INCOME TAX OFFICER WARD-3(3), Nagpur V. M/S LAKHI PACKAGING PVT.LTD., Nagpur

ITA 417/NAG/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2137 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 13-04-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 04-09-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A R NINAWE
• Keywords: Income from undisclosed sources; Share purchase agreement; Corroborative evidences; Onus to prove
• Section: 133(6); 131; 68; 10

Judgement Text

1 ITA NO. 417/NAG/2014 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. (S.M.C.) I.T.A. NO. 417/NAG/2014. ASSESSMENT YEAR : 2009 - 10. THE INCOME - TAX OFFICER, M/S LAKHI PACKGING PVT. LTD., WARD - 3(3), NAGPUR. VS. NAGPUR. PAN AABCL0873C APPELLANT. RESP ONDENT. APPELLANT BY : SHRI A.R. NINAWE. RESPONDENT BY : NONE . DATE OF HEARING : 04 - 07 - 2016 DATE OF PRONOUNCEMENT : 14 TH JULY, 2016 O R D E R THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPE A LS) - III, NAGPUR DATED 30 - 06 - 2014 AND PERTAINS TO ASSESSMENT YEAR 2009 - 10. THE GROUNDS OF APPEAL READ AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN DELETING THE ADDITION OF RS.37 LACS (OF SHARE APPLICATION AND SHARE PREMIUM), MADE BY THE ASSESSING OFFICER U / S 68 OF THE I T.ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN HOLDING THAT THE ASSESSING OFFICER HAS NOT DISPUTED THE DOCUMENTS FURNISHED BY THE A SSESSEE. HAD IT BEEN SO THE ASSESSING OFFICER WOULD NOT HAVE ISSUED NOTICES ULS 133(6) OF IT ACT, 1961HAD HE BELIEVED THAT THE DOCUMENTS (FURNISHED BY THE ASSESSEE) WERE GENUINE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN HOLDING THAT THE ASSESSING OFFICER HAD NOT BROUGHT ON RECORD ANY EVIDENCE AGAINST THE CLAIM OF THE ASSESSEE. THE CRUX OF THE ISSUE IS THAT THE CREDITWORTHINESS AND GENUINENESS REMAINED UNPROVEN .. 2 ITA NO. 417/NAG/2014 BECAUSE NOTICES U/S 133(6) OF IT ACT, 1 961 ISSUED TO THE INVESTORS WERE RETURNED UN - SERVED WITH THE REMARK 'UNKNOWN'. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN NOT TAKING COGNIZANCE OF THE FACT THAT THE ASSESSEE COMPANY DID NOT PRODUCE THE SHARE HOLDERS DESPITE BEING ASKED TO DO SO BY THE ASSESSING OFFICER. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN NOT CONSIDERING THE FOLLOWING JUDGMENTS ON TAXING SHARE APPLICATI ON MONEY ULS 68 OF IT ACT, 1961 NAMELY HON'BLE DELHI HIGH COURT'S DECISIONS IN CIT VS. N R PORTFOLIO PVT. LTD. {(29 TAXMAN 291) (2013) (DELHI HIGH COURT)} AND CIT VS. ULTRA MODEM E' PORTS PVT. LTD. {(2012) (DELHI HIGH COURT) 40 TAXMAN 458} WHEREIN THE I SSUE HAS BEEN DECIDED IN FAVOUR OF REVENUE. 2. IN THIS CASE THE AO NOTED THAT DURING THE YEAR THE ASSESSEE HAS RECEIVED SHARE APPLICATION MONEY INCLUDING HUGE SHARE PREMIUM TO THE EXTENT OF RS.37,00,000/ - AND SHOWN THE SAME AS PENDING ALLOTMENT. DURING THE COURSE OF ASSESSMENT PROCEEDING FOR THE A.Y. 2009 - 10, THE ASSESSEE SUBMITTED THE DETAILS OF SHARE CAPITAL RAISED . IN ORDER TO VERIFY ITS GENUINENESS OF THE SHARE APPLICATION MONEY RECEIPTS SHOWN, NOTICES U/S 133(6) WERE ISSUED TO VARIOUS PARTIES. HOWEV ER, MOST OF THE NOTICES HAVE BEEN RECEIVED BACK UN - SERVED OR THE PARTIES HAVE NOT REPLIED. DURING THE COURSE OF ASSESSMENT PROCEEDING IT WAS BROUGHT TO THE NOTICE OF ASSESSEES REPRESENTATIVE THAT THE NOTICES ISSUED U/S 133(6) TO THE PERSONS TO WHOM SHAR E HAVE BEEN ALLOTTED, FROM WHOM SHARE APPLICATION MONEY CLAIMED TO BE RECEIVED AND FROM WHOM PREMIUM ON SHARES HAVE BEEN CLAIMED TO BE RECEIVED ARE RETURNED UN SERVED. HE WAS REQUESTED TO PRODUCE THESE PARTIES WITH SUPPORTING EVIDENCES TO PROVE GENUINENESS OF THE TRANSACTIONS AND EXPLANATION TO THE SOURCES OF THE FUNDS INTRODUCED. SAPTARISHI SUPPLIERS PVT. LTD. NAMOKAR CONSULTANTS PVT. LTD. PITAMVER VINIMAY PVT. LTD. GUINESS SECURITY LTD. 3 ITA NO. 417/NAG/2014 3. IN RESPONSES TO THE NOTICES, ASSESSEES COUNSEL SUBMITTED THAT: ~ 'CONFIRMATION OF ACCOUNT OF M/S. MADHULIKA LEASEHOLD PVT. LTD. FOR F.Y.2008 - 09. THE COMPANY HAS RAISED THE SHARE CAPITAL BY WAY OF ALLOTMENT OF SHARES AT A PREMIUM OF RS.190/ - PER SHARE. AS REGARDS JUSTIFICATION FOR ISSUE OF SHARES AT PREMIUM ASSESSEE MENTION THAT THE ISSUING COMPANY RAISING MONEY FROM PRIVATE LIMITED COMPANIES ALWAYS TENDS TO CHARGE THE HIGHER PREMIUM ON ITS SHARE WHICH IS MUTUALLY DECIDED BY THE ISS UER AND INVESTING COMPANY. SINCE THE ASSESSEE COMPANY WAS HOLDING LARGE CHUNK OF SHARE OF MURLI INDUSTRIES LTD., WHICH WAS GOING FOR MASSIVE EXPANSION PLANS INCLUDING 3 MTPA CEMENT PLANT AT CHANDRAPUR, THE INVESTING COMPANY THOUGHT IT APPROPRIATE TO SUB SCRIBE THE SHARES OF THE ASSESSEE COMPANY AT THE PREMIUM OF RS. 190/ - PER SHARE. THE COMPANIES ACT CONTAINS PROVISIONS RELATING TO THE SHARE PREMIUM. SEC 78 IS THE RELEVANT PROVISION. SEC 78(1) SHOWS THAT WHEN SHARES ARE ISSUED AT A PREMIUM THE AMOUNT O F PREMIUM SHOULD BE TRANSFERRED TO AN ACCOUNT CALLED THE 'SHARE PREMIUM ACCOUNT 'SUB. (2) PROVIDES FOR THE MANNER IN WHICH THE AMOUNT OF SHARES PREMIUM MAY BE APPLIED. THE COMPANIES ACT SEBI GUIDELINES OR ANY OTHER STATUTE DO NOT PROVIDE ANY RESTRICTION ON VALUE OF PREMIUM THAT CAN BE CHARGED BY THE PRIVATE LIMITED COMPANIES' THE COMPANY WAS FORMED WITH THE OBJECTIVE OF TRADING AND MANUFACTURING OF PAPER AND PAPER PRODUCTS. : FROM 2005 - 06 ONWARDS THE COMPANY HAS MADE THE INVESTMENT INTO EQUITY SHARES OF MURLI INDUSTRIES LTD. WHICH IS HELD AS LONG TERM INVESTMENT. THE ASSESSEE COMPANY HAS INVESTED MOST OF ITS FUND INTO EQUITY SHARES OF MURLI INDUSTRIES LTD. THE NET WORTH OF THE SHARE OF THE ASSESSEE COMPANY IS THEREFORE ALWAYS DEPENDENT UPON THE MAR KET PRICE OF EQUITY SHARES OF MURLI INDUSTRIES LTD. ' THE AO WAS NOT CONVINCED WITH THE ABOVE. HE ELABORATELY CONSIDERED THE ISSUE HOLDING THAT THE TRANSACTION WAS OF SUSPICIOUS NATURE FOR BRINGING IN SHARE CAPITAL AND SHARE PREMIUM. HE ALSO REFERRED TO THE ENQUIRY BY THE INCOME - TAX DEPARTMENT AND SECURITY EXCHANGE BOARD OF INDIA INTO THE AFFAIRS OF GROUP COMPANIES. THE AO FURTHER HELD THAT DESPITE SEVERAL OPPORTUNITIES IDENTITY OF SPECIFIC ALLEGED SHARE APPLICATION MONEY IS NOT ESTABLISHED. THAT CREDIT WORTHINESS OF THE ALLEGED SHARE APPLICATION HAS NOT BEEN PROVED. THAT THE GENUINENESS OF THE TRANSACTION HAS NOT BEEN PROVED. FINALLY THE AO CONCLUDED AS UNDER : ON THE BASIS OF THE LANGUAGE USED UNDER SECTION 68 AND THE VARIOUS DECISIONS OF DIFFERENT HIGH COURTS AND THE APEX COURT, THE ONLY CONCLUSION WHICH COULD BE ARRIVED AT IS: (I) THAT THE BURDEN TO PROVE THE IDENTITY, CAPACITY AND GENUINENESS HAS TO BE ON ASSESSEE. 4 ITA NO. 417/NAG/2014 (II) IF THE CASH CREDIT IS NOT SATISFACTORILY EXPLAINED THE INCOME - TAX OFFICER IS JUSTIFIED TO TREAT IT AS INCOME FROM UNDISCLOSED SOURCES. (III) THE ASSESSEE HAS TO ESTABLISH THAT THE AMOUNT WAS ACTUALLY GIVEN BY THE LENDER. (IV) THE GENUINENESS AND REGULARITY IN THE MAIN TENANCE OF THE ACCOUNT HAS TO BE TAKEN CONSIDERATION BY THE TAXING AUTHORITIES. (V) IF THE EXPLANATION IS NOT SUPPORTED BY ANY DOCUMENTARY OR OTHER EVIDENCE, THEN DEEMING FICTION CREATED BY SECTION 68 CAN BE INVOKED. 4. AGAINST THE ABOVE ORDER, ASSESSEE APPEAL ED TO THE LEARNED CIT(APPEALS). LEARNED CIT(APPEALS) REFERRED TO THE FOLLOWING DETAILS OF SHARE APPLICATION MONEY RECEIVED: SR. NO. NAME OF ALLOTTEE IN FULL SHARE CAPITAL. SHARE PREMIUM CH. DATE CH. NO. BANK NAME. 1 SAPTRISHI SUPPLIES PRIVATE LIMITED 15,000 35,000 285,000 665,000 7/23/2008 9/17/2008 454034 454047 VIJAYA BANK. VIJAYA BANK. 2. NAMOKAR CONSULTANTS PRIVATE LIMITED. 20,000 380,000 8/11/2008 75 3 396 STATE BANK OF MYSORE. 3. PITAMBAR VINIMAY PVT. LTD. 50,000 950,000 3/27/2009 405018 UNION BANK OF INDIA. 4. SHRI CHATURBHUJ REAL ESTATE PVT. LTD. 2,500 12500 47,500 237,500 11/28/2008 11/27/2008 183384 183382 FEDERAL BANK LTD. FEDERAL BANK LTD. 5. TECHBUILD IMPEX PVT. LTD. 50,000 950,000 7/25/2008 134089 DCB BANK. TOTAL 185,000 3,515,000 LEARNED CIT(APPEALS) HELD THAT THE ASSESSEE HAS GIVEN SUFFICIENT EVIDENCE AND THE TRANSACTION HAS BEEN ROUTED THROUGH BANK ING CHANNEL. THE CONFIRMATION FROM ALL APPLICANTS HAVE BEEN RECEIVED. HENCE HE HELD THAT THE ASSESSEE HAS 5 ITA NO. 417/NAG/2014 DISCHARGED THE ONUS. HE ALSO BRUSHED ASIDE THE ISSUE OF RECEIPT OF HUGE SHARE PREMIUM , AS TO HOW RS.10 / - SHARE WOULD COMMAND SHARE PREMIUM OF RS.190/ - OF A LITTLE KNOWN COMPANY WITHOUT ANY TRANSACTION. DESPITE NOTING THAT THE AO HAD ISSUED NOTICE U/S 133( 6) WHICH REMAINED UN - COMPLIED, LEARNED CIT(APPEALS) HELD THAT AO WAS NOT ABLE TO BRING ANY COGENT EVIDENCE ON RECORD IN SUPPORT OF HIS CLAIM THAT THE TRANSACTION WAS BOGUS AND IT WAS ASSESSEES OWN UNACCOUNTED MONEY. REFERRING TO SEVERAL CASE LAWS INCLUDIN G THAT OF HONBLE APEX COURT IN THE CASE OF CIT VS. LOVELY EXPORTS (P) LTD. 216 CTR 195, LEARNED CIT(APPEALS) PROCEEDED TO DELETE THE ADDITION. 5. AGAINST THE ABOVE ORDER, REVENUE IS IN APPEAL BEFORE THE ITAT. 6. I HAVE HEARD THE LEARNED D.R. NONE APPEARED ON BEHALF OF THE ASSESSEE. UPON CAREFUL CONSIDERATION I AM OF THE CONSIDERED OPINION THAT THE MATTER CAN BE DISPOSED OF BY HEARING THE LEARNED D.R. AND PERUSING THE RECORDS. 7. THE MAIN ISSUE IN THIS CASE IS THE RECEIPT OF RS.37 LAKHS AS SHARE APPLICATION MONEY INCLUDING SHARE PREMIUM MONEY BY THE ASSESSEE COMPANY FROM COMPANIES OF CALCUTTA. THE AO HAS OBSERVED THAT HIS EFFORTS TO MAKE ENQUIRY FROM THESE COMPANIES HAS REMAINED UNSUCCESSFUL AS NOTICES U/S 133(6) WERE NOT RESPONDED. DESPITE THE ABOVE , LEARN ED CIT(APPEALS) HAS HELD THAT THE ASSESSEE HAS SUBMITTED DOCUMENTARY EVIDENCES AND THE AO HAS FAILED TO BRING ANY COGENT MATERIAL AND THAT THE AO HAS FAILED TO MAKE PROPER ENQUIRY. LEARNED CIT(APPEALS) HAS ALSO BRUSHED ASIDE THE AOS OBJECTION REGARDING JU STIFICATION OF SHARE PREMIUM OF RS.190/ - ON A SHARE OF RS.10/ - BY THE ASSESSEE COMPANY WITH LITTLE TRANSACTION AND NO STANDING AS PER THE BALANCE SHEET. 8. I FIND THAT IN THIS REGARD A DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF MAJOR METALS LTD. VS. UNION OF INDIA AND ANOTHER IN WRIT PETITION NO. 397 OF 2011 VIDE ORDER DATED 22 ND FEB., 2012 IS NOTEWORTHY. IN SIMILAR CASE OF EXTRA ORDINARY SHA RE APPLICATION MONEY RECEIVED BY A LITTLE KNOWN COMPANY AND 6 ITA NO. 417/NAG/2014 THE ASSESSEES RELIANCE UPON THE ORDER OF HONBLE APEX COURT IN THE CASE OF LOVELY EXPORT, ETC. FOR JUSTIFICATION OF BOGUS SHARE CAPITAL, HONBLE HIGH COURT HAS EXPOUNDED AS UNDER : . 22. NOW, IT IS IN THIS BACKG RO UND THAT THE MERITS OF THE CH AL LENGE WILL FALL FOR DETERMINATION. TH E SETTFEMENT COMMISSION HAS NOTED IN ITS ORDE R THAT IN ORDER TO SCRUTI N ISE THE GENUINENESS OF THE TRANSACTIONS IT H A D DIRECTED THE PETITION ER TO PRODUCE RELEVANT RE CO RDS SUCH AS MINUTE BOOKS, ATTENDANCE REGISTERS OF AGM S, DISPATCH REGISTERS, SH ARE CERTIFICATES AN D AUTHORIZATION OF PROXY FORMS AMONGST OTHE R D OCUMENTARY MATERIAL. TH E ORDER OF THE SETTLEMENT COMMISSION INDICATES ~ LEAST FOURTEEN REAS ON S ON THE BASIS OF WH ICH THE COMMISSION FORM ED ITS VIEW IN REGARD TO THE G ENUINENES S OF THE TRANSACTION S. T HESE MAY BE NOW BRIEFLY SUMMARI ZED: (I) A PREMIUM OF RS.990 PER SHARE ON A FACE VALUE OF RS.1O WAS ALLEGED TO HAVE BEEN PAID IN THE C ASE OF AN UNLISTED COMPAPY WITH A L EVE L OF ASSETS AND EARNINGS P ER SHARE AS DISPLAYED BY TH E P ETITIONER. NO DIVIDENDS HAVE EV ER BEEN DECLARED BY THE COMPANY. FO R 2008 - 09 THE COMPANY HAD A PROFIT OF RS.1.59 LA ~ AND AN EARN I NG PER SHARE OF RS.14.48 AS AGAINST WHICH SHARE PREMIUM O F RS.18.84 CRORES WAS COLLECTED. F OR 2009 - 10 AS AGAIN ST A PROFIT OF RS.70.19 LACS AND EARNING P ER S HARE OF RS.6.06 THE SHARE PREMIUM COLLECTE D WAS RS.24.78 CRORES. N EITHER THE PAST WP - 397 - 2011 PE IJ9RMANCE OF TH E COMPANY NOR I TS P RESENT EARNING S J USTIFY THE AM;; - UNT OF PREMIUM WHICH HA D BE EN CHARGED; CII) EVE N THE MOST REPUTED COMPANIES IN THIS LINE OF BUSINESS SUCH AS HINDALCO AND , STERLITE INDUSTRIES DO NOT COMMAND SUCH A HIGH PREMIUM OD THEIR SHARE VALUE WHICH WOULD BE - ~~, - ~, ---- ,. -- ~ -- ABOUT 1/5 TH OF THE APPLICANT COMP ANY; (III) DURING THE COURSE OF A STATEMENT UNDER SECTION 131 T HE I;2XECUTIVE DIRECTOR OF THE PETITION ER STATED THAT THE VALUE OF TH E PREMIUM WAS WORKED OUT ON THE BASIS OF THE ADVICE OF FINANCI AL C ONSULTANTS AND ADVI~CRS BUT HE CO ULD NOT REMEMBER THEIR NA~ S; (IV) DURING THE COURSE OF PROCEEDINGS UNDER SECTION 245D(4) WHEN THE SAME QUESTION WAS PUT TO THE EXECUTIVE DIRECTOR, HE WAS UNABLE TO FURNISH ANY DETAILS OF THE PERSONS OR INSTITUTIONS ON WHOSE ADVICE THE SHARE PREMIUM AMOU NT WAS FIXED; (V) THE NET WORTH AS DISCLOSED BY THE BALANCE SHEET, THE POTENTIAL EARNINGS AS DISCLOSED BY EARNINGS PER SHARE OR EVEN THE VAGUE PROTESTATIONS OF FUTURE PROSPECTS WOULD NOT JUSTIFY A HIGH PREMIUM OF RS.990/ - PER SHARE. IF SUCH A HIGH FIGURE WAS FIXED IN CONSULTATION WITH EXPERTS OR FINANCIAL INSTITUTIONS, IT IS INCONCEIVABLE AS TO WHY PETITIONER WAS UNABLE TO PROVIDE EVEN THE BAREST OF DETAILS OF SUCH CONSULTATION; (VI) THE ONLY INFERENCE THAT COULD BE DRAN WAS THAT NO SUCH CONSULTATION T OOK PI ACE, THE RATE OF PREMIUM WAS FIXED UNILATERALLY BY THE PETITIONER WITHOUT ANY REFERENCE POINT TO PAST RECORDS, PRESENT EARNINGS OR WP - 397 - 2011 FUTURE PROSPECTS. THE OBJECT WAS NOT TO ATTRACT GENUINE INVESTORS BY PEGGING THE PREMIUM AT A REALISTI C LEVEL BUT TO BRING IN LARGE AMOUNTS OF UNACCOUNTED FUNDS IN THE GUISE OF SHARE PREMIUM; (VII) THE CENTRAL GOVERNMENT HAD NOTIFIED THE UNLISTED PUBLIC COMPANIES (PREFERENTIAL ALLOTMENT) RULES, 2003 WHICH APPLY TO ISSUE OF SHARES ON PREFERENTIAL BASIS AN D/OR THROUGH PRIVATE PLACEMENT BY A COMPANY IN PURSUANCE OF A RESOLUTION PASSED UNDER SUB - SECTION (LA) OF SECTION 81 OF THE COMPANIES ACT, 1956 AND TO THE ISSUE OF SHARES TO PROMOTERS AND THEIR RELATIVES EITHER IN PUBLIC ISSUE OR OTHERWISE; (VIII) IT DI D NOT APPEAR, IN COMPLIANCE WITH THE PROVISIONS OF THE RULES, THAT AN EXPLANATORY STATEMENT WAS PLACED BEFORE THE SHAREHOLDERS AT THE AGM HELD ON 17 MARCH 2009. THERE WERE NO INDICATORS AS TO THE BASIS OR THE DATE ON THE BASIS OF WHICH THE PRICING WAS A RRIVED AT; (IX) THE ALLEGED MINUTES OF MEETING OF THE BOARD OF DIRECTORS HELD ON 30 MARCH 2009 REFLECTED THAT THE BOARD HAD DECIDED TO INITIATE MEETINGS WITH MERCHANT BANKERS FOR AN INITIAL PUBLIC OFFER. A PREMIUM OF RS.990/ - PER SHARE AS AGAINST A LOT O F 60,000 SHARES WAS RECORDED AS A FAIR PREMIUM CONSIDERING THE FUTURE POTENTIAL AND EXPECTED GROWTH OF NON FERROUS METALS BUSINESS IN TIMES TO COME. THE FACT THAT THE BOARD HAD DECIDED TO INITIATE MEETINGS WITH MERCHANT BANKERS (IN FUTURE) INDICATED THA T AT THE TIME WHEN THE PRICE WAS FIXED, NO SUCH WP - 397 - 2011 MEETING HAD TAKEN PLACE. HENCE THE CLAIM THAT THE EXPERTS HAD BEEN CONSUITED IN FIXING THE PRICE OF THE ISSUE WAS NOT BORNE OUT BY FACTS; (X) THE RESOLUTION AUTHORIZING THE ISSUANCE OF SHARES U NDER SECTION 81(LA) OF THE COMPANIES ACT, 1956 WAS PASSED ON 17 MARCH 2009 AND WAS INTIMATED TO THE REGISTRAR OF COMPANIES ON 16 APRIL 2009. HOWEVER, THE EXECUTION OF THE SHARE APPLICATION FORMS BY THE TWO COMPANIES WAS MUCH BEFORE THE DATE ON WHICH THE ISSUE WAS APPROVED BY THE PASSING OF A SPECIAL RESOLUTION AT THE AGM ON 17 MARCH 2009. IN OTHER WORDS IT NOT CLEAR AS TO HOW THE TWO BUYER COMPANIES COULD HAVE APPLIED FOR ALLOTMENT OF SHARES AT PREMIUM EVEN BEFORE SUCH AN ISSUE WAS PROPOSED AND AUTHORI ZED. FOR THAT MATTER THE COMPANY COULD NOT ALSO HAVE ISSUED SHARE APPLICATION FORMS BEFORE THE AUTHORIZATION OF THE ISSUE TOOK PLACE; (XI) BOTH THE RESOLUTIONS OF OLEANDER MANUFACTURERS AND CREDIT PVT. LTD. AND TRISTAR AGENCIES PVT LTD. WERE PASSED ON 3 AND 4 APRIL 2008 RESPECTIVELY. 7 ITA NO. 417/NAG/2014 BOTH THE RESOLUTIONS WERE IN THE SAME FORMAT AND COUCHED IN IDENTICAL LANGUAGE INCLUDING THE SAME GRAMMATICAL MISTAKES; (XII) ALTHOUGH SHARE APPLICATIONS MADE BY OLEANDER MANUFACTURERS WERE FILLED UP BY HAND, THE ONES THA T WERE TYPED HAD THE SAME TYPE FACE AS THOSE IN THE APPLICATION OF TRISTAR AGENCIES. SOME OF THE PRINTED FORMS WHICH WERE USED WERE OF THE YEAR 2000. IT WAS SURPRISING THAT THE COMPANY WAS STILL USING EIGHT YEAR WP - 397 - 2011 OLD FORMS WHEN ITS NETWORTH W AS SUCH THAT IT COMMANDED A PREMIUM OF RS.990/ - PER SHARE OF RS.IOY - : (XIII) THE ATTENDANCE REGISTER FOR THE AGM HELD ON 25 SEPTEMBER 2009 CONTAINED OVER WRITINGS. ONE OF THE DIRECTORS WHO ATTENDED ON BEHALF OF OLEANDER MANUFACTURERS WAS ACTUALLY NOT A D IRECTOR OF THE COMPANY. THE RELEVANT PROXY AUTHORISATION FORMS WERE NOT PRODUCED NOR WAS ANY PROOF OF COMMUNICATION TO THE SHARE HOLDERS IN REGARD TO THE CONVENING OF THE AGM OR EVEN FOR THE DESPATCH OF THE SHARE CERTIFICATES PRODUCED; (XIV) BOTH OLEAND ER AND TRISTAR ARE COMPANIES BEING RUN FROM A SINGLE ROOM AS MENTIONED IN THEIR ADDRESSES. INITIALLY THE PROMOTERS OF OLEANDER MANUFACTURES WERE TWO BROTHERS AND IN THE CASE OF TRISTAR AGENCIES, SPOUSES WHO WERE NO LONGER ASSOCIATED WITH THE COMPANIES. THE BANK ACCOUNTS, COPIES OF WHICH WERE FURNISHED, REVEALED THAT ALTHOUGH HUGE SUMS WERE DEPOSITED AND WITHDRAWN, A MAJOR PORTION OF THE INCOME WAS FROM SALE OF SHARES OF WHICH THERE WERE NO DETAILS. THE NET INCOME IS MEAGER IN BOTH CASES AND IS NOT COMM ENSURATE WITH COMPANIES WHO COULD HAVE AFFORDED TO MAKE SUCH HUGE INVESTMENTS IN SHARES OF AN UNKNOWN AND UNLISTED COMPANY BY PAYMENT OF SUCH A HIGH PREMIUM. .. 23. NOW, IT IS IN THIS BACKGROUND THAT THE SETTLEMENT COMMISSION WP - 397 - 2011 HAS ARRIVED AT A CONSIDERED FINDING OF FACT THAT THE TRANSACTIONS OF THE T - WO COMPANIES WERE NOT GENUINE TRANSACTIONS; THAT THE TWO COMPANIES LACKED A CREDIT STANDING WHICH WOULD HAVE ENABLED THEM TO PAY LARGE AMOUNTS TOWARDS SHARE PREMIUM OF RS.990/ - ON A FACE VALUE OF RS.IQ/ - PER SHARE AND THAT NEITHER THE PAST PERFORMANCE OR THE FINANCIALS OF THE PETITIONER ITSELF WOULD JUSTIFY THE PAYMENT OF SUCH A LA RGE PREMIUM. THE SETTLEMENT COMMISSION HAS RELIED UPON THE LAW LAID DOWN BY THE SUPREME COURT IN SUMATI DAYAL VS. CIT6 IN APPLYING THE TEST OF HUMAN PROBABILITIES. SECTION 68 OF THE INCOME TAX ACT PROVIDES THAT WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION OF THE ASSESSING OFFICER, SATISFACTORY, THE SUM SO CREDITED MAY BE CHARGED TO INCOME TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. THE SUPREME COURT HELD AS FOLLOWS: 'IT IS NO DOUBT TRUE THAT IN ALL CASES IN WHICH A RECEIPT IS SOUGHT TO BE TAXED AS INCOME, THE BURDEN LIES ON THE DEPARTMENT TO PROVE THAT IT IS WITHIN THE TAXING PROVISION AND IF A RECEIPT IS IN THE NATURE OF INCOME, THE 6. 214 ITR 801 (SC) WP - 397 - 2011 BURDEN OF PROVING THAT IT IS NOT TAXABLE BECAUSE IT FALLS WITHIN EXEMPTION PROVIDED BY THE ACT LIES UPON THE ASSESSEE. [SEE: PARIMISETTI SEETHARAMAMMA [1965] 57 ITR 532 AT PAGE 536). BUT, IN VIEW OF SECTION 68 OF THE ACT, WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF THE ASSESSEE FOR ANY PREVIOUS YEAR, THE SAME MAY BE CHARGED TO INCOME - TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR IF THE EXPLANATION OFFERED BY THE ASSESSEE ABOUT THE NATURE AND SOURCE THEREOF IS, IN THE OPINION OF THE ASSESSING OFFICER, NOT SATISFACTORY. IN SUCH A CASE THERE IS, PRIMA FACIE, EVIDENCE AGAINST THE ASSESSEE, VIZ., THE RECEIPT OF MONEY, AND IF HE FAILS TO REBUT IT, THE SAID EVIDENCE BEING UNREBUTTED, CAN BE USED AGAINST HIM BY HOLDING THAT IT WAS A RECEIPT OF AN INCOME NATURE. WHILE CONSIDERING THE EXPLANATION OF THE ASSESSEE THE DEPARTMENT CANNOT, HOWEVER, ACT UNREASONABLY.' 24. BUT, IT HAS BEEN URGED ON BEHALF OF THE PETITIONER THAT AN ADDITION WITHIN THE MEANING OF SECTION 68 WOULD NOT BE JUSTIFIED IN LAW IN ITS HANDS EVEN IF THE SHARE APPLICATION MONEY WAS RECEIVED FROM BOGUS SHARE HOLDERS. C OUNSEL APPEARING ON BEHALF OF THE PETITIONER SUBMITTED THAT IN THE PRESENT CASE THE REPORT SUBMITTED BY THE COMMISSIONER UNDER SECTION 245D(3) SHOWED THAT THE TWO COMPANIES WERE DULY IDENTIFIED WP - 397 - 2011 BEING INCOME TAX ASSESSEES WHOSE PANS WERE ALSO FURNISHED. CONSEQUENTLY, RELYING ON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. LOVELY EXPORTSZ AND THE ORDER RENDERED BY THE SUPREME COURT IN A SPECIAL LEAVE PETITION ARISING THEREFROM, IT WAS URGED THAT RECOURSE TO THE PROVISIONS OF SECTION 68 WAS NOT IN ORDER. NOW, IN ORDER TO APPRECIATE THE SUBMISSION IT WOULD BE NECESSARY TO CONSIDER THE JUDGMENT OF THE DELHI HIGH COURT IN LOVELY EXPORTS. THE DIVISION BENCH OF THE DELHI HIGH COURT DEALT WITH A BATCH OF APPE ALS RELATING TO THREE ASSESSEES. IN THE CASE OF LOVELY EXPORTS, THE ASSESSING OFFICER HAD PROCEEDED TO MAKE AN ADDITION ON THE GROUND THAT THE SHARE APPLICANTS IN 8 ITA NO. 417/NAG/2014 QUESTION DID NOT EXIST. THE ASSESSEE HAD FURNISHED NECESSARY DETAILS SUCH AS THE PAN OF THE SHARE APPLICANTS. THE SHARE MONEY HAD BEEN RECEIVED THROUGH BANKING CHANNELS. THE ASSESSING OFFICER MADE AN ADDITION ONLY ON THE GROUND THAT SOME OF THE SUMMONS WHICH WERE ISSUED TO THE APPLICANTS WERE RETURNED UNSERVED, WHEREAS IN THE CASE OF OTHERS T HE SUMMONS THOUGH SERVED, HAD NOT BEEN COMPLIED WITH. NOW IT IS IN THIS BACKGROUND THAT THE DIVISION BENCH OF THE DELHI HIGH COURT NOTED THAT THE ASSESSING OFFICER DID NOT CARRY OUT ANY ENQUIRY INTO THE INCOME TAX RECORD OF THE PERSONS WHO HAD FURNISHED THE DETAILS IN 7. 299 ITR 268 WP - 397 - 2011 ORDER TO ASCERTAIN THE STATUS OF THE SHARE APPLICANTS. SIGNIFICANTLY, THE JUDGMENT OF THE DELHI HIGH COURT MAKES A DISTINCTION BETWEEN A CASE WHERE SHARES ARE ALLOTTED IN THE COURSE OF A LARGE SCALE SUBSCRIPTIO N TO THE SHARES OF A PUBLIC COMPANY ON THE ONE HAND AND A CASE OF PRIVATE PLACEMENT ON THE OTHER. IN THE CASE OF ALLOTMENT OF SHARES OF A PUBLIC COMPANY, THE COMPANY MAY HAVE NO MATERIAL OTHER THAN THE APPLICATION FORMS AND THE BANK TRANSACTION DETAILS TO FURNISH SOME INDICATION OF THE IDENTITY OF THE SUBSCRIBERS. IG THIS DISTINCTION BETWEEN A PUBLIC ISSUE OF SHARE CAPITAL AND PRIVATE PLACEMENT HAS BEEN MADE OUT IN THE FOLLOWING OBSERVATIONS OF THE DELHI HIGH COURT: 15. THERE CANNOT BE TWO OPINION S ON THE ASPECT THAT THE PERNICIOUS PRACTICE OF CONVERSION ON UNACCOUNTED MONEY THROUGH THE MASQUERADE OR CHANNEL OF INVESTMENT IN THE SHARE CAPITAL OF A COMPANY MUST BE FIRMLY EXCORIATED BY THE REVENUE. EQUALLY, WHERE THE PREPONDERANCE OF EVIDENT INDICATES ABSENCE OF CULPABILITY AND COMPLEXITY OF THE ASSESSEE IT SHOULD NOT BE HARASSED BY THE REVENUES INSISTENCE THAT IT SHOULD PROVE THE NEGATIVE. IN THE CASE OF A PUBLIC ISSUE, THE COMPANY CONCERNED CANNOT BE EXPECTED TO KNOW EVERY DETAIL PERTAINING TO THE I DENTITY AS WELL AS FINANCIAL WORTH OF EACH OF ITS SUBSCRIBERS. THE COMPANY MUST, HOWEVER, MAINTAIN AND MAKE AVAILABLE TO THE ASSESSING OFFICER FOR HIS PERUSAL ALL THE INFORMATION CONTAINED IN THE STATUTORY SHARE APPLICATION DOCUMENTS. IN THE CASE OF PRIVAT E PLACEMENT THE LEGAL REGIME WOULD NOT BE THE SAME. A DELICATE BALANCE MUST BE MAINTAINED WHILE WALKING THE TIGHTROPE OF SEC TIONS 68 AND 69 OF THE INCOME - TAX ACT. THE BURDEN OF PROOF CAN SELDOM BE DISCHARGED TO THE HILT BY THE ASSESSEE; IF THE ASSESSING OFFICER HARBOURS DOUBTS OF THE LEGITIMACY OF ANY SUBSCRIPTION HE IS EMPOWERED, NAY DUTY - BOUND, TO CARRY OUT THOROUGH INVESTIGATIONS. BUT IF THE ASSESSING OFFICER FAILS TO UNEARTH ANY WRONG OR ILLEGAL DEALINGS, HE CANNOT OBDURATELY ADHERE TO HIS SUSPICION A ND TREAT THE SUBSCRIBED CAPITAL AS THE UNDISCLOSED INCOME OF THE COMPANY. 25 NOW, IT IS THIS DECISION OF THE DELHI HIGH COURT AGAINST WHICH A SPECIAL LEAVE PETITION BEFORE THE SUPREME COURT CAME TO BE DISMISSED ON 11 JANUARY 2008. IN COMMISSIONER OF INC OME TAX VS. LOVELY EXPORTS PVT. LTD.8, WHILE DISMISSING THE SPECIAL LEAVE PETITION THE SUPREME COURT OBSERVEDTHAT IF THE SHARE APPLICATION MONEY WAS RECEIVED BY THE ASSESSEE FROM ALLEGEDLY BOGUS SHARE HOLDERS WHOSE NAMES WERE GIVEN TO THE ASSESSING OFFI CER, THE DEPARTMENT WAS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW. ON THIS 8. (2008) 6 DTR (SC) 308 WP - 397 - 2011 GROUND, THE SUPREME COURT WHILE DISMISSING THE SPECIAL LEAVE PETITION FOUND NO INFIRMITY IN THE JUDGMENT OF THE DELHI HIGH COURT. THE PRINCIPLE WHICH WAS EMPHASISED BY THE DELHI HIGH COURT IN TH E CASE OF LOVELY EXPORTS WAS FOLLOWED BY ANOTHE R DIVISION BENCH IN COM MI SSIONER OF INCOME - TAX VS . VALUE CAPITAL SERV ICES P. LT D.9 IN ~MMISSIONER OF INCOME T~ V S. OASIS HOSPITALITY PVT. LT D.LO, A DIVISION BENCH OF THE DELHI H.IGH COURT OBSERVED TH L!! THE INITIAL BURDE N MUST BE UPON THE ASS~SSEE T O EXPLAIN THE NATURE AND SOURCE OF THE SHARE APP LICATION MONEY RECEIVED. IN ORDER TO DISCHARGE THIS BURDEN, THE ASSESSEE IS REQUIRED TO PROV E: (A) IDE NTITY OF SHA REHOLDER; (B) GE NUINENESS OF TRAN SACTION; AND (C) CREDIT WO RTHMESS OF SHAREHOL DERS. AS FAR AS THE CREDITWORTHINESS OF THE SUBSCRIBER IS CONCERNED, THAT CAN BE PROVE D B Y PRODUCING A BANK STATEMENT OF THE SUBSCRIBER SHOWIN G: THAT IT HAS SUFFIC IENT BAL ANCE IN ITS ACCOUNT TO EN ABLE IT TO SUBSCRIBE TO THE SHARE CAPITAL. THE DELHI HIGH COURT HELD THAT ONCE THE INITIAL BURDEN HAS BEEN DISCHARGED, THE OBSERVATIONS OF THE SUPR EME COURT IN THE CASE OF LOVELY FU RPORTS WOULD SUGGEST THAT THE DEPARTMENT IS FREE TO PROCEED LO REOPEN THE INDIVIDUAL ASSESSMENTS IN THE CASE OF ALLEGED BOGUS SHAREHOLDERS IN 9 (2008) 307 ITR 334 (DELHI). 9 ITA NO. 417/NAG/2014 10. [2011] 333 ITR 119 (DELHI) WP - 397 - 2011 ACCORDANCE WITH LAW AND IS NOT REMEDILESS. THIS WOULD BE MORE SO WHEN THE ASSESSEE IS A PUBLIC LIMITED COMPANY AND HAS ISSUED SHARE CAPITAL TO THE PUBLIC AT LARGE AS IN SUCH CASES THE COMPANY CANNOT BE EXPECTED TO K NOW EVERY DETAIL PERTAINING TO THE IDENTITY AND FINANCIAL WORTH OF THE SUBSCRIBER. HOWEVER, THE INITIAL BURDEN ON THE ASSESSEE WOULD BE SOME WHAT HEAVY IN CASE THE ASSESSEE IS A PRIVATE LIMITED COMPANY WHERE THE SHAREHOLDERS ARE CLOSELY RELATED BECAUSE IN SUCH A CASE THE ASSESSEE CANNOT FEIGN IGNORANCE ABOUT THE STATUS OF THE PARTIES. THE JUDGMENT OF A DIVISION BENCH OF THIS COURT IN THE COMMISSIONER OF INCOME TAX V MJS CREATIVE WORLD TELEFILMS LTD.11 IS ALONG THE SAME LINES. ' 8. ON THE ANVIL OF THE AFORESAID HONBLE JURISDICTIONAL HIGH COURT DECISION, I FIND THAT THE ISSUE OF SHARE APPLICATION MONEY WITH DISPROPORTIONATE SHARE PREMIUM RECEIVED IN THIS CASE CANNOT BE IGNORED AND THE SAME NEEDS PROPER ENQUIRY. I FIND THAT THE NECESS ARY DETAILS OF EXAMINING THE VERACITY OF COMPUTATION OF SHARE PREMIUM IN THIS CASE IS NOT ON RECORD. FURTHER MORE I NOTE THAT THE LEARNED CIT(APPEALS) HAS HELD THAT THE AO HAS NOT MADE PROPER ENQUIRY. IN THIS REGARD I FIND THAT THE LEARNED CIT(APPEALS) HA S COTERMINOUS POWER TO THAT OF THE AO. AS HELD BY THE HONBLE APEX COURT IN THE CASE OF KAPURCHAND SHRIMAL VS. CIT 131 ITR 451 THE APPELLATE AUTHORITY HAS DUTY TO CORRECT THE LACUNA IN THE ORDERS OF THE AUTHORITIES BELOW. HENCE LEARNED CIT(APPEALS) CAN CER TAINLY ENSURE THAT THE NECESSARY ENQUIRY IS DONE. E VEN AFTER NOTING THAT THERE HAS BEEN NO COMPLIANCE TO THE 133(6) NOTICES ISSUED BY THE AO LEARNED CIT(APPEALS) HAS FAILED TO SPELL OUT THE DETAILS OF ENQUIRY WHICH IN HIS OPINION WAS FURTHER WARRANTED IN THIS CASE. 9. IN THE LIGHT OF THE AFORESAID DISCUSSION AND PRECEDENT, I AM OF THE CONSIDERED OPINION THAT THE ISSUE RAISED IN THIS APPEAL NEEDS TO BE REMITTED BACK TO THE FILE OF THE LEARNED CIT(APPEALS). LEARNED CIT(APPEALS) IS DIRECTED TO CONSIDER THE IS SUE AFRESH KEEPING IN MIND THE AFORESAID DISCUSSION AND THE 10 ITA NO. 417/NAG/2014 BINDING NATURE OF THE HONBLE JURISDICTIONAL HIGH COURT DECISION AS REFERRED ABOVE. 10 . IN THE RESULT, THIS APPEAL BY THE REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE O PEN COURT ON THIS 14 TH DAY OF JULY,2016. SD/ - ( SHAMIM YAHYA) ACCOUNTANT MEMBER. NAGPUR, DATED: 14 TH JULY, 2016. FIT FOR PUBLICATION IN THE INCOME TAX TRIBUNAL DECISIONS. ACCOUNTANT MEMBER. 11 ITA NO. 417/NAG/2014 COPY FORWARDED TO : 1. M/S LAKHI PACKGING PVT. LTD., C/O ANNAPURNA TRADERS, KIRANA OLI, ITWARI, NAGPUR - 440002. 2. A.C.I.T., CIRCLE - 2, NAGPUR. 3. C.I.T. - (CENTRAL) .NAGPUR. 4. CIT(APPEALS), - II I, NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. WAKODE.