paid to it towards the aforesaid share application money, by means of cheques. It is not for the assessing company to probe as to the source from where DP collected the aforesaid money. It was for the assessing officer, in these circumstances to inquire into the affairs of DP which is an independent company in as much as no finding is arrived at by the assessing officer that the two companies are umbrella companies or have any relationship with each other.
  2. InCIT v. STI- Extrusion (P) Ltd. (2011) 333 ITR 269 (MP) : 2011 TaxPub(DT) 574 (MP-HC)the Hon’ble Madhya Pradesh High Court held that that though it is the duty of the assessee to establish the genuineness of the credits but in the present case the assessee has duly established the identity and source of credits. The Tribunal has also held that once the identity and source of the subscribers of the shares is established no addition can he made under section 68. The assessee having duly furnished the name, age, address, date of filing tire application of shares, number of shares of each subscriber was no justification for the assessing officer for making the impugned addition because once the °fate investors/share subscribers is proved, onus shifts on the revenue to establish that either the share applicants are bogus or the impugned money belongs to the assessee itself After filing of the affidavits of the said subscriber the appellant at no stage of the proceedings sought any opportunity to rebut the said affidavits.
  3. InCIT v. Prayag Hospital & Research IT Appeal No. 917of 2009the Hon’ble Delhi High Court held that shareholders of the assessee company having appeared before the A0 and furnished affidavits alongwith supporting documents confirming their investment in the assessee, identity of the creditors is established and therefore, addition cannot be made in the hands of the assessee.

vii. In CIT v. TDI Marketing (P) Ltd. IT Appeal No. 340 of 2009 the Hon’ble Delhi High Court held that assessee company having furnished complete details of shareholders name, addresses, PAN and bankers and they having confirmed the investment and the assessing officer having not given his specific comments on his enquiries pertaining to them except for nine shareholders, addition under sections 68 cannot be sustained.

viii. In CIT v. Gangour Investment Ltd. (2011) 335 ITR 359 (Delhi) : 2009 TaxPub(DT) 1400 (Del-HC) the Hon’ble High Court of Delhi held that assessee company having filed the subscription forms of the investors, including TT Ltd., a group company, containing details and information with respect to their addresses as well as PAN, thereby establishing their identity and also supplied a copy of the statement of bank accounts of TT Ltd., it has discharged its onus in respect of the veracity of the transaction and therefore, the addition under sections 68 made by the assessing officer in respect of the impugned investment made by TT Ltd, has been rightly deleted.

  1. Appellant has also placed reliance on recent judgment of Jurisdictional Bombay High Court dtd 20-3-2017 in case ofCIT v. Gagandeep Infrastructure (P) Ltd.where in the Hon’ble court has held that :–

“In view of the matter the three essential tests while confirming the section 68 laid down by !fit Court namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on fact it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion On the genuineness (identity) of the shareholders, i.e., they are bogus. The Apex Court in a case in this context to the preamended section 68 has held that where the revenue urges that the amount of share application money has been received from bogus shareholders then it is far the Income Tax Officer to proceed by reopening the assessment of such shareholder and assessing them to tax in accordance with law. It does not entitle the revenue to add the same to the assessees’ income as unexplained cash credit. (Para 3)”

5.9 As regards the valuation of shares, I find that the appellant has filed valuation report in support of same and also the judgments cited and submissions made by the appellant vide point no.9 of written submissions proves its point regarding the justification of amount of share premium. In para 5.15 of the assessment order the learned assessing officer has raised issue of high premium without any due diligence. The provisions of S.56(2)(vii)(b) of the Act and rules 11U and 11 VA were inserted with effect from 1-4-2013 i.e. assessment year 2013- 14 onwards. Thus for the year under consideration the learned assessing officer has to examine only the identity, creditworthiness and genuineness of the transactions only.

5.10 The cases cited by the IA. Assessing officer differs from the facts and circumstances of that of the appellant as pointed out by the appellant vide it’s written submission reproduced in para 4 of this order.

5.11 In the instant east.. having regard to the documents furnished before me, am convinced about the identity of the investor, genuineness of transaction along with creditworthiness of the shareholders and the share subscription money paid by them duly reflected in the hank account of the Appellant assessee company. Hence, the facts do not warrant an addition under section 68 of the Act. Further, in the context of share capital received from alleged bogus shareholders, the Hon’ble Supreme Court has ‘unequivocally laid down the legal position as to whether additions can be made under section 68 of the Act, as under in case of Lovely Exports (P) Ltd. (2008)216 CTR 195 (SC) : 2009 TaxPub(DT) 261 (SC) :–

“If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the assessing officer, then the department is, free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed ii7COMe under section 68 of the assessee company.”

5.12 From the details filed, the appellant had not only proved the genuineness of transaction and identity of the investors but it has also proved the creditworthiness of investors. In view of these facts and respectfully following various judgments of Hon’ble FIAT and Hon’ble Courts as discussed in para 6.2.9, appeal of the assessee is allowed and addition of Rs. 1,50,00,000 made by the assessing officer under sections 68 of the Act is deleted.

  1. The learned Departmental Representative submitted that the learned Commissioner (Appeals) was erred in deleting addition made by the assessing officer towards share capital received from 5 subscribers for Rs. 1.50 crores under section 68 of the Act, without appreciating the fact that the assessee failed to produce shareholders before the assessing officer, when the assessing officer has asked the assessee to produce them personally for verification. The learned Departmental Representative further submitted that when the assessing officer has brought out clear facts to the effect that the assessee has not Justified charging higher premium on issue of shares to hold that genuineness of transaction cannot be questioned merely for charging higher premium, ignoring the vital facts that the parties never attended before the assessing officer for examination. The learned Departmental Representative further referring to the decision of Hon’ble Supreme Court in the case ofCIT v. P Mohanakala (supra) submitted that mere payment of amount by cheque through banking channels would not be enough to prove the genuineness of transactions. In this case, except furnishing certain evidence to prove identity and payment of amount by cheques, the assessee failed to file any other evidence to justify charging higher premium. Therefore, the assessing officer was very much within his right to make addition under section 68 of the Act, but the learned Commissioner (Appeals) has negated all observations made by the assessing officer merely for the reason that the assessee has produced necessary evidence in respect of 5 subscribers
  2. The learned Authorised Representatives, on the other hand, strongly supporting the order of the learned Commissioner (Appeals) submitted that it is a settled position of law that once assessee discharged its initial onus upon filing certain evidence to prove identity, genuineness of transaction and creditworthiness of the parties, then the onus shifts to the assessing officer to prove otherwise. In this case, the assessing officer has disregarded all evidences filed by the assessee so as to reach to a conclusion that the transaction between the assessee and the subscribers is not a genuine transaction only for the reason that shares have been issued at a higher premium without appreciating the fact that issue of shares at a premium and subscription to such shares is a decision between two parties and the assessing officer has no role to play as long as the identity and genuineness of transaction is proved. The learned Authorised Representatives further submitted that the assessing officer has only questioned share premium ignoring the fact that Proviso inserted to section 68 of the Ac, by the Finance Act, 2012 with effect from 1-4-2013 has no application to the amounts received prior to that date. In this regard, he relied upon a plethora of judgments including the decision of Hon’ble Supreme Court in the case ofCIT v. Lovely Exports (P) Ltd. (supra). The assessee also relied upon the following judgments:–
Sr. No. Particulars Pg. No.
1. Pr. CIT v SDB Estate (P) Ltd, (I.T.A. No. 1356 012013), dated27-3-2018 8 (Bom)) 1-3
2. CIT v. Gagandeep Infrastructure (P) Ltd.(2017) 394 ITR 680 (Bom) : 2017 TaxPub(DT) 1238 (Bom-HC) 4-8
3. CIT v. Lovely Exports (P) Ltd. reported in (2008) 216 CTR 195 (SC) : 2009 TaxPub(DT) 261 (SC) 9-10
4. Pr.CI1′ v. Paradise Inland Shipping P.Ltd. (2018) 400 ITR 439 (Bom) : 2017 TaxPub(DT) 2140 (Bom-HC) 11-16
5. V.R.Global Energy (P) Ltd. v. 110. (T.C.A. No. 246 of 2017), dt. 6-8-2018 8 (Mad) 17-22
6. CIT v. Acquutk Remedies (P) Ltd. (11′. A. No. 83 of 2016), dt.-30-7-2018 (Bom) 23-28
7. CIT v. Orchid Industries (P) Ltd- (2017) 397 ITR 136 (Bom) : 2017 TaxPub(DT) 1911 (Bom-HC) 39-
  1. We have heard both the parties, perused materials available on record and gone through the orders of authorities below. We have also considered case laws cited by both the parties. The assessing officer has made addition towards share capital received from 5 companies, basically on the ground that although identity of subscribers has been proved, but the transaction between parties did not pass the test of genuineness as the assessee has not justified charging of higher premium on shares without there being any corresponding business activity to justify projections and estimates relied upon for arriving at a share premium. Except this, the assessing officer never doubted identity of the parties. The assessee has filed complete details in respect of 5 parties including their names and addresses, PAN, income-tax returns, copies of financial statements, bank statements, letter of allotment, etc. In fact all 5 parties have replied to notices issued under section 133(6) alongwith whatever details sought by the assessing officer. In this factual background, if we examine the share capital received from the above 5 companies and such amount falls within the ambit of section 68 of the Act, one undoubted fact emerges that the assessing officer failed to make out a case of credit, which falls within the ambit of provisions of section 68 of the Act, except doubting genuineness of transactions on suspicion and surmise only for the reason of charging higher premium on shares. The provisions of section 68 deal with cases where sum found credited in the books of account, the assessee needs to prove identity, genuineness of transactions and creditworthiness of the parties. Once assessee discharges its initial burden cast upon under 68 of the Act by filing necessary evidences, then the burden shifts to the assessing officer to prove otherwise. In order to fix a particular credit within the ambit of section 68 of the Act, the assessing officer has to bring on record further evidences to prove that the sum found credited in the books of account of the assessee represents undisclosed income of the assessee. In this case, the assessing officer, except doubting genuineness of transaction for charging higher premium on shares, did not bring on record any other evidence to disprove the voluminous evidences filed by the assessee in respect of 5 companies to prove identity and genuineness of transactions. In fact, the assessee has filed complete set of documents for all 5 subscribers. The parties have responded to notices under section 133(6) by filing necessary evidences. Therefore, merely for the reason that the parties did not appear before the assessing officer or the assessee could not produce the parties in person before the assessing officer, the whole set of documents produced to prove the identity and genuineness of transactions, cannot be disregarded when the assessing officer does not have anything more than suspicion in his possession to doubt the transactions. Therefore, we are of the considered view that the assessing officer was erred in bringing to tax share capital received from 5 companies under section 68 of the Income Tax Act, 1961 as unexplained credit.
  2. Coming to the case laws relied upon by the assessee. The assessee has relied upon plethora of judgments including the decision of Hon’ble Supreme Court in the case ofCIT v. Lovely Exports (P) Ltd. (supra). The Hon’ble Supreme Court in the said case held that if the share application money is received by the assessee company from alleged bogus shareholders, whose names were given to the assessing officer, 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. The Hon’ble Bombay High Court in the case of CIT v. Gagandeep Infrastructure (P) Ltd.(supra) had an occasion to consider similar issue in the light of bogus share capital and the Hon’ble High Court by following the ratio laid down by the Hon’ble Supreme Court in the case of CIT v. Lovely Exports (P) Ltd. (supra) held that if the three essential test laid down by the Courts, viz. Genuineness of the transaction, identity and the capacity of the investors of share capital alongwith premium have been proved, then the department cannot take, view that the amount of share capital had been received from bogus shareholders. It was for the assessing officer to proceed by reopening the assessment of such shareholders and assessing them to tax. It did not entitle the department to add money received to the assessee’s income as unexplained cash credit. The Hon’ble High Court further observed that Proviso to section 68 of the Income Tax Act, 1961 introduced by the Finance Act, 2012 with effect from 1-4- 2013 was effective from assessment year 2013-14 onwards and whatever amount received prior to that date will not come within the ambit of provisions of section 68 of the Income Tax Act, 1961. A series of judgment rendered by Hon’ble Bombay High Court has considered identical issue in the light of decision of Hon’ble Supreme Court and came to the conclusion that once identity, genuineness of transactions and creditworthiness of the parties have been proved, then sum so received cannot be regarded as undisclosed income of the assessee but the department is free to proceed to reopen the assessment of individual shareholders. The sum and substance of the ratio laid down by the above judgments are that in order to overcome the shadow of provisions of section 68 of the Act, the assessee needs to discharge its initial burden by filing necessary details to prove identity, genuineness of transactions and creditworthiness of the parties. The assessee once discharged its initial burden, then the assessing officer cannot add sum so found credited in the books of account of the assessee merely on suspicion and surmises or on the basis of charging higher premium without there being any further evidence in his possession to prove that sum so found credited in the books of account represents undisclosed income of the assessee. In this case, on perusal of facts, it is abundantly clear that the assessee has discharged its initial burden by filing enormous details to prove identity and genuineness of transactions. The assessing officer, having accepted the fact that identity has been proved, could not have proceeded to make addition only on the basis of charging higher premium, because charging higher premium on issue of shares is a decision between parties and the assessing officer would not have any role to play as long as genuineness of transaction is not in doubt. The learned Commissioner (Appeals). After considering relevant facts has rightly deleted addition made by the assessing officer. We do not find any error in the findings of learned Commissioner (Appeals) and hence, we are inclined to uphold the order of the learned Commissioner (Appeals) and dismissed the appeal filed by the revenue.
  3. In the result, appeal filed by the revenue is dismissed.

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