Case Laws Analysis
Supported in Arsh Vision v. DCIT 2020 TaxPub(DT) 4253 (Jp-Trib)
Relied on Hiranandani Realtors (P) Ltd. v. Pr. CIT 2019 TaxPub(DT) 0265 (Mum-Trib)
Followed on Actis Global Services (P) Ltd. v. ITO 2016 TaxPub(DT) 1075 (Del-Trib)
Applied CIT v. Maithan International 2015 TaxPub(DT) 2020 (Cal-HC)
Followed CIT v. Maithan International 2015 TaxPub(DT) 2020 (Cal-HC)
Distinguished CIT v. Eshaan Holding (P) Ltd. 2012 TaxPub(DT) 2009 (Del-HC)
Distinguished Tin Box Co. v. CIT 2001 TaxPub(DT) 1196 (SC)
Relied Mahanagar Telephone Nigam Ltd. v. Chairman, Central Board of Direct Taxes & Anr. 2000 TaxPub(DT) 1517 (Del-HC)
Relied CIT v. K.V. Mankaram & Co. 2000 TaxPub(DT) 1334 (Ker-HC)
Relied Malabar Industrial Co. Ltd. v. CIT 2000 TaxPub(DT) 1227 (SC)
Applied K.M. Sadhukhan & Sons (P) Ltd. v. CIT 1999 TaxPub(DT) 1289 (Cal-HC)
Applied CIT v. Korlay Trading Co. Ltd. 1998 TaxPub(DT) 1205 (Cal-HC)
Relied Third Income Tax Officer v. Arunagiri Chettiar 1996 TaxPub(DT) 1114 (SC)
Applied CIT v. Jai Prakash Singh 1996 TaxPub(DT) 1021 (SC)
Applied CIT v. Precision Finance Pvt. Ltd. 1994 TaxPub(DT) 0368 (Cal-HC)
Applied Kapurchand Shrimal v. CIT 1981 TaxPub(DT) 0971 (SC)
Distinguished Income Tax Officer & Ors. v. Ashoke Glass Works 1980 TaxPub(DT) 0647 (Cal-HC)
Relied Malabar Fisheries Co. v. CIT 1979 TaxPub(DT) 1089 (SC)
Relied Additional CIT v. Mukur Corporation 1978 TaxPub(DT) 0300 (Guj-HC)
Relied Gee Vee Enterprises v. Additional CIT & Ors. 1975 TaxPub(DT) 0267 (Del-HC)
Relied Smt. Tara Devi Aggarwal v. CIT 1973 TaxPub(DT) 0389 (SC)
Distinguished CIT v. Bharat Engineering & Construction Co. 1972 TaxPub(DT) 0297 (SC)
Applied CIT v. Electro House 1971 TaxPub(DT) 0381 (SC)
Relied Rampyari Devi Saraogi v. CIT 1968 TaxPub(DT) 0135 (SC)
Distinguished Smt. Kiron Devi Singhee v. CIT & Ors. 1965 TaxPub(DT) 0129 (Cal-HC)
Applied Guduthur Bros. v. Income Tax Officer 1960 TaxPub(DT) 0188 (SC)
 
The Tax Publishers2015 TaxPub(DT) 2950 (Kol-Trib) : (2015) 155 ITD 0171 : (2015) 172 TTJ 0721 : (2015) 124 DTR 0249 : (2015) 043 ITR (Trib) 0048

 

Subhlakshmi Vanijya (P) Ltd. v. CIT

 

INCOME TAX ACT, 1961

--Income from undisclosed sources--Addition under section 68Applicability of proviso tos ection 68, prospectively or retrospectively--Assessee filed its return on 2-2-2010 declaring total income of Rs. 1,478. The return was processed under section 143(1). The assessee, vide its undated letter, stated before the AO that income of Rs. 18,449 earned by it was omitted to be offered for taxation. The AO issued notice under section 148 of the Act on 14-1-2011 and completed the assessment. Apart from making addition of Rs. 18,449, which was brought to the notice of the AO by the assessee itself and a further addition of Rs. 9,600 on account of preliminary expenses, the AO observed during the course of such proceedings that the assessee issued fresh share capital of Rs. 14,71,800 on premium of Rs. 7,21,18,200. Notices under section 133(6) were issued to eight subscribers to the share capital out of total 21 subscribers. Replies to such notices were received confirming subscription to the equity share capital of the assessee-company at premium. Considering these replies, the AO finalized the assessment at a total income of Rs. 29,530, by making the aforenoted additions of Rs. 28,049. The CIT, on perusal of the assessment record, observed that the issue of share capital with huge share premium, was not properly examined by the AO inasmuch as notices were issued under section 133(6) to only eight subscribers against the total number of 21 subscribers of the assessee-company. He further noticed that replies in response to notices under section 133(6) were received in the office of the AO, which appeared to have been prepared by a single person as these were more or less in the same format and language. In this backdrop of the facts, it was opined that the entire exercise of filing confirmations was stage-managed by a single person or a group of persons to complete the formalities of filing confirmations so as to lend semblance of credibility to the subscription of share capital with huge premium. The AO was found to have not cross-examined the subscribers nor recorded statement of any of the directors of the assessee or subscriber companies. It was also noted that the assessee's balance sheet reflected investments of Rs. 8.80 crore in shares of some other relatively new private limited companies at much higher price than their real worth. In the opinion of the CIT, the AO failed to carry out proper investigation of the matter. He also took note of a racket under which a large number of companies were floated in identical manner apparently showing to have introduced share capital at a huge premium by rotating the unaccounted money. He observed that the AO ought to have conducted thorough enquiry into at least 2-3 layers to reach the source or the real investor. Considering the fact that issue of a share with a face value of Rs. 10 by the assessee-company at a premium of Rs. 490 per share required thorough examination by the AO, which he failed to carry out, the CIT, after considering the objections of the assessee, came to hold that the assessment order was rendered erroneous and prejudicial to the interest of the revenue. He, therefore, set aside the assessment order with a direction to the AO for making a fresh assessment after conducting independent, detailed and complete enquiries into the subscription to the share capital and premium introduced in this case and also the investments of Rs. 8.80 crore allegedly made by the assessee in certain other such companies. The assessee is aggrieved against the impugned order. Held: A careful perusal of the first para of the Memorandum emplaining provisions of Finance Bill, 2012, brings out that the onus of satisfactorily explaining issue of share capital with premium, etc., by a closely-held company is on the company. In the next para, it has been clarified that : 'Certain judicial pronouncements have created doubts about the onus of proof and the requirements of this section, particularly, in cases where the sum which is credited as share capital, share premium, etc…'. Next para recognizes that judicial pronouncements, while considering that the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company needs to be prevented, have advised a balance to be maintained regarding onus of proof to be placed on the company. The courts have drawn a distinction and emphasized that in case of private placement of shares the legal regime should be different from that which is followed in case of a company seeking share capital from the public at large. After going through the above parts of the Memorandum explaining provisions of the Finance Bill, there remains no doubt whatsoever, that the onus has always been on the closely held companies to prove the issue of share capital, etc., by the company in terms of section 68. An analysis of the above discussed judgments, including four from the jurisdictional High Court, reveals that section 68 has been understood as casting obligation on the closely-held companies to explain the amount of share capital, etc., credited in its books of account. When one reads the Memorandum explaining the provisions of the Finance Bill, it becomes vivid that certain contrary judicial pronouncements created doubts about the onus of proof and the requirements of this section. Thus, the amendment makes it manifest that the intention of the legislature was always to cast obligation on the closely-held companies to prove receipt of share capital, etc., to the satisfaction of the AO and it was only with the aim of setting to naught certain contrary judgments which 'created doubts' about the onus of proof by holding that there was no requirement on the company to prove the share capital, etc., and as such no addition could be made in the hands of company even if such share holders are bogus. As the amendment aims at clarifying the position of law which always existed, but was not properly construed in certain judgments, there can be no doubt about the same To sum up, the Tribunal held that the contention of the AR that since the AO of the assessee-company was not empowered to examine or make any addition on account of receipt of share capital with or without premium before amendment by the Finance Act, 2012 with effect from assessment year 2013-14 and hence, the CIT, by means of impugned order under section 263 could not have directed the AO to do so, was unsustainable.

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