ACIT CC-3(2) , CHENNAI V. SURYADEV ALLOYS & POWER P LTD , Chennai

ITA 1750/CHNY/2017

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 6222 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 19-07-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Unexplained cash credit; Unexplained investment; Gift; Income from undisclosed sources; Share purchase agreement; Principle of natural justice; Source of fund; Deemed to accrue or arise in india; Retrospective amendment; Question of law; Initiation of penalty proceedings; Accommodation entries; Capital receipt; Onus to prove; Set aside
• Section: 131; 68; 90; 153A; 133(6); 195; 251; 192; 139(1); 64; 113; 43; 48; 13; 22

Judgement Text

आयकर अपीलीय अिधकरण, ‘ए’ ᭠यायपीठ, चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI Įी वी द ु गा[ राव,ÛयाǓयक सदèय एवं ᮰ी जी .मंजुनाथ, लेखा सद᭭य के समᭃ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos.:1982, 1746, 1747, 1748, 1749, 1750 & 1751/CHNY/2017 िनधाᭅरण वषᭅ / Assessment Years: 2013-14, 2007-08, 2008-09, 2009-10, 2010-11, 2011-12 & 2012-13 The ACIT, Central Circle – 3(2), Chennai – 600 034. v. M/s. Suryadev Alloys & Power Pvt. Ltd., No.497 & 498, ISANA Building, 8 th Floor, Poonamallee High Road, Arumbakkam, Chennai – 600 106. PAN: AAKCS 1246B (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) & आयकर अपील सं./ITA Nos.:1788/CHNY/2017 िनधाᭅरण वषᭅ / Assessment Year: 2013-14 M/s. Suryadev Alloys & Power Pvt. Ltd., No.497 & 498, ISANA Building, 8 th Floor,Poonamallee High Road, Arumbakkam, Chennai – 600 106. PAN: AAKCS 1246B v. The ACIT, Central Circle – 3(2), Chennai – 600 034. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) & 2 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 आयकर अपील सं./ITA Nos.:1744, 1745 & 1981/CHNY/2017 िनधाᭅरण वषᭅ / Assessment Years: 2011-12, 2012-13 & 2013-14 The ACIT, Central Circle – 3(2), Chennai – 600 034. v. M/s. BMP Steels Pvt. Ltd., S.No.297/IDI & 297/ID3, New Gummidipoondi, Gummidipoondi Taluk, Thiruvallur Dist – 601 201. PAN: AAECB 1213B (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) राजèव कȧ ओर से /Revenue by : Shri S. Bharat, CIT-DR Ǔनधा[ǐरती कȧ ओर से/Assessee by : Shri S. Sridhar, Advocate स ु नवाई कȧ तारȣख/Date of Hearing : 26.10.2021 घोषणा कȧ तारȣख/Date of Pronouncement : 17.12.2021 आदेश /O R D E R Per BENCH: These appeals filed by the Revenue in ITA Nos.1746 to 1751/CHNY/2017 are directed against common order of the learned Commissioner of Income Tax (Appeals) – 19, Chennai, dated 21.04.2017 and pertains to assessment years 2007-08 to 2012-13 and ITA Nos.1744, 1745 & 1981/CHNY/2017 are directed against orders of the learned Commissioner of Income Tax (Appeals) – 19, Chennai, dated 21.04.2017 & 22.05.2017 and pertains to assessment years 2011-12 to 2013-14. The cross appeals filed by the assessee and Revenue in ITA Nos.1982 & 1788/CHNY/2017 are directed against order of learned Commissioner of Income Tax 3 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 (Appeals) – 19, Chennai, dated 22.05.2017 and pertains to assessment year 2013-14. Since, facts are identical and issues are common, for the sake of convenience, these appeals are heard together and are being disposed off, by this consolidated order. 2. The Revenue has raised more or less common grounds of appeal for all assessment years. Therefore, for the sake of brevity, grounds of appeal filed for the assessment year 2007-08 in ITA No.1746/CHNY/2017 are reproduced as under:- “1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2. The learned CIT(A) erred in deleting the addition of Rs. 11,00,00,000/- made by the Assessing Officer towards unexplained cash credit u/s 68 of the Income Tax Act, 1961, in the assessment for A.Y 2007-08 passed u/s 113 (3) r.w.s 153A & Explanation (viii) to section 153B of the IT Act, 1961 in the case of the assessee. 2.1 The ld. CIT(A) ought to have appreciated that from the enquiry conducted at Kolkata and the documentary evidence brought on record by the Assessing Officer during the assessment proceedings clearly showed that the alleged share holders were only paper companies whose credit worthiness and the genuineness of the transactions were not established by the assessee. 2.2 Having regard to the documentary evidences gathered during the assessment proceedings indicating that the alleged shareholder companies were only paper companies having no credit worthiness, the ld. CIT(A) is justified in allowing relief to 4 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 the assessee solely on the ground that the transactions were carried out through banking channels. 2.3 The Ld. CIT(A) ought to have appreciated that mere production of documents such as PAN, Income Tax assessment particulars, financial statements and Annual returns filed before ROC is not sufficient to establish credit worthiness and genuineness of the transactions under consideration when surrounding and attending facts which were brought on record indicated a cover up and that the documents produced by the assessee at best reflect proper paper work and documentation but genuineness and credit worthiness are deeper and obstrusive aspects. 2.4 The ld. CI”F(A) ought to have appreciated that the decisions of Hon’ble Supreme Court in the case of M/s Lovely Exports Pvt Ltd (216 CTR 195 - January 2008) and M/s Steller Investments Ltd (251 ITR 263 - July 2000) are distinguishable one to the facts of the case of the assessee in that, in the present case, the investing companies were non-existent and as such the question of reopening of assessment in the hands of the non-existent investors does not arise. 2.5 The ld.CIT(A) ought to have appreciated that the decision of Hon’ble High Court of Delhi in the in the case of M/s Navodaya Castle ( P) Ltd. reported as (2014) 367 ITR 306, that certificate of incorporation, PAN, etc., were not sufficient for the purpose of identification of subscriber company, when there was material to show that subscriber was a paper company and not a genuine investor was upheld by the Hon’ble Supreme Court in (2015) 56 taxmann.com 18 (SC) and since the facts are identical in the assessee’s case, the ld.CIT(A) ought to have confirmed the addition. 2.6 The ld.CIT(A) ought to have appreciated the decision of Hon’ble Calcutta High Court in the case of Rajmandir Estates Pvt. Ltd. vs. Pr.CIT, Kolkatta III (2016) 70 taxmann.com 124, which, though rendered in the context of application of section 263 with respect to introduction of Share capital / Share premium, held that money allegedly received on account of share application 5 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 can be roped in under section 68 of the IT Act, if the source of receipt is not satisfactorily established by the assessee. 2.7 Having regard to the documentary evidence gathered during search and assessment proceedings establishing that the alleged share holders were only paper companies whose credit worthiness and the genuineness of the transactions were not established, the ld.CIT(A) ought to have confirmed the addition made by the Assessing Officer u/s.68 of the IT Act, towards unproved share capital investment in the assessment passed u/s 143(3) r.w.s. 153A & Explanation (viii) to section 153B of the IT Act, 1961 in the case of the assessee, for A.Y. 2007-08. 3. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.” 3. The assessee has raised the following grounds of appeal in ITA No.1788/CHNY/2017:- “1. The order of the Commissioner of Income Tax (Appeals) 19, Chennai dated 22.05.2017 in I.T.A. No.204/2016-17 for the above mentioned assessment year is contrary to law, facts, and in the circumstances of the case. 2. The CIT(Appeals) erred in not considering the grounds challenging the validity of the search assessment framed for the Assessment year under consideration without assigning proper reasons and justification and ought to have appreciated that the search assessment under consideration was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law. 3. The CIT(Appeals) erred in partly sustaining the share capital/premium received as unexplained cash credit in so far as the five companies had tabulated in para 28 of the impugned order on the application of section 68 of the Act and consequently erred in sustaining the addition aggregating to Rs.4,85,99,568/- in the computation of taxable total income 6 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 without assigning proper reasons and justification. 4. The CIT(Appeals) failed to appreciate that the provisions of section 68 of the Act had no application to the facts of the case and ought to have appreciated that the conditions prescribed for discharging initial onus to establish the cash credit entries were fully satisfied and discharged, thereby vitiating the findings in para 30 of the impugned order. 5. The CIT(Appeals) failed to appreciate that the cross verification referred to was not put to the appellant and ought to have appreciated that the sustenance of the said addition even after noticing the gross violation of the principles of natural justice was wrong, erroneous, unjustified, incorrect and not sustainable in law. 6. The CIT(Appeals) failed to appreciate that the details with regard to the share capital/premium received from the said five companies were fully furnished and hence ought to have appreciated that the non consideration of relevant materials would vitiate the decision rendered in para 30 of the impugned order. 7. The Appellant craves leave to file additional grounds / arguments at the time of hearing.” 4. The brief facts of the case extracted from ITA No.1746/CHNY/2017 for assessment year 2007-08 are that the assessee is a leading manufacturer of steel products with a wide and specialized range in TMT and Wire Rod coils. A search and seizure operation u/s.132 of the Income Tax Act, 1961 (hereinafter the ‘Act’) was conducted in the case of the assessee on 18.12.2012. During the course of search, documents belonging to the assessee company were seized. Consequent to search, notice u/s.153A of 7 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 the Act, dated 13.08.2013 was issued requiring the assessee to file return of income. In response to notice, the assessee has filed a letter dated 14.07.2014 and stated that return filed u/s. 139(1) of the Act on 28.10.2007 may be treated as return filed in response to notice u/s.153A of the Act. The case has been taken up for scrutiny. During the course of assessment proceedings, the AO noticed that during the previous year relevant to assessment years 2007-08 to 2013-14, the assessee has received share capital with share premium from family members, Indian companies, mostly from Kolkata based companies and foreign companies. The year- wise details of number of shares, face value of shares and share premium received is tabulated as follows:- A.Y. Number of shares subscribed Share subscription amount received Share premium received 2007-08 22,00,000 2,20,00,000 8,80,00,000 2008-09 23,84,000 2,38,40,000 19,52,10,000 2009-10 20,44,000 2,04,40,000 18,39,60,000 2010-11 20,85,000 2,08,50,000 18,76,50,000 2011-12 68,75,600 6,87,56,000 41,41,20,000 2012-13 1,32,04,425 13,20,44,250 1,40,67,98,250 2013-14 83,38,729 8,33,87,290 1,77,36,37,554 5. During the course of assessment proceedings, the AO noticed that the assessee has received share capital from various subscribers including 5 foreign Companies situated in United Arab Emirates (UAE), companies based at Kolkata and other individuals 8 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 being family members of assessee-company. Insofar as, share capital received from foreign companies, a request was sent to the Foreign Tax & Tax Research (FT&TR) division of Ministry of Finance, Govt. of India in terms of Section 90 of the Act, to seek information from the United Arab Emirates (U.A.E) authorities so as to verify the genuineness of share capital including share premium received by the assessee. It was further noticed that the Investigation Wing of Income Tax Department, Kolkata has conducted an enquiry on various companies operating in Kolkata for providing accommodation entries to various beneficiaries. The investigation report further stated that during the course of inspection conducted by the Income Tax Department, it was noticed that certain individuals have floated number of companies with a dummy directors so as to facilitate accommodation entries of share capital to various beneficiaries. The AO, based on investigation report of Income Tax Department, Kolkata, called upon the assessee to justify receipt of share capital including premium from various companies by filing necessary evidence to prove identity of subscribers, genuineness of transaction and credit worthiness of share subscribers. The AO had also called upon the assessee to produce the directors of subscriber companies for verification. Apart from that, the AO had also proposed a detailed enquiry with regard 9 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 to identity of companies based at Kolkata and accordingly, sent a team of inspectors from 9 th to 13 th February, 2015 and requested the assessee to authorize a person to be present in Kolkata for the purpose of cross-examination of any person who was being enquired into. The Inspectors of Income Tax had submitted enquiry report conducted in Kolkata, which has been reproduced at Para 3.2 of AO order, which reveals that certain companies controlled by Shri Praveen Agarwal at different addresses were not functioning at the given address. Similarly, companies controlled by Shri Anand Singhania and Shri Beni Prasad Lahoti were also not functioning in the given address and further, when the team of inspectors visited the given address, the premises were locked. Further, certain companies controlled by Shri Devesh Upadhyaya and Shri Uday Shankar Mahawar were also not stated to be functioning in the given address, when the Inspectors visited the place to carryout investigation. Therefore, a detailed show cause notice was issued to the assessee on 24.03.2015 & 03.03.2016 and called upon the assessee to furnish details / evidences and to produce the directors of companies invested in share capital including share premium in the assessee company to prove genuine identity of subscribers, genuineness of transaction and credit worthiness of the parties. 10 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 6. In response to show cause notice, the assessee had filed detailed written submission on 27.03.2015 and claimed that share capital received from various companies in India and Abroad and from individuals is genuine which is supported by necessary evidences including identity of subscribers to the share capital, genuineness of transaction and their credit worthiness. The assessee further submitted that it has filed details of names, addresses, PAN of the share applicants and amount received & allotments made to them along with their company master data as available on Ministry of Corporate Affairs website, certificate of incorporation of share subscribers, Memorandum and Articles of Association, ITR acknowledgement copy filed for the relevant assessment year, audited financial statements, copy of relevant bank statements and confirmation letters from share applicants along with source of funds for investment in assessee company. The assessee further submitted that the shareholders of Assessee Company were also directors in some of investor companies and thus, the identity of subscriber companies is not doubtful. The directors of certain companies were available for cross-examination as and when called for. The assessee further submitted that your proposed addition towards share capital and share premium on the basis of report of Investigation Department, Kolkata, more 11 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 particularly, on the basis of statement of certain individuals is incorrect because the purported statement recorded from some individuals claimed to have been the directors of subscriber companies were not provided to us. The assessee further submitted that out of 18 companies named in Investigation report, the assessee had received share capital from only 2 companies namely M/s. Khaitan Udyog Private Ltd., and M/s. Dimension Holding Private Ltd., except this, the assessee is not aware about their association with other companies. The assessee had also submitted that out of certain subscriber companies, the Department has assessed M/s. Kaner Investment Pvt. Ltd., and M/s. Josan Deposit and Advances Pvt. Ltd., and added back the amount of investment made in their company. The said two companies have challenged their assessments before Appellate Authorities and ITAT and the ITAT after considering facts has held that those two companies have explained source for investment made in our company and thus, it is very clear that source of source has been explained by our subscriber companies and hence, no addition can be made u/s.68 of the Act. 7. The AO after considering relevant submissions of the assessee and has also taken note of various facts including report of (FT&TR) 12 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 division of Ministry of Finance, Govt. of India, has accepted the explanation of the assessee with regard to share capital received from foreign companies. Insofar as, share capital received from companies situated at Kolkata, the ld.AO on analysis of various facts including evidences filed by the assessee to prove identity of subscribers and other evidences including bank statements opined that the assessee has failed to establish genuineness of transactions of share capital receipt from companies situated at Kolkata. The AO further noted that the assessee’s inability to present itself for cross- examination or to produce directors of the investor companies is ample proof that the assessee company has indulged in routing its unaccounted money through different channels and layers provided by the accommodation entry operators with the help of employees, who act as dummy directors of Jama kharchi/shell/paper companies. The AO had discussed the issue at length in light of statements of Shri Jogendra Pradhan, director of certain companies and Shri Navneet Singhania, purported entry provider in light of financial statement of investor companies and their bank statements, came to the conclusion that share capital including share premium received from certain companies is an accommodation entry for converting the assessee’s unaccounted income into share capital. According to the AO, the investor 13 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 company bank statement reveals fact that they have deposited cheque or other transfer entries before transferring funds to beneficiary accounts leaving behind minimum balance, which clearly shows their inability to establish source for investment in assessee- company. The AO had also discussed financial strength of investor companies, more particularly M/s. Umra Properties & Finance Pvt. Ltd., and M/s. Sourabh Venture Capital Trust and observed that although two companies had total assets running into several crores, had hardly earned any net profit which shows the low profit viability of such Jama kharchi/shell/paper companies with no intention to do any prudent business and sufficiently evident that these were only created for providing accommodation entries. The AO had also discussed the issue in light of statement recorded from Shri Pankaj Agarwal, director of assessee-company in light of his denial of knowing certain individuals who claim to be directors of investor Company and observed that Shri Pankaj Agarwal had contacted Shri Ramkishan Ajitsaria, who is employee of Shri Anand Singhania, one of the entry provider. Therefore, he opined that share capital including share premium received from companies situated at Kolkata is nothing but accommodation entries to route unaccounted income of the assessee through various layers and 14 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 thus, made additions u/s.68 of the Act, as unexplained credit. The relevant findings of the AO are as under: “6. To conclude, the following points are put forth: a. During the relevant assessment year the assessee received Rs. 11,00,00,000/- as share capital including share premium from various Jama Kharchi / Shell /paper Companies based in Kolkata. b. On the basis of information received from Investigation wing that assessee was involved in taking accommodation entries, the assessee was asked to produce the investors. Even after sufficient time was accorded, the assessee had failed to do so. c. The assessee has failed to prove the identity, creditworthiness and genuineness of the transactions beyond reasonable doubt. As these criteria are to be proven collectively, failure of even one of the criterion, renders the transaction as not genuine. The onus to prove the three factum is on the assessee as the facts are within the personal knowledge of the assessee. d. Mere production of incorporation details, PAN Numbers or income tax returns may not be sufficient when surrounding and attending facts predicate a cover up. The production of incorporation details, PAN numbers or income tax details may mostly indicate towards completion of paper work or documentation but genuineness, creditworthiness and identity of investment and the investors are deeper and obtrusive than mere completion of paper work or documentation. e. The fact that assessee failed to produce the Directors of Jama Kharchi / Shell /paper Companies who had invested in the form of share capital & premium even after ample time was given, shows that these were people who were completely unrelated to the assessee and as such, all the entries were merely accommodation entries. f. The equity shares of the company have been allotted at a very high premium upto Rs.90 per share, only on the basis of Discounted Cash Flow Method and no other report has 15 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 been filed to substantiate the basis for fixing such a high price for the equity shares of a private limited company. g. The assessee company, being a private limited company has received Rs.12,86,92,720/- of share premium and Rs. 3,21,73,180/- of share capital, during the year from persons / entries other than Directors and their family members. Out of this, Rs. 12,86,92,720/- is received as share premium from entities based at Kolkata. It is pertinent to note that the assessee company had not placed any advertisement for issuance of share capital. A substantial portion of share capital & premium has been received from parties, totally unrelated to the assessee company or its directors. In private limited companies, it is normally the directors / family members of Directors who invest in the shares of the company. h. The analysis of the bank statements of the investor companies show that for every issue of cheque, there is a deposit of cheque on the same on previous day. This clearly show, that transaction was a camouflage transaction and to create a semblance of legitimate transaction. The receipt of money through banking transactions does not reflect genuine business activity. I-he said investor does not reflect genuine business activity. The said investor companies did not have their own profit-making apparatus and were not involved in business activity. They merely rotated the money through bank accounts which does not reflect their creditworthiness or genuineness of the transaction. i. The assessee has clearly attempted to camouflage the accommodation entries with the colour of share premium / share capital investment, j. The report of the Income Tax Inspectors sent to the addresses of these entities reveal that the said premise was either locked or not used for a longtime. k. The assessee company has not paid any dividend / interest to the said investor companies. The profit motive, normally present in any investment company / investor is clearly absent in these cases. l. On a closer look into the surrounding circumstances of this case, it is appropriate to mention that the reality of the transactions do not seem credible and the test of human 16 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 probability is to be applied, when all things seem to be genuine and well documented. 7. On the aforesaid and after analyzing the submissions of the assessee in the previous paragraphs, bank account statements furnished and other relevant evidences, it is seen that the above sum of Rs.11,00,00,000/- represents sum credited in the books of the assessee and is the assessee’s unaccounted money routed through channels provided by the accommodation entry operator by way of various Jama kharchi/Shell/Paper Companies utilizing regular banking modes. The assessee’s contention that these are genuine transactions received from parties whose identities are genuine and that they are creditworthy does not hold good as these companies’ operations have already been investigated by the Investigation Directorate, Kolkata and have been proven to be controlled and managed by the above referred individual(accommodation entry operator) with a set of employees(name lenders) acting as dummy directors, who signed on the dotted lines for a meager remuneration and are in no way connected to the actual control and management of the affairs of the company. 8. Further extracts of section 66 is reproduced as under “Cash credits. 68. Where any sum is found credited in the books of an assessee maintained for any Previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income- tax as the income of the assessee of that previous year:...” . It is seen that the word/phrase ‘any sum credited’ in the books of assessee maintained for any previous year. The expression ‘any sum credited’ has not been specifically defined in the provision. Thus, it would extend to all the amounts credited in the books of account. Any sum credited in the books of account, either find its place either on the income side of profit and loss account or in the liability side of the balance sheet. Items credited to the profit and 17 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 loss account are themselves income and hence there can be no reason to make addition once again for them. Items appear on the liability side of the balance sheet can be loans or share capital etc. Once there is specific reference section 68 for applying it to ‘any sum credited’, there can be no reason to restrict its application only to loss and not to ‘share capital’. The burden of proof under section 68 can be no different in respect of issue of share capital by closely held companies vis-â-vis loans or gifts. It was held by various high Courts including apex court in numerous cases that that the burden under this section is discharged by the assessee only when the assessee proves three things to the satisfaction of the Assessing Officer, viz., identity of the creditor, capacity of the creditor and genuineness of the transaction. Onus under section 68 can be said to have been discharged only when the assessee proves identity and capacity of the creditor along with the genuineness of transaction to the satisfaction of the Assessing Officer. All the three constituents are required to be cumulatively satisfied. If one or more of them is absent, then the Assessing Officer can lawfully make addition. In the instant case the assessee failed to satisfactorily explain above mentioned three constituents cumulatively. In the instant case the assessee is a closely held company where the shares are issued to one family members or close friends/ relatives, the burden of proof rests on the company to properly explain the Identity and capacity of shareholders along with the genuineness of the transact ions. The argument of the assessee that he was not obliged to explain the genuineness of share capital after having furnished preliminary details about the shareholders etc., is not capable of acceptance and hence rejected. As the assessee-company failed to cumulatively prove to the satisfaction of the Assessing Officer, the identity and capacity of the shareholders along smith the genuineness of the transactions there can be no escape from section 68. Further with the insertion of proviso to section 68 by the Finance Act, 2012 with effect from 01-04-2023 empowers the Assessing Officer to examine the genuineness of the share capital in the case of a company in which public are not substantially interested. As per this proviso where any share capital etc. is 18 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 credited in the case of closely held company, the explanation given by such company shall be deemed to be not satisfactory, unless the resident shareholder offers an explanation about the nature and source of such sum so credited and such explanation found to be satisfactory by the Assessing Office. The essence of this amendment is that a closely held company is required to satisfy The Assessing Officer about the share capital etc. Issued by it, in the absence of which, addition under section 68 can be made in the hands of the company. Therefore, the amendment to section 68 by insertion of proviso is clarifictory and hence retrospective. The assessee’s case is clearly covered by this proviso. Hence, it is concluded that Rs. 11,00,00,000/- is the unexplained credit recorded in the books of assessee, and is deemed to be not explained satisfactorily and is brought to tax u/s 68 of the Income tax Act.” 8. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the ld. CIT(A), the assessee has reiterated its arguments taken before the AO in light of certain judicial precedents. The sum and substance of arguments taken by the assessee before the CIT(A) are that share capital received from certain companies situated at Kolkata is genuine investment between two parties and supported by necessary evidences including documents to show true identity of subscriber of share capital and further documents establishing genuineness of transactions and creditworthiness of parties. The assessee further submitted that it has furnished complete details of identity of subscribers including their name, addresses, PAN number, their 19 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 financial statements, bank statements and master data of companies obtained from the website of Ministry of Corporate Affairs, Govt. of India and further, confirmation letters from the investor companies which clearly establishes identity of creditors. The assessee had also proved genuineness of transactions by filing bank statements of creditors which proves the fact that share capital received from those companies is routed through proper banking channel. The assessee had also filed their financial statement to prove capacity of the subscriber to explain source for investments made in Assessee Company. The assessee further submitted that once initial burden cast upon the assessee was satisfactorily explained then the burden shifts to the AO to prove otherwise. In this case, the AO by disregarding all evidences filed by the assessee has made additions only on the basis of investigation report of Income Tax Department, Kolkata that too without providing copy of said report and purported statement of certain individuals relied upon by the AO to the assessee for cross- examination of those witnesses in contravention of rules of natural justice. The assessee further submitted that it is a well settled principle of law by the decisions of various High Courts and Hon’ble Supreme Court, more particularly, in the case of CIT vs. Lovely Exports (P) Ltd., 216 CTR 195, that once name and address of 20 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 subscriber are given to the AO then Department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income u/s.68 of the Act. 9. The ld.CIT(A) after considering relevant submissions of the assessee and also by relying upon plethora of judicial precedents including the decisions of Hon’ble Supreme Court in the case of CIT vs. Stellar Investment Ltd., 251 ITR 263 and CIT vs. Lovely Exports (P) Ltd., supra deleted additions made by the AO towards share capital and share premium received from certain companies by holding that the assessee has discharged its onus by filing enormous evidences to prove identity, genuineness of transactions and credit worthiness of the parties. The ld.CIT (A) further observed that the assessee has been able to establish the identity of the companies investing in the share capital of the assessee company. The CIT (A) further observed that the share subscribers have continued to hold the shares till the day and have claimed the investment in share capital of Assessee Company in their respective balance sheets. The Department has assessed some of investor companies in their jurisdiction and had made addition towards investment made in Assessee Company as unexplained investment. 21 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 The assessee company directors have been directors in some of the investor companies and they are very much available for any examination by the AO. The AO had accepted investment received from foreign companies as genuine after considering the report of foreign tax division. Therefore, he opined that the assessee has satisfactorily discharged its onus of providing identity, genuineness of transaction and credit worthiness of parties and hence, there is no reason for the AO to make addition towards share capital including share premium u/s.68 of the Act. The relevant findings of the CIT(A) are as under:- 23. The justification submitted by the assessee is examined. Assessee has been able to establish the identity of the companies investing in the shareholding of the assessee company by means of RoC incorporation details, PAN and other identifications, IT returns, RoC returns filed, audited financial statements, bank account ledger extracts, share application forms, share holding registers and confirmation letters fromshare applicants with explanation for source of funds for investments etc. The investments have come through baking channels. Most importantly, the share capital subscribers have continued to hold the shares till day and have claimed the said shareholding in their respective balance sheets. Assessments have been done in the cases of these investment companies and addition of “unexplained investments” has also been those in some of these companies. The assessee company directors have been directors in some of the investment companies and they have been very much available for any examination by the AO or by the Investigation Directorate. The foreign company investments have been duly verified by the AO through Foreign Tax Division and have been accepted as validly explained investments. The assessee has also pointed out that it has not 22 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 been provided with an opportunity to cross examine the witnesses whose statements have been brought on record. 24. There have been a few orders favoring the stand of the Revenue on this issue of bringing the share application money and share premium received for taxation in the hands of the recipient company. In the case of M/s.Frostair Pvt. Ltd. (46 Taxmann.com 11), the Hon’ble Delhi High Court has held that where the PAN/GIR no. of share holders was not correct and when they were not available at addresses given and when they were not filing the IT returns with concerned officers, then the addition u/s.68 and consequent initiation of penalty proceedings were justified. In the case of M/s. Hindon Forge Pvt Ltd. (25 Taxmann.com 239), the Hon’ble Allahabad High Court had noted that the method and manner adopted by the assessee had clearly established that it was playing fraudwith revenue and since genuineness of transactions were not established, there was no question of shifting burden u/s.68 on revenue and that the addition of unsecured loans to income of assessee was justified. In the case of M/s. Nova Promoters and Finlease Pvt. Ltd. (18 Taxmann.com 217), the Hon’ble Delhi High Court has held that no addition u/s.68 can be made unless the AO verifies that there was a specific involvement of assessee company in the modus operandi followed by the entry providers and that the particulars of entry providers is wrong. Further in the case of M/s.NR Portfolios Pvt Ltd. (ITA No.134 of 2012), the Hon’ble Delhi High Court has held that the assessee was duty bound to provide the whereabouts of the share applicants and if the said whereabouts become unverifiable, the onus shifts back to the assessee. In the case of M/s. Vaibhav Cotton Pvt. Ltd (26 Taxmann.com 352) the Hon’ble Indore Bench ITAT, has held that the stand of the AO in taking a view that the share transactions were not genuine is correct when the money was routed by the said investors and cash was deposited immediately prior to issue of cheques to the assessee and accounts of those companies were closed immediately after transfer of funds. In these cases, the Hon’ble courts have reiterated the onus cast upon the assessee to prove the identity of the share applicants and the genuineness of the share subscription transactions. 23 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 25. There have been a plethora of cases on this issue. However, the decision of the Hon’ble apex court in the cases of M/s. Steller Investments Ltd (Supra) and M/s. Lovely Exports Ltd (supra) have been the watershed cases on this issue. Almost all the decisions thereafter have discussed the above decisions of the apex court. The three decisions of the jurisdictional Madras High Court in the cases of M/s. Electro Polychem Ltd. (supra), M/s. Pranav Foundations Ltd. (supra) and M/s. Victory Spinning Mills Ltd. (supra) have also clearly held that the share application monies and share premium received are liable to be taxed in the hands of the share applicants / share holders as long as their identity is proven and they are known assessees filing regular returns of income. The Hon’ble Jurisdictional ITAT Benches in Chennai have also held similar view in the given facts and circumstances. In the instant case, the identity and the regularity of income-tax returns filing is proved in the hands of the share holders. The said share holders continue to be the share holders in the assessee company eligible for all the rights and privileges associated with the respective share holding. The Department has in fact preceded against some of the share holders and brought the investment transactions for taxation in the hands of the said share holders. Considering the totality of reasons as above, and the compelling decisions of apex court, jurisdiction of High Court and jurisdictional ITAT on this issue, I am of the considered view that the investments made by respective share holders are liable to be taxed in the hands of respective share holders only. In view of the same, the issue is decided in favour of the assessee and the grounds of appeal are allowed. The amounts brought to taxation u/s.68 in the hands of the assessee on account of share application / share premium monies received stand deleted for all the years.” 10. The ld.DR submitted that the ld.CIT(A) erred in deleting addition made by the AO towards share capital received from certain companies as unexplained cash credit u/s.68 of the Act, without appreciating the fact that enquiry conducted at Kolkata and 24 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 the documentary evidences brought on record by the AO clearly showed that alleged shareholders were only paper companies whose credit worthiness and genuineness of transactions were not established by the assessee. The ld.DR further submitted that if you go by evidences filed by the assessee, there is no doubt it has to be accepted that the assessee had discharged its onus of identifying the subscribers of share capital, but what is to be seen in light of various reasons given by the AO and in light of investigation carried out by the Income Tax Department at Kolkata, is that One has to see the issue in light of principles of corporate-veil to ascertain correct facts. If you lift corporate veil, then the real modus operandi of entry providers through web of companies comes out. In this case, the AO has lifted corporate veil to ascertain correct facts with regard to modus operandi of entry providers, as per which entry providers created various layers of companies through their employees and related parties and has circulated cash given by beneficiaries through bank accounts of those companies and ultimately, transferred the proceeds to beneficiary account in the form of share capital. The AO has clearly brought out the modus operandi employed by entry providers in light of statement recorded during the course of investigation from certain parties claimed to have been directors of certain companies who subscribed to share 25 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 capital, as per which it is very clear that those individuals have acted as dummy directors to some entry providers. The statements recorded from the individuals further throw light on the modus operandi of entry providers that they have provided entry to beneficiaries by charging meager amount of commission and said entries have been facilitated through various layers of transactions by collecting cash from the beneficiaries. In light of the above facts, if you examine the case of the assessee, the AO has very clearly brought out the facts of accommodation entries taken by the assessee in the form of share capital and thus, it is not correct on the part of the ld.CIT(A) to go by documentary evidences filed by the assessee to delete additions made by the AO towards share capital u/s.68 of the Act. 10.1 The ld.DR further referring to various case laws including the decision of Hon’ble Supreme Court in the case of Lovely Exports Pvt. Ltd.,(supra) and Stellar Investments Pvt. Ltd., (supra) and argued that facts of those two cases are distinguishable to the facts of the present case because in the present case, the investor companies were not existent and thus, the findings recorded by the Hon’ble Supreme Court that the Department is free to reopen the assessment of subscribers once identity of the subscriber is proved 26 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 is not applicable to the present case. The ld.DR further referring to the decision of Hon’ble Delhi High Court in the case of Navodaya Castle (P) Ltd., report in (2014) 367 ITR 306 argued that mere furnishing of certificate of incorporation, PAN, etc., is not sufficient for the purpose of identification of subscriber company, more particularly when other material evidences show that subscriber company were paper company and not a genuine investor. The Hon’ble Kolkata High Court in the case of Rajmandir Estates Pvt. Ltd., vs. PCIT, (2016) 70 taxmann.com 124 had considered an identical issue of unexplained cash credit in light of accommodation entry provider case and held that money allegedly received on account of share application can be roped in u/s.68 of the Act, if the source of receipt is not satisfactorily established by the assessee company. The sum and substance of ratio laid down by above judgments are that mere furnishing of certain documentary evidences to prove identity, genuineness of transactions and credit worthiness is not sufficient enough to come out of the shadow of provisions of Section 68 of the Act. But, what is required to be proved is genuine identity of subscriber of share capital, genuineness of transaction and capacity of subscriber to establish source for investment. In this case, the AO has brought out various facts to dispel the arguments of the assessee in light of their 27 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 financial statements as per which none of the subscriber companies have sufficient source of income to establish capacity for huge investments made in Assessee Company. The ld.CIT (A) without appreciating these facts simply deleted additions made by the AO. Hence, his order should be reversed and additions made by the AO should be sustained. 11. The ld.AR for the assessee on the other hand supporting order of the ld. CIT(A) submitted that the ld.CIT(A) has appraised facts in light of various evidences filed by the assessee including identity of the subscriber, genuineness of transaction and capacity of parties and concluded that share capital including share premium received from Indian companies is genuine in nature, which is supported by necessary evidences and thus, there is error in the findings recorded by the AO to make additions u/s.68 of the Act. The ld.AR for the assessee further referring to a chart filed during course of hearing submitted that the AO has considered share capital received by the assessee from certain companies solely on the basis of investigation carried out by the Investigation Department, Kolkata on certain entry providers and statement recorded during the course of search, where they have stated that they have indulged in providing accommodation entries to various beneficiaries, in turn received 28 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 cash from them. However, such statements relied upon by the AO was not provided to the assessee for assessee’s verification and further, to cross-examine those witnesses. Therefore, additions made by the AO in violation of principles of natural justice cannot survive. However, fact remains that the assessee had filed enormous documents to prove the identity of subscribers. The assessee has filed name and address of subscribers, their PAN numbers, details of amount received and allotment made to them, return of allotment filed with Registrar of companies, company master data as available on website of Ministry of Corporate Affairs, Certification of Incorporation along with Memorandum and Articles of Association, ITR acknowledgement, audited financial statements, copies of relevant bank statements and confirmation letters from share applicants along with source of funds for investment in assessee’s company. The evidences filed by the assessee clearly satisfy the condition prescribed u/s.68 of the Act. The assessee not only proved identity but also established credit worthiness of the parties which is evident from the fact that all subscriber companies financial statement shows source of income to explain investments made in Assessee Company which is further supported from the fact that all transfer of funds was through proper bank accounts. It is a well established legal principle of law by the decisions of various 29 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 courts including the Hon’ble Supreme Court in the case of CIT vs. Stellar Investments Pvt. Ltd., supra, where it was clearly held that once alleged bogus shareholders details are provided to the AO then the AO is free to proceed to reopen the assessments of alleged bogus shareholders but sum received by the assessee cannot be treated as unexplained credit u/s.68 of the Act. In this case, although the assessee has filed various details but the AO disregarded all evidences filed by the assessee and has made additions solely on the basis of investigation report that to without confronting those reports and statements recorded from those individuals to the assessee for its rebuttal and thus, the ld. CIT(A) has rightly deleted addition. 11.1 The ld.AR for the assessee further referring to three charts filed during the course of hearing submitted that the first chart shows companies with common management which has established source for deposits as per which 4 companies from whom assessee has received share capital did not find place in the investigation report. Therefore, amount received from these companies cannot be considered as unexplained cash credit only on the basis of investigation report of Income Tax Department. Further, in two companies namely M/s. Umra Properties & Finance Pvt. Ltd., and 30 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 M/s. Josan Deposits and Advances Ltd., the director of Assessee Company is also directors. Therefore, it is highly inappropriate to allege that director of the assessee company themselves involved in getting accommodation entries from their own companies to the assessee company. Insofar as M/s. Kamadhenu Fincap Ltd. and M/s. Kaner Investment Ltd., those two companies are not in the list of entry providers prepared by the investigation department and these two companies cannot be considered in light of report of the Department. He further submitted that the second chart shows share capital received from certain companies who have established sources for such subscription. In this chart, there are 56 companies and out of this 56 companies only 11 companies which find place in investigation report prepared by the Income Tax Department, Kolkata. Therefore, unless the AO brought on record evidences to prove that all those companies are in the list of entry providers prepared by the Department, a generalized opinion cannot be a basis for making addition towards share capital received from said companies, when the assessee has filed enormous details to prove the identity of those companies. He further submitted that out of 56 companies, 11 companies are in the list of investigation report and from those companies, the assessee has received share capital from assessment years 2008-09 to 2012-13. Further, the assessee 31 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 has placed on records their financial statements to prove genuineness of transactions and capacity of the subscribers. As per the details filed by the assessee, those 11 companies are having sufficient source to explain investments made in share capital of Assessee Company. It is a well settled principle of law by the decision of Hon’ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure P Ltd., 394 ITR 680, that before insertion of proviso to Section 68 of the Act by the Finance Act, 2012 w.e.f. 01.04.2013 i.e., assessment year 2013-14, the source of sources need not to be explained by the assessee. Therefore, once assessee files necessary documentary evidence to prove the availability of sources in their books of accounts to explain investments made in Assessee Company, then the assessee does not required to establish source of sources in the subscriber company. The CIT(A) after considering relevant facts and has also by following judicial precedents has rightly held that the AO has erred in making addition towards share capital including share premium u/s.68 of the Act. 11.2 The ld.AR for the assessee further referring to paper-book filed by the assessee submitted that the assessee has received major portion of share capital from M/s. Josan Deposit and Advances Pvt. Ltd., a company based at Kolkata. The AO of M/s. Josan Deposit 32 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 and Advances Pvt. Ltd., has assessed the investment made by the company in the share capital of the assessee company as unexplained investment. M/s. Josan Deposit and Advances Pvt. Ltd., has challenged the assessment order before the appellate authorities. The ITAT, Kolkata Benches in ITA No.2096/KOL/2017 for assessment year 2008-09 has considered additions made by the AO u/s.68 of the Act and held that the assessee is a genuine company and not an entry provider and further, deleted additions made by the AO towards unexplained cash credit u/s.68 of the Act. Similarly, the AO has made additions towards share capital received from M/s. Kaner Investment Ltd., and M/s. Kaner Investment Ltd., has challenged the additions made by the AO. The ITAT, Kolkata Benches in ITA No.2095/KOL/2017 has deleted additions made by the AO. From the above, what is clear is that those two companies are not accommodation entry providers but genuine investors who had established sources of investments made in Assessee Company. The CIT(A) after taking note of all these facts and also by following certain judicial precedents has rightly held that additions made by the AO towards share capital including share premium cannot be sustained. Hence the order of CIT(A) should be upheld. 33 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 11.3 In this regard, the assessee has relied upon the following judicial precedents in support of its arguments. 1. CIT v. Lovely Exports P Ltd (SC) – 216 CTR 195 2. CIT vs. Electro Polychem Ltd (Mad HC) – 294 ITR 661 3. CIT vs. Pranav Foundations Ltd (Mad HC) - TCA No.262/2014 4. CIT vs. Victory Spinning Mills Ltd (Mad HC) – 50 Taxmann.com 416 5. PCIT vs. Apeak Infotech (BOM HC) – 397 ITR 148 6. CIT vs. Orchid Industries P Ltd (BOM HC) – 397 ITR 136 7. CIT vs. Gagandeep Infrastructure P Ltd (BOM HC) – 394 ITR 680 8. ACIT vs. Swiftsol (I) (P) Ltd (Nagpur Tribunal) – 95 Taxmann.com 286 9. Mridul Commodities P Ltd vs. DCIT (Kolkata Tribunal) – 78 Taxmann.com 337 10. Baba Bhootnath Trade & Commerce Ltd vs. ITO (Kolkata Tribunal) – ITA No.1494/2017 12. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We have also carefully considered plethora of case laws cited by both parties. The only issue that needs to be resolved is whether, on the facts and in the circumstances of the case, share capital received by the assessee from certain companies is genuine in nature or which is unexplained cash credit u/s 68 of the Income-tax Act, 1961. The AO has made addition towards share capital received from certain Indian companies as unexplained cash credit u/s 68 of the Act, on the ground that the assessee has failed to establish identity of the subscriber to share capital, genuineness 34 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 of transaction and creditworthiness of the parties. The AO had given various reasons to come to the conclusion that alleged subscriber to share capital are paper/Shell/Jama Karchi companies and they do not have any business activity to substantiate subscription of huge share capital to the assessee company. The sole basis for making addition is report of investigation wing, Income tax department, Kolkata. Facts borne out from records shows that the Investigation Wing of Income Tax Department, Kolkata has conducted an enquiry on various companies operating in Kolkata which are involved in providing accommodation entries to various beneficiaries. As per said investigation report, during the course of inspection conducted by the Income Tax Department, it was noticed that certain individuals have floated number of companies with a dummy directors so as to facilitate accommodation entries of share capital to various beneficiaries. The AO had discussed the issue at length in light of investigation report of Income Tax Department Kolkata, statements of Shri. Jogendra Pradhan, director of certain companies and Shri. Navneet Singhania, purported entry provider and also analysed financial statement of investor companies and their bank statements to come to the conclusion that share capital including share premium received from certain companies is an accommodation 35 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 entry for converting the assessee unaccounted income into share capital. According to the AO, the investor companies bank statements reveals modus operandi of entry providers, as per which, they have deposited cheque or other transfer entries before transferring funds to beneficiary accounts leaving behind minimum balance, which clearly shows their inability to establish source for investment in assessee-company. The AO had also discussed financial strength of investor companies, more particularly M/s. Umra Properties & Finance Pvt. Ltd., and M/s. Sourabh Venture Capital Trust and observed that although two companies had total assets running into several crores, but hardly had earned any net profit which shows low profit viability of such Jama kharchi/shell/paper companies with no intention to do any prudent business and sufficiently evident that these were only created for providing accommodation entries. The AO had also discussed the issue in light of statement recorded from Shri Pankaj Agarwal, director of assessee-company and his denial of knowing certain individuals who claim to be directors of Investor Company and observed that Shri Pankaj Agarwal had contacted Shri Ramkishan Ajitsaria, who is employee of Shri Anand Singhania, one of the entry providers. Therefore, he opined that share capital including share premium received from companies situated at Kolkata is nothing but 36 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 accommodation entries used for converting unaccounted income of the assessee through various layers and thus, made additions u/s.68 of the Act, as unexplained credit. Therefore, it is necessary to examine the issue in light of provisions of section 68 of the Income Tax Act, 1961. 13. The provisions of section 68 of the Income Tax Act, 1961, deals with a case, where any sum is found credited in the books of an assessee maintained for any previous year and the assessee, offers no explanation about the nature and source thereof or the explanation offered by the assessee, in the opinion of the AO is not satisfactory, then sum found credited may be treated as income of the assessee of that previous year. A plain reading of section 68 of the Act, makes it very clear that in order to bring any credit within the ambit of section 68 of the Act, the AO has to examine three ingredients, i.e., identity, genuineness of transaction and creditworthiness of the parties. But, as per law, under section 68, it is the assessee who is required to offer an explanation about the nature and the source of credit, for which an entry is found in his books and such explanation has to be to the satisfaction of the Assessing Officer. Therefore, it is for the assessee to explain credit with necessary evidences to the satisfaction of the Assessing Officer. 37 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 Such proof includes proof of the identity of the creditor, the capacity of such creditor to advance the money and lastly, the genuineness of the transaction. Only when the assessee has proper evidence to establish prima facie the aforesaid facts, the onus shifts on to the Department. Once the source of the credit, the genuineness of the remittance and the identity of the sender are established, it would be for the Department to show that the amount in question is not a loan but constitutes income assessable to tax. In such a case the Departmental authorities are entitled to probe further into the matter and investigate the materials available to them to come to an independent and unbiased finding as to the genuineness of the transaction though they should not reject the assessee's explanation summarily or arbitrarily or without sufficient reason. The duty of the Assessing Officer is to examine all materials carefully and objectively. Therefore, from above discussion what is clear is that as per the provisions of section 68 of the Act, both parties shall discharge their onus one after the other. 14. The question whether such onus has been duly discharged by the assessee or has been shifted to the Revenue can only be determined after the evaluation of all the surrounding circumstances. There cannot be one general or universal proposition 38 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 of law which could be the guiding yardstick in the matter. Each case has got to be decided on the facts and circumstances of that case. In holding a particular receipt as income from undisclosed source, the fate of the assessee cannot be decided by the Revenue on the basis of surmises, suspicions or probabilities. Where the assessee furnished the names and addresses and IT file numbers of the creditor and filed a confirmatory letter from him, it is for the Assessing Officer to prove that the cash credit is not genuine. He cannot arbitrarily reject the evidence on the ground that the creditor confessed that he had not given loans to any firm without issuing summons under section 131 or taking any other steps in that regard. The, AO while deciding the issue, shall consider evidences on record placed by the assessee and also must consider surrounding circumstances, but he cannot simply reject evidences on summary basis on the basis of surrounding circumstances. As per the well settled principles of law by the decision of various courts, the initial onus is on the assessee. Once, assessee discharges its onus, then onus shifts to the Assessing Officer. Therefore, in our considered view, the assessee must first file necessary evidences to prove identity, genuineness of transaction and credit worthiness of the parties. The question of proving identity does not mean, just filing certain documentary evidences, but it is 39 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 establishing real identity of the creditor. Similarly, proving genuineness of transaction does not mean payment/receipt by cheque, but it is establishing real intention of the parties to enter into transactions. Likewise, real meaning of creditworthiness of creditor means, their capacity to establish source for investments. This aspect has been explained in judgments of various courts, as per which, the courts had interpreted provisions of section 68 of the Act, and its implications on the assessee as well as the Assessing Officer. The Hon’ble Supreme court in the case of CIT v. Lovely Exports P Ltd (SC) – 216 CTR 195, has very clearly 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 this amount of share money cannot be regarded as undisclosed income u/s.68 of the assessee company. Therefore, from the above discussion what is clear is that the assessee shall first discharge its onus by filing necessary evidences and once, the assessee files all details, then it is for the AO to disprove what is claimed is not real and sum credited in the books is income from undisclosed sources of the assessee. 40 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 15. In light of above settled legal position, if we examine facts of present case, there is no doubt, the assessee has discharged burden cast upon it under section 68 of the Income-tax Act, 1961 in respect of share capital received from share capital subscribers. The AO has not disputed the fact that the assessee has furnished various evidences to prove identity of the subscribers. The assessee has filed name and address of subscribers, their PAN numbers, details of amount received and allotment made to them, return of allotment filed with Registrar of companies, company master data as available on website of Ministry of Corporate Affairs, Certification of Incorporation along with Memorandum and Articles of Association, ITR acknowledgement, audited financial statements, copies of relevant bank statements and confirmation letters from share applicants along with source of funds for investment in assessee’s company. The evidences filed by the assessee clearly satisfy the condition prescribed u/s.68 of the Act. The assessee not only proved identity, but also established credit worthiness of the parties which is evident from the fact that all subscriber companies financial statement shows source of income to explain investments made in Assessee Company which is further supported from the fact that all transfer of funds was through proper bank accounts. It is a well established legal principle of law by the decisions of various courts 41 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 including the Hon’ble Supreme Court in the case of CIT vs. Stellar Investments Pvt. Ltd., supra, where it was clearly held that once alleged bogus shareholders details are provided to the AO then the AO is free to proceed to reopen the assessments of alleged bogus shareholders but sum received by the assessee cannot be treated as unexplained credit u/s.68 of the Act. In this case, although the assessee has filed various details, but the AO disregarded all evidences filed by the assessee and has made additions solely on the basis of investigation report without confronting those reports and statements recorded from those individuals to the assessee for rebuttal. 16. The sole basis for the AO to draw an adverse inference against assessee is investigation report of Income Tax Department Kolkata and statements of certain persons recorded at the time of investigation. First up all, the AO did not refer investigation report and its contents in his assessment order and further did not share copy of said report to the assessee. Further, even in statement of certain parties, no direct or indirect reference to the assessee. Nowhere the parties stated that the assessee is one of the beneficiaries of alleged transactions. In fact, the director of Assessee Company denied meeting any of the persons from whom statements were taken by the department. If you go through 42 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 statement relied upon by the AO, except a general statement of modus operandi of entry providers, there is no direct or indirect reference to Assessee Company in any of statements. From the above, it is clear that the AO totally ignored genuine documents produced before him and passed the Assessment Order on a sweeping statement without any material evidence or fact on record. The AO has merely stated modus operandi of how, the transaction took place without considering the facts of the present case. He had instead passed a general statement on the lines of suspicion and surmises without any vital material evidence against the Assessee. From the above, it is very clear that the observations of the AO in his assessment order on the basis of report of investigation wing, Kolkata is a general observation of modus operandi of certain parties who are involved in alleged activity of entry providing, but it cannot be a conclusive evidence to draw an adverse inference against the assessee of having benefited from so called alleged hawala activity. No doubt, an alleged scam may have taken place, but, it has to be seen whether the assessee is part of an alleged activity and he had any direct or indirect role in alleged scam. Unless, evidences in the possession of the AO directly or indirectly linked to the assessee, it is difficult to implicate the assessee in the alleged scam. This is because, suspicion however 43 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 strong, cannot take place of evidence as held by the Hon’ble Supreme Court in the case of Umacharan Shaw & Bros vs. CIT(1959) 37 ITR 271(SC). In our considered view, on the basis suspicion, modus operandi, preponderance of human probabilities, the claim of assessee cannot be discarded, unless specific evidences are brought on record to controvert voluminous evidences filed by the assessee. This view is fortified by the decision of Hon’ble Supreme Court in the case of Omar Salay Mohamed Sait vs. CIT (1959) 37 ITR 151(SC) where it was held that no addition can be made on the basis of suspicion and conjectures. In the case of CIT vs. Daulat Ram Rawatmull (1973) 87 ITR 349 (SC) it was held that the onus to prove that apparent is not real is on the person who claims it to be so. 17. In this case, the AO has made additions solely on the basis investigation report of Income tax Department, Kolkata without providing copy of said report to the assessee for its rebuttal. Further, the AO had taken support from statements of certain persons, alleged to be involved in accommodation entry business, without providing opportunity of cross examination of those witnesses to the assessee in violation of principles of natural justice. It is a settled position of law that once, any third party 44 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 information/statements is relied upon by the AO to make additions, it is obligation of the AO to provide copies of such statements/information and also to provide an opportunity of cross examination of the person, who gave the statement, when such opportunity has been availed by the person against whom, such statements are used. This legal proposition is supported by the decision of Hon’ble Supreme Court in the case of Kishanchand Chellaram vs CIT 1980 125 ITR 713 (SC), where it was held that when, third party information is relied upon to draw an adverse inference against the assessee, the same needs to be provided and also opportunity of cross examination shall be given, if such opportunity is availed by the assessee. The Hon’ble Supreme Court in the case of Andaman Timber Industries Ltd Vs CCE, Kolkata II in Appeal No 4228 of 2006 has vide order dated 02.09.2015 had also upheld a similar legal position and held that not allowing the assessee to cross-examine the witnesses by the adjudicating authority, though the statements and those witnesses were made the basis of the impugned order is a serious flaw, which makes the order nullity in, as much as, it amount to violation of principle of natural justice, because of which, the assessee was adversely affected. In this case, the Director of assessee Company Shri Pankaj Agarwal, in his statement recorded during the course of assessment 45 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 proceedings, has categorically denied that he does not know any persons, whose statements were relied upon by the AO and further stated before the AO that he wants to cross examine those persons whose statements is basis for the addition. However, the AO neither made available copy of statements nor allowed director of the assessee Company to avail cross examination of those witnesses. In our considered view, this a clear case of violation of principles of natural justice in view of the decisions of Hon’ble Supreme Court discussed hereinabove and thus, on this count alone the additions made by the AO cannot be sustained. 18. Be that as it may. Let us come to reason given by the AO to treat share capital as unexplained cash credit u/s 68 of the Act. The AO had given various reasons to draw adverse inference against the assessee. According to the AO, when notices issued u/s 133(6) to alleged share holders, all notices returned unnerved and further when the Inspector of Income Tax visited their place of business, none of them was available in the given address, and therefore, it cannot be said that the assessee has proved true identity of the creditor. We have gone through reasons given by the AO in light of various evidences filed by the assessee and we ourselves do not agree with the findings of the AO for simple reason that although, 46 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 the AO has issued 133(6) notices to the parties, no further enquiry has been conducted, including issue of summons u/s 131 of the Act. No doubt, none of the investors companies have responded to 133(6) notices issued by the AO, but fact of the matter is that when, assessee has filed complete set of documents, including name and address of the parties, it is for the AO to carry out further investigation by exercising all possible options available to him, but non attendance of parties in response to 133(6) cannot be attributed to the assessee, because due to time lag certain persons might have left the place and for this reason no responsibility can be fastened upon the assessee. Further, the AO had taken support from the report of inspector of income tax. As per said reports, parties were not available when inspectors had visited the place. Therefore, the AO came to conclusion that identity of share holders is not proved as required under section 68 of the Act. We, once again do not subscribe to reasons given by the AO, because, the shareholder companies are very much available in the given address. They had filed their annul accounts with Registrar of Companies every year. As per ROC website, the companies are in active status. Further, the assessee done what best it could have done and filed, whatever information available with it, in order to satisfy the AO. Moreover shareholders are very much available for 47 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 examination. In case, the AO is not satisfied with documents furnished by the assessee, then he is free to carry out his own investigations by exercising powers conferred u/s 131 or u/s 133(6) of the I.T. Act, 1961. In this case, the AO, except issue of 133(6) notices nothing has been done to find out, the nature of transactions between the parties. Therefore, we are of the considered view that when, assessee has filed complete details to prove identity, genuineness of transactions and creditworthiness of the parties, then there is no reason for the AO to came to the conclusion that share capital and share premium received from alleged shareholders is unexplained cash credit. 19. In this case, one more important fact which dismisses the allegation of the Assessing Officer is three charts submitted by the ld. AR during the course of hearing explaining the amount of share capital received from certain Companies. The first chart shows companies with common management which has established source for deposits. As per said chart four companies from whom assessee had received share capital did not find place in the investigation report, nor did the AO gives any findings in his order that those Companies are part of group of companies which involved in providing accommodation entries. Therefore, share capital received 48 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 from those four companies cannot be considered as unexplained cash credit only on the basis of investigation report of Income Tax Department. Further, in the said list, in two companies namely M/s. Umra Properties & Finance Pvt. Ltd., and M/s. Josan Deposits and Advances Ltd., the director of Assessee Company Shri. Pankaj Agarwal is also one of the directors. Therefore, it is highly inappropriate to allege that director of the assessee company themselves involved in getting accommodation entries from their own companies to the assessee company. Insofar as M/s. Kamadhenu Fincap Ltd. and M/s. Kaner Investment Ltd., those two companies are not in the list of entry providers prepared by the investigation department and thus, above two companies cannot be considered in light of report of the Department. 20. The second chart shows share capital received from certain companies who had established sources for share capital subscription. In this chart, there are 56 companies and out of these 56 companies only, 11 companies are in the list of investigation report prepared by the Income Tax Department, Kolkata. Therefore, share capital received those 45 Companies, which are not in the list of investigation report cannot be considered as unexplained cash credit based on investigation report, unless the AO 49 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 brought on record evidences to prove that all those companies are in the list of entry providers prepared by the Department. A generalized opinion cannot be a basis for making addition towards share capital received from said companies, when the assessee has filed enormous details to prove the identity of those companies. In so far as share capital received from remaining eleven companies which are in the list of investigation report, the assessee has placed all records including their financial statements to prove genuineness of transactions and capacity of the subscribers. As per the details filed by the assessee, those 11 companies are having sufficient source to explain investments made in share capital of Assessee Company. Further, the assessee company has received major portion of share capital from M/s. Josan Deposit and Advances Pvt. Ltd., a company based at Kolkata. The AO of M/s. Josan Deposit and Advances Pvt. Ltd., has assessed investment made by the company in share capital of the assessee company as unexplained cash credit. M/s. Josan Deposit and Advances Pvt. Ltd., has challenged the assessment order before the appellate authorities. The ITAT, Kolkata Benches in ITA No.2096/KOL/2017 for assessment year 2008-09 has considered additions made by the AO u/s.68 of the Act and held that the assessee is a genuine company and not an entry provider and thus, deleted additions made by the 50 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 AO towards unexplained cash credit u/s.68 of the Act. Similarly, the AO of M/s. Kaner Investment Ltd., has made additions towards share capital invested in assessee Company and M/s. Kaner Investment Ltd., has challenged the additions made by the AO. The ITAT, Kolkata Benches in ITA No.2095/KOL/2017 has deleted additions made by the AO. From the above, it is very clear that the assessee had furnished all records to prove identity, genuineness of transaction and credit worthiness of the parties. Therefore, on the basis investigation report alone, no addition could be made, more particularly when the assessee has filed all evidences. 21. Having said so, let us come to another observation of the AO with regard to invoking proviso to section 68 of the Act. The AO had invoked proviso, to section 68 and observed that the assessee had not proved source of source in the hands of shareholders. The Proviso inserted by the Finance Act, 2012 w.e.f 01-04-2013 deals with the case where the assessee is a company (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium, or such amount by whatever name called and any explanation offered by such assessee shall be deemed to be not satisfactory, unless the person being a recipient in whose 51 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited. As per the Proviso, if the assessee fails to explain source of source of share capital or share application money, then the addition can be made towards share capital, and share application money in the hands of the assessee u/s 68 of the Income-tax Act, 1961. Whether Proviso inserted by the Finance Act w.e.f. 01-04-2013 is applicable prospectively or retrospectively, has been decided by various courts. The Hon’ble Bombay High Court in the case of CIT vs Gagandeep Infrastructure Ltd (2017) 394 ITR 680 (Bom) had considered proviso and observed that Proviso inserted to section 68 w.e.f. 01-04-2013 is considered to be prospective in nature and applicable from A.Y.2013-14 onwards. Therefore, in our considered view the AO cannot examine any credit being share capital or share application money in light of proviso to section 68 of the Act, up to Asst. year 2012-13. If an assessee satisfies conditions prescribed u/s 68 of the Act, then it would be sufficient compliance of the provisions of the act, and thus, share capital received from companies cannot be treated as un explained credit, because the share holders does not explain source in their hands. That is why the Hon, ble Supreme Court in the case of CIT vs. Lovely Exports Ltd (Supra) has very categorically held that If the 52 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 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 this amount of share money cannot be regarded as undisclosed income u/s.68 of the assessee company.” Therefore, we are of the considered view that no addition can be made u/s 68 of the Income-tax Act, 1961 in respect of share capital and share application money or share premium before insertion of Proviso to section 68, if the source of source is not explained by the assessee. 22. The AO has doubted genuineness of transaction on one more ground. According to the AO, the equity shares of the company have been allotted at a very high premium up to Rs.90 per share, only on the basis of Discounted Cash Flow Method and no other report has been filed to substantiate the basis for fixing such a high price for the equity shares of a private limited company. We have carefully considered reason given by the AO and we ourselves do not subscribe to reasons given by the AO for simple reason that, first up all the AO is not examining the issue of excess share premium charged by the assessee in light of provisions of section 56(2)(viib) of the Act. Therefore, while 53 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 examining any credit in light of provisions of section 68 of the Act, the whole share application money needs to be considered, irrespective of amount of premium charged by the assessee. Secondly, the provisions section 56(2)(viib) inserted by the Finance Act, 2012 w.e.f 10.04.2013, is applicable from A.Y. 2013-14 onwards. In fact, a similar amendment has been made to section 68 by insertion of a proviso by the Finance At 2012 w.e.f. 01.04.2013 and said amendment held to be prospective by the Hon’ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure (P) Ltd. (2017) 394 ITR 680, where the court observed that proviso inserted to section 68 w.e.f. 01.04.2013 is considered to be prospective in nature and is applicable from A.Y. 2013-14 onwards. Finally, the assessee has justified premium charged on issue of equity shares with its financials, as per which book value of its share price is more than issue price of shares including share premium which is evident from the fact that the assessee had worked out intrinsic value of share for Asst years 2007-08 to 2012-13 which is reproduced at para. 10 of ld. CIT(A) order. Therefore, in our considered view the findings of the AO on the issue of high premium charged for issue of shares is also very well explained by the assessee and thus, the observation of the AO is fails. 54 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 23. Coming to the case laws relied upon by the assessee. The assessee has relied upon plethora of judgements in support of its arguments. Therefore, it is necessary to consider ratio laid down by various courts on the issue. 23.1 The Hon’ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd (2008) 216 CTR 195 (SC) has considered an identical issue. The relevant findings of the court are as follows:- “If share application money is received by assessee- company from alleged bogus shareholders, whose names are given to Assessing Officer, then Department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income u/s.68 of assessee company 23.2 In the case of M/s.Steller Investments Ltd. (2000) 251 ITR 263 (SC), the Hon’ble Supreme Court has agreed with the lower courts in holding that the share capital subscribed needs to be brought to taxation in the hands of the subscriber. The gist of the decision of the Hon’ble Supreme Court in this case has been as under. “The subscribed capital of the assessee company had been increase. The ITO assessed the company accepting the increase in the subscribed capital. The Commissioner concluded, in section 263 proceedings, that the ITO, did not carry out detailed investigation in as much as there was a device of converting 55 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 black money by issuing shares with the help of formation of investment company. Holding that there was failure on the part of the ITO to enquire into the genuineness of subscribers of the share capital, the commissioner set aside the assessment order. The Tribunal reversed the order of the Commissioner and also rejected the reference application. On an application u/s. 256(2), the High Court held that no question of law arose from the Tribunal Order. The High Court also observed that it was evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, could the amount of share capital be regarded as undisclosed income of the assessee. It held that it might be that there were some bogus shareholders in whose names shared had been issued and the money might have been provided by some other persons and if the assessment of the persons who were alleged to have really advanced the money was sought to be reopened, that would have made sense but there was no reason why this amount of increased share capital could be assessed in the hands of the company itself. On appeal to the Supreme Court, the SC was in agreement with the High Court. Plainly, the Tribunal came to a conclusion on facts and on interference was called for”. 23.3. The Hon’ble Madras High Court has also considered this issue on many occasions. In the case of M/s. Electro Polychem Ltd. (2007) 294 ITR 661(Mad-), the Hon’ble Madras High Court has held as under: “The assessee filed its returns for the AYrs 1998-99 and 1999- 2000. The AO made additions in respect of the share application money u/s.68 of the Act, finding that the assessee had brought the undisclosed income by way of share applications in fictitious names and passed order accordingly. Hence, the assessee preferred appeals to the Commissioner of Income Tax (Appeals). The Commissioner deleted the addition made by the Assessing 56 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 Officer for the assessment year 1998-99 and upheld the addition made for the assessment year 1999-2000. Against the said order, the Revenue as well as the assessee preferred appeals before the Income Tax Appellate Tribunal. The Tribunal allowed the appeal preferred by the assessee and dismissed the appeal preferred by the Revenue hence, the above appeals. In CIT v. Stellar Investment Ltd.(1991) 192 ITR 287 (Delhi), where the increase in subscribed capital of the respondent- Company, accepted by the Income Tax Officer and rejected by the Commissioner on the ground that a detailed investigation was required regarding the genuineness of subscribers to share capital, as there was a device of converting black money by issuing shares, with the help of formation of an investment, which was reversed by the Tribunal, the Delhi High Court held that even if it be assumed that the subscribers to the increased share capital were not genuine, under no circumstances the amount of share capital could be regarded as undisclosed income of the company. The view taken by the Delhi High Court in CIT v. Stellar Investment Ltd. (1991) 192 ITR 287 was confirmed by the Apex Court and the same was reported in CIT v. Stellar Investment Ltd. (2001) 251 ITR 263. Applying the ratio laid down in the decision cited supra, we do not find any substantial question of law arises for our consideration. Accordingly, these appeals are dismissed. Consequently, M.P.No.1 of 2007 is also dismissed.” 23.4. In the case of M/s.Pranav Foundations Ltd. (2014) 229 Taxmann 58, the Hon'b1e Madras High Court has passed a judgment on similar issue as under. “From the facts as enumerated above, we are of the view that the decision of the Supreme Court in Lovely Exports (P) Ltd. case, referred supra, applies on all fours to the present case, in 57 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 view of the fact that all the four parties, who are subscribers of the shares, are limited companies and enquiries were made and received from the four companies and all the companies accepted their investment. Thus, the assessee has categorically established the nature and source of the said sum and discharged the onus that lies on it in terms of Section 68 of the Act. When the nature and source of the amount so invested is known, it cannot be said to be undisclosed income. Therefore, the addition of such subscriptions as unexplained credit under Section 68 of the Act is unwarranted. That apart, a reading of the decision of the Supreme Court in Lovely Exports (P) Ltd. case, referred supra, makes it clear that the department has a right to reopen the individual assessment if the allegation of bogus shareholding is proved. This is not a case of investment by bogus shareholders. The four limited companies have made investment and that is borne out by records. The Commissioner of Income Tax (Appeals) and the Tribunal, on facts, have found that the transaction in this case is beyond the pale of controversy and the assessee has explained in no uncertain terms the nature and source of the income. We find that the decision of the Delhi High Court in Sophia Finance Ltd., referred supra, does not get attracted to the facts of the present case, as rightly held by the Tribunal. That apart, the decision of the Calcutta High Court in CIT v. Ruby Traders and Exporters Ltd., [2003] 263 ITR 300, relied upon by the learned Senior Standing Counsel for the Revenue, also does not support the case of the Revenue, as all that the assessee is required to establish is the nature and source of the subscriber, the creditworthiness and genuineness of the transaction. That proof has already been submitted by the assessee and it has discharged its burden in terms of Section 68 of the Act. It is always open to the department to proceed against such investors, if so advised, in view of the decision in Lovely Exports (p) Ltd. case, referred supra. Resultantly, we find no merits in the appeal. Hence, no substantial question of law arises for consideration. In the result, the appeal is dismissed. No costs.” 58 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 23.5. In the case of M/s.Victory Spinning Mills Ltd., (2014) 228 Taxmann 69, the Hon’ble Madras High Court has further held as under:- “A bare reading of Section 68 of the Act makes it clear that in a case where any sum is found credited in the books of account and the assessee has not given satisfactory explanation in respect of the same, the AO can treat the same as undisclosed income and add it to the income of the assessee. All that the said provision contemplates is that the assessee has to give satisfactory explanation about the “nature and source” of such sum found credited in the books of account. In view of the fact that out of 181 share applicants, 129 share applicants had appeared when summons were issued and they have accepted their investment. That apart, the names and identity of the share applicants is also available on record. When the nature and source of the amount so invested is known, it cannot be said to be undisclosed income in the hands of the Spinning Mill. Furthermore, the burden is on the Department to show that the investment made by the share applicants actually emanated from the coffers of the assessee, so as to enable it to be treated as the undisclosed income of the assessee. In the case on hand, the department except making a vague statement that the managing directors have advanced monies to the alleged share applicants, did not substantiate the same with concrete evidence. Such finding based on a priori considerations cannot be a ground to make addition towards unexplained cash credit. Therefore, the addition of such subscriptions as unexplained credit under Section 68 of the Act is unwarranted. Moreover, since the share applicants in all these cases are one and the same and they have confirmed the transactions, it cannot be treated as the unexplained investment of the managing directors of the company and on that score, no addition can be made in the hands of the managing directors. 59 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 The CIT(A) and the Tribunal, on facts, have found that the transaction in this case is beyond the pale of controversy and the assessees have explained in no uncertain terms the nature and source of the income. We find no reason to differ with the said findings of the Commissioner of Income Tax (Appeals) and the Tribunal, based on facts. 23.6. Similar issue has been considered by the Hon’ble Delhi High Court. In the case of M/ s.Value Capital Services Pvt Ltd.(2008)307 ITR 334. The gist of said decision is as under: “The assessee had received an amount of Rs.51 lakhs as share application money from 33 persons. The AO required the assessee to produce all these persons. It appeared that some of them did appear. The AO accepted the explanation and the statement given by the three of these persons but found that the response from the others was either not available or was inadequate. On this basis, the AO added an amount of Rs.46 lakhs pertaining to 30 of the persons to the income of the assessee. Held that it is quite obvious that is very difficult for the assessee to show the creditworthiness of strangers. If the revenue had any doubt with regard to their ability to make the investment, their returns might be reopened by the department. In any case, what was clinching was the additional burden on the revenue. It must show that even if the assessee did not have the means to make the investment, the investment made by the assessee actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. As this had not been done in so far as the present case was concerned, addition made was to be deleted.” 60 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 23.7. Further, in the case of M/s. Goodview Trading Pvt. Ltd.(2016) 77 Taxmann.com 204, the Hon’ble High Court of Delhi has held as under on the facts explained below: “The assessee was engaged in investment business with capital markets. It received share application money from different companies. The AO added the amount received by the assessee from share applicant companies u/s.68 opining that the genuineness of the identity of the share applicants, genuineness of the transactions and the investor’s creditworthiness had not been established. On appeal, the CIT(A) based upon detailed analysis concluded that the share applicants had sufficient net worth and finances to invest in the assessee’s offering with the premium of Rs.23 crores. The Tribunal also concurred with the view of the CIT(A). On appeal to the High Court: As against the AO tabular appreciation of the facts, the CIT(A) found that the net worth of the companies that had invested in the course of the share offerings of the applicant was sustained. It is quite evident from the CIT (A)’s reasoning in paragraph 4.3, that the materials clearly pointed to the share applicants’ possessing substantial means to invest in the assessee’s company. The AO seized certain material to say that minimal or insubstantial amounts was paid as tax by such share applicants and did not carry out a deeper analysis or rather chose to ignore it. In these circumstances, the inferences drawn by the CIT (A) are not only factual but facially accurate. Having regards to these circumstances, no question of law, least a substantial question arose.” 61 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 23.8 In a recent decision, the Hon,ble High Court of Bombay in the case of M/s. Gagandeep Infrastructure Pvt Ltd.(2017) 394 ITR 680, has held that the share capital and share premium received by the assessee company from alleged bogus share holders is liable to be taxed in the hands of the said share folders by the revenue. The order of the Hon’ble High Court is as under: “We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced “for removal of doubts” or that it is “declaratory”. Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue 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 CIT v/s. Lovely Exports (P)Ltd. (Supra) in the context to the pre- amended Section 68 of the Act has held that where the Revenue 62 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 urges that the amount of share application money has been received from bogus shareholders then it is for the ITO to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee’s income as unexplained cash credit. In the above circumstance and particularly in view of the concurrent finding of fact arrived at by the CIT(A) and the Tribunal, the proposed question of law does not give rise to any substantial question of law. Thus not entertained.” 23.9 The Hon’ble Bombay High Court in the case of CIT Vs. Orchid Industries (P) Ltd. (2017) 387 ITR 136 (Bom) had considered an identical issue in light of additions made by the Assessing Officer towards share application money u/s.68 of the Income Tax Act, 1961, and after considering relevant facts has held as under:- “The Assessing Officer added certain amount as income under section 68 only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account. Held that the assessee had produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. The assessee had also produced the entire record regarding issuance of shares, i.e., allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance-sheet and profit and loss account of those persons disclosed that they had sufficient funds in their accounts for investing in the shares of the assessee. In view of these voluminous documentary evidence, 63 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 only because those persons had not appeared before the Assessing Officer would not negate the case of the assessee. Therefore, the addition was liable to be deleted.” 23.10 The ITAT., Nagpur Bench in the case of ACIT Vs. Swiftsol (I) Pvt.Ltd. (2018) 171 ITD 577 (Nag) had considered an identical issue of additions made towards share capital u/s.68 of the Income Tax Act, 1961, and after considering relevant submissions held that merely because the assessee failed to produce directors of investing company personally for confirmation, amount in question could not be added as assessee’s income u/s.68 of the Act. The relevant findings of the Tribunal are reproduced as under:- “The assessee in this case has duly submitted all the necessary details in respect of the share application received which included name, address, company incorporation details, share application details, balance sheets, PAN, bank statements, acknowledgment of return filed and confirmation from the parties. The Assessing Officer has not found any fault in these submissions except that he wanted to verify the details by asking the assessee to produce the promoter/director of those companies. The assessee has duly discharged its onus and no onus was cast on the assessee in the impugned assessment year to produce the persons or the books from the investing companies. The requirements of enquiry and obtaining explanation from the person making the investment in these circumstances have been brought into the statute books by amendment to section 68. These have been clearly held prospective as they were effective only from 1-4-2013. Admittedly, the present assessment year being assessment year 2010-11, the Assessing Officer was not justified to take 64 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 up the issue of obtaining explanation from the Directors/promoters of the investing companies. [Para 14] Thus, the deletion of addition by the Commissioner (Appeals) is justified. Accordingly, there is no infirmity in the order of the Commissioner (Appeals) and hence the same is upheld. [Para 15]” 23.11. The Chennai ITAT, has also considered similar issue in a host of cases. In the case of M/s.Midas Golden Distilleries Pvt.Ltd. (2009) 124 TTJ 25, the Hon’b1e ITAT has held, inter- alia, as under: “The assessee raised share capital and received share application money from seven persons aggregating Rs.1394.15 lakhs. The assessee had brought on record complete identity of shareholders by providing their addresses and confirmations to the effect that they had contributed to the share capital of the assessee company. The money received were through banking channel. They all were shown to be regularly assessed to income-tax. Assessment particulars with respect to each of them were made available to the assessing authority. Two companies which had made contributions of Rs.340 lakhs and Rs.745 lakhs respectively were assessed with the same AO who assessed the assessee. The Assessing Authority himself had found that both these applicants in their respective accounts had disclosed investment made with the assessee. However, the share application money was treated as cash credits and added to the assessee’s income. Held that dispute all the material available with the assessing authority and discreet enquiries as were made within the scope of his powers, the assessing authority found that there remained a mystery as to whom the money really belonged. Even though there were circumstances leading to suspicion, yet having taken an action u/s.132 and enquiries made in the assessment proceedings, the assessing authority had not brought any positive material or evidence to indicate that the share 65 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 application money as such represented assessee’s own undisclosed money brought back in the garb of share capital. Merely because of his subjective satisfaction that the source of availability of money with the shareholder or their creditworthiness were not established, the AO could not treat the genuinely raised share capital as deemed income u/s.68. In the even the intermediary companies were to be taken as conduits or persons without requisite creditworthiness and even if they were to be treated as bogus shareholders, then also nothing stopped the Revenue to reopen their individual assessments in accordance with law and bring to tax such unexplained money in their respective hands. Accordingly, the addition was to be deleted.” 24. The Revenue has relied upon judgment of Hon’ble Kolkata High Court in the case Raj Mandir Estate Pvt Ltd vs Pr.CIT (2016) 386 ITR 162 (Cal). We have gone through the case law relied upon by the Ld. DR in the light of facts of the present case and find that the case law relied upon by the Ld. DR is not applicable, because, in this case, the subscribers to the share capital did not establish their financial capacity to subscribe share capital in the assessee company. The bank account of all the applicants have been found credited from other sources immediately before transfer of funds to the assessee company. The companies did not have any business activity to establish their financial capacity. Under those facts and circumstances , the Hon’ble Calcutta High Court came to the conclusion that the assessee has failed to establish genuineness of transactions and creditworthiness of the parties and hence confirmed addition made by the AO u/s 68 of the 66 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 Income-tax Act, 1961. As regards the decision of Hon’ble Delhi High Court, we find that although Hon’ble High Court held that furnishing certificate of incorporation, PAN etc is not sufficient to prove identification of subscriber when there was enough materials to show subscriber is a paper company, but in the present case, the assessee has filed all possible evidences to establish the transactions in light of provisions of section 68 of the Act, and thus, in our considered view, the assessee has satisfactorily, discharged its onus to come out of shadow of section 68 of the Act. Therefore, the case laws relied upon by the Revenue cannot be applied to facts of present case. 25. Be that as it may. In a recent case of PCIT vs. Hi-Tech Residency Pvt. Ltd. (2018) 257 Taxman 335, the Hon’ble Supreme Court has considered identical issue and held that where an assessee company had discharged the onus of establishing identity, genuineness of transaction and creditworthiness of investors, no additions could be made u/s. 68 of the I.T. Act, 1961. We, further, noted that although the Apex Court has not expressed any opinion, because of dismissal of SLP filed by the Revenue, the fact of the matter is that this issue has been considered by the Hon’ble Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd (supra), where the issue has been thoroughly examined in light of provisions of section 68 of the Act, and held that if the share application 67 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 money is received by the assessee company from alleged bogus share holders, whose names are given to the AO, then the department is free to proceed to reopen their assessment in accordance with law, but sum received from share holders cannot be regarded as undisclosed income of the assessee. 26. In this view of the matter and considering the facts and circumstances of this case and also taking into consideration various case laws as discussed hereinabove, we are of the considered view that the assessee, by filing enormous details, has discharged its initial onus to prove identity, genuineness of transactions and creditworthiness of the shareholders. The AO, without carrying out further inquiries in order to ascertain the claim of the assessee, jumped into conclusion on the basis of report of Investigation wing, and financial statements of the subscribers that none of the subscribers had enough source of income to establish creditworthiness. Even though there were circumstances leading to suspicion, yet having taken an action u/s.132 and enquiries made in the assessment proceedings, the assessing authority had not brought any positive material or evidence to indicate that the share application money as such represented assessee’s own undisclosed money brought back in 68 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 the garb of share capital. Merely because of his subjective satisfaction that the source of availability of money with the shareholder or their creditworthiness were not established, the AO could not treat the genuinely raised share capital as deemed income u/s.68 of the Act. In the event the intermediary companies were to be taken as conduits or persons without requisite creditworthiness and even if they were to be treated as bogus shareholders, then also nothing stopped the Revenue to reopen their individual assessments in accordance with law and bring to tax such unexplained money in their respective hands. Therefore, we are of the considered view that the AO was erred in making additions towards share capital, including share premium u/s 68 of the Income Tax Act, 1961. The learned CIT(A) after considering relevant facts and also by relied upon various case laws has rightly deleted additions made by the AO towards share capital u/s 68 of the Income Tax Act, 1961 for the Asst years 2008-09 to 2012-13. In so far as Asst year 2013- 14, because of applicability of proviso to section 68 of the Act, the ld. CIT(A) deleted addition made by the AO towards share capital u/s 68 of the Act, wherever assessee proved source of source in the hands of shareholders. But, sustained addition made by the AO towards share capital u/s 68 of the Act, 69 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 wherever the assessee could not prove source of source in the hands of share holders. In our considered view there is no error or infirmity in the order of the ld. CIT(A). Hence, we are inclined to uphold order of the ld. CIT(A) and dismiss appeal filed by the Revenue for Asst. years 2007-08 to 2013-14. The appeal filed by the assessee for Asst. Year 2013-14 is also dismissed. ITA Nos.:1744, 1745 & 1981/CHNY/2017-BMP STEELS PVT LTD – ASST YEAR 2011-12 TO 2013-14 27. The facts and issue involved in these appeals filed by the revenue is addition made by the AO towards share capital u/s 68 of the Act. we have had considered an identical issue in the case of M/s Suryadev Alloys and Power Pvt Ltd, for Asst. year 2007-08 to 2013-14 in ITA Nos. 1982, 1746, 1747, 1748, 1749, 1750 & 1751/CHNY/2017. The reasons given by us in preceding paragraphs no 11 to 22 in the case of M/s Suryadev Alloys & Power Pvt Ltd shall mutatis mutandis apply to these appeals, as well. We, therefore for similar reason inclined to uphold orders of the ld. CIT(A) and dismiss appeal filed by the revenue for Asst year 2011-12, 2012-13 and 2013-14. 70 I.T.A. Nos.1744 to 1751, 1981, 1982 & 1788/Chny/2017 28. In the result, the appeals filed by the Revenue in case of M/s Suryadev Alloys and Power Pvt. Ltd for Asst year 2007-08 to 2013- 14 and also in the case of BMP Steels Pvt. Ltd for Asst years 2011- 12 to 2013-14 are dismissed. The appeal filed by the Assessee in the case of Suryadev Alloys and Power Pvt. Ltd for Asst. year 2013- 14 is dismissed. Order pronounced in the court on 17 th December, 2021 at Chennai. Sd/- Sd/- (वी दुगाᭅ राव) (V. Durga Rao) ᭠याियक सद᭭य/Judicial Member (जी .मंजुनाथ) (G. Manjunatha) लेखा सद᭭य /Accountant Member चे᳖ई/Chennai, ᳰदनांक/Dated, the 17 th December, 2021 RSR 1. िनधाᭅᳯरती/Assessee 2. राज᭭व/Revenue 3. आयकर आयुᲦ (अपील)/CIT(A) 4. आयकर आयुᲦ /CIT 5. िवभागीय ᮧितिनिध/DR 6. गाडᭅ फाईल/GF.