ACIT, Central circle-13, New Delhi V. Double Plus Software P.Ltd, Nedw Delhi

ITA 4745/DEL/2018

AI Insights

The case involves the Revenue's appeal against the order of the CIT(A) which had deleted the addition made by the Assessing Officer under section 68 of the Income Tax Act, 1961. The addition pertained to the credit of share capital and share premium in the books of the assessee, Double Plus Software P. Ltd., amounting to Rs. 190,00,00,000. The Assessing Officer had treated these amounts as unexplained cash credits, as the transactions were not routed through bank accounts and the subscriber companies had minimal financial activity. The CIT(A) had deleted the addition, finding that section 68 did not apply as the transactions involved no actual cash or cheque inflow. However, the Tribunal, referencing the decision in the case of M/s. Blessings Commercial Pvt. Ltd., found that the transactions were indeed covered under section 68, leading to the restoration of the original assessment order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302639 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-01-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 28-06-2018
• Other Referred Cases: ITO Ward 17(4), New Delhi Vs. M/s Vital Communication Ltd., M/s. Blessings Commercial Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961, Negotiable Instruments Act, 1881, Companies Act, 1956
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Unexplained investment; Question of law; Fair market value; Onus to prove; Set aside
• Section: 68; 260A; 133(6); 143(1); 264; 22

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B”: NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND MS. ASTHA CHANDRA, JUDICIAL MEMBER ITA No. 4745/Del/2018 Asstt. Year: 2010-11 O R D E R PER ASTHA CHANDRA, JM 1. The appeal by the Revenue is directed against the order dated 29.03.2018 of the Ld. Commissioner of Income Tax Appeals-3, Delhi (“CIT(A)”) pertaining to assessment year (“AY”) 2010-11. 2. The Revenue has taken the following ground of appeal: “ 1. Whether on the facts and in the circumstances of the case, Ld. CIT(A) is correct in deleting the addition of Rs. 190,00,00,000/- made as per provisions of section 68 of the I.T. Act on account of credit of share capital and share premium in the books of account of the assessee. 2. Whether on the facts and in the circumstances of the case, Ld. CIT(A) is correct in holding that provisions of section 68 of the I.T. Act, 1961 does ACIT, Central Circle-13, Room No. 355,3 rd Floor, Jhandewalan Extension, New Delhi – 110 055 Vs. Double Plus Software P. Ltd., 36-A, 10159, Padam Singh Road, Karol Bagh, New Delhi – 110 005. PAN AABCD3206F (Appellant) (Respondent) Assessee by: None Department by : Shri T. James Singson, CIT-DR Date of Hearing 12.01.2023 Date of pronouncement 18 01.2023 ITA No. 4745/Del/2018 2 not attract in this case as the assessee has not received actual cash or the cheques were not credited in the bank accounts of the assessee.” 3. Briefly stated, the assessee company e-filed its return for AY 2010-11 on 11.09.2010 declaring a loss of Rs. 2,214/- which was processed under section 143(1) of the Income Tax Act, 1961 (the “Act”). Thereafter the case was selected for scrutiny under CASS. During assessment proceedings, the Ld. Assessing Officer (“AO”) noticed an increase of Rs. 1,90,00,000/- towards authorised share capital/issued, subscribed and paid-up capital and Rs. 188,10,00,000/- towards share premium account. Questionnaire dated 5.07.2012 was issued asking for details of increase in share capital to which the assessee responded by submitting the name, addresses, PAN of the three concerns, namely, Sayaji Marketing Pvt. Ltd., Blessings Commercial Pvt. Ltd. and Stephens Financials Services Pvt. Ltd., who subscribed in the share capital but without any confirmation and bank extracts . The Ld. AO called for information from the subscribers and their banks under section 133(6) of the Act. Simultaneously, the Ld. AO passed on the information to the AO’s of Kolkata of the above last two subscribers. From the details/information collected by the Ld. AO, he found that the transactions were not routed through respective bank account. In fact, there was hardly any balance in the bank account of the three subscriber companies as well as the assessee company at any point of time during the financial year 2009-10. The Ld. AO, therefore, issued notice dated 11.01.2013 to show cause why section 68 of the Act be not invoked and the entire amount of Rs. 1,90,00,000/- received as share application money be not added to the income of the assessee as unexplained cash credit. 3.1 Vide letter dated 21.01.2013 the assessee submitted that the crossed cheque issued by one company after endorsement to other company was finally endorsed to the issuer company. In such transactions the issuer company while paying to the endorsee company treats the money as share application money paid and when finally the cheque is received it is treated as share application money received. In view of endorsement by different ITA No. 4745/Del/2018 3 companies, the entries do not appear in the bank statement. Such transactions are legal and valid as per the Negotiable Instrument Act, 1881. 4. The contention of the assessee was not acceptable to the Ld. AO who for the reasons recorded by him in para 2.7(i), 2.7(ii), 2.7(iii) of his order treated the impugned amount received by the assessee as share application money as undisclosed income of the assessee under section 68 of the Act. Accordingly, he completed the assessment on 23.03.2013 under section 143(3) of the Act. 5. On appeal, the Ld. CIT(A) deleted the impugned addition holding that section 68 of the Act is not attracted in the case of the assessee by observing as under: “3.3 I have carefully considered the submissions of the appellant, assessment order, the remand report of AO and the rejoinder filed by appellant. It has been vehemently argued by Ld. AR of appellant that during the year under consideration the appellant company has shown an increase of Rs. 1,90,00,000/- towards authorized share capital / issue subscribed and paid up capital and Rs. 188,10,00,000/- towards share premium account which happened as a result of endorsement of “& Co” cheques between 4 companies viz. Sayaji Marketing Pvt. Ltd., Blessings Commercial Pvt. Ltd., Stephens Financial Services Pvt. Ltd. and appellant. The nature of transactions took place in a manner that the “& Co” crossed cheque issued by one company after a series of endorsements to other companies was finally endorsed to the issuer company whereby the issuer company while making a payment to the endorsee company treated the money as share application paid and when finally the cheque was received, it was treated as share application money received. In view of the endorsement by different companies the entries do not appear in the bank statement. The transactions were carried out in a manner that “& Co.” crossed cheques were endorsed from one party to another resulting in share capital as well as investments based on such endorsement of the cheques. Such transactions are legally valid and acceptable as per the Negotiable Instruments Act, 1881 which gives them the necessary legal sanction. Accordingly, the observations, remarks and conclusions arrived at by the Ld Assessing Officer were countered with reference to the provisions of the Income-tax Act, 1961 and sections 15,50,51 and 123 of the Negotiable Instrument Act, 1881 and the Companies Act, 1956. Endorsement of Negotiable Instruments (which includes cheques) is a method by which the claims of parties are settled inter-se without any underlying movement of funds. Such a means of setting contractual liabilities, which also has legislative recognition, as the provisions of the Negotiable Instruments Act ITA No. 4745/Del/2018 4 cited above make it clear, is an effective, convenient, recognized and acceptable method of settlement of inter-company dues. The flow of funds between various companies which, in any case, are “independent legal entities” armed with the cloak of an “artificial juridical Person” have been carried out by way of endorsement of “& Co” crossed cheques There is no law which states that all the cheques issued by any entity/person are required to be deposited with the Bank. Law also provides an alternate route of ‘endorsement of instruments to enable settlement of “B” and “B’ endorses the same to “A” the transaction is complete. While “A” issues a cheque to “B” it is for investment in “B” and when “B” issues a cheque to “A” it is again for investment in “A” Company. The nature of the negotiable instruments follows such as analogy. Such transactions have resulted in the creation of cross holdings and the transaction being purely legal and legitimate, there is no scope for the invocation of Section 68 in respect of such transactions as not only the nature and source have been established beyond reasonable doubt but also the source of source and the origin of origin. 3.4 On the question of creditworthiness and genuineness of the alleged amount of share capital and share premium no doubt, it reflected in the books of assessee which comes without any banking channels, but did not reflect actual genuine business activity of the above corporate entities from whom the alleged amount in consideration of shares shown to had been received by the assessee company. The share subscriber did not have its own profit making apparatus and was not involved in business activity . They merely endorsed cheque, which was coming through the bank accounts. The bank accounts, therefore, did not reflect their creditworthiness or even genuineness of the transaction. The assessee did not give any share-dividend or interest to the said entry operator/subscriber. The profit motive normal in case of investment is entirely absent. In the present case, no profit or dividend was declared on the shares. Any person, who would invest money or give loan would certainly seek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are undoubtedly relevant and material facts for ascertaining creditworthiness and genuineness of the transactions. 3.5 Section 68 of the Income Tax Act, 1961 is reproduced herein below for your ready reference:- 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: Provided that 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 any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- ITA No. 4745/Del/2018 5 (a) the person, being a resident in whose 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; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.” 3.6 Considering the facts and circumstances of the case, it may be appreciated that- 1. The sum found credited in the books of the accounts of the appellant is not cash or cheque, hence, section 68 doesn’t get triggered. 2. The credit in the books of the appellant arose on account of purchase of shares and not on account of receipt of any money from the investing companies. 3. The investing companies furnished all the documents confirming the transactions. 4. There was no allegation or evidence of operation by an accommodation entry operator. 5. There is no evidence for allegation of cash deposits in either the bank accounts of the appellant or the investing companies. 6. The allegations are for purchase of share at higher than real value from the investing companies and allotting shares to the investing companies at equally high price. If the higher price is reduced to the level justified according to the assessing officer, then also there will not be any income or tax implication to the appellant. 7. Entire exercise has not resulted into earning of even a single rupee to the appellant in the revenue account or even in capital account. 8. Section 68 specifically carries the heading “cash credit”. If there is no cash credit this section does not get triggered. 9. In the appellant’s case credit worthiness of the shareholders cannot be suspected as they have in effect not advanced even a single penny to the appellant. 10. Identity of the shareholders was indisputably established. 11. Section 68 essentially addresses the situations where moneys or sums are received by the taxpayer, credited in the books of accounts but source of the moneys/sums received is not satisfactory. 12. The transactions have not resulted into any inflow or outflow to the appellant company or any of the transacting company. In that sense, the transaction is cash neutral. The learned assessing officer has, in his zeal to make the maximum addition has been driven by only one aspect of the transaction. The AO has himself noted repeatedly in the assessment order that the premium at which shares have been allotted by the appellant is not justifiable on account of it not having any asset or business or even a bank account. The AO has also noted again repeatedly that the shares which have been purchased by the appellant from the investing companies, which was the consideration for allotment of shares was also very high priced and disproportionate to the intrinsic value of ITA No. 4745/Del/2018 6 the shares. In the simpler words, the AO noted/ alleged that the transaction of purchase of share by the appellant was not at the Fair Market Value. To simplify it further, the allegation made by the AO is that the appellant has allotted share at a value hugely disproportionate to the real value and at the same time purchased shares at a value much higher than the real value. As the allotment has been made to the same party from whom shares have been purchased, there is no inflow or outflow of money even though the stated consideration is inflated. The AO, however, while taking cognizance of this situation from the tax perspective have looked at only one side of the transaction and totally ignored the other side of the transaction. 3.7 The Ld. AR of appellant has argued that the case in hand is a very unique kind of case. He has relied on the decision dated 15/06/2016 of Hon’ble ITAT, New Delhi in the case of ITO Ward 17(4), New Delhi Vs. M/s Vital Communication Ltd., ITA No. 2448/Del/2007 [ (2016-TIOL- 1102-ITAT- DEL)]* where the Hon’ble ITAT has given the findings as below:- “Whether mere transfer of entries from one head to another cannot he treated as sum credited in the account books for the purpose of see 68 of the IT Act. -Held Yes. Whether addition of share capital cannot be made in the hands of the company assessee - Held Yes Assessee's business was to provide consultancy service and advice in India and abroad regarding the manufacturing commercial marketing, technical and managerial aspect of the business of electronics and communication hardware. In assessment proceedings, AO observed that no books of accounts were produced in spite of the repeated requisition / opportunities. The assessee has not established the credit worthiness of the shareholders. Since assessee could not prove the genuineness of transaction and credit worthiness of the said creditors, the sum of Rs.27 crores was treated a sun explained cash credit u/ s68. CIT (A) deleted the addition made by AO observing as under:- “5.10 The aforesaid addition cannot be sustained for another legal premise also. Section 68 of the IT Act 1961 under which these additions have been made by the Assessing Officer reads as under: - “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 sources 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 evident from the perusal of this provision that section 68 can be invoked only if any "sum" is credited in the account books of the assessee for which no satisfactory explanations could be furnished by the assessee. "Sum" denotes the money brought into the account books by way of cash / cheque / draft. Mere transfer of entries from one head to another cannot be treated as sum credited in the account books for the purpose of see 68 of the IT Act. Similarly, exchange of shares also cannot be brought into the ambit of Section 68 of the IT Act. In the present case, out of the addition of Rs.27,00,00,000 made u/s. ITA No. 4745/Del/2018 7 68 of the IT Act, the amount of Rs.25,00,00,000 was not brought into the account books by way of cash / cheque / draft during the relevant previous year. Shares worth Rs.15.00.00,000 were issued against the outstanding liabilities i.e. there were only the transfer of entries from trade liability head to the share capital head. No fresh capital was brought into the account books by way of cash / cheque / draft. Similarly, the shares worth RS.10,00,00,000 were issued against the shares received under the swapping arrangements. Here also, no fresh amount of money was brought into the books by way of cash! cheque / draft. Hence, the addition made in respect of these share holders to the extent of Rs.25,00,00,000 does not come into the purview of section 68 of the IT Act. On this ground also, the said addition cannot be sustained. ” After hearing both the parties, the ITAT held that, “8.3 We find force in the Ld. CIT(A)'s finding that the aforesaid addition cannot be sustained for another legal premise also. 3.8 It is undisputed that the cheque transactions by the appellant are only on paper and are in the nature of swapping of cheque at a very high premium. As submitted by the appellant, the said transactions and arrangements have not resulted in earning/receipt of a single rupee and no cash or cheque have been received in appellant’s bank or in hand. 3.9 The decision of Hon’ble ITAT in the case of M/s Vital Communication Ltd., ITA No. 2448/ Del/2007 [(2016-TIOL-ITAT-DEL)] relied upon by the appellant is applicable to this appeal as the transactions as well as the additions in both the cases revolve around swapping of shares, mere transfer of entries and no cash, cheque or draft has been deposited in the books of account or bank account of the appellant. 3.10 A similar view has been taken by Ld. CIT(Appeals)-VI, Kolkata in the case of Sayaji Marketing Pvt. Ltd. PAN AAGCS0147M for AY 2010-11, where Ld. CIT(Appeals) has allowed the appeal by observing inter-alia as under: Although on paper it appeared as if there was movement of a sum as large as Rs. 190 crores, as a matter of fact, no money changed hands at all. Instead, there were only book entries which inflated share capital and investments on liability and asset side respectively of the balance sheet by an equal amount. The assessing officer, has, therefore, treated the transactions to be sham. There is some force in the view taken by the assessing officer and the transactions can, arguably, be treated as sham. In any case, these are mere paper transactions. However, the same does not lead to conclusion that share capital shown to be received in this manner can be treated as unexplained cash credit. As per provisions of section 68 of the I.T. Act, 1961, where any sum is found as credited in the books of the assessee in any previous year and the assessee offers no explanation about the nature and source thereof or 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 income of the assessee in that previous year. In the appellant’s case capital of Rs. 190 crores has been shown to be received in the books of the appellant. However, the assessing officer himself has observed that no money as such has been ITA No. 4745/Del/2018 8 received by the appellant. Rather the increase in capital is by way of book entries. The amount of capital has been counter-balanced by simultaneous investment in share capital of other companies, again without any actual movement of funds. On face of it, all the parties involved in subscription of capital, as well as investment have confirmed the transactions. All of them are assessed to income tax and have also informed their source of (on paper) funds. Thus, on face of it, all the requirements of discharging onus regarding source of credit have been fulfilled by the appellant. Alternately, if the view taken by the assessing officer, that all these transactions are sham, is accepted, even then it cannot be called to be a case of unexplained cash credit. Firstly, if all the transactions are treated as sham, then the entries regarding receipt of capital as well as investments made by the appellant would have to be ignored. Obviously in such a case there would be no credit entry for which explanation would be called for. Secondly, as stated earlier there is no actual movement of funds involved in any form. The assessing officer has himself discussed in details as to how the series of transactions was carried out without any flow of money. Obviously there cannot be any unexplained cash credit in absence of cash (money in any form). The decision of Calcutta High Court in the Jatia Investment Company 206 ITR 718 relied upon by the unexplained cash credit cannot be made for mere entries in the books. The ratio of decision of ACIT vs. Kerala Transport Company (supra) and ACIT vs. Mahendra Kumar Agarwal (supra) relied upon by the appellant also supports this view. After carefully considering the facts of the appellant’s case and the ratio given in the above decisions, including that of jurisdictional High Court in the case of Jatia Investment Company (supra), I am of the view that provisions of section 68 of the Income Tax, 1961 are not attracted in the appellant’s case and the addition is accordingly deleted.” 6. Aggrieved, the Revenue is before the Tribunal. 7. Ld. DR submitted that the issue is covered in favour of the Revenue by the order dated 28.06.2017 of the Kolkata Bench of the Tribunal in ITA No. 271/Kol/2014 in the case of M/s. Blessings Commercial Pvt. Ltd., a copy of which was filed before us. None appeared for the assessee company. 8. We have gone through the order of the Ld. AO/CIT(A). We find that the Ld. CIT(A) has followed the decision of the Delhi Bench of the Tribunal in the case of M/s. Vital Communication Ltd. in ITA No. 2448/Del/2007 which has been rendered on 15.06.2016 as also the decision of Calcutta High Court in Jatia Investment Co. vs. CIT 206 ITR 718 and decision of Kerala Bench of the Tribunal in ACIT vs. Kerala Transport Co. 50 TTJ 189 and the decision of CIT(A)-VI Kolkata in the case of Sayaji Marketing Pvt. Ltd. in coming to the conclusion that the provisions of section 68 of the Act are not attracted. ITA No. 4745/Del/2018 9 However, the Ld. DR has placed on record the decision of Calcutta Bench of the Tribunal in the case of M/s. Blessings Commercial Pvt. Ltd. in ITA No. 271/Kol/2014 which has been rendered on 28.06.2017. On perusal thereof, we notice that the Tribunal has recorded the finding that the case of Jatia Investment Co. (supra) and Kerala Transport Co. (supra) were distinguishable on facts and held that the provisions of section 68 of the Act applied and reversed the findings of the Ld. CIT(A) by observing as under: “9. . Rival contentions heard. On a careful consideration of the facts and circumstances of the case, a perusal of the papers on record as well as of the order of the Authorities below and case laws cited, we hold as follows:- 9.1. Section 68 of the Act, reads as follows: "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 (emphasis our) 9.2. In this case admittedly, the assessee has received cheques as consideration for allotment of share capital at a premium. 9.3. The assessee credited these cheques in its books of account. The manner in which the credit has been used subsequently is not relevant for the application of Section 68 of the Act. The contention of the assessee was that "crossed & CO" cheques were received and subsequently these very cheques were endorsed to another company for allotment of Share Capital at a premium. It was contended before the Revenue authorities that all these transactions are legally valid and that the Negotiable Instruments Act authorizes such endorsements and under the Companies Act , share capital (at a premium) has been validly allotted. Thus, the amount received by cheque and entered into the books of accounts of the assessee as a credit, in our view, satisfies the requirements of Section 68 of the Act which starts with the wording "Where any sum is found credited in the books of the assessee maintained for any previous year....". 9.3. The contention of the assessee that receiving a cheque and not encashing the same but endorsing the same to a third party does not tantamount to "sum found credited in the books" is devoid of merit. In the case on hand, the sum was credited in the books as application money for allotments of share capital. Cheque validly received under the Negotiable Instrument Act 1881 is "any sum" and this sum was found credited in the books of account. 9.4. Reliance place by the assessee in the case of H.H. Sri Rama Verma vs. Commissioner of Income Tax (supra) is misplaced as in that case, the Hon‟ble Court was interpreting the term "any sums paid". The Hon‟ble Court held that any sum paid contemplates payment of amount of money and not a donation in kind, though convertible into money at a later stage. It was not a case where payment was made by way of cheque. Equity shares were donated. In the case on hand, a cheque was received by the assessee and a cheque comes within the definition of the term "any sum" as it is a payment of amount of money. 9.4.1. The decision of the Cochin Tribunal in the case of Kerala Transport Co. (supra), does not apply to the facts of the case, as the Hon‟ble Tribunal was in that considering a case where accounting ITA No. 4745/Del/2018 10 entries were passed by debiting accounts of sister concerns without actual inflow of cash. Here a valid cheque was received and credited in the books of account as valuable consideration for allotment of shares. 9.4.2. Similarly, in the case of ACIT vs. Mahendra Kumar Agarwal (supra), the Jaipur Bench of the Tribunal was considering a case of unexplained investment, where there were certain journal entries passed without any cash transactions. It was not a case where cheques have been issued. Thus, on facts this case law does not apply. 9.4.3. In the case of Jatia Investment Co. (supra), the facts were that entries were made in the books of account so as to comply with the directions of RBI given to NBFC‟s. These directions were in the public domain. The RBI had directed the three companies belonging to Jatia Group to maintain a particular ratio of loans to share capital and reserves. This required discharge of loans and through a transparent arrangement these three companies sold shares held by them in various other companies of Jatia Group and the consideration received through book entries were utilized for repayment of loans borrowed from a proprietary concerns of one of the partners. Under such circumstances, the Hon‟ble Jurisdictional High Court held that there is no real cash entry on the credit side of the cash book. The Hon‟ble High Court found fault with the Tribunal for refusing to take notice of the directions of the RBI. In the case on hand, the transactions undertaken by the assessee are not for complying with any of any authority, much less to comply with any law. When the assessee had received the cheque and thereafter utilized the same for allotment of share capital, it is a credit of a sum in the books of account. 10. Thus, in our view, these case laws do not come to the rescue of the assesse. Hence in our view, the argument of the ld. Counsel for the assessee that Section 68 of the Act, per se would not be attracted, is devoid of merit and hence rejected. 11. The second argument of the ld. Counsel for the assessee, is that the assessee has proved the identity and creditworthiness of the creditor company as well as the genuineness of the transactions. We are not able to agree with the same. A 10 rupees share has been issue at a premium of 990 rupees.. On a question, the assessee has not even attempted to justify the amount of share premium. A perusal of the audited statement of accounts of these companies demonstrate that there is hardly any income was disclosed or any expenditure worth mentioning was claimed. There is no activity whatsoever in these companies. The Reserve Bank of India, the Institute of Chartered Accountants of India, and certain other organisations, have laid down various methods based on which the amount of share premium can be decided. None of these methods have been followed in this case. The exorbitant quantum of share premium collected shocks the conscience of any reasonable person. A mockery has been made of the whole system. These are not transactions which can be justified by any stretch of imagination. Thus, in our view, the genuineness of these transactions is not proved. 12. These being companies, which are registered with ROC, are artificial individual persons and hence, their identity has been proved. Coming to the creditworthiness of the creditor, the examination of the Balance sheet, Profit & Loss Account as well as balances in the Bank Account demonstrate that they are not more than a couple Hundreds of rupees or few thousands of rupees. No figures are in lakhs also, except the cheque issued. Bank Balance are around Rs.12,000/- Thus in our view the creditworthiness is not proved. As the genuineness of the transactions and the creditworthiness of the parties have not been proved, the addition has been correctly made u/s 68 of the Act by the A.O. 13. The last contention of the ld. Counsel for the assessee is that, if these credits as well as investments are sham, then no addition whatsoever can be made as these are not real transactions. He submits that when the A.O. gives a categorical finding that these are fictitious book entries, then logically no additions should be made. In our view, this argument has to be dismissed for the reason that credit entry has been made in the books of account consequent to receipt of cheques against which share capital has been allotted by the assesse company which, by the admission of the assessee, ITA No. 4745/Del/2018 11 are legally valid transaction. The requirements of the Negotiable Instruments Act and the Companies Act are fulfilled in this case. Shares have been legally allotted. Amounts have been validly received by cheque. There is no violation of law. Thus, it cannot be said that these are fictitious or sham entries and no cognigence should be taken of theses entries. These are not unreal transactions as held by the A.O. These transactions are valid in law. 13.1. Hence, the credit recorded in the books of accounts of the assessee is not a fictitious credit and has legal sanction. In view of the discussions these arguments of the ld. Counsel for the assessee is dismissed as devoid of merit. 14. We find that the transactions undertaken by these groups of companies are scandalous. A number of companies have been floated and none of them have any business nor any asset worth mentioning. The first company issues a cheque to the second company for allotment of shares at a huge premium and the second company allots shares to the first company. The second company instead of encashing the cheque endorses this cheque to the third company as consideration of allotment of shares at a heavy premium in that company. The third company does not encash the cheque but in turn endorses this cheque to the fourth company towards consideration of allotment of shares at a huge premium by the fourth company. The fourth company in turn endorses this cheque to the first company as consideration for the allotment of shares at a huge premium by the first company to the fourth company. By this process the circuitous route of round tripping is completed. Through this process all the four companies have huge share capital and reserves and corresponding asset by way of investments in shares of the other group companies. We come to understand the modus operandi is to sell these companies having huge share capital and investments, to persons who have unaccounted money, by transfer of the shares at a nominal amount. The shares in these companies are sold at a ridiculously low value and consequently the management and control of this company is transferred. The purchasers of shares of the companies thereafter, show bogus sale of the investments held by such company to third parties through a chain of transactions, by way of layering and bring in their unaccounted money into that company. 14.1. Such practices have to be depreciated. In such cases the assessees cannot claim that the entire transactions are bogus transactions and hence the provisions of law will not apply and no addition can be made u/s 68. We dismiss this argument as devoid of merit. 15. The "B" Bench of the ITAT, Delhi in ITA No. 378 & 2164/Del/2008, Assessment Year 2000-2001, ITO vs. M/s. SBS Properties & Finvest Pvt. Ltd.., order dt. 30.05.2016, wherein one of us is the author of the decisions, has held as follows: 27. We now consider the merits of the addition without taking into consideration the statement of Shri S.K. Jain or the material found during the search of Shri S.K. Jain. On a perusal of the documents submitted by the assessee, we are of the considered opinion that the genuineness of the transaction and the creditworthiness of the creditors has not been demonstrated by the assessee. The AO in his order at page 7 has clearly recorded that the assessee company has no financial base or business and the money received by it was withdrawn the very same day or the next day. More important he has recorded that the assessee has not given any, let alone satisfactory explanation for the high premium charged on the shares. When shares are allotted within a span of less than one month, the reason for charging high premium in the case of VPC Financial Services P Ltd. , Killa Financial Services Pvt. Ltd., Highyield Securities Pvt. Ltd. , Mehul Finvest Pvt. Ltd. and Synergy Finlease P. Ltd. and reason for not charging premium in the case of M/s. Timely Fincap Pvt. Ltd. and Graph Financial Services Pvt. Ltd. is not at all explained. The explanation given that the Ld. Counsel for the assessee that charging of premium is the sole discretion of the company and that ITA No. 4745/Del/2018 12 price is a contract entered between two parties and cannot be questioned by the revenue is devoid of merit. The AO cannot be expected to wear blinkers and accept bald explanations of the assessee. There should be some explanation which is logical and rationale. Ld. Counsel could not demonstrate that the assessee company was in fact, carrying on the business of finance and investment. It is common sense that shares of loss making companies do not command a premium. The financial status or the projected cash flow of the assessee company or any such record has been produced by the assessee to justify the charging of such premiums for allotment. Discounted cash flow matter is one of the accepted methods to determine premium chargeable on share capital. Certain other methods have also been prescribed. Premium cannot be charged as per the whims and fancies of the company. In cases where explanation or justification of the valuation of shares is given, to explain the basis on which share premium has been fixed, then no addition can be made, as the genuineness of the transaction can be held as explained. In this case no explanation whatsoever has been given. Under these circumstances we are of the considered opinion that the assessee has not discharged the burden that lay on it in proving the genuineness of the cash credits. We also find that the AO was right in holding that the assessee has not proved the creditworthiness of the share holder companies. The balance sheets, income tax assessments etc. show that the resources of these companies are limited. We now discuss the case law on the subject. 28. In the case of Nova Promotors and Finlease (P) Ltd. the Hon'ble Delhi High Court at para 18 and 19 held as follows: "18. In the course of the assessment proceedings, the assessee had adduced documentary evidence in an attempt to prove all the three ingredients of Section 68 viz. (i) identity of the creditor, (ii) creditworthiness of the creditor and (iii) the genuineness of the transaction. But the question before us cannot be resolved merely on the basis of the documentary evidence. The evidence adduced by the assessee has to be examined not superficially but in depth and having regard to the test of human probabilities and normal course of human conduct. Before we proceed to note the findings of the Tribunal and decide whether they have been properly arrived at, it is relevant to note a few judgments of the Supreme Court. In CIT v . Durga Prasad More [1971] 82 ITR 540 Hegde J. speaking for the Supreme Court observed as under:- "Now we shall proceed to examine the validity of those grounds that appealed to the learned judges. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self- serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents." In CIT vs. Daulat Ram Rawatmull [1973] 87 ITR 349, the Supreme Court dealt with the question as to when the findings of facts recorded by the Tribunal can be interfered with in a reference made under section 66 of the Indian Income Tax Act, 1922. The Supreme Court ITA No. 4745/Del/2018 13 referred to the leading case of Edwards ( Inspector of Taxes) v. Bairstow [1955] 28 ITR 579 (H.L.) decided by the House of Lords in which Viscount Simonds observed as under: "For it is universally conceded that, though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, I think, fairly summarized by saying that the court should take that course if it appears that the Commissioners have acted without any evidence or upon a view of the facts which could not reasonably be " In the same case Lord Radcliffe expressed himself in the following words: "If the case contains anything exfacie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the court must intervene." Reference was also made to the observations of Bhagwati, J. (speaking for the majority) in the case of Mehta Parikh & Co. v. CIT [1956] 30 ITR 181(SC), which are as under:- "It follows, therefore, that facts proved or admitted may provide evidence to support further conclusions to be deduced from them, which conclusions may themselves be conclusions of fact and such inferences from facts proved or admitted could be matters of law. The court would be entitled to intervene if it appears that the fact-finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question." In DIT v. Bharat Diamond Bourse [2003] 259 ITR 280 / 126 Taxman 365 , the Supreme Court again reiterated the aforesaid position and held as under: - "As a principle, this court does not disturb findings of fact unless the findings of fact are perverse. It appears to us this is one of those exceptional cases where the correct conclusion recorded by the Assessing Officer, and affirmed by the appellate authority, has been reversed by the Tribunal on account of perverse reasoning, as we shall presently see." 19. The position thus is that even where a reference of a question of law is made to the High Court under Section 66 of the Indian Income Tax Act, 1922 or Section 256 of the Income Tax Act, 1961 over which the High Court exercises advisory jurisdiction, and not appellate jurisdiction, where normally the findings of fact recorded by the Tribunal are binding on the High Court, it has been held by the Supreme Court that the findings are not binding on the High Court if they are perverse or if the findings are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. The position in an appeal under Section 260A of the Act is "a fortiori" as the judgment of the Supreme Court in the case of Bharat Dimond Bourse, (supra) would show. We shall demonstrate in the following paragraphs as to how both the CIT (Appeals) and the Tribunal have failed to appreciate the evidence in the proper perspective and on the lines indicated by the Hegde J. in the case of Durga Prasad More (supra). The present case is also not one, as we shall show presently, where the conclusion of the Tribunal is a reasonable conclusion which should not normally be disturbed even if the appellate court would have taken a different view on the same evidence and material. In the present appeal the evidence and material on record, properly considered in the light of the surrounding circumstances and without attaching weight to neutral circumstances or circumstances of no relevance, point to only one conclusion, namely, that the monies introduced by the assessee as share subscriptions from 15 companies were its own unaccounted monies. ITA No. 4745/Del/2018 14 29. At para 41 he further held as follows :- "41. In the case before us, not only did the material before the Assessing Officer show the link between the entry providers and the assessee-company, but the Assessing Officer had also provided the statements of Mukesh Gupta and Rajan Jassal to the assessee in compliance with the rules of natural justice. Out of the 22 companies whose names figured in the information given by them to the investigation wing, 15 companies had provided the so- called ""share subscription monies" to the assessee. There was thus specific involvement of the assesee-company in the modus operandi followed by Mukesh Gupta and Rajan Jassal. Thus, on crucial factual aspects the present case stands on a completely different footing from the case of Oasis Hospitalities (P) Ltd. (supra)." 30. The case on hand the assessee company has links with the entry operator of Shri S.K. Jain. This is evident from the details filed by the assessee company in the form of assessment orders of the companies which have made share applications. Independent of this link we hold that the assessee has not proved the genuineness of the transaction in this case. The Hon'ble High Court has laid down that the evidence adduced in the assessee has to be examined, not superficially, but in depth and having regard to the test of human probabilities and normal course of human conduct. When we do so in this case we have to uphold the action of the AO. 31. In the case of CIT vs. Global Securities & Finance (P) Ltd. (2014) 264 CTR 481 (Delhi) it is held as under :- "11. The respondent assessee is a private limited company. It is not the case of the respondent that their Directors or persons behind the companies, who had purportedly made investment in the shares were related or known to them. In the present case substantial investment has been made in a private limited company which includes share premium @ Rs.40/- per share amounting to Rs.41 ,88,000/-. It is not a case of the respondent assessee that they had a proven good past track record justifying a hefty premium, four times the face value. What was placed on record were certain papers which showed that the respondent assessee had taken care to ensure legal compliances. The said evidence is primarily documentary evidence. But, what the tribunal has noticed but not given due credence to are the surrounding circumstances which include a huge premium i.e. four times of the face value of the shares, credit entries in the bank accounts before transfer of money to the assessee, failure of the companies to file details of the inventories and the fact that the assessee company had not charged any premium earlier. Identity, creditworthiness of the shareholders and genuineness of the transaction in all cases is not established by only showing that the transaction was through banking channels or account payee instrument. It would be incorrect to state that the onus to prove genuineness of the transaction and creditworthiness of the creditor stands discharged in all cases if payment is made through banking channels. Surrounding and corroborative factual detail are equally important and may justify further proof or details before it is held that onus is discharged. As held in N.R. Portfolio (P.) Ltd. (supra) the question of discharge of onus depends upon whether the two parties are related or known to each other, the manner in which the parties approached each other, whether the transaction was entered into through written documents to protect the investment, whether the investor professes and was an angel investor, the quantum of money , creditworthiness of the recipient. the object and purpose for which payment was made etc. These fact are primarily in knowledge of the assessee and it is difficult for revenue to prove and establish the negative. Thus, mere reliance on neutral documentary evidence cannot always be regarded a satisfactory discharge of onus. ITA No. 4745/Del/2018 15 12. Investment decisions, that too of investing in share capital at a premium in a private limited company, in the normal circumstances, unless there are other peculiar or personal reasons, entails due diligence by both the share applicant and the recipient company. This implies inquiry and verification by the persons behind the artificial entity. There have been a spate of cases where private limited companies have purportedly received share application money from unconcerned, unrelated parties without securing adequate protection of their investment and with other surrounding circumstances clearly indicative of racket or a seam. We reproduce a portion the ruling in Onkar Nath v. Delhi Administration AIR 1977 SC 1108, wherein it was stated: "6. The list of facts mentioned in Section 57 of which the Court can take judicial notice is not exhaustive and indeed the purpose of the section is to provide that the Court shall take judicial notice of certain facts rather than exhaust the category of facts of which the Court may in appropriate cases take judicial notice. Recognition of facts without formal proof is a matter of expediency and no one has ever questioned the need and wisdom of accepting the existence of matters which are unquestionably within public knowledge . .......... ........ No Court therefore insists on formal proof, by evidence, of notorious facts of history, past or present. The date of poll' passing away of a man of eminence and events that have rocked the nation need no proof and are judicially noticed. Judicial notice, in such matters, takes the place of proof and is of equal force. In fact, as a means of establishing notorious and widely known facts it is superior to formal means of proof..... " 13. It is important, to segregate cases of bonafide or genuine investments by third persons in a private limited company, from cases where receipt of share application money is only a facade for conversion of unaccounted for money or money laundering. The said question cannot be decided without taking notice of the surrounding facts and circumstances, by merely relying upon paper work which at best in some cases would be a neutral factor. The paper work though important may not be always conclusive or determinative of the final outcome or finding whether the transaction was genuine. When and under what circumstances onus is discharged, as held in NR. Portfolio (P.) Ltd. (supra), cannot be put in a strait jacket universal formula. It will depend upon several relevant factors. Cumulative effect has to be ascertained and understood before forming any objective opinion whether or not onus has been discharged by the assessee. Of course suspicion or doubts may not be sufficient and care and caution has to be taken that the assessee has limitations but this cannot be a ground to ignore contrary incriminating evidence or material which when confronted, meets silence or no answer." (emphasis own) 32. The proposition of law laid down by the Hon'ble High Court in the case referred above and the surrounding facts and circumstances considered by it are applicable to the facts and circumstances of the assessee company. On a careful consideration of the documents filed by the assessee and the explanations given by it, and without reference to evidences in the form of statement recorded from Shri S.K. Jain or the material seized by the investigation wing to the extent used against the assessee, we hold that the assessee has not discharged the burden of proof that lay out on it, to prove the genuineness of these cash credits as well as the creditworthiness of the share applicant companies. In view of the above discussions, the addition made by the AO u/s 68 of the Act is upheld and the order of the Ld. CIT(A) is vacated. 33. In the result we set aside the order of the Ld. CIT(A) and restore the order of the AO. The appeals of the revenue are allowed." 15. Respectfully applying the propositions of law laid down by the co-ordinate bench of the Tribunal to the facts of the case, we find that Section 68 of the Act applies to the facts of this case as a sum of ITA No. 4745/Del/2018 16 money was credited, in the books of the assessee and the assessee could not prove the genuineness of these credits as well as the creditworthiness of the creditor. Hence in our view the addition has rightly been made by the A.O. 16. The ld. CIT(A) was wrong in concluding that Section 68 of the Act does not apply as the transaction is a fraudulent transaction and as it is a sham transaction. He was also in error in holding that the assessee has discharged the onus that lay on it. The genuineness of the transactions has not been proved by the assessee. We reverse these findings of the ld. CIT(A). 17. In view of the above discussion, we set aside the order of the First Appellate Authority and restore the order of the Assessing Officer.” 9. We find ourselves in agreement with the view expressed by the Kolkata Bench of the Tribunal in M/s. Blessings Commercial Pvt. Ltd. (supra). The facts of the case before us are identical to those of M/s. Blessings Commercial Pvt. Ltd. (supra). Respectfully following the same, we hold that on the facts and in the circumstances of the case the Ld. AO was perfectly justified in making the impugned addition. Accordingly we set aside the order of the Ld. CIT(A) and restore the order of the Ld. AO. 10. In the result, appeal of the Revenue is allowed. Order pronounced in the open court on 18 th January, 2023. sd/- sd/- (SHAMIM YAHYA) (ASTHA CHANDRA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 18/01/2023 Veena Copy forwarded to - 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi ITA No. 4745/Del/2018 17 Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr. PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr. PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order