PCIT (Central) – 1 vs NRA Iron and Steel Pvt. Ltd.

The above case is a landmark judgement issued by Hon’ble Supreme Court of India wherein assessee company had received share capital along with share premium making it a total amount of Rs. 17,60,00,000.

The AO raised an issue regarding genuineness of share capital and share premium money received by the company.

In relation to above assessee submitted that all amount was received via banking channel and submitted the ITR acknowledgement and other documents to prove genuineness of the receipt.

However, AO issued summons to all the parties out of which few of them replied via dak and non of them appeared in person. Hence AO conducted field inquiries to examine to genuineness.

The A.O. found that :
i. None of the investor-companies which had invested amounts ranging between Rs. 90,00,000 and Rs. 95,00,000 as share capital in the Respondent Company – Assessee during the A.Y. 2009-10, could justify making investment at such a high premium of Rs. 190 for each share, when the face value of the shares was only Rs. 10;
ii. Some of the investor companies were found to be nonexistent;
iii.Almost none of the companies produced the bank statements to establish the source of funds for making such a huge investment in the shares, even though they were declaring a very meagre income in their returns;
iv.None of the investor-companies appeared before the A.O., but merely sent a written response through dak.

The AO held that the Assessee had failed to discharge the onus by cogent evidence either of the credit worthiness of the so-called investor-companies, or genuineness of the transaction.

However, CIT(A) passed the order in favor of assessee on the ground that assessee had submitted confirmation, ITR V, PAN copy along with bank statement to prove genuineness of the transaction and ITAT also upheld the judgement of CIT(A).

Further, revenue went before an appeal in Delhi high court and High court also upheld the judgement of ITAT stating that the case was only on the question of facts and the lower authorities have examined the facts properly.

Later a SLP was filed before Supreme court by Revenue and in the SLP and Hon’ble Supreme Court observed that:

“The lower appellate authorities appear to have ignored the detailed findings of the AO from the field enquiry and investigations carried out by his office. The authorities below have erroneously held that merely because the Respondent Company – Assessee had filed all the primary evidence, the onus on the Assessee stood discharged.
The lower appellate authorities failed to appreciate that the investor companies which had filed income tax returns with a meagre or nil income had to explain how they had invested such huge sums of money in the Assesse Company – Respondent. Clearly the onus to establish the credit worthiness of the investor companies was not discharged. The entire transaction seemed bogus, and lacked credibility. The Court/Authorities below did not even advert to the field enquiry conducted by the AO which revealed that in several cases the investor companies were found to be non-existent, and the onus to establish the identity of the investor companies, was not discharged by the assessee.
14. The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee.
15. On the facts of the present case, clearly the Assessee Company – Respondent failed to discharge the onus required under Section 68 of the Act, the Assessing Officer was justified in adding back the amounts to the Assessee’s income.”

Thus from the above judgement it’e clear that only submitting ITR and confirmation won’t fulfill requirements of Section 68.

This would be a landmark judgement for all those companies facing similar situation and those companies whose assessment have been completed under the same head needs to take a lesson that now they must also bring the investor before the AO.

You can read the full judgement HERE.

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