Income Tax Appellate Tribunal - Chandigarh
Acit, Ludhiana vs Radhe Sham Jain Diamond Jewellers (P) ... on 13 January, 2017
I N T H E I N C O M E T A X AP P EL L AT E T R I BU N A L
D I VI S I O N B EN C H , C H AN D I G A R H
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND Ms. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No. 846 & 847/CHD/2014
A.Y: 2008-09 & 2009-10
The ACIT, Vs M/s Radhe Sham Jain Diamond
Circle-III, Jewellers (P) Ltd.,
Ludhiana. B-XIX, 549/1, College Road,
Fountain Chowk, Civil Lines,
Ludhiana.
PAN: AADCR8437J
(Appellant) (Respondent)
Appellant by : Shri Sushil Kumar,CIT-DR
Respondent by : Shri Rajiv Gupta
Date of Hearing : 07.12.2016
Date of Pronouncement : 13.01.2017
O R D E R
PER BHAVNESH SAINI,JM Both the departmental appeals are directed against different orders of ld. CIT(Appeals)-I, Ludhiana dated 30.07.2014 for assessment years 2008-09 and 2009-10.
2. We have heard ld. Representatives of both the parties, perused the findings of authorities below and considered the material available on record. Both the appeals are decided issue-wise as under.
2ISSUE NO. 1
3. On ground No. 1 in assessment year 2008-09, revenue challenged the deletion of addition of Rs. 17,68,793/-. The Assessing Officer has made this addition on account of disallowance of jewellery making charges of the equal amount. The said disallowance has been made by the Assessing Officer on the ground that no such making charges are incorporated distinctly and separately on the sales bills. The Assessing Officer on this basis, concluded that no prudent businessman shall omit to receive charges from his customers which have been incurred by him. The assessee challenged this addition before ld. CIT(Appeals) and it was submitted that assessee company has claimed jewellery making charges of Rs. 17,68,793/- in his trading account on the basis that same has not been charged in the sale bills. The Assessing Officer in the assessment order noted that assessee has converted gold bars into jewellery. Thus, it is but evident that this conversion could not take place without incurrence of making charges. Further, the assessee company has maintained Issue & Receipt Register on which the movement of stock inwards or outwards has been correctly recorded. TDS has been deducted on the jewellery making charges wherever applicable. Thus, there could be no doubt on genuineness of the expenses incurred. Further, the Assessing Officer has estimated income by applying GP 3 rate by rejecting the books of account, however, in the present case, assessee's Gross Profit rate was accepted because assessee has shown more GP as against computed by the Assessing Officer. It was submitted that once GP is applied, no further addition may be made. The assessee relied upon certain decisions in support of his contention.
4. The ld. CIT(Appeals) observed in his findings that jewellery making charges form part of the trading account in the case of the assessee and the said trading account and the results thereof have been accepted by the Assessing Officer while making no addition on account of gross profit rate @ 4.32%. This being so, an individual item of the trading account cannot be taken out of the same and disallowed accordingly merely on the pretext that the said expenditure does not find mention in the sale bill. The contention of the assessee that jewellery making charges which have been incurred are part of the amount charged from the assessee for sale of jewellery though not specifically mentioned separately. The ld. CIT(Appeals) thus, was of the view that there is no separate requirement to mention jewellery making charges in the sale bill so as to ensure that same are considered allowable or considered as genuine expenses. The genuineness of the expenses shall be looked into by examining the relevant vouchers and details of the expenditure but Assessing Officer has 4 not brought any adverse material against the assessee to make this addition. The ld. CIT(Appeals), accordingly, deleted the addition.
5. After considering rival submissions, we do not find any merit in this ground of appeal of the revenue. The ld. counsel for the assessee referred to PB-18 which is trading account. PB-32 is reply filed before Assessing Officer in which it was explained that jewellery is got manufactured from outside job work. PB-69 is Show Cause Notice issued by the Assessing Officer in which no explanation of the assessee on this issue have been called for. It, therefore, appears that this addition is made by the Assessing Officer without calling for the explanation of the assessee. The ld. CIT(Appeals) on proper appreciation of the facts and material on record, correctly observed that there is no specific requirement to mention the jewellery making charges in the sale bills so as to ensure that same are considered allowable or considered as genuine expenses. The assessee maintained proper records and satisfied the ld. CIT(Appeals) that this addition is wholly unwarranted. The ld. CIT(Appeals) also did not approve rejection of the books of account under section 145(3) of the Act. The assessee has maintained proper records and movement of the stock and TDS has been deducted on jewellery making charges wherever applicable. Therefore, in such circumstances, the 5 disallowance made by the Assessing Officer was highly unjustified which have been correctly deleted by the ld. CIT(Appeals). This ground of appeal of the revenue has no merit, same is accordingly dismissed.
5(i) In assessment year 2009-10, revenue has raised similar ground No. 1 challenging the deletion of addition of Rs. 58,09,670/-. It is noted in the impugned order that Assessing Officer has applied gross profit rate @ 6% of the total sales of jewellery items and gross profit rate of 3% on pure gold sales without recording any basis to adopt the same and without confronting assessee with the proposed addition of comparative gross profit rate. The Assessing Officer made this addition on account of low gross profit rate. The ld. CIT(Appeals) noted that it is a fact that same Assessing Officer has accepted the gross profit rate shown by the assessee on the basis of the books of account maintained by him for assessment year 2008-
09. The fall in gross profit rate to 1.58% during the year under consideration is attributable to the fact of increasing gold price because of which weighted average cost of purchases adopted by the assessee leads to lower GP rate. However, the method of accounting in the event of fall in gold price, in any particular year would lead to normally high gross profit rate as well. The ld. CIT(Appeals), therefore, found that in these c i r c u m s t a n c e s , f a u l t cannot be found with the method o f 6 accounting adopted by the assessee as for the immediate preceding year, the gross profit rate has been found to be satisfactorily worked out by the Assessing Officer. In assessment year 2008-09, Assessing Officer made addition of Rs. 17,68,793/- on account of jewellery making charges and this addition for the year under consideration has not been made for no reasons specified in the assessment order. The order of the Assessing Officer was, therefore, arbitrary to hold different view in two assessment years. Assessing Officer disallowed the amount but in this year Assessing Officer made addition on account of low gross profit rate. The rejection of the books of account has not been found justified. The ld. CIT(Appeals), therefore, found that since this addition is made without giving opportunity to the assessee, therefore, such addition is not warranted and accordingly, deleted the addition.
6. After considering rival submissions, we do not find merit in this ground of appeal of the revenue. This addition is made merely on account of low GP rate. However, the ld. CIT(Appeals) did not justify the rejection of the books of account under section 145(3) of the Income Tax Act on which no specific ground have been raised by the revenue. In preceding assessment year 2008-09, on the basis of same method of accounting, the Assessing Officer accepted the GP rate 7 disclosed by the assessee, therefore, Assessing Officer should follow rule of consistency and on the same method of accounting, merely on low GP rate, such addition should not be made. Since the assessee maintained the books of account on the same accounting method as of the preceding assessment year as well as in assessment year under appeal, therefore, there was no basis for making the addition against the addition particularly when no specific defects have been pointed out in maintenance of the books of account and that ld. CIT(Appeals) did not approve rejection of the books of account. In these circumstances, we do not find any infirmity in the order of the ld. CIT(Appeals) in deleting the addition. This ground of appeal of the revenue is also dismissed.
6(i) In the result, Issue No. 1 is decided against the revenue in both the assessment years under appeal. ISSUE NO. 2
7. In assessment year 2008-09, revenue on ground No. 2 challenged the deletion of addition of Rs. 14,790/- This addition pertains to disallowance of repair charges on old jewellery which have been disallowed by the Assessing Officer on the ground that they do not found mention in the sales bills. The assessee submitted before ld. CIT(Appeals) that repair charges are in-fact the net amount of repair charges 8 paid by the assessee company on old jewellery got repaired from the job workers and repair charges claimed from customers against repair of jewellery belonging to the customers. These repair charges have been paid on assessee's own jewellery and also on jewellery received from customers for repair purposes. On receipt of jewellery from customers, a repair slip is prepared. Repair charges paid to job workers on its repair is written on the back of repair slip. Repair charges received from customers are also written on the back. In the books, entries made for the net amount. However, in many cases, no repair charges are charged from the customers so as to give after sale services to promote sales. Thus, there is no such case that repair charges are not received from the customers. However, in the Profit & Loss Account, excess of expenditure over income has been taken.
7(i) The ld. CIT(Appeals) found that this disallowance is exactly on the same ground as regards to jewellery making charges on which addition of Rs. 17,68,793/- has been deleted. The ld. CIT(Appeals) following the reasons for the same, deleted this addition as well.
8. After considering rival submissions, we do not find any merit in this ground of appeal of the revenue. The assessee specifically explained this issue before ld. CIT(Appeals). The assessee explained that net amount 9 of repair charges on both counts have been recorded in the books of account in which no defects have been pointed out by the ld. DR during the course of arguments. It is stated that this issue is same as have been considered on ground No. 1. Therefore, we do not find any merit in this ground of appeal of the revenue. The ld. CIT(Appeals) correctly deleted the addition. 8(i) This ground of appeal of the revenue is dismissed. 8(ii) In assessment year 2009-10, revenue challenged the deletion of addition of Rs. 98,436/-. This addition pertains to disallowance of repair charges on old jewellery, which have been disallowed by the Assessing Officer on the ground that they do not find mention in the sale bills. The ld. CIT(Appeals) found that the charges so received have been accounted for and only charges in excess paid on jewellery sold by the assessee have been claimed as expenses. The ld. CIT(Appeals) found that on the same, he has deleted the addition in assessment year 2008-09 and accordingly deleted the addition.
9. After considering rival submissions, we do not find any merit in this ground of appeal of revenue. The Assessing Officer did not point out any specific defect in maintenance of the books of account by the assessee on this item. The assessee has properly recorded the net amount of repair charges of both the counts in 10 books of account. The ld. CIT(Appeals) deleted the similar addition in assessment year 2008-09 and we have confirmed his findings. This ground of appeal of the revenue is, therefore, identical as have been considered in assessment year 2008-09. This ground of appeal of the revenue is accordingly dismissed. 9(i) Issue No. 2 is, therefore, decided against the revenue.
ISSUE NO. 3
10. On ground No. 3 in assessment year 2008-09, revenue challenged the deletion of addition of Rs. 11,17,80,000/-. On ground No. 4 in assessment year 2008-09, revenue challenged the deletion of addition of Rs. 1 lac.
11. In assessment year 2009-10, revenue on ground No. 3 challenged the deletion of addition of Rs. 6,37,20,000/- and on ground No. 4 revenue challenged the deletion of addition of Rs. 4,50,000/-. Ld. Representatives of both the parties submitted that issue is same in both the appeals of the revenue. Both the parties mainly argued on the basis of facts considered in assessment year 2008-09. Therefore, for the purpose of disposal of this issue, the facts are taken and considered from assessment year 2008-09. 11 11(i) The Assessing Officer made additions of Rs. 11,17,80,000/- and Rs. 1 lac on account of unexplained share premium. The Assessing Officer in this regard has observed in para 5 of the assessment order that assessee had issued 12,42,000 shares of Rs. 10/- each on premium of Rs. 90/- per share, thereby had raised capital of Rs. 1,24,20,000/- alongwith share premium of Rs. 11,70,80,000/-. The Assessing Officer required the assessee to justify the issuance of shares on premium and in response to the same, it was submitted that assessee had taken over running business of M/s Diamond Jewellers, a proprietorship firm established in the year 1995 which occupied an established showroom at prime location of the Jewellers Market having large number of premium customers. It was submitted that stock of the gold was taken at face value rather than market value. The Assessing Officer considering reply of the assessee did not accept contention of the assessee on the following reasons :
i) Firstly the company has been incorporated on 22.01.2008 with initial contribution of share capital by its three promoters. Large number of Private Limited companies based at Kolkata having no past business association with the assessee have invested for purchase of shares at a premium of Rs. 90/- per share. Few companies invested in purchase of shares even at the very first week of incorporation 12 i.e. M/s Bengal Credit Corporation invested for 15000 shares on 28.01.2008, 25000 shares on 29.01.2008 and M/s Ram Roop Credit & Leasing Pvt. Ltd. invested in 25000 shares on 31.01.2008.
ii) There was hardly any investor in shares of newly incorporated company except from Kolkata.
iii) All these investors from Kolkata purchased the shares of the assessee company at a high premium of Rs. 90/- per share and further without receiving any dividend or any bonus shares, chose to sell their shares holding directly or indirectly to the Directors/Promoters at the face value of Rs. 10/- per share, thus, incurring heavy loss of Rs. 90/- per share without any reasonable cause or logic.
iv) The company had not conducted any
substantial business at the time of issuing of
shares.
11(ii) The Assessing Officer, therefore, held that the
whole transaction of raising capital through share
premium from unknown and unrelated companies of a distinct place was nothing but a colorable device to introduce unaccounted income of the assessee. The Assessing Officer relied upon decisions of the Hon'ble Supreme Court in the cases of Durga Prashad More 82 ITR 640 and Sumati Dayal 214 ITR 801 and treated the 13 share premium amounting to Rs. 11,78,80,000/- as unexplained under section 68 of the Income Tax Act. The Assessing Officer also observed that M/s Puneet Fashion Pvt. Ltd. has subscribed 10000 shares @ Rs. 100/- per share including premium of Rs. 90/- per share. Since genuineness and credit worthiness of M/s Puneet Fashion Pvt. Ltd. could not be explained, therefore, it was also treated as unexplained and further addition of Rs. 1 lac was made under section 68 of the Act.
12. The assessee challenged both the additions before ld. CIT(Appeals) and submitted his arguments on these issues which are incorporated in the impugned order and read as under :
"The Ld. A.O. has added Rs. 11,17,80,000/- received on account of Share premium, credited in the books, 'arbitrarily on the basis of surmises and conjectures, which is against justice and natural law of Justice.
5.1 Before going through further we want to reiterate the facts and Circumstances of the case in summary manner, regarding this issue before your honour, which are as under:-
Assessee is engaged in the retail as well as whole sale business of jewellery. A search was conducted at the premises of the assessee on 14.03.2012. Assessment was made on 30.03.2014 under Section 153A r.w.s. 143 (3) of the Act, against which this appeal lies.
5.1(b) During the year under consideration Sh. Radhe Sham Jain with his sons Sh. Chetan Jain and Sh. Munish Jain had 14 incorporated a company named M/s Radhe Sham Jain Diamond Jewellers Pvt. Ltd. on dt. 22.01.2008 with the main object of, to take over the running business of M/s Jain Diamond Jewellers a proprietorship firm as a going concern (copy of MOA & AOA enclosed at page no.33) and accordingly company had taken over the running business of M/s Jain Diamond Jewellers at book values inspite of the fact that the market value of stocks taken over by the company at book value is substantially high approx. Rs. Five crore (Rs.500,00,000). In this respect whole details/calculation have been elaborated step wise, in our reply dated 30.03.2014.
5.1(c) In reference to reply to questionnaire issued by the;
Ld. A.O. during assessment proceeding, assessee submitted the complete list of shares allotted during the year showing name, address, pan no's, amount received along with relevant ch. no's & date, copy of the same enclosed for your ready references at page no. 38 to 43.
5. 1( d) T here af te r the inf or mation was c al l ed f or, by issu ing notices u/s 133' (6) of the Act. by the respective Ld. A.O. in respect of which substantial confirmation had got received.
5.1(e) However to make further enquiry the Ld. A.O. issued an commission to Kolkata u/s 131 (1) (d) of the Act to enquire further the identity, credit worthiness of the companies as well as genuineness of the transactions in respect of share application money taken by the Radhe Sham Jain diamond jewelers group from the Kolkata based companies. In response to which DDIT (inv.) unit IV (1), Kolkata have submitted its report dated 19,03.2014 stating that the summons u/s 131 of the Act were issued to the directors, in response to which the directors of the companies submitted their books of accounts and other documents, which were verified regarding the investment and their 15 source of investment in M/s Radhe Sham Jain Diamond Jewellers group.
It is pertinent to mention here that the Ld. DDIT had not drawn any adverse opinion regarding the investment as well as the source of Investment by Kolkata based companies in M/s Radhe Sham Jain Diamond jewelers Group, Ludhiana, except few discrepancies regarding difference of amount or difference of year of investment. 5.1(f) The Ld. A.O. on receiving the report of Ld. DDIT, Kolkata issued a letter dt. 20.03.2014 to assessee to explain the discrepancies as pointed out in the commission report received from Kolkata. In response to which assessee explained the each and every discrepancy vide his reply dt. 21.03.2014.
5.1(g] Thereafter in response to a letter dt. 27.03.2014 issued to Joint Director of Income Tax (Inv.) Ludhiana for their comments on the report of DDIT Kolkata, there reply received on 28.03.2014 also without any adverse interference, Certified copy enclosed at page no.62.
5.1(h) In our case on this issue not only proper explanations are on the record but also assessee have fully discharged his onus regarding identity of the subscribers, their credit worthiness' and genuineness of the Transactions and further enquiries made by Ld. A.O. also strengthen the issues regarding identity of the subscribers, their credit worthiness and genuineness of the transactions, directors produced before the authority, submitted their books of accounts, duly verified by the department officials regarding investment as well as the source of investment and no adverse inference are on record as well as on the order itself. 5.1(i) There is no additional material/evidences found out by the Ld. A.O. on record on the basis of which Ld. A.O. have decided to invoke the provision of section 68 of the Act. More ever there is no dissatisfaction about the 16 evidences/explanations offered by the assessee pointed out during the whole assessment proceeding.
5.1(j) On 29.03.2014 the Ld. A.O. issued notice u/s 142 (1) to furnish the information/details called for and also mentioned that in case of your failure to furnish the above information or justify the reasonableness of share premium, you are requested to please show cause why the amount of share premium received should not be taxed in your hand as unexplained credit in your books of accounts. In response to which assessee filed his submissions vide reply dt. 30.03.2014. Which was fully informatice along with figures, logic's, calculations and fully justifications regarding the reasonableness of share premium received 5.1(k) Their after on the last day of time bar case Ld. A.O. framed his opinion to invoke the provision of section 68 of the act arbitrarily on the basis of surmises and conjectures and without any reasonable ground and material on record, which is against law and natural justice. 5.2 Cash Credits Section 68 has been reproduced as under;-
Where any sum is found credited in the books of an assessee maintained for any previous year, and assesses 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 of that previous year.
Having regard to the phraseology used in section 68 dearly indicates that before invoking the provision of section 68 there must be either no explanations or an explanation offered by the assessee is not satisfactory, 5.3 From the above mentioned facts, circumstances there emerged number of issues on which our written submissions are as under:-
17
5.3(a) Assessee have duly discharged his onus to prove the transactions.
It is well established principal in the eyes of law that if assessee prove the identity, credit worthiness of the subscribers and genuineness of the transaction then section 68 cannot be invoked.
In the present case assessee had provided the names, addresses, pan no's, amount received along with relevant details. Further information received in response to notices issued u/s 133 (6) of the Act. Ld. A.O. has not objected on the confirmations, documents attached with the confirmations, credit worthiness of the subscribers, genuineness of the transactions and source of investments explained by the subscribers in their respective reply. In response to further enquiries made by Ld. A.O. the report of DDIT Kolkata is self explanatory about the identity, credit worthiness, and genuineness of transactions and also in this report no adverse inference drawn except few discrepancies, which also have fully explained by the assessee and on record. No adverse inference drawn by the Joint Director of income Tax (Inv.)., Ludhiana in their comments on the report of DDIT, kolkata dated 28.03.2014 Reliance is being placed on
i) A c r o n F i n a n c e ( P ) L t d . V C IT ( 2 0 1 1 ) 2 3 8 C T R (P&H) 344
ii) C I T V s K u l wa n t S i n g h & C o . ( 2 0 0 8 ) 2 9 9 I T R 5 3 (P&H)
iii) C I T V s H A M a n a g e me n t C o n s u l t a n t s P.Ltd.
(2012) 82 CCH 138 Del High Court.
(Held, Assessee has been able to prove identity and credit worthiness of the creditor and genuineness of the transaction
--Addition could not be made) iv. CIT vs Empire Builtech Pvt. Ltd. (2014) 88 CCH 033 DelHC 18 (Cash credits--Share application money--Addition--Burden of proof-- Discharge of--Assessee received share capita! and sold shares at 1000% premium--AO in assessment proceedings asked assessee to furnish various particulars--Notices u/s 133 (6) were also issued to individuals and entities who had applied as shareholders directly--Out of 39 investors, 28 responded to queries, 2 investors did not receive notice and 9 did not responded--AO added entire amount u/s 68-- CIT(A) confirmed deletion of addition holding that once identity of the investors had been disclosed, assessee had discharged burden imposed upon it by law and that amount could not be added back under s. 68--Tribunal affirmed findings of CIT(A)--In revenue's appeal issue was confined to deletion of addition pertaining to 11 investors whose particulars could not be verified) v. CIT vs Peoples General Hospital Ltd. (2013) 356 ITR 65'(MP) (Income--Cash credit--Share application money--Genuineness of transaction and creditworthiness of creditor--Discharge of burden of proof by assessee, effect of--AO observed that company A had made share subscription to capital of assessee-- AO doubted creditworthiness of A and directed addition of amount of share subscription provided by A to assessee-- CIT(A) and tribunal deleted addition made by AO Held, if identity of person providing share .application money Is established then burden was not on assessee to prove creditworthiness of said person--Company A was not bogus or fictitious company--In instant case assessee had established identity of investor who had provided share subscription and it was established that transaction was genuine--No addition could be made u/s 68) Having regard to the same, it cannot be deduced that the assessee have fails to prove the identity, creditworthiness 19 as well as genuineness of transaction. Hence there is no doubt that assessee company have fully discharged his onus to prove the transactions, 5.3(b) Explanations of the assessee had not rejected or rebutted by the revenue at any stage during the whole assessment proceedings.
At each and every stage of assessment proceedings ss and when Ld. A.O. asked for, assessee filed the explanations as well as evidences in support of their explanations. Neither any explanation nor any evidences in support of explanations filed rejected by the revenue or record their dissatisfaction or rebuttal of the same. Ld. A.O. had not pointed out any inherent weaknesses or short coming" in the information on record, whether provided by the assessee or collected by at his own.
All the explanations as well as evidences on record are factual. There is no evidence to show that the transactions were sham. Hence addition made under section 68 is unjustifiable as well as against law of natural justice. Reliance is being placed on
(i) Sree Lekha Banerjee vs CIT (1963) 49 ITR 112 (SC) (Held: Before the Department rejects such evidence it must either show an inherent weakness in the explanation or rebut it by putting to the assesses some information or evidence which it has in its possession. The Department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof. It is within the range of these principles that such cases have to be decided.)
ii) Exoimp Resources (India) Ltd. Vs CIT (2005) 195 CTR (Cat) 226 (Income--Cash credit-- Burden of proof vis-a-vis explanation of assessee--When s. 68 is invoked and, the assessee 20 furnishes an explanation, it is incumbent upon the AO to examine the explanation and arrive at a conclusion as to whether the explanation is satisfactory-- If the explanation is not found to be satisfactory, the conclusion arrived at by the AO is to be communicated to the assessee-- If, thereupon, the assessee submits any comments or furnishes further information the AO has to examine the same--AO made addition of the share capital as undisclosed income which was upheld by CIT(A) as well as the Tribunal-- It was incumbent on the appellate authorities to examine the record itself and find out as to whether any explanation is on record or not-- Same not done--Matter is remitted back to the Tribunal to ascertain as to whether any explanation was furnished to the AO before the assessment was made-- If no explanation is found, the order passed by the CIT(A) and the Tribunal upholding the addition shall stand affirmed-- If such explanation is found, the case is to be remanded to the AO for examining the said explanation and then to arrive at a conclusion)
iii) Sunam Rice & Dal Mills vs CIT (2008) 304 ITR 189 (P&H) Credit--Variation in dates vis-a-vis withdrawal Income - cash from bank - Assessee expl ained that the money in question was in f ac t received on 9th Nov., 1973, against a cheque but the entry in respect of the same was made on 12th Nov., 1973, since 10th and llth Nov.,1973, were bank holidays--Manager of the bank has confirmed that he had made the payment after the banking hours on 9th Nov., 1973 by exercising h i s d i s c r e t i o n ar y p o we r an d h ad b u t th e d a te as 1 2 th on th e cheque in his o wn h an d wr i t i n g , an d th e s a me wa s e n te r e d i n th e b o o k s o f th e b an k as f ir s t e n tr y o n 1 2 th N o v . , 1 9 7 3 -- S am e h as b e e n c o r r o b o r a te d b y th e c as h i e r -- A s s e s s e e h ad e n te r e d th e tr an s ac t i o n i n i ts b o o k s o f ac c o u n t on th e date of transaction of its own--Therefore, 21 the impugned amount cannot be treated as unexplained money and additions cannot he sustained)
iv) CIT vs A. K. Daga & Sons (2008) 298 ITR 623 (Mad) (Income-Cash credits-sale proceeds of jewellery-Gold and Silver jewellery sold by assessee to family members-- Said jewellery was disclosed under VDIS and the CIT had issued a certificate therefore-- Assessee had filed detailed description of purchases of jewellery and its valuation at the time of declaration under VDIS-- Declaration Is not disputed by the Revenue-- Assessee has explained the nature and source of credits with supporting evidence-- First appellate authority as well as the Tribunal have given a finding that there is no material on record to suggest that the transaction was sham-- Concurrent findings are based on valid material and evidence-- Therefore, the sum received on "amount of sale of jewellery cannot be charged to tax under s. 68-- No substantial question of law arises) 5.3(c) Revenue had not disputed any of the facts of the case at any stage of assessment proceedings. Ld. A.O. had not confronted any disputed fact to stage of assessment proceedings on which difference of opinion exists. In the absence of the same this impugned addition is against facts of the case as well as against law.
Reliance is being placed on :
i) Murlidhar Lahorimal Vs CIT (2006) 280 ITR 512 (Guj) (Income--Cash credit--Genuineness of gift--Addition made by the AO by disbelieving the explanation of the assessee that the credit entry In the capital account represented gift from R--Not justified--R appeared before the AO and confirmed the fact of 22 having made .the gift by way of bank draft--He produced evidence in support of the source from which the funds for making the gift were available with him--Revenue has not disputed any of these facts--Primary onus which rested with the assessee thus stood discharged--Assessee can be asked to prove the source of credit in books, but cannot be asked to prove the source of the source--Tribunal has sustained the addition without addressing itself to the requirement of s. 68--
Finding of the Tribunal that the motive for making the gift is not established has no relevance for disbelieving the gift-- Also, the Tribunal totally failed to consider the fact that the donor has filed gift-tax return and assessment has been framed on the donor--Nothing has been brought on record to show that the explanation of the assessee is not satisfactory-- Impugned order of the Tribunal cannot be sustained). 5.3(d) Further enquiries made by the revenue but there is no adverse 'inference drawn from these enquiries on record.
As undisputedly, A.O. have all the rights to make further enquires in respect of any issue as he seems fit. In the present case also while exercising his power to enquire, Ld. A.O. issued notices u/s 133 (6) of the Act. in respect of which substantial confirmation along with relevant documents as mentioned in the notice itself had got received. No adverse inference drawn from the same on record.
There after Ld. A.O. issued an commission to Kolkata u/s 131 (1)
(d) of the Act to enquire further the identity, credit worthiness of the companies as well as genuineness of the transactions in respect of share application money taken by the Radhe Sham Jain diamond jewelers group from the Kolkata based companies. In response to which DDIT (inv.) unit IV (1), Kolkata have submit its report dated 19.03.2014 stating that the summons u/s 131 of the Act were issued to the directors, in response to which the directors of the companies submitted their 23 books of accounts and other documents, which were verified regarding the investment and their source of investment in M/s/Radhe Sham Jain Diamond Jewellers group. It is pertinent to mention here that the Ld. DDIT has not drawn any adverse opinion regarding the investment as well as the source of investment by Kolkata based companies in M/s Radhe Sham Jain Diamond jewelers Group, Ludhiana, except few discrepancies regarding difference of amount or difference of year of investment. The Ld. A.O. on receiving the report of Ld. DDIT, Kolkata issued an letter dt. 20.03.2014 to assessee to explain the discrepancies as pointed out in the commission report received from Kolkata. In response to which assessee explained the each and every discrepancy vide his reply dt. 21.03.2014. No adverse inference drawn from the same on record.
Thereafter in response to a letter dt. 27.03.2014 issued to Joint Director of Income Tax (Inv.) Ludhiana for their comments on the report of DDIT Kolkata, there reply received on 28.03.2014. No adverse inference drawn from the same on record. When there is neither any adverse Inference on record in respect of whole enquiries nor any adverse materiel or evidences on record, then the addition made is fully unjustifiable and without any reasonable ground.
5.3(e) Revenue had not put any adverse material on record to justify the addition u/s 6E of the Act. There is no adverse material or evidences en record on the basis of which Ld. A.O. decided to made this addition. Hence it is clear that said addition u/s 68 is totally unrealistic and on the basis of suspicious, surmises and conjectures in spite of the fact that Ld. A.O. have also framed the assessment of this company as well as of the directors and other family member of the group for seven years i.e. 24 A.Y. 2006-07 to A.Y. 2012-13 and have not drawn any adverse opinion nor found any adverse material, which provides strength to his suspicion, surmises . Hence this addition is against the facts of the case, as well as law. Relialice is being placed on
(i) CIT vs P.K. Noorjahan (1999) 237 ITR570 (SG) (Income from undisclosed sources-- Addition under s. 69-- Discretion of AO-- Intention of Parliament in enacting s. 69 was to confer a discretion on the ITO in the matter of treating -the unexplained source of investment as income of assessee-- ITO is not obliged to treat such source of investment as income in every case--Whether It has to be treated as income or not has to be considered in the light of facts of each case--Assessee, a young lady, could not explain satisfactorily her source of investment in lands--Tribunal held that it -was not possible for her to earn the amount even during a decade and that the source of investments could not be treated as income of assessee--No error in the finding of the Tribunal)
(ii) CIT vs Value Capital Services -(P) Ltd.(2008)307 ITR 334 (Del) (Income--Cash credit--Share application money--'CIT(A) accepted the existence of the applicants--It is very difficult for the assessee to show the creditworthiness of strangers--Revenue has not shown that the applicants did not have the means to make the investment and that such investment actually emanated from the coffers of the assessee company--Addition rightly deleted by the Tribunal--No substantial question of law arises).
5.3(f) Share application money cannot be regarded as income of the assessee company.
25Further the honorable supreme court was held that share application money received by the assessee company cannot be regarded as undisclosed income of assessee company, which the' Ld. A.O. has totally ignored while making this addition. Hence this addition is against the facts of the case, as well as law.
Reliance is being placed on
(i) CIT vs Lovely Exports (P) Ltd. (2008) "216 CTR (SC) 195 (Income--Cash credit--Share application money--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) 5.3(g) Addition made on the basis of doubts, suspicion, surmises, conjectures, and acting unreasonably is net maintainable.
Having regard all as above, this addition has been made purely on the basis of doubts, suspicion, surmises, conjectures and acting unreasonably Reliance is being placed on
(i) Roshan di Hatti vs CIT (1977) 107 ITR 938 (SC) Conclusion arrived at that Tribunal having acted without material or in any event the finding of fact reached by the Tribunal being unreasonable or such that no person acting judicially and properly instructed as to the relevant law would come to such a finding, such findings of fact were liable to be interfered with.
(ii) CIT vs Divine Leasing & Finance Ltd. (2008) 299 ITR 268(Del) 26 (Income--Cash credit-- Share application money-- Burden of proof can seldom be discharged to the hilt by the assessee--If the AO harbours doubts of the legitimacy of any subscription he is empowered, nay dutybound, to carryout thorough investigations-- But if the AO fails to unearth] any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company)
(iii) CIT vs Ujala Dyeing & Printing (P). Ltd. (2010) 328 ITR 437 (Guj) (Income-- Cash credit-- Share application money-- AO had inquired about the receipt of share application money and assessee submitted confirmation of share applicant-companies with their permanent account numbers, resolution passed by the applicant companies and duly audited balance sheet with acknowledgement of returns filed AO has not found the creditworthiness of the five companies and on that count, additions were made--Tribunal recorded a finding that the assessee has dearly discharged its onus of proving identity of parties, genuineness of transaction and creditworthiness of share applications in as much as evidently their returns of income, assessment orders, balance-sheets showing investment, explanation regarding how- they raised funds have been submitted before the lower authorities and therefore the adverse inference drawn by the AO was misplaced as their expectations from the assessee travelled beyond the Ingredients of onus as prescribed by s. 68).
(iv) CIT V Daulat Ram Rawat Mull (1973) 87 ITR 349 (S.C) (Findings on questions of pure fact arrived at by the Tribunal are not to be disturbed by the High Court on a reference unless it appears that there was no evidence before the Tribunal upon which they, as reasonable men, could come to the conclusion to which they have come; and this is so, even 27 though the "High Court would on the evidence have come to a conclusion entirely different from that of the Tribunal. In other words, such a finding can be reviewed only en the ground that there is no evidence to support it or that it is perverse. Further, when a conclusion has been reached on an appreciation of a number of facts, whether that is sound or not must be determined, not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting as a whole. When a Court of fact acts on material partly and partly irrelevant, it is impossible to say to what extent the mind of the Court was affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use of inadmissible material and thereby an issue of law arises. Likewise, if the Court of fact bases its decision partly on conjectures, surmises and suspicions and partly on evidence, in such a situation an issue of law arises).
(v) Rajendran & Ors Vs ACIT (2007) 291 ITR 178 (Mad) (Income--Cash credit--Gift from NRI--Donor is a well- settled industrialist in UK--He has confirmed that he had made the gifts as a gratitude for the help rendered by one of the assessees to his father which enabled him to come up in life--All the gifts came through proper banking channel-- Donor appeared before the Department and has given all the details--Thus, assessees have established the identity of the donor and his solvency--Reasons to reject the explanation of the assessees in each case in th e r e al m of sur mi s es , conjectures and suspicions--Thus, rejection of the explanation was an arbitrary and unreasonable exercise of power-Addition under s. 68 was not therefore sustainable) 5.3(h) Principles of natural justice have violated. 28 The Ld. A.O. in whole year and in whole assessment proceedings have not shown any dissatisfaction on this issue. While on 29.03.2014 Ld. A.O. issued notice u/s 142 (1) to furnish the information/details called for and also mentioned that incase of your failure to furnish the above information or justify the reasonableness of share premium, you are requested to please show cause, why the amount of share premium received should not be taxed in your hand as unexplained credit in your books of accounts. In response to which assessee filed his submissions vide reply dt. 30.03.2014. Which was fully informative along with figures, logic's, calculations and fully justifications regarding the reasonableness of share premium received. However while passing the assessment order Ld. A.O. by passes all the facts/ figures, enquiries, conf irmations u/s 133(6) of the act, reports of DDIT, Kolkata, comments of Joint Director Of Income Tax (Inv.) and most importantly explanations of the assessee and make the impugned addition u/s 68 of the Act. Hence Ld. A.O. violated the principles of natural justice.
Reliance is being placed
(i) C1T vs. Ashwani Gupta (2010) 322 ITR 396 (Del) (Income--Additions--Unexplained cash credits under s, 68-- Principles of natural justice--AO had passed the assessment order in violation of the principles of natural justice in as much as he had neither provided copies of the seized material to the, assessee nor had he allowed the assesses to cross-examine concerned party-- Tribunal confirming the order passed by the CIT(A) which held the entire addition made by the AO to be invalid and had deleted the same-- Once there is a violation of the principles of natural justice in as much as seized material is not provided to an assessee nor is cross-examination of the person on whose statement the AO relies upon, granted, then, such deficiencies would amount to a denial of opportunity and,, consequently, would be fatal to the proceedings-- Deletion of addition upheld. Revenue's plea was that the violation of 29 principles of natural justice was not fatal so as to jeopardize the entire proceedings) 5.4 ( Conclusion) Ld. A.O. while making this addition u/s 68 of the Act., ignored the assessee explanations, facts & circumstances of the case, confirmations received u/s 133(6) of the Act., enquiry report of Ld, DDIT, Kolkata, comments of the Joint Director of Income Tax -(Inv.), Ludhiana and acted unreasonably, arbitrarily, without any sufficient ground or adverse material on record or without pointing out any inherent weaknesses or without rejecting, disputing or rebutting any explanation, evidence, reports etc. Assessment order itself states that this newly incorporated company takes over the running business of M/s Jain Diamond Jewellers, a proprietorship firm as a going concern, which established in 1995 t occupied an established showroom at prime location of the jewelers market, having a large numbers of premium customers, book value of shares comes to Rs.410.90 on the basis of market value of the stocks. There is nothing in the assessment order as well as on the record, that these facts and figures are wrong or not satisfactory. Since there is no end or limits- in respect of suspicion, surmises or conjecture, so the glaring issues as noted down in the order are baseless and emerged from suspicion only. More ever the judgements relied upon by the revenue, is not applied in our case having regard to the facts and circumstances of the case. The decision of the Hon'ble Supreme Court in case of Sumati Dayal (214 ITR 801) conveys that if there is a prima facie evidence against assessee and if assesses fails to rebut the same, such unrebutted evidence can be used against him. In our case no such circumstances exist, further in case of Durga Prasad More (182 ITR 540) conveys that Unless Tribunal's conclusion is held to be perverse or is not supported by any evidence or is based on irrelevant evidence, the High Court had no jurisdiction to interfere with its findings, hence this case is also not applicable in our case.
Hence having regard to all as stated above, this addition of Rs.11,17,80,000/- u/s 68 of the Act is purely on the basis of suspicion, surmises and conjectures, which is 30 against facts and circumstances of the case as well as law and principles of natural Justice."
13. The ld. CIT(Appeals) on perusal of the above submissions of the assessee found that certain inquiries had been conducted in order to find out the credit worthiness and genuineness of share applications but there is no mention of the same in the assessment order. The said details of the inquiries highlighted by the assessee before ld. CIT(Appeals) was taken into consideration and Assessing Officer was requested to confirm the claim of the assessee in this regard and was directed to specify as to how such inquiries and result thereof were not part of the assessment record positively or negatively. The Assessing Officer submitted his comments as called for by the ld. CIT(Appeals) and the remand report of the Assessing Officer is reproduced in the impugned order which reads as under :
" In this regard, it is submitted that in this case the enquiry Letter was written on 22.01.2014 vide letter no.1011 to the Co mmis s ioner of Income Tax, Central, Ludhiana for verification of identity of the companies, genuineness and source of investment of transaction of share application money received by the assessee through Director of Investigation, Ludhiana. A report regarding the same was received from DDIT(Inv.)/ Unit IV(1), Kolkata vide his office letter No.9725 dated 19.03.2014 in which he has mentioned that he has verified identity of the companies, the 31 genuineness and source of investment. After receiving the report of DDIT(Inv.), Unit IV(1), Kolkata the matter was taken up with the Addl. DIT(Inv.), Ludhiana for giving his comment on the report of the DDIT(Inv.), Kolkata, The Addl. DIT(Inv.), Ludhiana vide letter No.Joint DIT(Inv.)/Ldh/2013-144/2085 dated 28.03.2014 had communicated certain discrepancies. The undersigned has verified such discrepancies as pointed out by the DDIT (lnv.) Unit-IV(l), Kolkata and Addl. DIT(Inv.), Ludhiana and no adverse inference was drawn on this account except as discussed in the body of the order and this view has been brought on record. During assessment I have gone though the report submitted by the DDIT(inv.) Unit IV(l), Kolkata and documents enclosed with that report and reply of the assessee and hence no adverse inference was drawn on account of investment in shares.
The copy of the report received from DDIT(Iny.) Unit-IV(l), Kolkata sent vide his office letter no.9725 dated 19.03.2014 is enclosed. It is further submitted that the discussion regarding the report of DDIT(Inv.) Unit-IV(l), Kolkata had been made in the office note of the assessment order in the case of the above stated assessee for the A.Y.s 2008-09 & 2009-10. The issues have been fully discussed in the assessment orders as well as in the office note. Copies of letter no.F.No.DCIT/CC-III/LDH/13-14/10114 dated 22.01.2014 written to CIT, Central, Ludhiana, reports of DDIT(Inv.), Unit IV-I, Kolkata, Addl. DIT(Inv.), Ludhiana and office note in the assessment years 2008-09 and 2009-10 are enclosed for ready reference."
14. Copy of the remand report of the Assessing Officer was submitted to the assessee and the assessee in reply thereof in rejoinder submitted that all the inquiries conducted by the Assessing Officer are part of his 32 submissions on which no adverse inference was drawn by the revenue. It seems that search has been conducted on the basis of suspicion arisen of the revenue on this investment. However, during the course of search, no material or evidence was found which strengthened the suspicion of the revenue regarding investment in shares. Since no adverse inference has been drawn on the basis of the inquiries conducted by the Assessing Officer, therefore, no addition under section 68 of the Act be made only on the basis of suspicion, surmises and conjectures.
15. The ld. CIT(Appeals) considering the material on record and submissions of both parties, deleted both the additions and allowed the appeal of the assessee on this issue. The ld. CIT(Appeals) in his findings noted that during the course of search, no incriminating document/evidence pertaining to nature of share application money received by the assessee had been found and seized. The post search investigation revealed that number of companies who had taken the shares at premium were not available at the given address. The Inquiry Report was confronted to the assessee and the assessee requested that same report may be confronted so as to allow him to cross-examine the relevant persons. However, no further action on this issue had been taken at the level of DDIT (Investigation) to take the matter further to its logical 33 end. Thereafter, matter was taken up by Assessing Officer and number of letters were issued under section 133(6) of the Act in order to verify the genuineness of the share application money and most of these letters were received back with reply confirming the claim of the assessee, meaning thereby no adverse evidence could be brought on record. Further, Assessing Officer has issued commission under section 131(1)(d) of the Income Tax Act to DDIT (Investigation) at Kolkata after due deliberation with the CIT Central, Ludhiana and DIT (Investigation) Ludhiana in order to conduct detailed inquiry into identity/credit worthiness and genuineness of transfer of share application money received by he assessee. The detailed inquiry conducted by Investigation Wing at Kolkata were intimated to the Assessing Officer which is reproduced in the impugned order.
16. The ld. CIT(Appeals) on going through the report of DDIT (Investigation) Kolkata noted that facts have been verified by the Assessing Officer and no adverse inference was drawn in consultation with DIT (Investigation) Ludhiana. The report of the Assessing Officer as highlighted in the appellate order shows that after elaborate inquiries conducted by Investigation Wing at Kolkata, the identity, creditworthiness and genuineness of various share application companies could not be said to be doubtful so much so that no 34 adverse inference from the same could be drawn. The ld. CIT(Appeals), therefore, noted that under these circumstances, the Assessing Officer had not mentioned the detailed proceedings in the assessment order therefore, nothing was found adverse against the assessee to show whether it was accommodation entry. The ld. CIT(Appeals), therefore, noted that there is no adverse material available against the assessee on record so as to make the addition. The ld. CIT(Appeals) relied upon several decisions in his findings in order to come to the finding that addition is wholly unjustified. The ld. CIT(Appeals), considering the totality of the facts and circumstances and report of DDIT (Investigation) Kolkata, deleted the entire addition.
17. The revenue is in appeal on ground No. 3 and 4 of the appeals. The ld. Pr.CIT(C),Ludhiana made a request for admission of the additional evidences which are filed in the Paper Book by the revenue on 22.09.2016. These additional evidences are in the nature of statements of S/Shri Bhagwan Dass Aggarwal, Govind Prasad Aggarwal, Jagdish Prasad Purohit, Narinder Kumar Jain, Pawan Aggarwal, Rakesh Aggarwal, Shiv Shankar Banka, Subhash Aggarwal and Deepak Patwari recorded by the office of DIT (Investigation) Kolkata. The Paper Book filed by the revenue containing these additional evidences has been filed from pages 1 to 196. The ld. DR submitted that these additional evidences 35 may be admitted. However, ld. DR was not able to answer as to how the Pr.CIT(C), Ludhiana could file an application for admission of these additional evidences because he was not party to the appellate proceedings. In the absence of any specific and satisfactory explanation, we are of the view that application filed by the Pr.CIT(C) Ludhiana for admission of additional evidence is not maintainable on the reason that he was not party to the appellate proceedings. Therefore, application filed by the Pr. CIT is rejected. The ld. DR further submitted that DCIT, CC-III, Ludhiana has now moved proper application for admission of the additional evidence. The same is taken on record. There is no objection to filing of this application by DCIT, CC-III Ludhiana for admission of the same additional evidences filed in the Paper Book from pages 1 to 196.
17(i) The ld. DR submitted that all the additional evidences are forwarded by DDIT (Investigation) Kolkata in July/August,2016. Prior to it, nobody made a request to obtain these additional evidences. These additional evidences were not there at the time of passing of the assessment order. The ld. DR submitted that all these additional evidences are relevant to prove non genuine entries provided by share applicants to the assessee. The ld. DR submitted that the department has now gathered certain details establishing that most 36 of the entities which have invested money in the assessee companies by way of share application/share premium are merely entry providers based on this information, the department has filed the Paper Book as additional evidence before the Tribunal. The ld. DR relied upon order of ITAT Chandigarh Bench in the case of M/s Lotus Integrated Taxpark Ltd. Vs DCIT dated 01.10.2015 in which the Tribunal admitted the additional evidences being relevant documents by relying upon decision of Hon'ble Supreme Court in the case of Shri Tek Ram 262 CTR 118 and decision of the Hon'ble Punjab & Haryana High Court in the case of Mukta Metal Works 336 ITR 555. The ld. DR also relied upon judgement of Hon'ble Punjab & Haryana High Court in the case of Smt. Shakuntala Thukral vs CIT 52 Taxman.com 86 in which Hon'ble High Court deemed fit to admit additional evidence with a view to advance cause of justice. The ld. DR also relied upon decision of the Hon'ble Punjab & Haryana High Court in the case of Haryana State Road & Bridges Development Corporation Ltd. Vs CIT 75 Taxman.com 104 in which the assessee discovered later on that it had in-fact deducted the tax at source and paid the same to the Government Treasury. The assessee sought to rely upon the challans in this regard before the Tribunal but the Tribunal did not admit the same. In these circumstances, additional evidence was admitted and matter was remanded to the Assessing Officer for 37 examining the challans and determining whether requisite tax has been deposited by assessee or not. 17(ii) The ld. DR also relied upon decision of Hon'ble Madras High Court in the case of Carburetors Ltd. Vs ACIT 69 Taxman.com 386 in which it was held that, "Additional evidence can also be produced before the Tribunal". The ld. DR also relied upon decision of the Delhi High Court in the case of CIT Vs Text Hundred Pvt. Ltd. dated 14.01.2011 on the proposition that the Tribunal has discretion to admit additional evidence in the interest of justice. The ld. DR, therefore, submitted that these additional evidences filed by the department may be admitted for hearing.
17(iii) On the other hand, ld. counsel for the assessee submitted that all the investees who have invested in assessee company were duly examined by the DDIT (Investigation) Kolkata on the basis of direct evidences during assessment proceedings. Further, the said evidence is in the case of assessment of third party which are yet to be completed and is not connected with the proceedings in the case of the assessee. Moreover, the admission of said additional evidence will be against the doctrine of finality of assessment and will give rise to proliferation of litigation. The ld. counsel for the assessee relied upon decision of Hon'ble Calcutta High Court in the case of CIT Vs Sharat 38 Chander Bose 18 ITR 669 in which it was held that, "The Tribunal rightly ref used to admit entirely f resh e v i d e n c e t o e s t a b l i s h a n e n t i r e l y n e w p o i n t wh i c h wa s n o t t a k e n b e f o r e IT O o r A A C " He has also relied upon order of ITAT Chandigarh Bench in the case of Shri R.K. Sayal Vs ACIT 66 TTJ 641 in which it was held "that additional evidence collected by the department after completion of block assessment of the assessee pertaining to assessment of third party yet to be completed, cannot be admitted". The ld. counsel for the assessee further submitted that at the stage of assessment, the Assessing Officer obtained information under section 133(6) of the Act from all the investors who have confirmed making investment in share application/share premium. The Assessing Officer also issued commission to DIT (Investigation) Kolkata for examining these investors and in his report, the DIT (Investigation) Kolkata has confirmed the genuineness of the investments made by Kolkata parties. Therefore, these additional evidences are not relevant and should not be admitted as additional evidences. The ld. counsel for the assessee also prepared a chart on the basis of additional evidences filed by the ld. DR to show that the statements of above persons recorded by office of DIT (Investigation) Kolkata sought to be admitted as additional evidence, did not relate to the assessee company and confessional statements are made against third party. He has also submitted that some of the 39 statements were recorded by DDIT (Investigation) Kolkata prior to passing of the assessment order and some of the statements sought to be admitted as additional evidences, have been recorded after passing of the assessment order. Therefore, none are relevant to the matter in issue and should not be admitted as additional evidence.
18. We have given are thoughtful consideration to the rival contentions. The additional evidence can be admitted by the Tribunal in order to enable it to pass order and for substantial cause. The additional evidences should be relevant and should go to the root of the matter in order to do justice between the parties. The ld. DR relied upon order of ITAT Chandigarh Bench in the case of M/s Lotus Integrated Taxpark Ltd. Vs DCIT (supra) in which the Tribunal admitted the additional evidence being relevant document to prove credit worthiness of the subscriber company as the same would go to the root of the matter. The Tribunal relied upon decision in the cases of Shri Tek Ram and M/s Mukta Metal Works (supra) in which additional evidences were admitted being relevant and required to be looked into. The ld. DR also relied upon other decisions referred to above in which additional evidences were admitted to advance the cause of justice and that it was held that discretion lies with the Tribunal to admit additional evidence.
40
19. In the light of this background, we have gone through the statements sought to be admitted as additional evidence by the Revenue Department, copies of which are filed from pages 1 to 196 of the Paper Book which are statements of S/Shri Bhagwan Dass Aggarwal, Govind Prasad Aggarwal, Jagdish Prasad Purohit, Narinder Kumar Jain, Pawan Aggarwal, Rakesh Aggarwal, Shiv Shankar Banka, Subhash Aggarwal and Deepak Patwari. The assessment order in the present case for assessment year 2008-09 have been passed on 30.03.2014, however, some of these statements recorded by the office of DIT (Investigation) Kolkata were either recorded prior to passing of the assessment order and some of the statements have been recorded after passing of the assessment orders. It is not clarified that as to when the office of DIT (Investigation) Kolkata recorded their statements prior to passing of the assessment orders under appeal or after passing of the assessment order under appeal, whether the assessments in the cases of these persons are completed or not and what ultimate conclusion have been drawn from these statements in their cases. These statements produced now on record did not indicate anything against the assessee, whether any of the investor who have invested in the assessee's company have provided mere entry. It is also not clarified whether these persons have made any statement directly against the interest of the assessee. The ld. 41 counsel for the assessee demonstrated before us that in these statements, they did not make any allegation against the assessee and their statements for providing entry to other parties have no connection or relevance to the assessee company. No direct allegations have been made in these statements against the assessee company whether any bogus entries have been provided to the assessee. Therefore, in the absence of any statement made against the assessee company, how these statements recorded by the office of DIT (Investigation) Kolkata are relevant to the matter in issue, is not explained. The contention of ld. DR is that in Kolkata, hawala operators are operating to provide bogus entries in the name of share application/share premium. It may be a general allegation, but how it is connected with the assessee company is not established through these additional evidences. The department is trying to make out a new case altogether at this stage by producing these fresh additional evidences. Since some of the statements were recorded prior to passing of the assessment order, it is not explained why the Revenue Department remained silent on these statements and why these statements were not forwarded to the Assessing Officer for completion of the assessment. Some of the subsequent statements recorded by DIT (Investigation) Kolkata after passing of the assessment orders are not relevant to the case of the assessee. Since the 42 department is trying to make out a new case which was not considered by the authorities below particularly when none of the statements indicate anything against the assessee of receiving any bogus entry from the investors, these statements would not be relevant to the matter in issue before the Tribunal. It may also be noted here that in the case of the assessee, AO issued letters under section 133(6) of the Act to all the investors who have mostly confirmed making genuine investments in the assessee company. When commission was also issued to DIT (Investigation) Kolkata, who have duly examined all the investors and submitted a report confirming that all the investors have made genuine investments in the assessee company in the form of share application money/share premium, there is no purpose to consider these additional evidences which are not relevant to the matter in issue. Therefore, these additional evidences are not relevant to the matter in issue and need not to be gone into at the stage. No cause, what to say of substantial cause would serve by admitting these additional evidences at this stage. The ld. CIT(Appeals) has referred to sufficient material collected at assessment stage by the Assessing Officer which was deliberately not referred to in the assessment order, otherwise Assessing Officer would not be able to make any addition against the assessee. Therefore, when the revenue has collected substantial material at 43 assessment stage on the basis of which, ld. CIT(Appeals) deleted the addition, there is no relevance of these additional evidences which are the statements of several persons whose statement have been recorded by DIT (Investigation), Kolkata prior to passing of the assessment order or after passing of the assessment order. In the absence of any relevance of these additional evidences to the matter in issue, we are not inclined to admit these additional evidences. The application for admission of the additional evidence is accordingly, rejected. It may also be noted here that revenue through DCIT, Central Circle-3 Ludhiana made a joint request for admission of additional evidence in both the appeals as matter in issue is same in both the appeals. Therefore, there is no need to discuss the same separately.
20. Considering the above discussion, we are of the view since additional evidences are not relevant to the matter in issue and no cause would serve in admitting the same, therefore, we reject the application filed by DCIT, Central Circle-3, Ludhiana for admission of these additional evidences. The application for admission of additional evidence in both the years is accordingly, dismissed.
21. Now we proceed to decide the issue on merit. 44
22. The ld. DR relied upon order of the Assessing Officer and submitted that assessee company was incorporated on 22.01.2008 and large number of private companies based at Calcutta have made investments in the shares of the assessee company. It is not explained why the distant parties were interested in making investment in shares of the assessee company. The ld. DR submitted that addition was made on account of share premium considering it to be bogus. However, investments in shares have not been disputed by the Assessing Officer. Report by DDIT (Investigation) Kolkata was received on 26.03.2014, therefore, Assessing Officer did not have adequate time to consider the issue in detail because assessment order was passed on 30.03.2014. The investigation was not conducted to logical end. Therefore, it was the duty of the ld. CIT(Appeals) to correct all errors in the assessment order because ld. CIT(Appeals) has coterminous power to that of the Assessing Officer. He has also relieved upon decisions reported in CIT Vs Nirbheram Daluram 224 ITR 610 and Jute Corporation of India Vs CIT 187 ITR 688. The ld. DR in his written submission also reiterated the same facts and also submitted that merely because transactions have been routed through banking channel, would not satisfy the criteria of genuineness and credit worthiness of the lender. The ld. DR relied upon decision of Hon'ble Supreme Court in the case of Durga Prashad More 82 45 ITR 540, decision of Delhi High Court in the case of N.R. Portfolio Pvt. Ltd. 222 Taxman 157. The ld. DR also relied upon decision of Delhi High Court in the case of CIT Vs Navodaya Castles Pvt. Ltd. 50 Taxman.com 110 in which the matter was remanded to the Tribunal to decide the issue afresh. The ld. DR also filed order of ITAT Kolkata Bench in the case of M/s Bishakha Sales Pvt.Ltd. Vs CIT-2 Calcutta in which 263 proceedings were initiated because there were large rackets of providing accommodation entries and the order under section 263 of the Act have been confirmed by the Tribunal. The ld. DR, therefore, submitted that ld. CIT(Appeals) was not justified in deleting the entire addition and the matter should be re-considered by him.
23. On the other hand, ld. counsel for the assessee reiterated the submissions made before authorities below and submitted that assessee filed complete details of share applicants before the Assessing Officer on which investigation was carried out by the Assessing Officer through the inspectors as well as through DDIT (Investigation) Kolkata under sections 133(6) as well as by issuing commission under section 131 of the Income Tax Act. He has referred to various correspondence of the department, particularly the letter dated 29.03.2014 (PB-200) in which office note is provided in which also it was mentioned that the identity of the 46 companies, genuineness and source of investments have been verified by the DDIT (Investigation) Kolkata vide their report dated 19.03.2014 and no adverse inference have been drawn against the assessee. He has submitted that information under section 133(6) of the Act was also called for from all the share applicants and they have confirmed their transactions with the assessee. He has submitted that whatever discrepancies were noted in the report of DDIT (Investigation), assessee has duly replied the same, copies of the same are filed in the Paper Book on which no adverse inference have been drawn by the Assessing Officer. He has submitted that object of the formation of the assessee company was to take over running business of Jain Diamonds. There was difference in market value and book value of about Rs. 4.94 Cr and this was the reason that premium was charged on share investments. All queries by the Assessing Officer have been replied. Assessee gave PAN number of the shareholders and transactions were routed through banking channel on which no adverse inference have been drawn by the Assessing Officer. Since the Assessing Officer accepted share capital as genuinely invested by the same parties, therefore, Assessing Officer accepted the identity, creditworthiness and genuineness of the transaction of the share applicants. The investigation was conducted by many investigating agencies and no adverse inference have been drawn 47 against the assessee. Since assessee was at the beginning of the business itself as assessee company was incorporated on 22.01.2008 therefore, assessee could not have earned this huge undisclosed income. Therefore, no addition should be made against newly established company. No evidence was found against the assessee during the course of search so as to make out a case of earning any undisclosed income. The ld. counsel for the assessee relied upon several decisions, copies of the same are filed in the Paper Book in support of the contention that ld. CIT(Appeals) correctly deleted the addition on merit.
24. We have considered rival submissions. It is admitted fact that assessee company and its Directors/shareholders had been subject to search proceedings under section 132 of the Income Tax Act. During search proceedings, no document or evidence pertaining to any bogus nature of share application money received by the assessee had been found/seized. The Revenue Department in post search investigation carried out inquiries but nothing was found against the assessee. No further inquiries have been conducted by DDIT(Investigation) to take the matter further to its logical end. Thereafter, the matter was taken up by the Assessing Officer and number of letters to verify the genuineness of the share applicants was issued under section 133(6) and most of these letters were received 48 back with the reply confirming the claim of the assessee, meaning thereby no adverse evidence could be produced against the assessee, Further, the Assessing Officer issued commission under section 131(1)(d) of the Income Tax Act to the DDIT (Investigation) at Kolkata who have submitted report to the Assessing Officer vide letter dated 19.03.2014 (PB-50) which is also reproduced by the ld. CIT(Appeals) in his findings which shows that the identity, creditworthiness and genuineness of the transaction have been proved by most of the share applicants by producing sufficient evidences before DDIT (Investigation) Kolkata and all the facts stated by the assessee have been verified. There were certain discrepancies pointed out which have been duly replied by the assessee and verified by A.O. and no adverse inference was drawn on the same. These reports and material on record clearly proved that inquiries conducted by Investigation Wing at Kolkata proved the identity, creditworthiness and genuineness of various share applicant companies. Therefore, no doubt could be raised in this regard. It is not clarified why these detailed investigations conducted by the Assessing Officer himself, through DDIT (Investigation) Kolkata in favour of the assessee have not been narrated in the assessment order. May be, some investigation reports were in favour of the assessee, the Assessing Officer deliberately did not 49 mention these facts in the assessment order as was bent upon to make the addition against the assessee. 24(i) The Assessing Officer accepted the share capital introduced by the same parties in assessee company which would prove that the assessee established identity of the share applicants, their creditworthiness and genuineness of the transaction in the matter. Why for share premium, the same ingredients have been doubted by the Assessing Officer, have not been explained. The assessee explained before the authorities below that assessee company has taken over running business of proprietorship, which have not been disputed by the Assessing Officer. The assessee further explained that stock of the gold was taken at face value rather than market value. Therefore, this was the reason to explain that premium was charged from the share applicants. The assessee provided complete details of the share applicants on which the reports, as noted above under section 133(6) and commission report under section 131(1) of the Act have been brought on record verifying the identity of the share applicants, their creditworthiness and genuineness of the transaction in the matter. The remand report submitted by the Assessing Officer before ld. CIT(Appeals) admitting claim of assessee also support explanation of the assessee that Revenue Department have verified the identity, creditworthiness 50 and genuineness of the share applicants. It is also admitted fact that during search, no material was found against the assessee to show that assessee received any accommodation entry. The ld. DR was directed to explain as to what investigation was conducted by the Investigation Party in the case of the assessee after search. However, no satisfactory explanation have been given as to what investigation have been conducted in the case of the assessee after search. It would, therefore, prove that there was no material found against the assessee during the course of search to infer if assessee received any accommodation entry from any party. The Assessing Officer deliberately did not discuss the details of inquiries conducted at Kolkata in the assessment order. Therefore, the initial burden on the assessee has been discharged to prove identity of the share applicants, their credit worthiness and genuineness of the transaction. No further probe was made by the Assessing Officer. In this case, no link of parties involved in providing accommodation entries has been established. Since the initial burden of proving genuine share application money and share premium received by assessee, have been discharged by the assessee, therefore, additional burden was on the revenue to show that even if the share applicants did not have the means to make the investment, the investments made by them actually emanated from the coffers of the assessee company so as to enable it to be 51 treated as undisclosed income of the assessee. A.O. however, did nothing
25. Hon'ble Delhi High Court in the case of Pr. CIT Vs Kurele Paper Mills Pvt. Ltd. 380 ITR 571 held as under :
Held, dismissing the appeal, that the order of the Commissioner (Appeals) - (Appeals) revealed that there was a factual finding that no incriminating evidence related to share capital issued was found during the course of search as was manifest from the order of the Assessing Officer. Consequently, it was held that the Assessing Officer was not justified in invoking section 68 of the Income-tax Act, 1961, for the purposes of making additions on account of share capital. There was nothing to show that the factual determination was perverse. The Supreme Court has dismissed the special leave petition filed by the Department against this judgment: see [2016] 380 ITR (St.) 64--Ed.] 25(i) Hon'ble Delhi High Court in the case of CIT Vs Kamdhenu Steel & Alloys Ltd. 361 ITR 220 held as under :
A delicate balance has to be maintained while applying sections 68 and 69 of the Income-tax Act, 1961. On the one hand, no doubt, such kinds of dubious practices are rampant ; on the other hand, merely because there is an acknowledgment of such practices that would not mean that in any of such cases, the court has to presume that the assessee in question has indulged in that practice. To make the assessee responsible, there has to be proper evidence. It is equally important that an innocent person is not fastened with liability without cogent evidence. The Department is not remediless and is free to proceed to reopen the individual assessment of such alleged bogus shareholders in accordance with law.52
The initial burden lies on the assessee to explain the nature and source of the share application money received by the assessee. The assessee has to satisfactorily establish the identity of the shareholders, the genuineness of the transaction and the creditworthiness of the shareholders. 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 has to make a thorough probe before it can fasten the liability on the assessee under sections 68 and 69. Held, that in all appeals but one, Section 68 was not applicable. In one appeal, the matter was rightly remanded". 25(ii) Hon'ble Delhi High Court in the case of CIT Vs Value Capital Services P.Ltd. 307 ITR 334 held as under:
In respect of amounts shown as received by the assessee towards share application money from 33 persons, the Assessing Officer required the assessee to produce all these persons. While accepting the explanation and the statements given by three persons the Assessing Officer found that the response from the others was either not available or was inadequate and added an amount of Rs. 46 lakhs pertaining to 30 persons to the income of the assessee. The Commissioner (Appeals) upheld the decision of the Assessing Officer. On appeal, the Tribunal set aside the order of the Commissioner (Appeals) and deleted the additions. On further appeal:
Held, dismissing the appeal, that the additional burden was on the Department to show that even if the share applicants did not have the means to make the investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. No substantial question of law arose.53
25(iii) Hon'ble Supreme Court in the case of CIT Vs Lovely Exports (P) Ltd. 216 CTR 195 held as under :
Income-- Cash credit-- Share application money-- 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.
25(iv) Hon'ble Delhi High Court in the case of CIT Vs Divine Leasing & Finance Ltd. 299 ITR 268 held as under :
Assessee-company 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.
25(v) Hon'ble Madhya Pradesh High Court in the case of CIT Vs People's General Hospital Ltd. 356 ITR 65 held as under :
" If identity of person providing share application money is established then burden was not on assessee to prove creditworthiness of said person and no addition can be made under section 68. "
26. It may be noted here that the assessee company was incorporated on 22.01.2008 and the financial year 54 closes on 31.03.2008 for assessment year 2008-09. Therefore, it is not explained as to how within a short span of period, the assessee would earn such a huge undisclosed income. We are fortified in our view by judgement of Hon'ble Supreme Court in the case of CIT Vs Bharat engineering & Construction Co. 83 ITR 187 in which it was held as under :
"Unexplained cash credit entries in the first year of business of engineering construction company could not be its income."
26(i) On this ground itself, no addition could be made against the assessee on account of share premium.
27. Considering totality of the facts and circumstances, it is clear that ld. CIT(Appeals) on proper appreciation of facts and material on record, rightly deleted the addition. The ld. DR submitted that the Assessing Officer did not have time to consider the issue in detail and investigation was not conducted to logical end, therefore, ld. CIT(Appeals) having co- terminus power should have corrected the assessment order. The ld. CIT(Appeals) has considered each material on record of the department and considered the explanation of the assessee in the light of various letters issued by the Assessing Officer seeking explanation of the assessee as well as conducting investigation through Investigation Wing of Kolkata. The remand report from the Assessing Officer was also 55 sought in which Assessing Officer has also confirmed that facts of genuineness of the investment in capital of assessee company have been verified by Investigation Wing, Kolkata. It is also noted that during the course of search, no adverse material was found against the assessee of receiving any accommodation entry. Therefore, when no adverse material was found against the assessee, where is the question for ld. CIT(Appeals) to correct the error in the assessment order. The ld. CIT(Appeals) has corrected the error in the assessment order by deleting the addition because Assessing Officer has not mentioned the details of investigation conducted by him through Investigation Wing at Kolkata in assessment order without any justification. The ld. CIT(Appeals) rightly considered the entire material for the purpose of deleting the addition. Why the Kolkata parties have made investment in the assessee company is not relevant because these parties have confirmed in making investment in assessee company by producing sufficient evidence before Investigation Wing, Kolkata. Decisions relied upon by ld. DR are, therefore, not applicable to the facts of the case. In this view of the matter, we do not subscribe to the view of ld. DR that matter may be remanded to the ld. CIT(Appeals) for further investigation and determination of the issue. We, therefore, do not find any merit in the departmental appeal on this issue. Ground Nos. 3 and 4 of the 56 appeal of the revenue are, accordingly, dismissed in assessment year 2008-2009.
28. The ld. Representatives of both the parties admitted that on ground Nos. 3 and 4 in assessment year 2009-10, issue is same, therefore, following the reasons for decision for assessment year 2008-09, we dismiss this ground of appeal of the revenue in assessment year 2009-10 as well. In the result, this issue is decided against the revenue and in favour of the assessee.
29. In the result, ground Nos. 3 and 4 in both the appeals are dismissed.
30. No other point is argued or pressed in both the appeals.
31. In the result, both the appeals of the revenue are dismissed.
Order pronounced in the Open Court.
Sd/- Sd/-
( ANNAPURNA GUPTA) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 13th January,2017.
'Poonam'
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT,DR
Assistant Registrar, ITAT/CHD