Income Tax Appellate Tribunal - Hyderabad
Giri Roadlines & Commercial Trading P. ... vs Ito, Ward-2(2),Hyd, Hyderabad on 18 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B" : HYDERABAD
BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER
AND
SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
ITA.No.893/Hyd/2016
Assessment Years 2011-2012
Giri Roadlines & The Income Tax Officer,
Commercial Trading P. vs. Ward-2(2),
Ltd., Secunderabad. Hyderabad.
PANAABCT3148C
(Appellant) (Respondent)
For Assessee : Shri Y. Ratnakar
For Revenue : Smt. U. Minichandran
Date of Hearing : 09.11.2016
Date of Pronouncement : 18.01.2017
ORDER
PER J. SUDHAKAR REDDY, A.M.
This appeal by the assessee is directed against the order of the CIT(A)-2, Hyderabad dated 31.03.2016 on the following grounds :
1. "The order of the learned Commissioner (Appeals) in ITA No.0209/2014-15, dated 31-03-2016 is contrary to law and facts. The appellant submits that the learned Commissioner (Appeals) erred in dismissing the appeal without considering the submissions and evidence produced before him by the appellant.
2. The appellant has adequately proved the Identity of Investors, genuineness of investments and the credit worthiness of the investors. Accordingly the appellant has, prima facie, discharged the onus cast on him under section 68 of the Act.2
ITA.No.893/Hyd/2016 Giri Roadlines & Commercial Trading P. Ltd., Secunderabad
3. It is contended that order of the learned Commissioner (Appeals) is only on extract of the assessment order. He has not appreciated the submissions of the appellant and the relevant documentary evidence produced before him that the Share Capital of Rs.3.20 crores was received from different persons, and genuine. The appellant has fully discharged the onus cast upon him in explaining the share capital received by him.
4. It is contended that the Preferential Share Capital of Rs.3.20 crores is contributed by ten different investing companies as shown below and the same cannot be treated as the income of the company.
Sl.No. Name of the Investor Amount of
Investment in
Rupees.
1. Basuki Credit & Finvestment P. Ltd., 10,00,000
2. Mideast Vyapaar P. Ltd., 10,00,000
3. Pathick Trading & Fiscal P. Ltd., 10,00,000
4. Pee Dee Viniyog P. Ltd., 10,00,000
5. Rameswaram Fiscal P. Ltd., 10,00,000
6. Sesun Marketing P. Ltd., 15,00,000
7. Sundrm Consultant P. Ltd., 2,10,00,000
8. Sunflag Viniyog P. Ltd., 10,00,000
9. Vaikunth Vintrade P. Ltd., 25,00,000
10. Waitz Mercantiles P. Ltd., 10,00,000
Total 3,20,00,000
5. For these and other grounds that will be submitted at the time of hearing of the appeal, the appellant prays that the addition of Rs.3,20,00,000 be deleted.
6. The appellant craves leave to add to, alter or amend all or any of the above grounds of appeal at or before the hearing."
2. Brief facts of the case are that the assessee is a company and had filed its return of income for the A.Y. 2011-12 on 23.09.2011 admitting income of Rs.3,14,740. The Assessing Officer completed the assessment under section 143(3) by making 3 ITA.No.893/Hyd/2016 Giri Roadlines & Commercial Trading P. Ltd., Secunderabad an addition of Rs.3,20,00,000 as unexplained credits, under section 68 of the Act. The assessee filed letters of confirmations from the investors giving their full address, income tax PAN details as well as copies of investors, a) bank statements, b) acknowledgments of filing of returns of income, and (c) balance sheets and P & L A/c, in proof of the identity, creditworthiness and genuineness of the investments. Certificates of RBI in the case of five investors, which were NBFCs were also filed. The Assessing Officer deputed his Inspector for verification and investigation. Thereafter, on the ground that the investors are having meagre incomes and in some cases minus net worth, he made addition of the entire investment by way of share capital of Rs.3,20,00,000 u/s. 68 of the Income Tax Act, 1961 (the Act). On appeal, the First Appellate Authority upheld the findings of the Assessing Officer. Further aggrieved, the assessee is in appeal before us.
3. The Sr. Advocate Shri Y. Ratnakar appearing for the assessee submitted that -
(a) The assessee has discharged the burden of proof that lay on it by furnishing of such documents which were under his power and control the details of which are at page-61 onwards of the paper book filed before us.
(b) That neither the Assessing Officer or the CIT(A) has verified or analysed each and every credit independently and on the basis of human properties rejected all the evidences and made the addition.4
ITA.No.893/Hyd/2016 Giri Roadlines & Commercial Trading P. Ltd., Secunderabad
(c) In the investigation report by the Income Tax Inspector, no adverse findings being recorded against any of the companies and in fact, the contentions of the assessee are substantiated by this report.
(d) The investment companies which made the investments had huge aggregate funds and the allegation that they do not have creditworthiness is factually incorrect. Annexure-A was produced to demonstrate the quantum of funds held by the investment companies were substantial.
(e) That the jurisdictional High Court has held that, to make an addition, under such circumstances u/s. 68 of the Act, it has to be proved by the Revenue that the share holders, were mere name lenders and the money allegedly invested by them really belong to the Directors of the assessee company. He relied on CIT vs. Lanco Industries Ltd., 242 ITR 357 (A.P.).
4. The Ld. D.R. on the other hand controverted the submissions of the assessee and argued that -
(a) The incomes of all these companies are meagre and in certain cases the net worth of some companies is minus. Thus he submitted that the creditworthiness has not been proved.
(b) The funds by way of share capital were received by the assessee company by way of private placement and hence the assessee should be in a position to collect all 5 ITA.No.893/Hyd/2016 Giri Roadlines & Commercial Trading P. Ltd., Secunderabad the evidences required to prove the identity, creditworthiness and genuineness of the transactions and that onus is wrongly being shifted on to the Revenue by the Ld. Counsel for the assessee.
(c) She relied on the order of the Assessing Officer as well as the Ld. CIT(A). She further relied on the decision of the Hon'ble Delhi High Court in the case of Tarak Properties Investment P. Ltd., 264 CTR 072 and that S.L.P. on this judgment was dismissed by the Hon'ble Supreme Court.
5. In reply, the Learned Counsel for the assessee submitted that dismissal of SLP by the Hon'ble Supreme Court does not tantamount to approval of the order of the Hon'ble High Court by the Hon'ble Supreme Court.
6. Rival contentions heard. On a careful consideration of the arguments of both sides, papers on record, orders of the authorities below, case law cited, we hold as follows.
7. The Assessing Officer has made this addition on the ground that the assessee failed to prove the genuineness of the transaction, as some of the companies which invested had admitted either 'Nil' income or had declared meagre income. He records that the highest income that was declared was of Vaikunth Vintrade P. Ltd., of Rs.34,445/-.
8. On the other hand, Learned Counsel for the assessee, demonstrates that higher incomes than Rs.34,445/- were reported by other companies and that the A.O. was factually wrong in his observations. The assessee further filed a statement 6 ITA.No.893/Hyd/2016 Giri Roadlines & Commercial Trading P. Ltd., Secunderabad to demonstrate the creditworthiness of the investing companies. The factual position depicted in this statement was not controverted by the Ld. D.R. We extract the statement for ready reference.
Details of funds available with the investor companies as on 31st March, 2011 Amount in Rupees Name of the investor Total owned Borrowed Aggregate Amount of company funds funds funds share capital Own funds subscribed in the assessee Share Reserve & (1) (2) (1+2) capital Surplus Basuki Credit & 25,00,000 1,80,00,000 2,05,00,000 0 2,05,00,000 10,00,000 Finvestment P Ltd.
Mideast Vyappar Pvt 1,41,45,000 6,72,96,942 8,14,41,942 0 8,14,41,942 10,00,000 Ltd.
Pathik Trading & 59,08,133 6,731 59,14,864 25,74,115 84,88,979 10,00,000 Fiscal Pvt Ltd.
PEE DEE Viniyog Pvt. 1,59,30,000 5,36,65,388 6,95,95,388 94,77,048 7,90,72,436 10,00,000 Ltd.
Rameswaram Fiscal 27,27,000 2,01,18,875 2,28,45,875 0 2,28,45,875 10,00,000 Pvt Ltd Sesun Marketing Pvt. 2,09,00,000 12,64,31,489 14,73,31,489 4,27,74,866 19,01,06,355 15,00,000 Ltd Sundrm Consultants 1,30,88,800 7,18,09,404 8,48,98,204 5,30,75,000 13,79,73,204 2,10,00,000 Pvt Ltd Sunflag Viniyog Pvt 1,12,66,000 6,41,25,000 7,53,91,000 0 7,53,91,000 10,00,000 Ltd.
Vaikunth Vintrade Pvt 1,63,95,000 11,96,83,873 13,60,78,873 1,45,10,166 15,05,89,039 25,00,000 Ltd.
Waltz Mercantiles Pvt 1,44,62,000 6,40,57,451 7,85,19,451 0 7,85,19,451 10,00,000 Ltd.
8.1. A perusal of this chart shows that these companies do have creditworthiness. They do have substantial funds and some are NBFCs. Having NIL income or meagre income cannot by itself lead to a conclusion that the assessee has no creditworthiness. Thus this finding of the Ld. CIT(A) in our opinion is not correct.
9. We also find that some of these investing companies are NBFCs and registered with the RBI. Such companies cannot be treated as paper companies without the A.O. gathering any evidence in support of such a finding.
7ITA.No.893/Hyd/2016 Giri Roadlines & Commercial Trading P. Ltd., Secunderabad
10. The assessee has furnished letters of confirmations from the investors, their full address, income tax Permanent Account numbers, copies of investors bank statements, acknowledgments of these companies of filing returns of income, balance sheets, P & L A/c etc., which does demonstrate the identity of the investing companies. The creditworthiness is proved by the substantial funds that these companies have.
11. A perusal of the report of the Inspector of Income Tax shows that, nothing adverse has been recorded consequent to inspection and investigation. Each of the investment has not been individually examined by the A.O. It is well settled that for making an addition u/s 68 of the Act each credit has to be separately investigated and conclusions arrived at. In this case a general view has been taken by the revenue authorities. Each investment has not been examined separately. No material has been gathered by the A.O. to contradict the evidence filed by the assessee. The A.O. merely rejected the evidences without proper reason. Under these circumstances, we are of the considered opinion that the addition made under section 68 of the I.T. Act cannot be sustained.
12. We now examine some of the case laws on this issue.
12.1. In the case of CIT vs. Kamdhenu Steel & Alloys Ltd., (2012) 248 ITR 33, the Hon'ble Delhi High Court has held that once the assessee has proved the identity of creditor/share applicant, by either furnishing PAN or copy of their bank account, the addition under section 68 of the Act cannot be made without any material to support the same.
8ITA.No.893/Hyd/2016 Giri Roadlines & Commercial Trading P. Ltd., Secunderabad 12.2. In the case of CIT vs. Gangeshwari Metal P. Ltd., in ITA.No.597/2012 judgment dated 21.1.2013 reported in 361 ITR 10 (Del), the Hon'ble High Court after considering the decisions in the case of Nova Promoters and Finlease Pvt. Ltd. 342 ITR 169 and judgment in the case of CIT vs. Lovely Exports 319 ITR (Sat.5) (S.C.) the Hon'ble High Court held as follows :
"As can be seen from the above extract, two types of cases have been indicated. One in which the Assessing Officer carries out the exercise which is required in law and the other in which the Assessing Officer (sits back with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the Assessing Officer after noting the facts, merely rejected the same. This would be apparent from the observations of the Assessing Officer in the assessment order to the following effect -
"Investigation made by the Investigation Wing of the department clearly showed that this was nothing but a sham transaction of accommodation entry. The assessee was asked to explain as to why the said amount of Rs.1,11,50,000 may not be added to its income. In response, the assessee has submitted that there is no such credit in the books of the assessee. Rather, the assessee company has received the share application money for allotment of its share. It was stated that the actual amount received was Rs.55,50,000 and not Rs.1,11,50,000 as mentioned in the notice. The assessee has furnished details of such receipts and the contention of the assessee in respect of the amount is found correct. As such the unexplained amount is to be taken at Rs.55,50,000. The assessee has further tries to explain the source of this amount of Rs.55,50,000 by furnishing copies of share application money, balance sheet, etc. of the parties mentioned above and asserted that the question of addition in the income of the assessee does not arise. This explanation of the assessee has been duly considered and found 9 ITA.No.893/Hyd/2016 Giri Roadlines & Commercial Trading P. Ltd., Secunderabad not acceptable. This entry remains unexplained in the hands of the assessee as has been arrived by the Investigation wing of the department. As such entries of Rs.55,50,000 received by the assessee are treated as an unexplained cash credit in the hands of the assessee and added to its income. Since I am satisfied that the assessee has furnished inaccurate particulars of its income, penalty proceedings under Section 271(1)(c ) are being initiated separately. "
The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in the former category and that is why this Court decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of inquiry on the part of the Assessing Officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no addition can be made under Section 68 of the Income Tax Act, 1961.
Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law. "
The case on hand clearly falls in the category where there is lack of enquiry on the part of the A.O. as in the case of Gangeshwari Metals (supra)."
12.3. In the case of CIT vs. Fair Finvest Ltd. (2013) 357 ITR 146 (Del.) in ITA no.232/2012 judgment dt. 22.11.2012 at para 6 to 8, it is held as follows.
"6. This Court has considered the submissions of the parties. In this case the discussion by the CIT(Appeals) would reveal that the assessee has filed documents including certified copies issued by the Registrar of Companies in relation to the share application, affidavits of the Directors, Form 2 filed with the ROC by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the assessing officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions 10 ITA.No.893/Hyd/2016 Giri Roadlines & Commercial Trading P. Ltd., Secunderabad would be improper, more so when the assessee produced material. The least that the assessing officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the assessing officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description of Section 68.
7. Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra).
8. The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (supra). Where the assessee adduces evidence in support of the share application monies, it is open to the assessing officer to examine it and reject it on tenable grounds. In case he wishes to rely on the report of the investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between the assessee and the alleged hawala operators; such a link was shown to be present in the case of Nova Promoters & Finlease (P) Ltd. (supra) relied upon by the revenue. We are therefore not to be understood to convey that in all cases of share capital added under section 68, the ratio of Lovely Exports (supra) is attracted, irrespective of the facts, evidence and material.
12.4. Thus a clear distinction has been made out in cases where the AO has conducted certain investigations and in cases where the AO merely rejected the evidences filed by the assessee and made an addition based on presumptions. Apply the propositions laid down in these cases, we have to delete the addition made under section 68 of the Act.11
ITA.No.893/Hyd/2016 Giri Roadlines & Commercial Trading P. Ltd., Secunderabad 12.5. In the case of CIT vs. Lanco Industries Ltd. 242 ITR 357 the Hon'ble Andhra Pradesh High Court held as follows.
"Held, dismissing the appeal that no substantial question of law arose in the case. As regards the first item, viz., the commission paid to Mr. Koneru, a non-resident, for the purpose of raising share capital from NRIs, although the agreement to pay the commission came to light from the material gathered in the course of search and the commission worth Rs. 10 lakhs was in fact sent to Mr. Koneru, the Tribunal found that the cheque for Rs. 10 lakhs acknowledged by Mr. Koneru was returned along with his letter dt. 3rd April, 1994, i.e., long prior to the search operations, as his company in whose name the cheque was issued had no bank account in India. Later on, Mr. Koneru addressed a letter dt. 23rd May,1994, requesting for payment of the amount covered by the cheque as well as the balance amount of Rs. 6.82 lakhs. It was the case of the appellant that the company did not accept the request of Mr. Koneru and no payment was made to him at all by the date of search or later. Mr. Koneru denied having received any commission. On these facts, the conclusion reached by the Tribunal cannot be said to be without evidence. The question of placing the burden of proof to prove a negative fact did not arise. In fact the Revenue wanted the assessee to prove a negative fact that no payment was made after the cheque was returned. The second item was the unexplained share capital investments. If the ostensible shareholders failed to explain the means of investment, that should have been treated as unexplained income in their hands. In order to add it to the income of the assessee there must be a further finding that in fact the shareholders were mere name-lenders and the money allegedly invested by them really belonged to the directors of the assessee- company. In the absence of a finding that the persons to whom the share certificates were issued on receipt of consideration as per the book entries were in fact dummies or stooges of the directors of the assessee-company, the same cannot be treated as unaccounted income of the assessee. There was no such finding by the assessing authority. In this view of the matter, the ultimate conclusion of the Tribunal cannot be faulted in any case.
12.6. In the case on hand there is no such finding made by the A.O. or the Ld. CIT(A).12
ITA.No.893/Hyd/2016 Giri Roadlines & Commercial Trading P. Ltd., Secunderabad
13. The CIT-DR relied on the decision of CIT vs. N. Tarak Properties Investments P. Ltd., (supra). In this case, the Assessing Officer noticed that the extracts of the bank accounts submitted by the assessee during the original assessment proceedings were fabricated. Hence, this is the case of fraud played by the assessee on the Revenue. The assessee had adduced false evidence to get undue advantage by giving colour of genuineness to bogus entries through fabricated bank accounts. Under these circumstances, the Hon'ble Delhi High Court upheld the additions made under section 68 of the Act. Hence, the facts of that case are distinguishable from the facts of the assessee's case.
14. In view of the above discussion, we are of the considered view that the addition made u/s 68 of the Act is to be deleted.
15. In the result, appeal of the assessee is allowed.
Order pronounced in the open Court on 18th January, 2017.
Sd/- Sd/- (SMT. P. MADHAVI DEVI) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 18th January, 2017. VBP/- Copy to
1. Giri Roadlines & Commercial Trading P. Ltd., 1-7-293, M.G. Road, Secunderabad - 500 003.
2. The Income Tax Officer, Ward-2(2), Plot No.6-P, Survey No.32/A, 32/P, 5th Floor, Signature Towers, Kothaguda, Kondapur, Hyderabad - 500 084.
3. CIT(A)-2, Hyderabad.
4. Pr. CIT-2, Hyderabad.
5. D.R. ITAT "B" Bench, Hyderabad.
6. Guard File.