newsletter september 15 - puneicai - pune branch of...

2015

SEPTEMBER

Pune VOL - IV - Issue No. 9

Tolerance is the highest degree of our strength, and desire to take revenge is the first sign of our weakness.

TWO- DAYS AWARENESS PROGRAMME ON IND AS/ IFRS

CA. Mohan R. LaviSpeaker

CA. Parag KulkarniSpeaker

CA. Yogesh LimayeSpeaker - Lecture Meet on Black Money Act-2015

CS. Ravi Bhushan KumarSpeaker

CS. Mahesh AthavaleSpeaker

CA. D. G. KurundwadkarSpeaker

CA. Balasaheb Bhide & CA. Samir BhideGuest for Meritorious Student�s

Felicitation Programme

CA. Sandeep DeshpandeSpeaker

CA. Laxmikant AgarwalSpeaker

Newly Qualified Chartered Accountants

WORKSHOP ON THE COMPANIES ACT 2013

CAMPUS PLACEMENT ORIENTATION PROGRAMME

2News Letter Pune Branch of WIRC of ICAI/September 2015

LECTURE MEET ON BLACK MONEY ACT-2015

CS. Anagha AnasingarajuSpeaker

CA. Pramod JainSpeaker

CA. Dilip SatbhaiSpeaker - Lecture meet on Basics of

Foreign Exchange Management Act 1999 (FEMA)

CA. Jetho KhemaniSpeaker

CA. Kaustubh RoplekarSpeaker

CA. Madhav SamantSpeaker

CA. Suresh MehtaSpeaker

If you do not make the time to work on creating the life you want, you will be eventually going to be forced to spend a lot of time dealing with a life you don't want.

Dear Members, Greetings of the Season!

The Teacher's Day that is celebrated every year on 5th September, to offer the respect and reverence to the former President of India and the great philosopher Dr. Sarvepalli Radhakrishnan on his birthday, provides us an occasion to remember and offer gratitude to all those people who taught us and shaped up our thoughts and provided invaluable inputs for the achievements in our academic / professional life and helped us to understand the meaning of human existence and dignity. And also a feeling of being a Student forever, A very useful massage for everybody to be followed throughout our life is " The Whole World is a University, Everybody is our Teacher, we are Lifetime Students".

When this Newsletter lands in your office you and your team would be all engrossed in the perpetual work of Tax Audits, Company Audits, and Income tax returns filing; and also eager to know whether the dates of submission of Income tax Returns are been postponed, and whether any extension will be announced for TAX Audits by the Income tax Department, and hopefully simultaneously cherishing the Shree Ganesh festivities around. The month of August as usual was filled with joy and celebrations at Branch. We followed the tradition of celebrating the Independence Day on 15th August with all patriotism &enthusiasm by paying respect and honor to our tricolor and reassuring our promise to be partners in nation building. From this year the Branch Managing Committee also started a tradition of felicitating the meritorious students passed in CA exams on 15th August through the various donations received from Branch Members.

The CPE Programmes and other events organized for members in August were Two- Days' Awareness Programme on Ind AS/ IFRS,

Advanced Excel Workshops, Lecture Meets on Black Money Act-2015, Merge to Emerge-Strategies for CA Practice Development, Merger & Acquisitions. The programmes for students included industrial visit to Serum Institute of India Ltd., Hadapsar, which was very informative from the view point of exports and their marketing strategies, Lecture meets/series on topics like Amendment to Companies Act, Auditing Standards, Tax Audit, ISCA, and the series of Workshop on Employment and Career Guidance in association with Department of Commerce, Savitribai Phule Pune University. This year Pune Branch have taken up more than forty Career Counseling sessions in Pune and nearby Pune City School and Colleges. The Campus Placement Programme at Pune was organized by the Committee of Members in Industry, ICAI. Many newly qualified Chartered Accountants, from outside Pune have participated in the Campus Placement Programme.

The forthcoming programmes planning and displaying on Branch website for the coming months will be continued and hence please keep visiting our website www.puneicai.org from time to time and also, please make maximum use of the dedicated email id [email protected] where you can send email for any of your query/enquiry. While concluding this communiqué, we extend best wishes for your successful and timely completion of all the tasks of audits and filing of returns. Thanking you. With best regards�..!

Managing CommitteePune Branch of WIRC of ICAI

Plot No. 8, Parshwanath Nagar, CTS No. 333, Sr. No. 573, Munjeri, Opp. Kale hospital, Near Mahavir Electronics, Bibwewadi, Pune 411 037

Tel: (020) 24212251 / 52Web: www.puneicai.orgEmail: [email protected]

PUNE BRANCH OF WIRC OF ICAI

Managing Committee Communiqué

LECTURE MEET ON MERGER & ACQUISITIONS

Dr. Haresh ShahSpeaker

CA. Nitin GutkaSpeaker

CA. S. S. Dhamne CA. K. D. Gargote

CONGRATULATIONS FOR RECOGNITION IN SOCIAL SERVICE BY WIRC OF ICAI


Cold Storage Project and subsidy Consultancy

Preparing financial project report of cold storage

Preparing Techno-Economic viability report of cold storage

Arranging Bank Finance for cold storage

Availing NHB/NHM subsidy @ 35% or 50% of cost cold storage as per location

Availing Venture capital Assistance maximum up to Rs. 50 Lac as Interest free soft loan.

Availing State Govt. Subsidy for cold storage

Turn key solution from concept to commissioning of cold storage.

WE PROVIDE FOLLOWING SERVICES

Contact: Mr. G. B. ModiKhandesh BPO Services Pvt. Ltd.

Phone: +91-9422285096, +91-9923205127 | E-Mail: | [email protected]

The biggest enemy of success is �Fear of failure�. So when fear knocks at your door, send courage to open the door and success will wait for you.

NA 7th To 15th Sept, 2015Study circle meet for CPT Students on the topic Law for CPT

ICAI Bhawan Bibvewadi, Pune-37

6 PMTo

7:30 PMNA

11th To 13th Sept, 2015

Seminar for Students on the topic Accounting Standards


7:30 AMTo

12:30 PMNA

12th Sept, 2015Investor Awareness Programme Jointly with ROC, Pune

Pudumjee Hall, in Mahratta Chamber Of

Commerce Industries & Agriculture, Tilak Road,

Pune

5 PMTo

7 PMNA

12th Sept,2015Seminar on Clause by Clause Analysis of Form 3CD


10 AMTo

1 PM

Rs. 300/-(per member)

Rs. 100/-(Per Students)

25th Sept, 2015Seminar on Transfer Pricing


5 PMTo

8 PMRs. 300/-

3rd Oct, 2015Seminar on CENVAT Credit � An Overview


5 PMTo

8 PMRs. 300/-

10th & 11th Oct, 2015Workshop on Advanced Power Point

IIFA Campus917/15 A, Vikas A, Ganeshwadi, Behind British Library, FC Road, Shivajinagar,

Pune 411004.

9:30 AMTo

5:30 PMRs. 2100/-

NA

2 Hrs

3 Hrs

12 Hrs

3 Hrs

3 Hrs


Life always lies between affection and ego; Affection says: let's say sorry but ego says: let them say �sorry". Identifying the difference can save relations.

COMPLIANCE CALENDAR FOR SEPTEMBER - OCTOBER, 2015

15th September, 2015 Advance Income Tax payment - Companies (45%), Other assessees (30%) - ITNS 280

PF epayment of August, 2015

21st September, 2015 ESI payment of August, 2015

MVAT and CST return for August, 2015 -Form 231-235, CST 1

MVAT and WCT TDS payment of August, 2015

22nd September, 2015 Issue TDS certificate u/s 194-IA for August, 2015 TDS deducted - Form 16B

30th September, 2015 Efiling Tax Audit report for AY 2015-16 - Forms 3CA/3CB and 3CD

Efiling MAT Audit report for AY 2015-16 - Form 29B

Filing Income tax returns for AY 2015 - 16 - ALL Assessee's with audit

Filing Wealth tax return for AY 2015 -16 - ALL Assessee's with audit - Form BB

Profession Tax and return for August, 2015 - MTR-6, FORM IIIB

6th October, 2015 Service tax epayment for month/quarter ended September,2015 - GAR-7

7th October, 2015 TDS/TCS payment of September, 2015 - ITNS 281

Submitting Forms 15G, 15H, 27C received in September, 2015 to IT Commissioner

10th October, 2015 Excise return for September, 2015 including SSI units quarterly return - ER-1/2/3/6

STPI MPR Performance report for September, 2015

15th October, 2015 TDS return for quarter ended September, 2015 - Non Govt. deductorsTCS return for quarter ended September, 2015 - ALL deductorsForms 24Q, 26Q, 27Q, 27EQ

STPI QPR for quarter ended September, 2015

PF epayment of September, 2015

Compiled by CA. Amruta Saswadkar, Pune. [email protected]

DATE PARTICULARS

GIVING ADVANCE TO BUILDER CONSTITUTES "PURCHASE" OF NEW HOUSE EVEN IF CONSTRUCTION IS NOT COMPLETED AND TITLE TO THE PROPERTY HAS NOT PASSED TO THE ASSESSEE WITHIN THE PRESCRIBED PERIOD

CA. Suraj R. Agrawal [email protected]

Hasmukh N. Gala vs. ITO (ITAT Mumbai)

Giving advance to builder constitutes "purchase" of new house even if construction is not completed and title to the property has not passed to the assessee within the prescribed period.

A) Facts of the case:

a. Assessee is an individual who is engaged in the business of trading in glass.

b. In the return of income filed for the assessment year under consideration, assessee had declared sale of a residential property vide sale agreement dated 8/12/2009 for a total consideration of Rs.1,02,55,000/-.

c. After considering the indexed cost of acquisition of Rs.14,17,904/-, the long term capital gain was computed at Rs.88,37,096/-.

d. The relevant capital gain was claimed as exempt under section 54 of the Act on the strength of having acquired a new residential house.

e. The investment in acquisition of the new residential house was claimed by the assessee based on an advance of Rs.1.00 crore given to the builder as booking advance through a cheque dated 6/2/2010.

f. The Assessing Officer was of the view that giving of advance could not be treated as equivalent to 'purchase' for the purpose of section 54 of the Act, because no agreement was executed and that the advance money could be returned at any time.

g. The CIT (A) concluded that for the purpose of section 54 of the Act the term 'purchase' cannot be equated to 'giving of advance'.

B) Issue put before ITAT Mumbai:

The controversy is as to whether under these facts assessee can be said to have purchased the new property so as to entitle him for exemption in relation to the amount spent towards the new property under section 54 of the Act and understanding of the expression 'purchase' contained in section 54 of the Act.


Raise the level of your words but not the voice. For it is the rain that grows flowers and not the thunder.

C) Contentions of Appellant:

a. The claim of the assessee has been unjustly denied by the lower authorities.

b. It has been pointed out that assessee had duly invested the amount in acquisition of a new residential property and the delay in completion of construction by the builder was beyond the control of the assessee.

c. It was pointed out that assessee had furnished the allotment letter in respect of the specific flat allotted by the builder and a copy of the same was also placed in the Paper Book.

d. It was emphasized that complete amount of consideration was paid to the builder and there was no requirement to produce an agreement when the letter of allotment along with proof of payment clearly established that assessee had invested towards acquisition of a new residential house.

D) Contention by Revenue:

a. DR appearing for the Revenue has relied upon the conclusion drawn by the lower authorities by relying on the reasoning taken thereof.

b. The plea of the Revenue is that no purchase deed was executed by the builder and that there was only an allotment letter issued.

c. As per the Revenue the advance could be returned at any time and, therefore, the assessee may lose the exemption under section 54 of the Act.

E) Ruling of Honorable ITAT Mumbai:

The aforesaid contention of revenue does not militate against assessee's claim for exemption in the instant assessment year, as there is no evidence that the advance has been returned.

In case, if it is found that the advance has been returned, it would certainly call for forfeiture of the assessee's claim under section 54 of the Act.

In such a situation, the proviso below section 54(2) of the Act would apply whereby it is prescribed that such amount shall be charged under section 45 as income of the previous year, in which the period of three years from the date of the transfer of the original asset expires.

In view of the aforesaid discussion and on the basis of material and evidence on record, ITAT Mumbai find that the assessee can be said to have complied with the requirement of section 54 of the Act; and, the exemption has been incorrectly denied by the lower authorities.

Appeal of the assessee is allowed.

F) Key Take Away

Giving advance to builder constitutes "purchase" of new house even if construction is not completed and title to the property has not passed to the assessee within the prescribed period.

ASSESSMENT OF SHARE CAPITAL & SHARE PREMIUM UNDER DIRECT TAXESCA. Bhupendra Shah

[email protected]

1) Introduction :

a) Justice Oliver Wendell Holmes once said, "Taxes are what we pay for civilized society including the chance to insure". The same feeling was echoed by President Roosevelt in a speech given on a topic of Tax Evasion when he said "taxes are what we pay for civilized society, too many individuals however want the civilization at a discount". Another American judge, Felix Frankfurter similarly said "I like to pay taxes. With them I buy civilization". Thus, taxes are considered as our dues to the State for ensuring us to live in a civilized society that is democratic, provides opportunities and creates huge infrastructures such as roads, railways, highways, education system, health system, power grids, national security, police, economy, etc. Our taxes maintain them.

b) Salomon v. Salomon & Co. (1896), [1897] A.C. 22 (H.L.) is a foundational decision of the House of Lords in the area of company law. The effect of the Lords' unanimous ruling was to firmly uphold the concept of a corporation as an independent legal entity, as set out in the Companies Act 1862.

c) Many a times, the Assessing Officer or the higher authority doubts the genuineness of the amount credited to share capital and/or premium received on issue of shares, particularly in case of closely held companies.

d) In the past, this issue had come up as to whether the amount credited to share capital and/or share premium account on allotment of shares can be treated as undisclosed income of the company on the ground that the shareholders are not genuine and whether to such an amount provisions of S. 68 of the Income-tax Act, 1961 apply or not. Section 68 of the Income-tax Act, 1961 provides that, where any sum is found credited in the books of 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 for that previous year. The burden of proof is heavily cast on the assessee. First of all, he must furnish an explanation as otherwise the cash credit will be treated as his income. Secondly, the explanation offered must be to the satisfaction of the Assessing Officer. It is by now well-settled that what all is required from the assessee by way of explanation is, (i) that he must establish the identity of the payer; (ii) that he must prove the creditworthiness of the payer, and (iii) that he must prove the genuineness of the transaction. Two recent cases decided by the Andhra Pradesh High Court provide an insight into the discharge of the burden of proof cast on the assessee. One of these cases was decided in favour of the assessee, while the other case was decided in favour of revenue.


Be thankful for all the struggles you go through. They make you stronger, wiser and humble. Don't let them break you. Let them make you.

2) Share Premium:

a) The share premium is to be decided by the Board of Directors and there is no prohibition under the Companies Act so far as the amount of premium is concerned. It is further stated that the reasons recorded are against the law as it has been held by the Hon'ble Supreme Court in the case of CIT v. Allahabad Bank Ltd. [1969] 73 ITR 745 that the share premium received on the issue of shares has to be included in the paid up capital irrespective of whether the share premium has been maintained in a separate account apart from the reserve.

b) Support is also derived from the decision of the Hon'ble Supreme Court in the case of CIT v. Standard Vacuum Oil Co. [1966] 59 ITR 685 wherein it has been held that premium realized from the issue of its shares represents reserves not allowed in computing the profits of the company for the purpose of Indian Income Tax Act, 1922. We also rely upon the decision of Delhi High Court in the case of Addl. CIT v. Om Oils & Oil Seeds Exchange Ltd. [1985] 152 ITR 552/[1984] 18 Taxman 337 and CIT v. Krishnaram Baldeo Bank (P) Ltd. [1983] 144 ITR 600/[1980] 4 Taxman 187 (MP).

c) Vide INSTRUCTION NO. 2/2015 [F.NO.500/15/2014-APA-I], DATED 29-1-2015 the CBDT clarified that, �In reference to the above cited subject, I am directed to draw your attention to the decision of the High Court of Bombay in the case of Vodafone India Services Pvt. Ltd. for A.Y. 2009-10 (WP No.871/2014), wherein the Court has held, inter-alia, that the premium on share issue was on account of a capital account transaction and does not give rise to income and, hence, not liable to transfer pricing adjustment. 2. It is hereby informed that the Board has accepted the decision of the High Court of Bombay in the above mentioned Writ Petition. In view of the acceptance of the above judgment, it is directed that the ratio decidendi of the judgment must be adhered to by the field officers in all cases where this issue is involved. This may also be brought to the notice of the ITAT, DRPs and CsIT (Appeals).�

d) With effect from A.Y 2013-14, It is provided u/s 56(2)(viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares.

3) Judicial Views (In the favour of Assessee):

a) In the case of CIT v. Steller Investment Ltd. � [251 ITR 0263 SC] it was held that, �Notwithstanding that Assessing Officer failed to enquire into genuineness of shareholders, assessment of company could not be revised to assess the amount of share capital in the hands of company. It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names share had been issued and the money may have been provided by some other persons. If the assessment of the

persons, who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself.�

b) In the case of Lovely Exports (P) Ltd [216 CTR 195 SC] it was held that, �If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company.�

c) In the case of Gujarat Heavy Chemicals Ltd [256 ITR 0795 SC] it was held that, �CIT(A) and the Tribunal having found no justification for the addition of the amount of investment made in the shares of the assessee-company by another company as 25 per cent shares of the assessee were held by one group and all the companies, Indian as well as foreign, which had advanced money to the assessee towards subscription of shares had links with the said group matter involves question of appreciation of evidence; application under s. 256(2) rightly rejected.�

d) In the case of Divine Leasing & Finance Ltd. [(299 ITR 268 (Del))] it was held that, �Assesseecompany having received subscriptions to the public/rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under s. 68 in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company�s own income from undisclosed sources.�

e) In the case of PEOPLES GENERAL HOSPITAL LTD. [356 ITR 65 (MP)] it was held that, �If the identity of the person providing share application money is established then the burden was not on the assessee to prove the creditworthiness of the said person. However, the department can proceed against the said Company in accordance with law. The position of the present case is identical. It is not the case of any of the parties that M/s Alliance Industries Limited, Sharjah was a bogus company or a non- existent company and the amount which was subscribed by the said Company by way of share subscription was in fact the money of the respondent assessee. In the present case, the assessee had established the identity of investor who had provided the share subscription and it was established that the transaction was genuine though as per contention of the respondent the creditworthiness of the creditor was also established. No addition could be made under section 68 in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company's own income from undisclosed sources. Revenues� appeals dismissed. Commissioner of Income Tax vs. Divine Leasing & Finance Ltd. decided by Delhi High Court (2008) 299 ITR 268 (Del); Commissioner of Income Tax vs. Lovely Exports (P) Ltd, (2008) 11 ITJ 357 (SC), followed.�

f) In the case of PRANAV FOUNDATIONS LTD. [229 Taxman 58 (Madras)] it was held that, �Where the share applicants were registered companies and they had duly furnished the


In any relationship, all communication gaps are created not by 'what is said' but by 'how it is said'. What is said reaches the mind. How it is said reaches the heart,

and there is no way to win the mind without winning heart.

confirmations along with their IT Asst. details, the assessing officer ought to have accepted these contributions towards share capital as genuine and no addition was warranted u/s 68 in hands of assessee on account of share application money received.�

g) In the case of VICTORY SPINNING MILLS LTD. [228 Taxman 69 (Mag)] it was held that, �Thus, when the nature and source of the amount so invested is known, it cannot be said to be undisclosed income in the hands of the Spinning Mill�Also, since the share applicants in all cases are one and the same and they have confirmed the transactions, it cannot be treated as the unexplained investment of the managing directors of the company and thus no addition can be made in the hands of the managing directors also�Supreme Court decision in in Lovely Exports (P) Ltd. case, squarely applies on the instant case�Revenue�s appeal was dismissed�

h) Also in the case of Green Infra Ltd. [145 ITD 240 Mum] it was held that, �The grievance of the Revenue was considered from all possible angles and by applying the provisions of Sec. 56 and to the extent of testing the transaction within the parameters of Section 68. No single evidence was found which could lead to the entire transaction as sham. It was also found that the share holders in all the related transaction under issue were directly or indirectly related to the Government of India. Therefore, considering the entire issue in the light of the material evidence brought on record, it was held that, the Revenue had erred in treating the share premium as income of the assessee u/s. 56(1).�

i) In the case of Rana Girders Ltd [84 CCH 0128 All] it was held that, �The department could reopen the assessment of the individual share-holders in accordance with law but the share application monies could not be regarded as undisclosed income of the assessee.�

j) In the case of Kamdhenu Steel & Alloys Ltd & Ors. (248 CTR 33 Del) it ws held that, �Once adequate evidence/material is given, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it has "created" evidence, the Revenue is supposed to make thorough probe before it could nail the assessee and fasten the assessee with such a liability under s. 68; AO failed to carry his suspicion to logical conclusion by further investigation and therefore addition under s. 68 was not sustainable. Where the AO acted mechanically on the information supplied by the Directorate of IT (Inv.) about the alleged bogus/accommodation entries provided by certain individuals/companies, without applying his own mind, he was not justified in invoking jurisdiction under s. 147.�

k) In the case of Gangour Investment Ltd. (335 ITR 359 Delhi) it was held that, �Assessee company filed the subscription forms of the investors, including TT Ltd., a group company, containing details and information with respect to their addresses as well as PAN, thereby establishing their identity�AO was also supplied a copy of the statement of bank accounts of TT Ltd.�Payment in question was made by way of a cheque�Said TT Ltd. is a widely-

held company having paid up share capital amounting to Rs. 3.4 crores�Therefore, assessee has discharged its onus in respect of the veracity of the transaction, and the addition made by the AO in respect of the investment made by TT Ltd. has been rightly deleted�No substantial question of law arises for consideration�

l) In the case of K.C. Fibres [187 taxman 53 (Del)] it was held that, �The amount of share application money cannot be regarded as undisclosed income of the recipient assessee company as it is not for the assessing company to probe as to the source.�

m) In the case of GP International Ltd (325 ITR 25 P & H) it was held that, �AO having not doubted the identity of the persons from whom the assessee company has shown receipt of share application money, impugned transactions cannot be treated as non-genuine merely because some of the applicants did not respond to the notice issued by the AO under s. 133(6) and, therefore, addition was not sustainable.�

n) In the case of FAIR FINVEST LTD. [357 ITR 146 (Delhi)] it was held that, �The AO cannot make any addition in respect of share application money without satisfying himself as to the veracity and genuineness of the transactions by examining the bank accounts or the accounts of the companies who had applied for shares�

o) In the case of Hindustan Inks & Resins Ltd (60 DTR 18 Guj) it was held that, �Assessee having established identity of shareholders, addition under s. 68 could not be made on the ground that assessee failed to explain the source of credit; Department was free to proceed against shareholders in accordance with law.�

p) In the case of GANGESHWARI METAL PVT. LTD. [361 ITR 10 (DELHI)] it was held that, �Revenue could not prove that money received' by assessee in form of share application has come from its own sources�It was held that where complete particulars of share applicants are furnished to AO and AO has not conducted any enquiry into same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in hands of company u/s 68�Appeal dismissed�

q) No addition under section 68 can be made when identity and creditworthiness of shareholder and depositors was established by furnishing complete particulars of payments like cheque numbers and date, extract of bank passbooks, explanation of credits appearing in bank passbook, could it be said that assessee had proved genuineness of transaction as was held in the case of

Ambuja Ginning Pressing and Oil Co. (P.) Ltd. (332 ITR 434 (Gujarat))

Dwarikadhish Investment (P.) Ltd 167 Taxman 321 (Del)

TDI Marketing (P.) Ltd (26 DTR 358 Del)

Prayag Hospital & Research (44 DTR 94 Del)

STL Extrusion (P) Ltd (333 ITR 269 MP)

VRM Global Infrastructure (P.) Ltd. (12 taxmann.com 174 (Delhi))


Confident walking is more successful than confused running. Follow no one, but learn from everyone.

4) Judicial Views (In the favour of revenue):

a) Recently, in the case of Navodaya Castle [56 taxmann.com 18 (SC)] it was held that, �High Court by impugned order held that certificate of incorporation, PAN etc., were not sufficient for purpose of identification of subscriber company when there was material to show that subscriber was a paper company and not a genuine investor - Whether Special Leave Petition filed against impugned order was to be dismissed - Held, yes.�

b) In the case of CIT v. Sophia Finance Ltd. � 205 ITR 98 (Del.) (F.B.) it was held that, �Provisions of s. 68 are applicable even to share application money and if on enquiry it is found that shareholders do not exist, sum credited may be treated as assessee's income.�

c) In the case of Titan Securities Ltd. [357 ITR 184 (del)] it was held that, �Where Assessing Officer found that share applicants in case of assessee-company were established entry operators giving accommodation entries and, thus, he added amount paid by them to assessee's taxable income, Tribunal was not justified in deleting said addition without properly examining evidence brought on record by Assessing Officer�

d) In the case of N.R. PORTFOLIO PVT. LTD [87 DTR 0162 (Del)] it was held that �Merely furnishing names, addresses and PAN particulars, or relying on entries in a Registrar of Companies website�If upon verification, or during proceedings, AO cannot contact share applicants, or that information becomes unverifiable, or there are further doubts in pursuit of such details, onus shifts back to assessee to explain same---Yes�

e) Also in the case of N.R. Portfolio Pvt Ltd [96 DTR 0281 (Del)] it was held that, �The onus to prove the identity, creditworthiness and genuineness of the transaction is on the assessee as the facts are within the assessee�s knowledge. Mere production of incorporation details, PAN Nos. or the fact that third persons filed return in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up.�

f) In the case of MAF ACADEMY P. LTD. [361 ITR 02858 (Delhi)] it was held that, �Mere production of incorporation details, PAN Nos. or returns may not be sufficient when surrounding and attending facts predicate cover up�In present case, it was strange that Assessee in year 2001 felt need of obtaining affidavits from persons investing in shares to certify genuineness when there was no inquiry�Such fact raised suspicion on genuineness of transaction�Further shares were purchased at large premium and then sold at substantial loss in short span of time�Also assessee failed to produce persons who had invested in shares and show that these people were completely unrelated to Assessee and as such, all entries were merely accommodation entries� Thus, Assessee had not discharged onus satisfactorily and additions made by AO were sustained� Orders of CIT (Appeals) and ITAT in deleting addition unsustainable-Substantial question of law answered in favour of Appellant and against the Respondent Assessee-Appeal allowed.�

g) In the case of Tarika Properties Investment Pvt Ltd [221 TAXMAN 0014 (Del)] it was held that, �Held, following decision of coordinate

bench in CIT vs. NR Portfolio Pvt. Ltd and CIT Vs Nova Promoters and Finlease Private Limited Case (2012) 342 ITR 169 (DELHI), mere production of PAN Number or assessment particulars submitted by assessee does not establish identity of a person/investor�Identification of a person includes place of work, staff and fact that it was actually carrying on business and further recognition of said company/individual in eyes of public� Bank statements of investors furnished by assessee omitted to show that there was deposit of cash immediately prior to issuance of cheques�Extracts of bank statements furnished by assessee were found to be fabricated�Assessee failed to establish creditworthiness of investors and also genuineness of transaction�Orders of CIT(A) and ITAT were perverse in as much as they had failed to appreciate fabrication in bank statements of share applicants that had been filed by Assessee�

h) In the case of Globus Securities & Finance Pvt Ltd [224 TAXMAN 237 (Delhi)] it was held that, �Assessee�s Directors, who had purportedly made investment in shares were not related or known to them�Assessee had no proven good past track record justifying hefty premium, four times face value�Only certain papers showing that assessee had taken care to ensure legal compliances were placed on record�Tribunal had not given due credence to surrounding circumstances which included huge premium, credit entries in bank accounts before transfer of money to assessee, failure of companies to file details of inventories and fact that assessee company had not charged any premium earlier�Three factum in all cases was not established by only showing that transaction was through banking channels or account payee instrument�Surrounding and corroborative factual details were equally important and justify further proof or details before it is held that onus is discharged�Thus, matter remitted to tribunal for entire issue to be dealt afresh�

i) In the case of Empire Builtech Pvt Ltd [366 ITR 110 (Delhi)] it was held that, �Merely because assessee had disclosed the identity of the investors, it cannot be said that burden imposed upon it u/s 68 had been discharged, particularly when investors not only did not submit any confirmation, but had concededly reported far less income than the amounts invested.�

j) In the case of ONASSIS AXLES PRIVATE LIMITED [364 ITR 53 (Delhi)] it was held that, �Held, bank statement of three companies filed in remand report before CIT(A) shows that accounts did not disclose large volume of transactions�Cash deposits were made into accounts of companies on same day or on proximate days�Pay orders given to apply to shares were issued from a far- off bank branch in NOIDA�These facts, together with share applicants� lack of resources and inadequate share capital, as well as authorized and subscribed share capital of assessee i.e. Rs.50 lakh being the authorized capital, and paid up capital being Rs.70 lakh, as against it reserves being over Rs.2 crores, for reason of the premium received, showed that share money transaction was dubious�Amount received by assessee falls within mischief of Section 68 as unexplained amounts�Tribunal was justified in holding that amount received by assessee was bogus share capital�Assessee�s appeal dismissed.�


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k) In the case of FOCUS EXPORTS PVT. LTD. [111 DTR 0012 (Del)] it was held that, �If the assessee offers no explanation about the nature and source of credit of amounts in the books maintained by it or the explanation offered is not satisfactory, then the sums so credited can be treated as income of the assessee for that previous year.�

l) In the case of Rathi Finlease Ltd (215 CTR 429 MP) it was held that, �Though confirmation letters were produced, genuineness of share application money received by assessee company cannot be said to have been established since the alleged companies which had paid the money were found to be non-existent and the amounts were paid by cheques on the same date on which such amounts were credited to the bank accounts of those companies- Failed to discharge the burden, addition u/s 68 upheld�

m) In the case of Kundan Investment Ltd (263 ITR 626 (Cal)) it was held that, �Since the assessee did not take any steps to obtain confirmatory letters from the subscribers of public issue quota who did not respond to the enquiry nor attempted to produce said subscribers or to disclose their income-tax file numbers subscriptions said to have been made by such subscribers to the shares of the assessee-company cannot be accepted as genuine; in the absence of any material except the income-tax file numbers, the identity of the subscribers to the promoters� quota and their creditworthiness could not be established and the subscription made by them could not be accepted as genuine; however, matter is remanded to the Tribunal for deciding the same afresh.�

n) In the case of Korlay Trading Co. Ltd (232 ITR 820 (Cal)) it was held that, �Merely filing of income-tax file number of creditor is not enough to prove the genuineness of cash credit unless the creditor is identified and his creditworthiness is established�Addition justified�

o) In the case of Sumati Dayal (214 ITR 801 (SC)) it was held that, �Applying the test of human probabilities was right that the assessee's claim about the amount being her winnings from races is not genuine�

p) In the case of Power Drugs Ltd. (245 CTR 623 P & H) it was held that, �Assessee-company having failed to establish the identity and creditworthiness of the alleged share applicants and the genuineness of the share application money shown by it, addition under s. 68 was rightly upheld by the Tribunal�

q) In the case of Nova Promoters & Finlease (P) Ltd (342 ITR 169 Del) it was held that �Assessing Officer after issuance of summons not being satisfied by the explanations provided held that that assessee was unable to prove the genuineness of the transactions with the companies and that it also proved that the assessee company had introduced its own monies through non-existing companies using the banking channel in the shape of share application monies �There is no explanation as to why the deponents could not be produced and did not appear in response to the summons - the modus operandi involves receipt by the entry providers of equivalent amount of cash from the assessee � Section 68 places no duty upon Assessing Officer to point to the source from which the money was received by the assessee �

Order of Tribunal set aside - Question of law answered in favour of department--Yes.�

r) In the case of AZEEM INVESTMENT PVT LTD (252 CTR 0217 Del) it was held that �Reassessment proceedings were initiated in the case of the assessee after information was received from Director of Investigation regarding bogus/accommodation entries allegedly provided by different companies which were managed and operated by Mukesh Gupta and Rajan Jassal�AO noticed that these companies had been issued shares by the appellant- assessee�A question arose whether the share application money received was a genuine transaction� Tribunal after noticing the facts on record remitted the matter back to the AO and felt that the matter cannot be decided in a superficial manner, by only making reference to the bank account entries and whether or n o t t h e a l l e g e d s h a r e h o l d e r s w e r e i n c o r p o r a t e d companies�Held, the Tribunal elucidated the relevant facts and given cogent and good reasons why an order of remit was necessary and required in the facts of the present case�Whether or not an order of remand is justified and required depends on facts of each case�An order of the remit has been passed, with a direction to conduct in depth inquiry, reach and record correct and true finding, which depending upon the material may eventually even go in favour of the assessee�Assessee�s appeal dismissed�

s) In the case of MAJOR METALS LTD (359 ITR 0450 (Bom)) it was held that �Settlement commission�Addition under s 68�Interference in exercise of writ jurisdiction�Assessee an unlisted company was given huge loan of Rs. 6 crores by two companies�Later on these companies were allotted 30,000 shares each of face value 10 at huge premium of Rs. 990�Settlement Commission has considered all material on record including material which had a bearing on the creditworthiness and financial standing of the alleged subscribing companies to the share capital of the assessee�None of the companies was held to have a financial standing or creditworthiness which would justify making of such a large investment of Rs. 6 crores at a premium of Rs. 990 per share�Allotment of shares has taken place in pursuance of a private placement�View which has been taken by the Settlement Commission is consequently borne out on the basis of the material on record�Commission has not proceeded contrary to law or on the basis of no evidence�There is no perversity in the findings of the Settlement Commission�Reappreciation of finding of facts not warranted in exercise of judicial review�Order of the Settlement Commission upheld�

t) In the case of INDEPENDENT MEDIA PVT. LTD. (25 taxmann.com 276 (Delhi)) it was held that, �For addition u/s 68, AO need not establish money coming from assessee's coffers - For making addition under section 68, it is not incumbent upon AO to establish that money had come from assessee's coffers�

u) In the case of NEELKANTH ISPAT UDHYOG PVT LTD (81 DTR 0214) it was held that, �In cases where the explanation offered by the assessee about the nature and source of the sums found credited in the books is not satisfactory there is, prima facie, evidence against the assessee, viz., the receipt of money. The


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burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was a receipt of an income nature---Yes.�

v) In the case of Frostair P. Ltd [92 DTR 393 (Del)] it was held that, �Share application money�Genuineness of the transaction� Revenue received information alleging that assessee had accepted share capital from companies engaged in providing bogus entries in the form of loan and share application money to interested parties�Accordingly, the AO called for information u/s 142 (1)�Assessee filed a list of 18 shareholders and felt that the nature of the assess company and its business was not such as to attract a huge premium�After taking into account various factors, incorrect GIR/PAN number and designation of the concerned AOs, who were seized of the share applicant companies' returns; none of the shareholders existed at the addresses given by the assessee; the books of accounts of the share applicants not being produced before him, the AO held that an inference could be drawn that the transactions were not genuine----Yes�

w) In the case of Rajani Hotels Ltd [79 DTR 185 (Mad)] it was held that, �Some Shareholders refused having applied. Director of the assessee company stated that they were benami investors. Payment to and from shareholders were in cash and therefore the claim of director is rejected---- To that extent treated as unexplained.�

x) In the case of Youth Construction Pvt Ltd [357 ITR 197 (Delhi)] it was held that,�Mere proof of identity without genuineness and creditworthiness is enough----No�

y) In the case of ULTRA MODERN EXPORTS PVT. LTD [220 Taxman 165 (Delhi)] it was held that �Information that assessee furnishes would have to be credible and at same time verifiable�Five share applicants could not be served as notices were returned unserved. Assessee�s ability to secure documents such as income tax returns of share applicants as well as bank account particulars would itself give rise to a circumstance which AO in this case proceeded to draw inferences from�Assessee commenced its business and immediately sought to infuse share capital at a premium ranging between Rs.90-190 per share and was able to garner a colossal amount of Rs.4.34 Crores�CIT (A) and ITAT erred in holding that AO could not have added back said amount u/s 68----Yes�

5) General:

a) In the case of MYSORE MINERALS LTD [239 ITR 0775 SC] it was held that, �The provision should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee securing the benefit intended to be given by the legislature to the assessee. It is also well-settled that where there are two possible interpretations of a taxing provision the one which is favourable to the assessee should be preferred.�

b) In the case of DHAKESWARI COTTON MILLS LTD. [26 ITR 0775 SC] it was held that, �Presumption however strong cannot form the basis of assessment.�

6) Revision u/s 263 as per Finance Act, 2015:

a) The following provisions are quite far reaching so far as revision of concluded assessment is concerned.

b) In section 263 of the Income-tax Act, in sub-section (1), the Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted with effect from the 1st day of June, 2015, namely:� "Explanation 2.�For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,�

(a) the order is passed without making inquiries or verification which should have been made;

(b) the order is passed allowing any relief without inquiring into the claim;

(c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or

(d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.".

c) As can be seen from the above, the newly amended provision is most likely to open fresh Pandora �s Box so far as assessment of share capital/premium is concerned.

7) Conclusion:

As can be seen from the above said judgements, it is clear that the initial onus is upon the assessee to prove the identity, genuineness and creditworthiness of the persons in whose name the credit entry is appearing by way of share capital/premium, loan or creditor etc. After that the Assessing Officer is duty bound to check the veracity of those details filed and thereafter arrive at a conclusion in connection with the genuineness of share capital/premium. However, the recent judgements of different high courts in this regard are quite different particularly considering the facts of each case. Moreover, recent judgement in the case of Navodaya Castle (supra) has distinguished the position of law settled in the case of Lovely Exports (supra).


OBITUARY

CA. Shrikrishna LimayeMembership No. :- 015397Date of Birth :- 12th April, 1944Date of Demise :- 24th August, 2015

May GOD grant eternal peace to his noble soul!

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