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DATE: August 10, 2018 (Date of pronouncement)
DATE: January 17, 2019 (Date of publication)
AY: 2009-10, 2010-11
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CITATION:
S. 28(iv) /68: Bogus share premium: The fact that the premium is abnormally high as per test of human probabilities is not sufficient. The AO has to lift the corporate veil & determine whether any benefit is passed on to the shareholders/directors. Directions issued to AO to establish whether assessee company was used as a vehicle to pass on the benefit to shareholders/directors

We also cannot presume or apply test of human probabilities, we are dealing with the business transaction, it has to be based on cogent material. Considering the whole situation, in our considered view, the AO/CIT(A) have restricted themselves by stopping the investigation based on circumstantial evidence and applying test of human probabilities. In order to lift the corporate veil for the purpose of determining whether any benefit is passed on to the shareholders/directors, they have to bring on record proper evidence/cogent material

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DATE: December 19, 2018 (Date of pronouncement)
DATE: December 26, 2018 (Date of publication)
AY: 2011-12
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S. 147 Reopening to assess Bogus share capital: Law explained whether allegation that assessee is a dummy concern used to route unaccounted money by way of bogus share application money is sufficient to reopen assessment (all imp judgements referred)

The respondents have stated that there are large number of dummy/bogus/shell/briefcase/paper entities including the petitioner/company in the group, which is being managed and controlled by Shri Anand Bangur for the purposes of routing unaccounted money and the department with great difficulties and after examining huge evidence, has arrived at a conclusion to initiate the proceedings against the petitioner and it is not a case where some unilateral action has been taken against the petitioner, it is a case where petitioner will receive every opportunity to defend himself and the entire mechanism has been provided under the Income Tax Act, 1961 and the respondents have prayed for dismissal of the writ petition.

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DATE: November 16, 2018 (Date of pronouncement)
DATE: November 24, 2018 (Date of publication)
AY: 2012-13
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S. 68 Bogus share premium: If the overwhelming evidence in the form of audited accounts, ROC Form 2 & ROC Form 20B shows the 'nature' of receipt to be share premium, it has to be taken to be so. If the Department wants to contend that what is apparent is not real, the onus is on it to prove that it was the assessee's own money which was routed through a third party. S. 68 does not (before & after the 2012 amendment) envisage the valuation of share premium. Consequently, the AO has no jurisdiction to determine whether the share premium is reasonable or not (Pratik Syntex (P.) Ltd. vs. ITO 94 taxmann.com 12 (Mum) distinguished)

Even amendment to section 68 brought by Finance Act, 2012 does not refer to valuation. The insertion of the proviso to section 68 of the Act by Finance Act, 2012 casts an additional onus on the closely held companies to prove source in the shareholders subscribing to the shares of companies. During the course of the hearing, the Ld Counsel explained that the explanatory memorandum to the Finance Bill 2012 makes it clear that the additional onus is only with respect to source of funds in the hands of the shareholders before the transaction can be accepted as a genuine one. Even the amended section does not envisage the valuation of share premium. This is further evident from a parallel amendment in section 56(2) of the Act which brings in its ambit so much of the share premium as charged by a company, not being a company in which the public are substantially interested, as it exceeds the fair market value of the shares. If one accepts the Ld CIT-DR’s contentions that section 68 of the Act can he applied where the transaction is proved to be that of a share allotment that here the valuation for charging premium is not justified, it will make the provisions of section 56(2)(viib) of the Act redundant and nugatory. This cannot be the intention of the Legislature especially when the amendments in the two sections are brought in at the same time

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DATE: October 24, 2018 (Date of pronouncement)
DATE: October 31, 2018 (Date of publication)
AY: 2012-13
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CITATION:
S. 68 Bogus share premium: The AO cannot assess the share premium as income on the ground that it is "excessive". The share premium worked out in the Valuation Certificate is the minimum amount that can be collected by the assessee under RBI regulations. There is no bar on collecting higher amount as share premium. There are several factors that are taken into consideration while issuing the equity shares to shareholders/investors, such as Venture capital funds and Private Equity funds. The premium is determined between the parties on the basis of commercial considerations and cannot be questioned by the tax authorities. The AO is not entitled to sit on the arm chair of a businessman and regulate the manner of conducting business (All judgements considered)

Once the AO was satisfied with the identity and credit worthiness of the investor and genuineness of transactions, the assessee can be said to have proved the “nature and source” of the cash credits. The amounts received as Share premium are in the nature of capital receipts as per the decision rendered by Hon’ble Bombay High Court in the case of Vodafone India Services P Ltd (supra) and the assessee has also discharged the onus placed upon it u/s 68 of the Act. In fact, the AO himself accepted the share premium to the extent of Rs.672/- per share as Capital receipt. Hence the “nature” of alleged excess share premium amount cannot be considered as receipt of income nature

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DATE: October 10, 2018 (Date of pronouncement)
DATE: October 18, 2018 (Date of publication)
AY: 2007-08
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S. 68 Bogus share capital: The ITAT is an adjudicator and not an investigator. It has to rely upon the investigation / enquiry conducted by the AO. The Dept cannot fault the ITAT's order and seek a recall on the ground that an order of SEBI, though available, was not produced before the ITAT at the hearing. The negligence or laches lies with the Dept and for such negligence or laches, the order of the ITAT cannot be termed as erroneous u/s 254(2)

After the passing of the order of the Tribunal the Department has come forward with the final order of the SEBI by stating that, though, it was available at the time of hearing of appeal but it could not be brought to the notice of the Tribunal. Thus, as could be seen whatever negligence or laches for not bringing the final order of SEBI to the notice of the Tribunal lies with the Department and for such negligence or laches of the Department, the appeal order passed by the Tribunal cannot be termed as erroneous to bring it within the ambit of section 254(2) of the Act.

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DATE: October 12, 2018 (Date of pronouncement)
DATE: October 16, 2018 (Date of publication)
AY: 2008-09
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S. 68 Bogus share capital: If (a) the assessee has furnished the Name, Address, PAN no and Share Application Form to prove that the shares were allotted to the applicants and (b) the bank statement show that money was received through banking channels and there were no immediate withdrawals to suggest that the share application amounts have been returned back to these parties in cash, it means the assessee has discharged the primary onus cast upon it to prove the identity, capacity and genuineness of transactions

The assessee has furnished the Name, Address, PAN no and Share Application Form to prove that the shares were allotted to the applicants. The assessee has also furnished its bank statement to show that the money was received through banking channels and there were no immediate withdrawals from the banks which shows that the share application amounts have not been returned back to these parties in cash. Thus, the assessee has discharged the primary onus cast upon it to prove the identity, capacity and genuineness of transactions. We also find that the CIT(A) provided opportunity to assessee to cross examine Shri Mukesh Choksi by sending the matter to AO for remand report. During remand proceeding, the AO provided opportunity to assessee to cross examine Shri Mukesh Choksi and who in turn during cross examination admitted having invested in assessee company by these two concerns

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DATE: October 1, 2018 (Date of pronouncement)
DATE: October 10, 2018 (Date of publication)
AY: 2004-05
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S. 68 Bogus share capital: Failure by the AO to offer cross-examination of the persons whose statements are relied upon means that no adverse inference can be drawn against the assessee. Dept's plea for a remand is not acceptable if the assessee has discharged primary onus (Nova Promoters 342 ITR 169 (Del) & Jansampark Advertising 375 ITR 373 (Del) distinguished). Paradise Inland 98 CCH 0417 followed

The assessee was supplied with the seized material at the fag end of the assessment proceedings and assessee sought opportunity to cross examine these persons for rebuttal of the allegation. However, the AO did not provide any opportunity to the assessee to cross examine these persons on behalf of assessee to find out the truth. Therefore, such statements cannot be read in evidence against the assessee. We rely upon decision of the Supreme Court in the case of Kishanchand Chelaram 125 ITR 713 (SC) and of Bombay High Court in case of Paradise Inland Shipping Pvt. Ltd

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DATE: June 23, 2018 (Date of pronouncement)
DATE: September 3, 2018 (Date of publication)
AY: 2009-10
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CITATION:
S. 56(2)(viib), 68, 147 Bogus share capital/ premium: Entire law on whether alleged excessive premium charged for allottment of shares and alleged inability to prove genuineness of transaction can be assessed as unexplained cash credit explained in the light of High Court judgements

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 a case in this context to the preamended section 68 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 Incometax Officer to proceed by reopening the assessment of such shareholder 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

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DATE: August 23, 2018 (Date of pronouncement)
DATE: August 30, 2018 (Date of publication)
AY: 2005-06
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CITATION:
S. 68 Bogus share capital: A private limited co cannot say that it has no clue about the subscribers to its share capital. The genuineness of the transaction has to be determined by ground realities and not by documents like PAN cards, board resolutions, share certificates etc. Even shell cos have these documents. If the assessee is not able to produce the brains behind these companies and the documents with respect to their financials, the transaction cannot be regarded as genuine

As the things stand now, genuineness of transactions is to be examined in the light of the prevailing ground realities, and that is precisely what we have done. We are of the considered view that there is nothing to establish genuineness of the share subscription transactions on the facts of this case. The assessee does not know anything about these companies or these persons. The assessee has no documents about their financial activities or their balance sheets. The assessee is a private limited company and these entities could not have therefore been rank outsiders like walk in investors and yet the assessee does not throw enough light on these entities. A lot of emphasis is placed on bank transactions, on PAN cards and on board resolutions but all these factors have to be present in the cases of shell companies involved in money laundering as well. Nothing, therefore, turned on these documents so far as genuineness aspect is concerned. It is also a settled legal position that the onus of the assessee, of explaining nature and source of credit, does not get discharged merely by filing confirmatory letters, or demonstrating that the transactions are done through the banking channels or even by filing the income tax assessment particulars

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DATE: August 6, 2018 (Date of pronouncement)
DATE: August 21, 2018 (Date of publication)
AY: 2012-13
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CITATION:
S. 68: If no cash is involved in the transaction of allotment of shares and it is a case of book adjustment, provisions of s. 68 treating it as unexplained cash credit are not attracted. Even if it were to be assumed that the subscribers to the increased share capital are not genuine, the amount of share capital would in no circumstances be regard as undisclosed income of the company

Counsel argued, and rightly, that when there was no cash involved in the transaction of allotment of shares, provisions of Section 68 of the said Act treating it as unexplained cash credit are not attracted

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