DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-3(2), KOLKATA, KOLKATA V. Manav Trexim Pvt. Ltd., Kolkata

ITA 834/KOL/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 4393 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-12-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 08-08-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Source of fund; Question of law; Fair market value; Reassessment proceedings; Bogus
• Section: 131; 68; 143(3); 56(2); 13

Judgement Text

आयकर अपील य अ धकरण, कोलकाता पीठ “ए’’, कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH: KOLKATA ी राजेश क ु मार, लेखा सद य एवं ी संजय शमा या यक सद य के सम [Before Shri Rajesh Kumar, Accountant Member & Shri Sonjoy Sarma, Judicial Member] I.T.A. No. 834/Kol/2023 Assessment Year: 2012-13 DCIT,CC-3(2), Kolkata Vs. Manav Trexim Pvt. Ltd. (PAN: AABCM 7709 A) Appellant / (अपीलाथ ) Respondent / ( !यथ ) Date of Hearing / स ु नवाई क$ त&थ 13.12.2023 Date of Pronouncement/ आदेश उ)घोषणा क$ त&थ 05.01.2024 For the Appellant/ नधा /रती क$ ओर से Shri Sunil Surana, A.R For the Respondent/ राज व क$ ओर से Shri B. K. Singh, JCIT(Sr. D.R) ORDER / आदेश Per Rajesh Kumar, AM: This is an appeal preferred by the revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-21, Kolkata (hereinafter referred to as the Ld. CIT(A)”] dated 19.12.2022 for the AY 2012-13. 2. At the outset, we note that there is a delay of 173 days in filing the appeal by the revenue. The ld DR explained the delay in filing the appeal because of time taken in processing the file through various stages of hierarchy which was the primary reason for late filing of appeal. The ld AR submitted that the appeal scrutiny report was approved by the Pr. CIT Central -2 ,Kolkata on 11.07.2023 and thereafter the 2 I.T.A. No. 834/Kol/2023 Assessment Year: 2012-13 Manav Trexim Pvt. Ltd. appeal was filed. The ld DR submitted that since the reasons for late filing of the appeal are beyond the control of the assessee and therefore my kindly be condoned. The AR on the other hand did not oppose the admission of appeal. Accordingly we find the reasons to be sufficient and therefore the delay is condoned. 3. The only issue raised by the assessee is against the order of Ld. CIT(A) upholding the order of AO where the AO has made addition of Rs. 5,10,00,000/- on account of unexplained cash credit u/s 68 of the Act. 4. Facts in brief are that the assessee filed return of income on 30.08.2012 declaring total income of Rs. 13,906/-. The case of the assessee was selected for scrutiny and statutory notices were duly issued and served upon the assessee. The upon perusal of the balance sheet observed that the assessee company has issued equity shares to 11 subscribers of face value of Rs. 10/- each at a premium of Rs. 990/- thereby raising Rs. 5,10,00,000/- towards share premium. The AO observed that the assessee is private limited company having a very meager income and thus there was no justification for issuing equity shares at such a high premium. The called upon the assessee to furnish the address proof , utility bills, if any, , net worth ,proofs of source of investments ,bank statements, photo identity and residential proof ,ITR with annual audited accounts and proof of identity , credit worthiness and genuineness of the transactions of share capital/share premium. Besides the summons u/s 131 of the Act was also issued to the directors of the company and also to the share subscribers. However there was no compliance to the said summons on the part of the assessee whereas subscribers duly responded to the summons by furnishing the evidences as called for by the AO comprising copy of ITR, audited report and audited financial statements, and copy of bank statement highlighting the transaction evidencing the payment through banking channels. In some cases the copy of assessment order framed u/s 143(3) of the Act were also filed. The AO however instead of carrying on any further investigation on the evidences filed by the subscribers simply harped on the theory that summons issued u/s 131 of the Act were not complied with and the verification of the share capital received during the year could not be made due to 3 I.T.A. No. 834/Kol/2023 Assessment Year: 2012-13 Manav Trexim Pvt. Ltd. non-compliance on the part of the assessee as well as share holders and subsequently Rs. 5,10,00,000/- was added to the income of the assessee in the assessment framed u/s 144 of the Act. 5. In the appellate proceedings, the assessee filed all the evidences before the Ld. CIT(A) which were forward to the AO for remand report. The ld CIT(A) after taking into account the observations of AO in the remand report allowed the appeal of the assessee. Needless to say that the assessee has filed all the details before the AO in the remand proceedings such as copy of ITR, audited report and audited financial statements, copy of MCA data and copy of bank statement highlighting the transactions in respect of each subscribers. The AO in the remand report, in the remarks column, has stated that in the most of the cases, the directors of the share subscribers appeared and also stated that their statements were recorded. In 4 th column ,the AO gave remarks as given by the Inspector deputed to find out whether the subscribers companies existed on the addresses given. In 7 cases the AO stated that the subscribers were not found on the addresses given whereas in 4 cases the Inspector was not deputed as mentioned at Sl. No. 2 and 3, 7 and the Inspector reported that this company were not found at serial no. 1,4,5,6,8,9 and 11. The Ld. CIT(A) while allowing the appeal of the assessee observed and hold as under: In making investigations in relation to authenticity of share capital/premium, it is imperative to keep the provisions of section 68 in mind. The initial onus for proving the identity and creditworthiness of the share applicants as well as the genuineness of the transaction lies upon the assessee who is claiming that such an investment was received by him. This can be done through the production of evidence in support of the identity and creditworthiness of such an applicant and also by providing sufficient evidence/ reasoning to establish that the said transaction was genuine and not bogus. This adducing of evidence and providing of cogent reasoning has to be such as to provide a satisfaction in the mind of the AO (a prudent person) regarding the bona fides of the transaction. Once this onus is discharged by the assessee, the burden shifts to the AO, who can either agree with the evidence /reasoning produced before him, or can disagree with it. In case of disagreement, the onus shifts to the assessing authority to provide cogent reasoning and/or concrete evidence for his reasons for doing so. In the present case it is found that the corporate share applicants are registered under the companies Act, 1956 and are on the records of Registrar of Companies functioning under Ministry of Corporate Affairs, Government of India and are having Permanent Account Numbers (PAN). They have also been filing their returns with the Income Tax Department. 4 I.T.A. No. 834/Kol/2023 Assessment Year: 2012-13 Manav Trexim Pvt. Ltd. The share applicants had disclosed their PAN along with acknowledgement of submissions of their return of income and furnished audited financial statements. The confirmations and source of funds have been submitted and been examined by the AO in remand. The necessary board resolutions, as well as other material necessary for establishing the identities, creditworthiness and genuineness have also been submitted. In fact it has been pointed out that in 8 out of the 11 investors, scrutiny assessments u/s 143(3) had also been concluded without any adverse inferences, four in the impugned AY and four in the immediately preceding AY. It is also observed that each of the share applicants maintained bank accounts and copies of their respective bank accounts from which they had made payments to the appellant for subscribing to the share issued to them, was filed by each of them before the AO as well in the Paper Book filed before me. Further each of the share applicants accepted the fact that they had subscribed to the shares issued by the appellant at a premium and that such transactions were duly reflected in their respective books of accounts, as well as in their audited Balance Sheets. The AO has accepted all the aspects of the transaction in relation to share capital without pointing out any deficiency. It is found and accepted by the AO that the entire transactions have been through banking channels only, and there are no cash deposits reported in any of the bank statements. The identities of all the parties involved, including the appellant and the investor companies and their directors have undoubtedly been proved. Based upon the above, the AO has accepted the share capital as being genuine. His only objection is that the investing companies did not have the financial wherewithal to invest in the high premium that was claimed to have been paid by them. The basis for this objection has been that in his remand report, he has analysed the financials of four investing companies. He has concluded that they did not show enough profits or taxable income to allow them to invest the large amounts that had been invested as share premium. Therefore, in effect, he has doubted the creditworthiness of these share applicant companies. In this respect, it has to be noted that in order to prove the creditworthiness of a company, it is not always necessary to look only for these investments to have been made from the profits of the company. It is by now an accepted position in law that net profits are not the only indicators of the investment making capacity of an entity. What has to be examined is the net worth of entity as well the availability of money with it. There are plethora of judicial decisions that have expounded this proposition. The Hon'ble Delhi High Court in the case of CIT vs. Vrindavan Farms Pvt. Ltd., etc. ITA.No.71 of 2015 dated 12th August, 2015 (Del.), has observed in this connection that, "The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismissed by the Hon'ble High Court." In the case of Carissa Investment (P) Ltd. Vs ACIT (ITAT Delhi) in ITA. No. 6448/Del./2016 dated 22.01.2021 the Hon'ble Tribunal found that the assessee submitted the audited financial statements, bank statements and assessment orders u/s 143(3) of the creditors. It held that, "Thus, the assessee-company has been able to prove that both the creditors have availability of sufficient funds to give loan to the assessee-company in assessment year under appeal. Merely because income was low declared by both the creditors, is no ground to make the impugned addition against the assessee-company." I find that in ACIT Vs. Brindavan Agencies Pvt. Ltd. (ITAT Delhi) in ITA no. 5272/Del/2016 dated 23.12.2020 for the same AY as the instant one, that is, AY 2012-13, it was held that, 5 I.T.A. No. 834/Kol/2023 Assessment Year: 2012-13 Manav Trexim Pvt. Ltd. “.................it is seen that the appellant has filed sufficient documents e.g. Permanent Account Numbers, bank statements, etc. to establish the identities of the four share applicants. The copies of the bank statements of the share subscribers wherein the transactions are reflected as well as the fact that they are assessed to income tax, along with copies of their final accounts wherein investments made by them in the appellant company are not only shown but constitute a small portion of their total investments, establish the creditworthiness of the parties concerned. The incomes of the four shareholders for the year under appeal may have been meager, as pointed out by the Assessing Officer, but creditworthiness of a party is not gauged merely from income of a particular year. The balance sheets of the four shareholders companies reveal that they had ample share capital to invest in the appellant company. In fact, the Income Tax scrutiny assessments of all four share subscribers were completed in March, 2015, a few days after the finalization of the impugned assessment order and in three of the four cases, the returns filed by them have been accepted, thereby implying that the Assessing Officer of those three companies have accepted the fact of their investment in the appellant company." The same proposition as stated above, has been underlined in very many other cases, several having been cited by the appellant; in fact the same view has been reiterated by the jurisdictional Tribunal in the case of M/s. Evergreen Residency Pvt. Ltd vs ITO, Ward 8(2), Kolkata on 09.08.2019 in ITA no. 416/Kol/2018, in which it was held, "A copy of the chart of source of funds, ITR acknowledgment, Annual Accounts for the FY 2011 12 and the relevant Bank Statement are attached at Page 80108 of the Paper Book. On a perusal of the Balance Sheet, it can be seen that the own funds of the company is Rs. 9,83,20,364/-. This very clearly shows the high creditworthiness of the company to make investment in the assessee company. Further, the entire inflow and outflow of funds was made through regular banking channels as supported by Bank Statements of both the companies." Of particular import is the decision cited by the appellant in the case of ACIT Vs Supreme Placement Services (P) Ltd. (ITATDelhi) in ITA no. 5259/Del/2013 dated 17.03.2021; wherein it was held that: "6.16. The A.O. merely doubted the financial capacity of the Investors because they have reported low income in their return of income. This cannot be the sole basis to doubt the explanation of assessee. It may be suspicion of the A.O. only without bringing any evidence on record. Rather the documentary evidences produced on record clearly support the explanation of assessee. The Hon'ble Bombay High Court in the case of Ami Industries (India) Pvt. Ltd., (supra) has distinguished the Judgment of NRA Iron & Steel (P.) Ltd., (supra) as reproduced above. It may also be noted here that the case of M/s. Adamine Construction Pvt., Ltd., (supra) is connected with the case of Bhushan Steel Group of cases as is also attributed and on identical facts the Tribunal has dismissed the appeal the case of assessee of Revenue and the Order of the Tribunal has been confirmed by the Hon'ble Delhi High Court by dismissing the appeal of the Revenue and the Judgment of the Hon'ble Delhi High Court have been confirmed by the Hon'ble Supreme Court by dismissing the SLP of the Revenue. Therefore, the issue is covered in favour of the assessee by the Judgment of Hon'ble Delhi High Court in the case of M/s. Adamine Construction Pvt., Ltd., (supra). Considering the totality of the facts and circumstances of the case in the light of documentary evidences on record and the decisions referred to above, we do not find any infirmity in the Order of the Ld. CIT(A) in deleting the addition. Accordingly, the appeal of the Department is dismissed." Applying the above discussed propositions of law in this regard, it creditworthiness of the companies are to be examined with companies, which would either justify or not justify the premium paid. Depending upon only one criterion, that of low net profits, could lead to erroneous conclusions based on inadequate appraisal of facts. The appellant has submitted a table of the net worths of the investing companies, derived from the audited balance sheets of these companies. Th produced before the AO and in any case are available on the MCA site. This table, depicting net worths of the share applicants, the amount of money invested by them as well as the proportion of such investments in compariso An analysis of the above table shows all the investing companies had sufficient net worth of their own to make the investments. In most cases the percentage of net worth so a very reasonable level, hovering at around 1% of their net worth. where this percentage is slightly higher, it has gone up to the range of only 5 6 I.T.A. No. Assessment Year: Manav Trexim Pvt. Ltd. bove discussed propositions of law in this regard, it creditworthiness of the companies are to be examined with respect to net worth of these companies, which would either justify or not justify the premium paid. Depending upon only riterion, that of low net profits, could lead to erroneous conclusions based on inadequate appraisal of facts. The appellant has submitted a table of the net worths of the investing companies, derived from the audited balance sheets of these companies. These balance sheets had been duly produced before the AO and in any case are available on the MCA site. This table, depicting net worths of the share applicants, the amount of money invested by them as well as the proportion of such investments in comparison to their net worths, is reproduced as below: An analysis of the above table shows all the investing companies had sufficient net worth of their own to make the investments. In most cases the percentage of net worth so a very reasonable level, hovering at around 1% of their net worth. Even in the two cases where this percentage is slightly higher, it has gone up to the range of only 5 I.T.A. No. 834/Kol/2023 Assessment Year: 2012-13 Manav Trexim Pvt. Ltd. bove discussed propositions of law in this regard, it is found that the respect to net worth of these companies, which would either justify or not justify the premium paid. Depending upon only riterion, that of low net profits, could lead to erroneous conclusions based on The appellant has submitted a table of the net worths of the investing companies, derived ese balance sheets had been duly produced before the AO and in any case are available on the MCA site. This table, depicting net worths of the share applicants, the amount of money invested by them as well as the n to their net worths, is reproduced as below: An analysis of the above table shows all the investing companies had sufficient net worth of their own to make the investments. In most cases the percentage of net worth so-invested is at Even in the two cases where this percentage is slightly higher, it has gone up to the range of only 5-6% of the net 7 I.T.A. No. 834/Kol/2023 Assessment Year: 2012-13 Manav Trexim Pvt. Ltd. worth of the share applicant company - which is not unreasonable. Even though, on this subject, several judicial authorities have already been cited by the appellant in his submissions, while some of them have been discussed supra, I find that it is worthwhile to cite what the Hon’ble Jurisdictional Tribunal of Kolkata has stated on this subject in the decision of the Hon’le ITAT Kolkata in the case of ITO vs. Goodpoint Commodeal (P) Ltd. in ITA No. 1204/Kol/2015 for AY 2012-13 order dated 07.06.2019: “6. Thus, we note that we find all the four share subscribers have been assessed by the Department and that too u/s. 143(3) of the Act and the genuineness of the transactions, cannot be disputed since the payments have been made through banking channel and we note that there cannot be any dispute in respect to worth/own fund in its kitty to invest in the assessee company. It would be creditworthiness of the share subscribing companies since they had sufficient net worthwhile to take note the observation by Hon'ble Justice A. K. Sikri while delivering the judgment in CIT Vs. Mayawati when His Lordship then was in Hon'ble Delhi High court reported in 338 ITR 563 (Del) observed that "The capacity of any person does not mean how they earn monthly or annually but the term capacity is a wide term and that can be pursued by how wealthy he is. All the formalities, as per the law are made by the assessee and donors as well." Therefore, the Hon'ble High Court was pleased to uphold the action of the Tribunal in deleting the addition made by the Department against the assessee Mayawati." It is therefore a settled principle that the creditworthiness of any share applicant cannot be dismissed only on the basis of its annual profits or income without first discussing the financial "capacity" of the investor to make the impugned investment. This financial "capacity to invest" is a function of the investable wealth of the investor, which, in turn, is reflected in the net worth of such an investor. In this context, what also has to be examined is whether, given the net worth of an investor, the amount of investment as a percentage of this net worth was reasonable and plausible or not. Even though an investment decision is strictly a business and strategic decision, and not within the province of the AO's investigations, but, during such an examination, what can be and has to be examined by the AO, is the plausibility of a rational prudent person making the said strategic decision for making an investment. In this case, I find that the investment levels, as compared to the net worths of the investing companies are quite low and acceptable and would not pose a risk to the investing company on account of a significant depletion of its net worth. The AO has also not made any comment upon this aspect or raised any doubts. Besides demonstrating their net worths and that they had invested only a very small proportion of their net worths in the appellant company, all the share applicants have also demonstrated their respective sources and their means for arranging funds from genuine sources for making investment in appellant company. Therefore, in this case the share application money or premium paid by such share applicants companies cannot be treated as unexplained u/s 68 of the Act by holding that the share applicants were not credit worthy since nowhere has it been shown that that the share applicants did not have the required financial wherewithal to make the combined investment in share application as well as premium. This is particularly so when the AO himself has accepted the share capital as genuine and fully explained, in terms of the identity of the share applicants, their creditworthiness and the genuineness of the transaction and the mode of the transaction. The AO has nowhere made a comment regarding the fact that all the share applicants explained the source of funds in their respective replies filed in response to summon u/s 131 8 I.T.A. No. 834/Kol/2023 Assessment Year: 2012-13 Manav Trexim Pvt. Ltd. of the Act and also by appearing personally before the AO. The facts furnished on record by the share applicants, in the context of the aforesaid discussions, clearly bring on record their capacity for making such payments and accordingly the criteria of their creditworthiness is also explained. As already discussed above that it is uncontroverted that all the 11 share applicants in their respective replies furnished copies of their income tax return acknowledgements evidencing filing of income tax return, copies of their audited accounts including Balance Sheet wherein such investments, made by each of them by virtue of the subscription of share capital issued by the appellant, are duly reflected and also copies of their bank statements for the relevant period from which such subscription monies were paid by them respectively and copy of the allotment advise received by them from the appellant in respect of shares allotted to them. Return of allotment as well as the annual return for the AY 2012-13 filed by the appellant with the Registrar of Companies, Ministry of Corporate Affairs, further categorically establishes the fact of allotment of shares to the share applicants. It is further observed that the net worth of each of the share applicants as disclosed in their Balance Sheets, far exceeded the amount of investments (share application as well as premium) made by them in the shares of the appellant company. These discussions clearly prove the creditworthiness of these investing companies. The aforesaid facts, duly supported by concrete evidences, establish the identity of the share applicants, their capacity, source of funds, as well as the genuineness of the transactions in relation to the share capital including the share premium subscribed to by each of them. But before ascertaining if the burden which lay on the appellant, in relation to sec 68 of the Act, has been duly discharged by it, one aspect of this case has also to be considered. This relates to the appellant's contention that even though the statutory requirement for explaining the source of source of share capital/premium was inserted in the statute only from 01.04.2013 and this being there AY 2012-13, there was no statutory onus cast upon the appellant to explain the source of source to the satisfaction of the AO, the appellant had in fact provided the AO with the source of source during assessment as well as during remand. This is despite the fact that the said proviso to section 68 of the Act, making it incumbent upon the assessee to provide a satisfactory explanation for the source of source was introduced only from 01.04.2013, and therefore this requirement did not exist for the impugned AY. This last has been discussed at length in Kanchan Plywood Products Pvt. Ltd. -vs.- ITO (order dated 01.05.2019, Kolkata ITAT). In this connection, the Hon'ble Bombay High Court has gone into an in-depth discussion of the matter. In CIT vs Gagandeep infrastructure (p.) Ltd in Income Tax appeal number 1613 OF 2014, in a decision delivered on 20.03.2017, the Hon'ble Court has examined the issue of retrospectively or otherwise of the amendment to section 68 of the Act via which the proviso to the said section was inserted from 01.04.2013. The facts in this case were that during the previous relevant to the subject Assessment Year the assessee had increased its share capital from Rs.2,50,000/to Rs.83.75 lakhs. During the assessment proceedings, the Assessing Officer noticed that the respondent had collected share premium to the extent of Rs.6.69 crores. Consequently he called upon the respondent to justify the charging of share premium at of the share application form, copy of share certificate and Form no.2 filed with the Registrar of Companies. The justification for charging share premium was on the basis of the future prospects of the business of the assessee. The Assessing Officer did not accept the explanation/justification of the respondent and invoked Section 68 of the Act to treat the amount of Rs.7.53 crores i.e. the aggregate of the issue price and the premium on the shares issued as unexplained cash credit within the meaning of Section 68 of the Act. This addition was deleted by the CIT(A) and the Tribunal. Before the High Court, the department contended that the proviso to Section 68 of the Act which was introduced with effect from 1st April, 2013 would apply in the facts of the present case even for A.Y. 2008-09. The basis of the above submission was that the de hors the 9 I.T.A. No. 834/Kol/2023 Assessment Year: 2012-13 Manav Trexim Pvt. Ltd. proviso also the requirements as set out therein would have to be satisfied. HELD by the High Court dismissing the appeal: (i) 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. (ii) 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.317 ITR 218 in the context to the pre amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer 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." The above is then the settled position of law for cases pertaining to 2012-13 and earlier. I find that in the instant case, the AO, either during assessment or during remand, has not expressed any dissatisfaction with the explanation offered by the appellant, when the latter was explaining the source of source. Therefore, even though there was no legal requirement cast upon him to do so, the appellant has nevertheless provided the AO with the source of source without eliciting any adverse comment from him. In these circumstances it cannot be held that the appellant did not discharge the onus cast upon him u/s 68 of the Act. Per contra, I find that there is no evidence on record to show that the identities of the share applicants are doubted by the AO and / or that anything has been brought on record by him to show that the introduction of share capital by them was not genuine and / or the source of investment was not fully explained by the appellant to the satisfaction of the AO. Once the appellant has duly discharged the onus cast upon him in this context, it was incumbent upon the AO to bring evidence and/or reasoning on record to show that the explanations offered by the appellant were not satisfactory and could not be accepted by a prudent reasonable person. A close the remand report does not reveal that documents filed by the appellant to establish perusal of observations and findings recorded in the assessment order as well as in identity, creditworthiness of share subscribers as well as genuineness of transactions have either been proved to be bogus or false or otherwise shown to be deficient by the AO. It is observed that during assessment, the AO based his premise, that the impugned transactions were bogus, upon only two facts: the first was that the director of the appellant company. who was summoned, did not make a personal appearance. This objection, it has already been noted earlier in this order, has been duly addressed during the remand stage when not only the director of the appellant company but also the directors of all the investor companies made personal appearances and depositions before the AO. At this stage the directors of the share 10 I.T.A. No. 834/Kol/2023 Assessment Year: 2012-13 Manav Trexim Pvt. Ltd. applicant companies were examined with reference to the documentary evidences furnished by the appellant as well as by taking into consideration the documents submitted by the directors of the investing companies. Based upon these investigations and enquiries the AO has duly accepted the share capital amount received from the share applicants as being genuine, but has treated only the share premium amount as being unjustified. This latter brings us to the second objection of the AO. The second objection of the AO during assessment has been reiterated by the AO in remand. This is that the financials of the investing companies did not show that they were capable of paying such high amounts in premiums. What this implies is that while the AO accepts in remand that the investing companies could be considered creditworthy if only the payment of share capital was the question, they were not creditworthy enough for the payment of the premiums, since these amounts were very large. This question has also been discussed at length earlier in this order, and it is found that the creditworthiness of the share applicant companies had to be gauged on the basis of their net worths and the associated money investing capacity and not on the basis only of their net profits. It was therefore found that the said companies possessed the necessary creditworthiness. Therefore, it is difficult to see how this addition could have been made u/s 68 of the Act. Coming to another aspect of this matter, which, even though not explicitly raised by the AO, is pertinent in cases like the present one. This pertains to the question whether, since the said amount of share premium could not be added u/s 68, it could have been added u/s 56(2) of the Act; since section 56(2) (viib) envisages a situation where a company receives consideration for issue of shares which is in excess of the fair market value of the shares, then such consideration can be added to his income under this clause as income from other sources. The appellant, in this connection, has explained that although the justification for premium was not a requirement of law during the relevant assessment year but even then the share premium has been justified by the appellant with reference to the explanation filed by it with reference to relevant facts and figures. It has been explained that this premium was paid on account of the anticipated future prospects of the appellant company and the fact that it was felt by the investing companies' Boards that it would be prudent to invest in the appellant company. I find that this case relates to assessment year 2012-13 and clause 56(2) (viib) of the Act was introduced in the statute only from AY 2013-14 onwards. Thus, this matter relates to periods before the introduction of section56(2)(viib) of the Act. I find that the cases of Green Infra Ltd (supra); CIT-v.- Gagandeep Infrastructure (P.) Ltd. (Bom) (supra) and in the case of Trend Infra Developers Pvt Ltd, ITA- 2270/KOL/2016- which is the jurisdictional Tribunal, along with several other decisions also cited supra, the issue of retrospective application of amendments, both, in section 68- the insertion of the Proviso to that section, as well as in section 56(2) the insertion of clause viib, have been discussed and adjudicated upon. It has been held by the judicial authorities that since the said amendments were made from 01.04.2013, they would have prospective effect and that they could not be applied to AYS 2012-13 or earlier, since they were not declaratory clarificatory or were for "the removal of doubts" or were expressly held by the Parliament to be applied with retrospective effect. Therefore, the share premiums could not be added u/s 56(2)(viib) of the Act- even though it may fairly be stated that the AO has not tried to take this view either in his assessment order or in the remand report. In conclusion, I find that the AO has not doubted the identities, and creditworthiness of same set of share subscribers from whom the appellant accepted share capital, but has doubted the payment of high share premium. In my considered view, as per the discussions above, this is not permissible in law. A transaction cannot be partly accepted and party held to be unexplained based on the results of the same enquiries conducted by the AO in respect of same entities who have not only furnished documentary evidences but also appeared personally before the AO who examined them u/s 131 by recording their statements. This could only have been done if the AO, either in assessment or in remand, would have brought on record that while the investing companies had enough financial wherewithal to invest in the share capital, they did not have the capacity to pay the premium. This has not been done by the AO at any stage and is in any 11 I.T.A. No. 834/Kol/2023 Assessment Year: 2012-13 Manav Trexim Pvt. Ltd. case, as discussed above, not borne out by the net worths and investing capacities of the investing companies. In my considered view, therefore, where the identity, creditworthiness of the shareholders and the genuineness of the transactions, as far as share capital is concerned, have been established within all the dimensions of legal enquiry, it could not be held to be an unexplained or bogus transaction insofar as it relates to the share premium, without bringing on record compelling reasons for doing so. This last has neither been done in assessment or in remand or is indeed discernible from the entire material on record. Further the AO's reliance upon the decision of Supreme Court in Principal CIT vs. NRA Iron & Steel (P) Ltd reported in 412 ITR 161 is in my opinion misplaced, even though the addition made towards cash credit was rendered in favour of the revenue in that case. It is noted that the said decision is factually distinguishable as in the appellant's case all the share applicants appeared personally u/s 131 and filed documentary evidences and the AO after conducting independent enquiries has accepted the share capital from the same set of share applicants. In the instant case, all the share applicants had confirmed their investment with the appellant and as such, there was no basis for the AO to come to any adverse conclusion and accordingly, the entire amount received by the appellant on account of share application as well as share premium monies could not have been regarded as undisclosed income u/s 68 of the Act. The only question that could have been raised and indeed the remand report had raised this solitary issue, that whether the investors had the financial capacity to pay the premiums that had claimed to have been paid. This question has already been discussed at length in this order and answered in the affirmative that is, the investors had indeed demonstrated their financial capacity to pay the premiums before the AO. In view of the above, I also find that the AO has been placing reliance upon the case of CIT vs Nipun Builders & Developers Pvt to add weight to his addition. I find that the facts of this case were that in the course of the reassessment proceedings, enquiries were sought to be made by the Assessing Officer (AO); summons u/s. 131 were issued on 14.09.2007 to the companies from whom the share capital was stated to be received and they were returned unserved with the remarks "no such company"; the inspector sent to the addresses for verification confirmed the fact. In view of this, the assessee was asked to produce the principal officer of the companies who had subscribed to the shares along with the relevant details. In response, the assessee filed a letter dated 21.11.2007 at the "dak" counter of the office of the AO stating that all the notices of the annual general meeting and call notices for shares were being sent to the same addresses of the share subscribers under certificate of posting and they have not come back unserved, implying that the share subscribers did exist at the addresses the given to the AO. It was also submitted that the capital was subscribed through account payee cheques with valid share application forms, copies of memorandum of association and board resolutions. It was pointed out that the registered offices of the companies could be found in the website www.mca.gov.in. and the AO may visit the site for further verification. These submissions were not accepted by the AO as constituting satisfactory explanation of the nature and source of the monies as required by Section 68 of the Act. He held that the genuineness of the transactions was not proved by the assessee and brought to tax the share application money of 1,47,00,000/- to tax; commission of 2.5% on the amount, which worked to 3,94,500/- was also added on the ground that the assessee would have paid the same to get the accommodation entries of share capital. The matter ultimately found its way before the Hon'ble Delhi High Court before whom the revenue preferred an appeal. The following substantial question of law is framed: "Whether the Tribunal was right in law in upholding the order of the CIT(A) deleting the addition made u/s. 68 of the Act on the ground that the assessee has proved the nature and source of the share subscription amounting to 1,47,00,000/- and has established the identity and creditworthiness of the share subscribers and the genuineness of the transactions?" 12 I.T.A. No. 834/Kol/2023 Assessment Year: 2012-13 Manav Trexim Pvt. Ltd. The revenue contends that the Tribunal failed to appreciate that the assessee could not establish satisfactorily the nature and source of the monies received as share capital nor could it discharge the onus of proving the identity and creditworthiness of the share subscribers and the genuineness of the transactions which are the fundamental requirements of section 68. The Hon'ble Court made the following observations in this regard: “......... 7. We are in agreement with the contention of the revenue. Under Section 68 the onus is upon the assessee to prove the three ingredients, i.e., identity and creditworthiness of the person from whom the monies were taken and the genuineness of the transaction. As to how the onus can be discharged would depend on the facts and circumstances of each case. It is expected of both the sides the assessee and the Assessing authority to adopt a reasonable approach. The assessee here is a private limited company. It cannot issue shares in the same manner in which a public limited company does. It has to generally depend on persons known to its directors or shareholders directly or indirectly to buy its shares. Once the monies are received and shares are issued, it is not as if the share- subscribers and the assessee-company lose touch with each other and become incommunicado. Calls due on the shares have to be paid; if dividends are declared, the warrants have to be sent to the shareholders. It is a continuing relationship, even granting that it may not be of the same degree in which it exists between a debtor and creditor. The share- subscribers in the present case have each invested substantial amounts in the assessee's shares, as the chart at pages 2-3 of the assessment order would show. Most of them, barring two or three, are themselves private limited companies. It cannot therefore be contended, as was contended before us on behalf of the assessee, that if the summons issued u/s. 131 to the subscribing companies at the addresses furnished by the assessee returned unserved, the AO is duty-bound to enforce their attendance with all the powers vested in him. The unreasonableness of such a general proposition is writ large in the face of the contention. The assessee-company received the share monies; it even says that the communications sent by it at the addresses did not return unserved, yet when the AO requested it - that too only after trying to serve the summons unsuccessfully to produce the principal officer of the subscribing companies, the assessee developed cold feet and said it cannot help if those companies did not appear and that it was for the assessing officer to enforce their attendance. It needs to be remembered that the AO did not merely stop with issuing summons; he followed it up with a visit by the inspector who confirmed that no such companies functioned from the addresses furnished by the assessee. Let us see the attitude of the assessee towards discharging its onus in such circumstances. It says that the AO may get the addresses from the ROC's website. We do not think that an assessee can take such an unreasonable attitude towards his onus u/s. 68, little realising that when the finding is that the subscribing companies have not been found existing at the addresses given by the assessee, it is open to the AO to even hold that the identity of the share-subscribers has not been proved, let alone their creditworthiness and the genuineness of the transactions. It was not open to the assessee, given the facts of this case, to direct the AO to go to the website of the company law department/ROC and search for the addresses of the share-subscribers and then communicate with them for proof of the genuineness of the share subscription. That is the onus of the assessee, not of the AO." It is clear from the above pronouncement that an appellant is duty bound to explain the identity, creditworthiness of the share applicants and the genuineness of the transaction. In the circumstances of investments in private limited companies made 13 I.T.A. No. 834/Kol/2023 Assessment Year: 2012-13 Manav Trexim Pvt. Ltd. through private endeavors and personal basis it is obligatory for the appearance of the share investors. In the instant case there was full compliance by the directors of the appellant as well as directors of investor companies to notices u/s 131 of the Act. In addition, the AO himself found positive results to his filed enquiries conducted through the departmental inspector. The source of source was also given to the before the AO. There are was no objection from the AO to any of the above. None of these conditions had been met in the case of CIT vs Nipun Builders &Developers Pvt . (Supra). Therefore the reliance of the AO upon the above citation is misplaced. If anything the said judgement goes in favour of the appellant. Similarly, the other citations relied upon by the AO also do not help him since the facts and circumstances in these cases are materially different from the instant case. The AO has relied upon CIT Vs NR Portfolio of the Hon'ble Delhi High Court to buttress his claim that if an assessee does not produce evidence or tries to avoid appearance before the assessing officer then an adverse view would be taken against such an assessee. But this is not true in the present case where all compliances were made along with personal appearances etc. In view of the above discussions and in the present facts and circumstances of this case, I cannot lend legal support to the impugned additions made by invoking the provisions of sec. 68 by the AO in the facts and circumstances of this case and accordingly, direct that these additions be deleted. Thus, these grounds of appeal are allowed. प/रणाम म1 अपील प ू र3 तरह से वीकार क$ जाती है। The appeal in the result is allowed.” 6. The Ld. D.R vehemently argued that the Ld. CIT(A) has erred in allowing the relief to the assessee by ignoring the fact on records as the assessee did not appear in the original assessment proceedings nor complied to various notices and summons issued u/s 131 of the Act though in the remand proceedings the assessee filed all the evidences as well as most of the subscribers were examined. The Ld. D.R while admitting that in some cases, the statements of the subscribers as well as of the assessee were recorded and in 8 cases these subscribers companies were even assessed to tax and assessment were framed u/s 143(3) of the Act. The Ld. D.R however stated that the mere filing of returns, copy of audited accounts or bank statements could not automatically prove the genuineness of the transactions and creditworthiness of the subscribers. The Ld. D.R stated that these companies have meager sources to invest in the assessee company. Moreover there was no justification for the assessee to issue shares at such a high premium. Therefore the Ld. CIT(A) has 14 I.T.A. No. 834/Kol/2023 Assessment Year: 2012-13 Manav Trexim Pvt. Ltd. wrongly allowed the appeal which may kindly be reversed and the order may kindly be restored. 7. The Ld. A.R vehemently submitted before us that in the remand proceedings, the AO has not carried out any further verification however reiterated his opinion that the premium paid by share subscriber were not justified and stated that with the share capital may be treated as expenditure whereas the share premium may be treated as unexplained cash credit u/s 68 of the Act. The Ld. CIT(A) dismissed the appeal of the assessee without doing any further verification or given its finding on the issue. 8. Per contra , the Ld. A.R while admitting that though the assessee could not file any evidences in the scrutiny proceedings and the assessment was framed u/s 144 of the Ac, however in the remand proceedings all the evidences were filed before the Ld. Before AO comprising of copy of ITR, audited report and audited financial statement, copies of MCA data and bank statement highlighting the transactions in respect of each subscribers. The ld AR stated that the Ld. CIT(A) also forwarded these evidences to the AO for remand report. The remand report was submitted by the AO vide letter dated 6.7.2022 wherein the AO stated that in some cases the share subscribers appeared personally and their statements were recorded. In three cases the AO stated that the subscribers filed all the evidences but did not appear. The AO also referred to the letters in those cases where the share subscribers were found on their addresses when the Inspector who was deputed by the AO reported that the few subscribers were there on the address whereas in some cases share subscribers could not be found. The Ld. A.R vehemently submitted that findings of the ld AO in the remand report were as in 8 cases out of 11, the assessments were framed u/s 143(3) of the Act sand the assessment orders were also filed before the authorities below. The Ld. A.R submitted that all these details such as copies of ITRs, audited reports and audited financial statements, summons u/s 131 and replies thereto, copies of MCA data and copies of bank statements highlighting the transactions in respect of each subscribers are also being filed from page 29 to 285 in PB in respect of all subscribers which proved that these were assessed to tax and their credentials are substantially proved 15 I.T.A. No. 834/Kol/2023 Assessment Year: 2012-13 Manav Trexim Pvt. Ltd. with the credible evidences. The AO has failed to carry out any further verification on these evidences filed by the assessee as well as by the subscribers and even stated in the remand report share capital may be treated as explained whereas share premium is not justified and may be treated unexplained u/s 68 of the Act. The ld AR finally prayed that the ld CIT(A) after taking into account all these aspects allowed the appeal of the assessee by passing a reasoned order which may kindly be upheld by allowing the appeal of the assessee. 9. We have heard the rival submissions and perused the material on record including the remand report and impugned appellate order. We find that in the original assessment proceedings the assessee did not appear before the AO nor any compliance was made to the summons issued u/s 131 of the Act. However in the appellate proceedings the Ld. CIT(A) called for these evidences from the assessee and which were duly filed comprising of copy of ITR, audited report and audited financial statements, summons u/s 131 and reply thereto copy of MCA data and copy of bank statement highlighting the transaction in respect of each subscribers. The Ld. CIT(A) called for a remand report which was filed by the AO vide letter dated 12.07.2022 a copy of which is filed at page 21 to 27 of PB. We note that in the remand report the AO has examined the directors of most of the share subscribing companies. We even note that the assessment u/s 143(3) were framed in 8 subscribers which were also filed before the AO during the remand proceedings. Finally the AO stated in the remand report that share capital may be treated as explained whereas the share premium charged by the assessee is without any justification and may be treated as unexplained u/s 68 of the Act. The Ld. CIT(A) ,after looking into various evidences and also the remand report filed by the AO and contentions of the assessee, came to the conclusion that the assessee has satisfied all the ingredients of Section 68 of the Act while allowing the appeal. The Ld. CIT(A) analyzed the credentials of the subscribers through financial data. Having considered this fact on record, we are of the view that the Ld. CIT(A) has taken a reasoned view by passing a detailed and speaking order which does not require any interference at our end. Moreover the 16 I.T.A. No. 834/Kol/2023 Assessment Year: 2012-13 Manav Trexim Pvt. Ltd. contentions of the revenue does not carry any force when the AO has examined all the details, evidences, share subscribers and issued summons u/s 131 of the Act. In most of the cases we observe that where the subscribers did not appear personally , they filed all the details/evidences in compliance to summons issued u/s 131 of the Act. Meaning thereby that the identity, creditworthiness of the subscribers and genuineness of the transactionswere substantially proved. We also note that the ld CIT(A) has also considered the issue that there is no bar on issuing shares at a price higher than the FMV in the instant assessment year as provisions of section provisions of section 56(2)(viib) of the Act are effective from assessment year 2013-14. While allowing the appeal of the assessee we observe that the ld. CIT(A) has relied on a series of decisions as discussed by ld CIT(A) in his order and also distinguished the Hon’ble Apex Court decision in the case of CIT Vs NRA Steel 412 ITR 161(SC). In our opinion the ld CIT(A) arrived at a correct conclusion after considering all the facts of the assessee’s case and the ratio laid down in various decisions as referred to in the appellate order. Therefore, we do not find any merit in the appeal of the revenue and consequently the same is dismissed. 10. In the result, the appeal of the revenue is dismissed. Order is pronounced in the open court on 5 th January, 2024 Sd/- Sd/- (Sonjoy Sarma /संजय शमा ) (Rajesh Kumar/राजेश क ु मार) Judicial Member/ या यक सद य Accountant Member/लेखा सद य Dated: 5 th January, 2024 SM, Sr. PS 17 I.T.A. No. 834/Kol/2023 Assessment Year: 2012-13 Manav Trexim Pvt. Ltd. Copy of the order forwarded to: 1. Appellant- DCIT, CC-3(2), Kolkata 2. Respondent – Manav Trexim Pvt. Ltd., Basil Heights, 3 rd Floor, 3C, U. N. Brahmachari Street, Loudon Street, West Bengal-700017 3. Ld. CIT(A)-21, Kolkata 4. Ld. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail) True Copy By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata