Income Tax Appellate Tribunal - Ranchi
Maa Kali Alloys Udyog Pvt Ltd, Kolkata vs Dcit Central Circle, Dhanbad on 8 July, 2020
IN THE INCOME TAX APPELLATE TRIBUNAL "RANCHI", BENCH, RANCHI BEFORE SHRI S.S. GODARA, JM &DR. A.L.SAINI, AM आयकरअपीलसं./IT(SS)A No.03/Ran/2017 ( नधारणवष / Assessment Year:2012-13) MaaKali AlloysUdyog Pvt. Ltd. Vs. DCIT, CC-Dhanbad Chhaparia& Associates, Chartered Accountants, 8, Camac Street, ShantiniketanBuilding, 5th Floor, Room No. 2, Kolkata-
700017
थायीले खासं . /जीआइआरसं . /PAN/GIR No.: AADCM 3424 C
(Appellants) .. (Revenue)
Appellantsby :Shri Devesh Poddar, Advocate
Respondent by :Shri Inderjeet Singh, CIT (DR)
सुनवाईक तार ख/ Date of Hearing : 04/03/2020
घोषणाक तार ख/Date of Pronouncement : 08/07/2020
आदे श / O R D E R
Per Bench:
The captioned appeal filed by the assessee, pertaining to assessment year 2012-13, is directed against the order passed by the Commissioner of Income Tax (Appeal)-3, Patna, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (in short the "Act") dated 29/03/2014.
2. The Grounds of appeal raised by the assessee are as follows:
1. That in the facts and circumstances of the case, the A.O has erred in making addition of Rs. 2,75,00,000/- in an assessment under section 153A/l43(3) of the Income Tax Act, 1961, since the particulars relating to increase in share capital and share premium were already forming part of regular books of accounts and no incriminating material whatsoever viz. books of account and Maa Kali Alloys Udyog Pvt.Ltd.
I T (S S ) A N o . 0 3 / R a n / 2 0 1 7 Assessment Year:2012-13 other documents were found during the course of search. The Ld. CIT(A) has erred in confirming the action of A.O.
2. That in the facts and circumstances of the case, the A.O has erred in making additions purely on surmises without any incriminating material on record. The Ld. CIT(A) has erred in confirming the action of A.O.
3. That in the facts and circumstances of the case, the A.O has erred in passing order under section 153A/143(3) of the Act for instant year without issuing notice u/s 143(2) of the Act and as such the order u/s 153A / 143(3) of the Act is void-ab-initio.
4. That in the facts and circumstances of the case, the A.O has erred in making addition of Rs. 2,75,00,000/- under section 68 of the Income Tax Act, 1961. The Ld. CIT(A) has erred in confirming the action of A.O.
4.a) That in the facts and circumstances of the case, the A.O has erred in concluding that the appellants company has failed to discharge its onus of proving the identity and creditworthiness of share applicants and genuineness of the transactions. The Ld. CIT(A) has erred in confirming the action of A.O.
4.b) The A.O has erred in observing that investors are companies which have no financial muscle to invest. Infact, as evident from the replies of share applicants in response to notices u/s 133(6) of the Act, that the each share applicants had substantial funds in the form of share capital and reserves out of which the share subscription amounts were paid. The own funds of the investors were substantially more than the amounts invested in the assessee's shares.
4. c) That in the facts and circumstances of the case, the A.O has erred in making additions u/s 68 of the Act by inter-alia observing that the premium of Rs, 99/- per share was not justified. The A.O has erred in not relying on submissions at assessment hearing stage with respect to justification of premium. The Ld. CIT(A) has erred in confirming the action of A.O.
4.d) The additions made by the A.O are based purely on surmises, pre-conceived notion and on the basis of his inference drawn from the alleged replies received from the share applicants under section 133(6) of the Income Tax Act, 1961, copies of which was not communicated to the appellants during the assessment proceedings. However subsequent to the assessment order, the appellants applied for certified copies of the order sheet, copy of notices under section 133(6) of the Act and the replies from the respective share applicants to the A.O. The same was received and relied upon in appellants hearing. The Ld. CIT(A) has erred in not discussing the aforesaid notices and replies in the appellate order.
4.e) The A.O has erred in doubting the identity of share applicants when the A.O himself has issued 133(6) notices to various share applicants, who had duly replied during assessment hearing stage. Such share applicant companies have submitted copies of their audited accounts, bank statements, I.T Acknowledgement, NBFC Certificate (if applicable), etc. along with their replies in response to notice u/s 133(6) of the Act.
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5. That in the facts and circumstances of the case, the A.O has irrelevantly referred to various case laws and judgments which are not applicable to the case of the appellants.
6. That in the facts and circumstances of the case, the Learned CIT(A) has erred in calling for enquiry by DDIT (Inv), Unit 2(2), Kolkata and relying on the enquiry report. In fact, the annexure to the alleged enquiry report (Statements of alleged entry operators) has no specific allegations against the appellants.
7. No show cause was ever issued during assessment proceedings which could give an indication that A.O. was not satisfied with respect to identity and genuineness of share application money received by the appellants company A.O has treated share application as unexplained cash credited u/s 68 of the Act purely on conjecture and surmises without bringing any positive materials on record and on pre-determined notion, surmises and on guess work only. The appellantshas all along complied during the assessment proceeding (appeared seven times besides filing written submissions, replies etc. The Ld. CIT(A) has erred in confirming the action of the A.O.
8.a) That in the facts and circumstances of the case, the Learned CIT(A) has relying onthe aforesaid enquiry report without allowing proper opportunity to cross examine the persons on whose statements he has relied upon while passing appellate order.
8.b) That in the facts and circumstances of the case, the Learned CIT(A) has erred in ignoring the rejoinder to the enquiry report filed during appellate proceedings and proceeded to pass appellate order on pre-conceived notion.
9. That in the facts and circumstances of the case, the assessment order is bad in law, the Ld. CIT (A) has erred in confirmatory the same as his order is untenable in law.
10. That the appellants humbly craves leave to add, alter, withdraw all or any grounds of appeal at the time of hearing."
3. Facts of the case which can be stated quite shortly are as follows.In pursuance of Warrant of Authorization issued by the Director of Income Tax (Investigation) Patna, a search & seizure operations u/s 132(1) of the Act were carried out in the business and residential premises of Poddar Group of cases on 22.06.2011 and subsequent dates. The present assessee is one of the flagship concern of the said group. The assessing officer noticed that during the financial year under consideration, the assessee company received share application money from seven different companies other than group companies at a premium of Rs. 99 per share for face value of Rs. 1/- per share. Total number of shares issued is 2,75,000 at the Pa g e | 3 Maa Kali Alloys Udyog Pvt.Ltd.
I T (S S ) A N o . 0 3 / R a n / 2 0 1 7 Assessment Year:2012-13 face value of Rs 1/- per share with a premium of Rs 99/- per share totaling Rs 2,75,00,000/-.
Sl. Name & Address of share holder No. of shares Total amount
No. (including permium)
(In Rs.)
1. Swastik Securities & Finance Ltd. 40,000 40,00,000
th
33, C.R. Avenue, 9 Floor, Room No.
909, Kolkata-700012
2 Rohan Finance & Securities Ltd. 50,000 50,00,000
rd
29A, Weston Street, 3 Floor, Room No.
C-2, Kolkata-700012
3. Centak Distributors Pvt. Ltd. 40,000 40,00,000
1-B, Black Burn Lane, 4th Floor, Kolkata-
700012
4. J. P. Engineering Corporation Pvt. Ltd. 55,000 55,00,000
AE-326, Saltlake City, Ground Floor,
Kolkata-700064.
5. Paridhi Finvest Pvt. Ltd. 40,000 40,00,000
8-Lake Town, Block-B, Kolkata-700089
6. K N S Export Pvt. Ltd. 25,000 25,00,000
9, Pollock Street, Ground Floor, room No.
27, Kolkata-700001
7. Aditi Sanchar Suvidha Pvt. Ltd. 25,000 25,00,000
th
27, Brabourne Road, 4 Floor, Kolkata-
700001
2,75,000 2,75,00,000
The assessing officer was of the view that the introduction of share capital with such a large premium is unusual given the facts of the case. The assessee company was found to have never issued any dividend. Even, the portfolio and financial strength of the company did not warrant attracting such a huge premium. The investors are companies which have not the financial muscle to invest. Thus, the introduction of share application money with such a huge premium is more than what meets the eye. It has a tell tale sign of arrangement reached between the assessee company and its so called investors to give legal sanctity to unexplained Pa g e | 4 Maa Kali Alloys Udyog Pvt.Ltd.
I T (S S ) A N o . 0 3 / R a n / 2 0 1 7 Assessment Year:2012-13 cash credit brought into the company in form of share application money withhuge premium.The assessee was asked to prove the identity, creditworthiness and genuineness of the share subscribing companies. In response, the assessee submitted written submissions before the assessing officer. However, the assessing officer rejected the contention of the assessee and made addition of Rs. 2,75,00,000/- under section 68 of the Act.
4. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the addition made by the Assessing Officer observing the following:
"After considering the Assessing Officer's finding and submission of the appellants, I find that following facts emerged:
As a result of search and seizure action, proceeding u/s 153A was initiated for the current AY. During the course of assessment proceeding, the Assessing Officer noticed that share application money to the tune of Rs. 2,75,00,000/- was received from eight different companies based at Kolkata. The face value of the share was Rs. 1/- per share and premium was Rs. 99/- per share. Total Nos. of shares issued was 2,75,000 @ Rs. 100/- per share (face value of Rs. 1/- per share and premium of Rs. 99/- per share). The appellantswas given opportunity to explain for the justification of share application money received at unreasonably high premium after considering the fact that the assessee company was a private limited company which had never declared any dividend. The AO analyzed the share premium account and investment of the subscriber companies vis-a-vis the return of income filed by these companies and found that all the subscriber companies had substantial amount of fund under share premium account and substantial amount of investments in the balance sheet but the returns of income shown were very meagre in the range of Rs. 19,822/- to Rs. 8,51,686/- (loss of Rs. 22,82,278/- in one of the case) as against the share premium account indicating funds to the tune of Rs. 25 crore to 60 crore and investments to the tune of Rs. 15 crore to Rs. 58crore. Based on this analysis, the AO concluded that the share application money received from the subscriber companies defied all logic and the appellants did not discharge its onus of identity, creditworthiness and genuineness of the transaction leading to addition of this amount as unexplained cash credit u/s 68 of the Act. In the appellate proceeding, the appellantshas controverted this finding on following arguments:
i) No incriminating document were found or seized during search and seizure action pertaining to the share application money. Therefore, the AO was not within his jurisdiction to assess this issue u/s 153A of the Act.
ii) The issue of shares application premium is a capital a/c transaction and not a revenue transaction and it cannot be subject matter of addition unless there is specific provision in the Act. The applicant has referred to the judgment of Bombay High Court in the case of Vodafone India Services Pvt Ltd Vs. Union of India 50 Taxmann.com300.
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iii) The appellants has contended that the companies financial over the last few years were very sound which led the company to issue shares at a premium.
iv) The appellants has contended that the AO did not give any opportunity before using material gathered by him and has referred to the decision of Supreme Court in the case of Dhakeshwari Cotton Mills Vs. CIT 34 ITR
123. Based on this decision, the appellants claimed that the order was passed in violation of principle of natural justice and therefore suffers from jurisdictional errors.
v) The appellants has contended that all the subscriber companies had adequate net worth to invest in the appellants company. This is evident from the audited financial statements of share subscriber companies.
vi) The appellants has referred to following other case decisions:
In the case of Nemichand Kothari vs. CIT [264 ITR 254 (Gau)] it wasdiscussed that where an assessee receives any money by account payee cheque from another person, then u/s. 106 of the Evidence Act the assessee can be said to have established the genuineness and creditworthiness of the payer.
The Hon'ble Delhi High Court in case of Commissioner on Income Tax vs Gangeshwari Metal (P.) Ltd [2013] 30 taxmann.com 328 (Delhi) held that where assessee are in support of transaction of receipt of share application money brought on record various documents such as names and addresses of share applicants, their confirmatory letters, copies of bank statements etc, said transaction was to be regarded as genuine and, consequently, no addition could be made in respect of same under section 68.
The Hon'ble Delhi High Court in its recent decision in the case of CIT vs. Dwarkadhish Investments (P) Ltd. 167 Taxman 321 (Del), after considering catena of the High Court and Supreme Court judgments rendered in the context of the addition u/s 68 held that though u/s 68 initial burden lies on the assessee, yet once he proves the identity of the share applicants by furnishing their PANs and proves the genuineness of the transaction by showing that money was received by account payee cheque or by draft or any other mode then the onus of proof shifts to the revenue and no addition u/s 68 is permissible.
In a recent judgment passed by Calcutta High Court in the case of Exoimp Resources (India) Limited vs. C/T (Cal) [276 ITR 87], a question of{ law arose as to whether the Assessing Officer can treat the share capital as undisclosed income ofthe assessee when the assessee furnished explanation in terms of section 68 by disclosing the list of subscribers along with the particulars of the permanent income tax account number and the numbers of shares allotted and the face value of the shares. The Courtdiscussed the scope of section 68 and observed "When section 68 of the Income-tax Act, 1961 is invoked and a notice is issued, if the assesseefurnishes an explanation, it is incumbent upto the Assessing Officer to examine the explanation and arrive at a conclusion as to whether the explanation was satisfactory. The conclusion arrived at by the Assessing Officer is to be communicated to the assessee of the Pa g e | 6 Maa Kali Alloys Udyog Pvt.Ltd.
I T (S S ) A N o . 0 3 / R a n / 2 0 1 7 Assessment Year:2012-13 explanation is not satisfactory, if thereupon the assessee submits any comments or furnishes further information, in that event, the Assessing Officer has to examine the same and arrive at his own conclusion. The inbuilt safeguard provided in section, 68 cannot be ignored by the Assessing Officer. The Assessing Officer can add the share capital as an undisclosed income if no explanation is offered by the assessee. But since the explanation was offered, it was incumbent on the Assessing Officer to examine the same and arrive at a conclusion." The Court observed that the authorities had failed to act in accordance with the principles to be followed while invoking section 68.Hon'ble Supreme Court decided in the case of CIT Vs. Lovely Exports Pvt. Ltd.( 319 ITR 005), that even if share application money is received from bogus shareholders, the income Tax Department is free to proceed to reopen their individual assessments and it cannot be added as undisclosed income u/s 68 of Income Tax Act in the hands of the company receiving the share money.
In the case of CIT vs. Steller Investment Ltd. [251 ITR 263 SC] it was held that "
Notwithstanding that Assessing Officer failed to enquire in to genuineness of shareholders, assessment of company could not be revised to assess the amount of share capital in the hands of the company and under no circumstances, can the amount of share capital be regarded as the undisclosed income of the assessee. "
vii. The appellants has controverted the various judgments referred to by the AO in the assessment order by distinguishing the facts of the current case to the facts in those judgments referred by the AO.
With regard to appellants's contention that no incriminating documents were found or seized during the search and seizure action and therefore the issue of assessment of share application money cannot be taken up in the, assessment u/s 153A of the Act. I find that the search and seizure action took place on 22.06.2011 meaning thereby the assessment for AY 2011-12 fell within the block of six assessment years wherein the proceeding u/s 153A, has to be taken up. Thus, there is no option before the AO to proceed with scrutiny assessment u/s 143(2) of the Act. The AO has to pass assessment u/s 153A only for assessment year 2011-12 wherein the issues pertaining to regular books of account as well as the issues pertaining to the evidences found during the search and seizure action will be taken up in the common assessment order. The Hon'ble Kerala High Court in its decision in the case of St Francis Clay Decotiles 70 Taxmann.com 234 has stated that neither u/s 132 nor u/s 153A, phraseology incriminating is used by the Parliament. Thus, the appellants's contention is not sustainable on the issue of assessment of share application money in the proceeding u/s 153A of the Act.
As regards the appellants's contention that share application premium is on capital account and as per the decision of Bombay High Court in the case of Vodafone India Services Pvt. Ltd., I find that in the current case the share application money and share premium was received from subscriber companies which were third parties and their identity, genuineness of transaction and creditworthiness was not proved by the appellants before the Assessing Officer. These subscriber companies were mere share applicants whose credentials were under question. In the case of Vodafone India Services Pvt. Ltd. the facts were different and distinguishable from the facts of the current case.
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I T (S S ) A N o . 0 3 / R a n / 2 0 1 7 Assessment Year:2012-13 With regard to the appellants's contention of violation of principle of natural justice, I find that the AO had required the appellants to prove the share application money received from various parties as per provision of sec. 68 of the Act. The appellants did not bring any of the Directors / Representatives of the subscriber companies who had invested several crores of Rs. in the shares of the appellants company. It is hard to believe that the subscriber companies who invested substantial amount of money in the share application in the appellants company could not attend to the proceedings before the AO. Thus, the appellants failed in its obligation to prove the credentials of subscriber companies as per provision of sec. 68 of the Act. The AO has only analysed the financials of the subscriber companies received u/s 133(6) of the Act to arrive at the conclusion about the investment by these companies vis a vis meager income shown in their returns of income. Thus, in my opinion no information was used by the AO which was not available to' the appellants / unknown to appellants.
2. Before dealing with the appellants's further arguments and case laws, I would like to bring out the result of enquiry report got conducted u/s 131 (1)(d) of the Act through Investigation Wing of the Department at Kolkata. During the course of appellate proceeding, I gathered that the subscriber companies names had cropped up as entry providers in the Investigation done by the Kolkata Investigation Wing of the Department. Poddar group of companies had received share application money from 21 subscriber companies based at Kolkata out of which 7 of these subscriber companies invested Rs. 2.75 crore in the appellants's share.....................................
In view of the above discussions, court decisions and facts of the current case, I find that all the contentions of the appellants have been controverted and there is no doubt that the share application money of Rs. 2.75 crore was received by the appellants company from paper entities by accommodation entries. These subscriber companies invested is share application money of the appellants company was not proved in terms of provision of Sec. 68 of the Act either at the time of assessment or at the time of appellate proceedings. Therefore, the addition of Rs. 2.75 crore as unexplained cash credit u/s 68 of the Act is hereby confirmed."
5. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
6.Learned Counsel for the assessee reiterated the submissions made before the authorities below. Whereas, ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity.
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7. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. We note that according to section 68 of the Income Tax Act, where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not satisfactory in the opinion of the assessing officer, the sum so credited may be charged to income tax as the income of the assessee of that assessment year. The assessing officer may consider such sum as cash credit due to lack of sufficient explanation. It is well known that provisions of section 68 have been introduced into the taxing enactments step by step in order to plug loopholes. Even long prior to the introduction of section 68 of the Act, in the statute book, courts had held that where any amounts were found credited in the books of the assessee in the previous year and the assessee offered no explanation about the nature and source thereof or the explanation offered was, in the opinion of the assessing officer, is not satisfactory, the sums so credited could be charged to income-tax as income of the assessee of the relevant assessment year. We note that with effect from assessment year 2013-14, section 68 of the Income Tax Act has been amended to provide that if a closely held company fails to explain the source of share capital, share premium or share application money received by it to the satisfaction of the assessing officer, the same shall be deemed to be the income of the company under section 68 of the Act. We note that the amended provisions of section 68, is not applicable to the assessee company under consideration, as the assessee`s, assessment year is 2012-13. The Hon`ble Bombay High Court, in the case of Gagandeep Infrastructure 80 Taxmann.Com 272 (Bom), held that amendment to section 68 is prospective and applicable only from assessment year 2013-14. With this background, now we shall proceed to examine in the assessee`s case under consideration, whether assessee has discharged his onus to prove, prima facie, the identity, creditworthiness and genuineness of the share capital and share premium received by it from share subscribers companies.
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8. We note that the assessee company had raised share application money for Rs. 2,75,00,000/- during the year under consideration. During the financial year under consideration, the assessee company received share application money from seven different companies other than group companies at a premium of Rs. 99 per share for face value of Rs. 1/- per share. Total number of shares issued is 2,75,000 at the face value of Rs 1/- per share with a premium of Rs 99/- per share totaling Rs 2,75,00,000/-. The particulars of seven share subscribing companies are given below:
Sl. Name & Address of share holder No. of shares Total amount No. (including permium) (In Rs.)
1. Swastik Securities & Finance Ltd. 40,000 40,00,000 33, C.R. Avenue, 9th Floor, Room No. 909, Kolkata-700012 2 Rohan Finance & Securities Ltd. 50,000 50,00,000 rd 29A, Weston Street, 3 Floor, Room No. C-2, Kolkata-700012
3. Centak Distributors Pvt. Ltd. 40,000 40,00,000 th 1-B, Black Burn Lane, 4 Floor, Kolkata-
700012
4. J. P. Engineering Corporation Pvt. Ltd. 55,000 55,00,000 AE-326, Saltlake City, Ground Floor, Kolkata-700064.
5. Paridhi Finvest Pvt. Ltd. 40,000 40,00,000 8-Lake Town, Block-B, Kolkata-700089
6. K N S Export Pvt. Ltd. 25,000 25,00,000 9, Pollock Street, Ground Floor, room No. 27, Kolkata-700001
7. Aditi Sanchar Suvidha Pvt. Ltd. 25,000 25,00,000 th 27, Brabourne Road, 4 Floor, Kolkata-
700001 2,75,000 2,75,00,000 We note that during the assessment stage, the Assessing Officer issued notice u/s 133(6) to these share subscribing companies, who have responded to the Assessing Page | 10 Maa Kali Alloys Udyog Pvt.Ltd.
I T (S S ) A N o . 0 3 / R a n / 2 0 1 7 Assessment Year:2012-13 Officer and submitted the required documents and explanations during the t assessment stage. The reply received by AO from these seven subscribing companies are as follows:
9. The each share subscribing company has submitted the following evidences and documents before the assessing officer:
(a) Income Tax Return of the share subscribing company, A.Y.2012-13.
A.Y.201
(b) Audited Accounts of the share subscribing companies,, that is copy of audit report, profit and loss account and Balance Sheet.
(c).. Bank statement for the F.Y. 2011-12 201 relating to A.Y. 2012-113 indicating the payment nt made and the source of fund.
(d) Share Application money was paid by account payee cheque.
(e)Justification Justification as to how the share subscribing companies keep touch with assessee company.
(f). PAN Number and ROC details
(g) Explanation about the premium amount paid.
(h) Transaction with the assessee was duly highlighted in the bank statement Page | 11 Maa Kali Alloys Udyog Pvt.Ltd.
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(i) Copy of Income tax return acknowledgement.
(j) Evidences of source of source of the share holders All these evidences were submitted before the assessing officer.
10.Before addressing the legal issue involved in this case, we would like to bring on record the various documents relating to the assessee company to justify the share premium received by it, which are available in the paper book and ld Counsel submitted the same before the Bench. The ld. Counsel submitted before us the audited books of account including balance sheet and profit and loss account vide PB 1-21. The assessee's turnover as on 31.03.2012 is to the tune of Rs. 53,15,84,563/- and assessee has earned the profit before tax to the tune of Rs. 92,57,085/-. For the previous year as on 31.03.2011, the assessee company has turnover to the tune of Rs.51,57,58,397/- and net profit before tax to the tune of Rs. 60,55,200/-. Therefore, the ld. Counsel submitted before us that assessee company has been earning profit since last several years and have a track record to earn the profit and therefore entitled to fetch the premium on the shares issued by it. The ld. Counsel also took us through the balance sheet of the assessee company wherein the assessee company has shown accumulated profit and reserve and surplus to the tune of Rs. 34,72,53,725/- (vide PB-10). The assessee submitted copy of certificate of incorporation, memorandum and articles of association of company (PB-22 to 53). The assessee submitted before us Form no. 2 (return of allotment) dated 29.03.2012 & 31.03.2011 (PB-54 to 65). The assessee also submitted copy of survey report dated 27.06.2011 (Pb-90 to 138). The assessee also submitted copy of compliance certificate for the year ended 31.03.2012(PB- 139 to 141). The assessee also furnished the copy of tax audit report for the A.Y. 2012-13 (PB- 144 to 159).
11.The Ld. DR submitted that the assessee had not justified the reasons for issuing shares at a high premium. Therefore, according to the Ld. DR, the genuineness of the transaction remained un-proved. He therefore, vehemently argued that the order of the Ld. CIT(A) should be upheld. On the other hand, the Ld. Counsel first drew our attention to the several grounds raised by the assessee in respect of addition made u/s 68 of the Act.
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I T (S S ) A N o . 0 3 / R a n / 2 0 1 7 Assessment Year:2012-13 Thereafter on the merits of the case, our attention was drawn by the ld. Counsel to relevant page of paper book where we note that the share subscribing companies had submitted the following relevant details as called for and had confirmed the transaction with the assessee company. The evidences which were filed before the AO, at the cost of repetition, are reproduced below:
"(a) Income Tax Return of the share subscribing company, A.Y.2012-13.
(b) Audited Accounts of the share subscribing companies, that is copy of audit report, profit and loss account and Balance Sheet.
(c). Bank statement for the F.Y. 2011-12 relating to A.Y. 2012-13 indicating the payment made and the source of fund.
(d) Share Application money was paid by account payee cheque.
(e)Justification as to how the share subscribing companies keep touch with assessee company.
(f). PAN Number and ROC details
(g) Explanation about the premium amount paid.
(h) Transaction with the assessee was duly highlighted in the bank statement
(i) Copy of Income tax return acknowledgement.
(j) Evidences of source of source of the share holders"
12. The Ld. Counsel submitted that the details of PAN, IT Acknowledgment, and the Form 18 furnished by the share applicants with the ROC duly proved the identity of the share subscriber. The Ld. Counsel thereafter invited our attention to the respective balance sheet of the share applicants to show that share applicant had sufficient funds available at their disposal to make investment in the assessee company. Referring to the respective bank statements, it was further pointed out that the transactions were conducted through proper banking channel and that there were no cash deposits in any of the bank account of the share applicant. He also invited our attention to the explanation furnished by each of the share applicants regarding their source of funds. It was thus submitted that the fund flow position of the share applicant and not the profitability was the decisive criteria to examine the creditworthiness of the share applicant. Before we adjudicate as to whether the Ld. CIT(A)'s action is right or erroneous, let us look at section 68 of the Act and the judicial precedents on the issue at hand. Section 68 under which, the addition has been made by the AO reads as under:
"68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year."
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13. The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this case the legislative mandate is not in terms of the words 'shall' be charged to income-tax as the income of the assessee of that previous year. The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word "may" and not "shall". Thus, the un-satisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as also held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan [1999] 237 ITR 570.
14. The main plank on which the AO made the addition was that premium amount of Rs. 99 per share was higher. At this juncture, ld Counsel submits that assessee company is a profit making company and it has past accumulated profits and very good track record. The assessee company has been earning profit since a long and has goodwill in the market.It is noted that the all the requisitioned documents were furnished before the AO which substantiated the transaction between the assessee company and the share applicants. It is therefore not a case where the documents sought from the applicant to examine the transaction were not available before the AO. The assessee has proved the identity, creditworthiness and genuineness of the transaction. We note that in such a case the Hon'ble Apex Court in the case of Orissa Corpn. (P) Ltd. (supra) 159 ITR 78 and the Hon'ble Gujarat High Court, in the case of Dy. CIT v. Rohini Builders [2002] 256 ITR 360 /[2003] 127 Taxman 523, has held that onus of the assessee (in whose books of account credit appears) stands fully discharged if the identity of the creditor is established and actual receipt of money from such creditor is proved. In case, the Assessing Officer is dissatisfied about the source of cash deposited in the bank accounts of the creditors, the proper course would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor). In arriving at this conclusion, the Hon'ble Court has further stressed the presence of word "may" in section 68. Relevant observations at pages 369 and 370 of this report are reproduced hereunder:-
"Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation [1986] 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of Page | 14 Maa Kali Alloys Udyog Pvt.Ltd.
I T (S S ) A N o . 0 3 / R a n / 2 0 1 7 Assessment Year:2012-13 creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw and adverse inference against the assessee in the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69.
15. Undisputedly the Share Applicant in this case is the bank account holder in his respective banks in his own name and is sole owner of the credits appearing in his bank account from where they issued cheques to the assessee company. For the proposition that a Bank Account holder himself is the 'owner' of 'credits' appearing in his account (with the result that he himself is accountable to explain the source of such credits in whatever way and form, the same have emerged) support can be derived from section 4 of Bankers Book Evidence Act 1891 which reads as under:-
"4. Mode of proof of entries in bankers' books Subject to the provisions of this Act, a certified copy of any entry in a bankers' book shall in all legal proceedings be received as prima facie evidence of the existence of such entry, and shall be admitted as evidence of the matters, transactions and accounts therein recorded in every cases where, and to the same extent as, the original entry itself is now by law admissible, but not further or otherwise."
16. Following the said provisions, the co-ordinate bench of Allahabad Tribunal in the case of Anand Prakash Agarwal reported in 6 DTR (All-Trib) 191 held as under:-
"The question that remains to be decided now is whether the subject matter of transfer was the asset belonging to the transferor/donors themselves. There is enough material on record which goes to show that there were various credits in the bank accounts of the donors, prior to the transaction of gifts, which undisputedly belonging to the respective donors themselves, in their own rights. No part of the credits in the said bank' accounts was generated from the appellants and/or from its associates, in any manner. The certificates issued by the banks are construable as evidence about the ownership of the transferors or their respective bank accounts, as per s.4 of the Bankers' Books evidence Act 1891, which read as under:
"4. Where an extract of account was duly signed by the agent of the bank and implicit in its was a certificate that it was a true copy of an entry contained in one of the ordinary books of the bank and was made in the usual and ordinary course of business and that such book was in the custody of the bank, it was held admissible in evidence. Radheshyam v. Safiyabai Ibrahim AIR 1988 Bom.361 : 1987 Mah. 725: 1987 Bank J 552."
In view of the position of law as discussed above, it is always open for a borrower to contend, that even the "creditworthiness" of the lender stands proved to the extent of credits appearing in his Bank Account and he should be held to be successful in this contention."
17. In the case of Nemi Chand Kothari 136 Taxman 213, (supra), the Hon'bleGuahati High Court has thrown light on another aspect touching the issue of onus on assessee under section 68, by holding that the same should be decided by taking into consideration Page | 15 Maa Kali Alloys Udyog Pvt.Ltd.
I T (S S ) A N o . 0 3 / R a n / 2 0 1 7 Assessment Year:2012-13 the provision of section 106 of the Evidence Act which says that a person can be required to prove only such facts which are in his knowledge. The Hon'ble Court in the said case held that, once it is found that an assessee has actually taken money from depositor/lender who has been fully identified, the assessee/borrower cannot be called upon to explain, much less prove the affairs of such third party, which he is not even supposed to know or about which he cannot be held to be accredited with any knowledge. In this view, the Hon'ble Court has laid down that section 68 of Income-tax Act, should be read along with section 106 of Evidence Act. The relevant observations at page 260 to 262, 264 and 265 of the report are reproduced herein below:-
"While interpreting the meaning and scope of section 68, one has to bear in mind that normally, interpretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation of statutes, when we read carefully the provisions of section 68, we notice nothing in section 68 to show that the scope of the inquiry under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorize the Revenue Department to make inquiry into the source(s) of the credit and/or sub-creditor. The language employed by section 68 cannot be read to impose such limitations on the powers of the Assessing Officer. The logical conclusion, therefore, has to be, and we hold that an inquiry under section 68 need not necessarily be kept confined by the Assessing Officer within the transactions, which took place between the assessee and his creditor, but that the same may be extended to the transactions, which have taken place between the creditor and his sub-creditor. Thus, while the Assessing Officer is under section 68, free to look into the source(s) of the creditor and/or of the sub-creditor, the burden on the assessee under section 68 is definitely limited. This limit has been imposed by section 106 of the Evidence Act which reads as follows:
"Burden of proving fact especially within knowledge.-When any fact is especially within the knowledge of any person, the burden) of proving that fact is upon him. "
******** What, thus, transpires from the above discussion is that white section 106 of the Evidence Act limits the onus of the assessee to the extent of his proving the source from which he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s)of the creditor but also of his (creditor's) sub-creditors and prove, as a result, of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/source from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and IT is not the burden of the assessee to prove the creditworthiness of thesource(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then, the interpretation of section 68 are to stand together, which they must, then the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of section 106 of the Evidence Act and section 68 of the Income- tax Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain Page | 16 Maa Kali Alloys Udyog Pvt.Ltd.
I T (S S ) A N o . 0 3 / R a n / 2 0 1 7 Assessment Year:2012-13 confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the assessee to prove that the sub- creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been. eventually, received by the assessee. It, therefore, further logically follows that the creditor's creditworthiness has to be Judged vis-a-vis the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub- creditors, for, these aspects may not be within the special knowledge of the assessee. "
********** " ... If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis-a-vis the transactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuineness of the transaction and the creditworthiness of the creditor vis-a-vis the transactions which had taken place between the assessee and the creditor and not between the creditor and the sub-creditors, for, it is not even required under the law for the assessee to try to find out as to what sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had' with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub-creditor... "
********** "In other words, though under section 68 an Assessing Officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-creditor to the creditor was income of the assessee from undisclosed source unless there is evidence, direct or circumstantial, to show that the amount which has been advanced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee ...."
********** "Keeping in view the above position of law, when we turn to the factual matrix of the present case, we find that so far as the appellants is concerned, he has established the identity of the creditors, namely, NemichandNahata and Sons (HUF) and Pawan Kumar Agarwalla. The appellants had also shown, in accordance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors aforementioned. In fact the fact that the assessee had received the said amounts by way of cheques was not in dispute. Once the assessee had established that he had received the said amounts from the creditors aforementioned by way of cheques, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter the burden had shifted to the Assessing Officer to prove the contrary. On mere failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee, such failure, as a corollary, could not have been and ought not to have been, under the law, treated as the income from the undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts Page | 17 Maa Kali Alloys Udyog Pvt.Ltd.
I T (S S ) A N o . 0 3 / R a n / 2 0 1 7 Assessment Year:2012-13 actually belonged to, or were owned by, the assessee. Viewed from this angle, we have no hesitation in holding that in the case at hand, the Assessing Officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. In the absence of any such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the appellants from undisclosed sources. The learned Tribunal seriously fell into error in treating the said amounts as income derived by the appellants from. undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness."
18. In the case of CIT Vs Jalan Hard Coke Ltd (95 taxmann.com 330), the Hon'ble Rajasthan High Court noted that the assessee had furnished the details of the share applicants but expressed its inability to produce the share applicants before the AO for examination. The Hon'ble High Court held that mere non-appearance of share applicants could not be reason enough to assess the share application monies received by way of unexplained cash credit. The SLP filed by the Revenue against this judgment has been dismissed by the Hon'ble Supreme Court. The relevant extracts of the judgment are as follows:
"6.2 Taking into consideration the aforesaid decision we are of the considered opinion that company cannot be assessed for the income tax to find out the person who has applied as share holder. The view of taken by the Tribunal is just and proper, therefore, the issue is answered in favour of the assessee and against the department."
19. Further, in the case of CIT v. S. Kamaljeet Singh [2005] 147 Taxman 18(All.) their lordships, on the issue of discharge of assessee's onus in relation to a cash credit appearing in his books of account, has observed and held as under:-
"4. The Tribunal has recorded a finding that the assessee has discharged the onus which was on him to explain the nature and source of cash credit in question. The assessee discharged the onus by placing (i) confirmation letters of the cash creditors; (ii) their affidavits; (iii) their full addresses and GIR numbers and permanent account numbers. It has found that the assessee's burden stood discharged and so, no addition to his total income on account of cash credit was called for. In view of this finding, we find that the Tribunal was right in reversing the order of the AA C, setting aside the assessment order."
20. When a question as to the creditworthiness of a creditor is to be adjudicated and if the creditor is an Income Tax assessee, it is now well settled by the decision of the Calcutta High Court that the creditworthiness of the creditor cannot be disputed by the AO of the assessee but the AO of the creditor. In this regards our attention was drawn to the decision of the Hon'ble High Court, Calcutta in the CIT Vs Dataware Pvt Ltd (ITAT No. 263 of 2011) dated 21.09.2011 wherein the Court held as follows:
"In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that Page | 18 Maa Kali Alloys Udyog Pvt.Ltd.
I T (S S ) A N o . 0 3 / R a n / 2 0 1 7 Assessment Year:2012-13 the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness" of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence.
So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness" of transaction through account payee cheque has been established.
We find that both the Commissioner of Income Tax (Appeal) and the Tribunal below followed the well-accepted principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities."
21. Our attention was also drawn to the decision of the Hon'ble Supreme Court while dismissing SLP in the case of Lovely Exports as has been reported as judgment delivered by the CTR at 216 CTR 295:
"Can the amount of share money be regarded as undisclosed income under section 68 of the Income tax Act, 1961? We find no merit in this special leave petition for the simple reason that if the share application money is received by the assessee- company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment.
22. Our attention was also drawn to the decision of the Hon'ble Calcutta High Courtin the appeal of Commissioner of Income tax, Kolkata- IVVsRoseberry Mercantile (P) ltd., ITAT no. 241 of 2010 dated 10- 01-2011, wherein it was held as below:
"On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT (A) ought to have held that the assessee had not established the genuineness of the transaction. "
It appears from the record that in the assessment proceedings it was noticed that the assessee company during the year under consideration had brought Rs. 4, 00, 000/- and Rs.20,00,000/- towards share capital and share premium respectively amounting to Rs.24,00, 000/- from four shareholders being private limited companies. The Assessing Officer on his part called for the details from the assessee and also from the share applicants and analyzed the facts and ultimately observed certain abnormal features, which were mentioned in the assessment order. The Assessing Officer, therefore, concluded that nature and source of such money was questionable and evidence produced was unsatisfactory. Consequently, the Assessing Officer invoked the provisions under Section 68/69 of the Income Tax Act and made addition of Rs.24,00,000/-.
On appeal the Learned CIT (A) by following the decision of the Supreme Court in the case of Cl. T. vs. M/s. Lovely Exports Pvt. Ltd., reported in (2008) 216 CTR 195 allowed the appeal by holding -that share capital/premium of Rs. 24,00,000/- received from the investors was not liable to be treated under Section 68 as unexplained credits and it should not be taxed in the hands of the appellants company.
Page | 19 Maa Kali Alloys Udyog Pvt.Ltd.
I T (S S ) A N o . 0 3 / R a n / 2 0 1 7 Assessment Year:2012-13 As indicated earlier, the Tribunal below dismissed the appeal filed by the Revenue.
After hearing the learned counsel for the appellants and after going through the decision of the Supreme Court in the case of Cl. T. vs. M/s. Lovely Exports Pvt. Ltd. [supra], we are at one with the Tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed.
23. Our attention was also drawn to the decision of the Hon'ble High Court, Calcutta in the case of Commissioner Of Income Tax vs M/s. Nishan Indo Commerce Ltd in ITA No. 52 of 2011 dated 2 December, 2013 wherein the Court held as follows:
"The Assessing Officer was of the view that the increase in share capital by RS.52,03,500/- was nothing but the introduction of the assessee's own undisclosed funds/income into the books of accounts of the assessee company. The Assessing Officer accordingly treated the investment as unexplained credit under Section 68 of the Income Tax Act and added the same to the income of the assessee.
Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) being the First Appellate Authority and contended that the Assessing Officer had no material to show that the share capital was the income of the assessee company and as such the addition made by the Assessing Officer under Section 68 of the Act was wrong.
The learned Commissioner of Income Tax (Appeals) after hearing the department and the Assessee Company deleted the addition of Rs. 52, 03,500/- to the income of the assessee company during the Assessment Year in question. The learned Commissioner of Income Tax Appeals found that there were as many as 2155 allottees, whose names, addresses and respective shares allocation had been disclosed.
The Commissioner of Income Tax Appeals, further found that the Assessee Company received the applications through bankers to the issue, who had been appointed under the guidelines of the Stock Exchange and the Assessee Company had been allotted shares on the basis of allotment approved by the Stock Exchange. The Assessee Company had duly filed the return of allotment with the Registrar of Companies, giving complete particulars of the allottees.
The Commissioner of Income Tax (Appeals) found that inquires had confirmed the existence of most of the shareholders at the addresses intimated to the Assessing Officer, but the Assessing Officer took the view that their investment in the Assessee Company was not genuine, on the basis of some extraneous reasons. The Commissioner of Income Tax (Appeals) took note of the observation of the Assessing Officer that enquiry conducted by the Income Tax Inspector had revealed that nine persons making applications for 900 shares were not available at the given address and rightly concluded that the total share capital issued by the Assessee Company could not be added as unexplained cash credit under 'Section 68 of the Income Tax Act. Moreover, if the nature and source of investment by any shareholder, in shares of the Assessee Company remained unexplained, liability could not be foisted on the company. The concerned shareholders would have to explain the source of their fund.
The learned Commissioner on considering the submissions of the, respective parties and considering the materials, found that the Assessing Officer had applied the provisions of Section 68 of the Income Tax Act arbitrarily and illegally and in any case without giving the assessee adequate opportunity of representation and/or hearing.
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I T (S S ) A N o . 0 3 / R a n / 2 0 1 7 Assessment Year:2012-13 Learned Tribunal agreed with the factual findings of the learned Commissioner and accordingly the learned Tribunal dismissed the appeal of the Revenue and affirmed the decision of the learned Commissioner.
Mr. Dutta appearing on behalf of the petitioners cited judgment of the Division Bench of this Court in Commissioner of Income Tax Vs. Ruby Traders and Exporters Limited reported in 236 (2003) ITR 3000 where a Division Bench of this Court held that when Section 68 is resorted to, it is incumbent on the assessee company to prove and establish the identity of the subscribers, their credit worthiness and the genuineness of the transaction.
The aforesaid judgment was rendered in the context of the factual background of the aforesaid case where, despite several opportunities being given to the assessee, nothing was disclosed about the identity of the shareholders. In the instant case, the assessee disclosed the identity and address and particulars of share allocation of the shareholders. It was also found on the facts that all the shareholders were in existence. Only nine shareholders subscribing to about 900 shares out of 6, 12,000 shares were not found available at their addresses, and that too, in course of assessment proceedings in the year 1994, i.e., almost 3 years after the allotment.
By an order dated 2nd May, 2001, this Court admitted the appeal on three questions which essentially centre around the question of whether the Appellate Commissioner erred in law in deleting the addition of Rs. 52, 03, 500/- to the income of the assessee as made by the Assessing Officer. We are of the view that there is no question of law involved in this appeal far less any substantial question of law.
The learned Tribunal has concurred with the learned Commissioner on facts and found that there were materials to show that the assessee had disclosed the particulars of the shareholders. The factual findings cannot be interfered with, in appeal. We are of the view that once the identity and other relevant particulars of shareholders are disclosed, it is for those shareholders to explain the source of their funds and not for the assessee company to show wherefrom these shareholders obtained funds."
24 Finally the ld DR placed reliance on the recent decision of the Hon'ble Apex Court in the case of Principal CIT vs. NRA Iron & Steel (P) Ltd reported in 103 taxmann.com 48 (SC) wherein the decision on addition made towards cash credit was rendered in favour of the revenue. We have gone through the said judgement and we find in that case, the ld AO had made extensive enquiries and from that he had found that some of the investor companies were non-existent which is not the case before us. Certain investor companies did not produce their bank statements proving the source for making investments in assessee company,which is not the case before us. Source of funds were never established by the investor companies in the case before the Hon'ble Apex Court, whereas in the instant case, the entire details of source of source were duly furnished by all the respective share subscribing companies before the ld AO in response to summons u/s 131 of the Act by complying with the personal appearance of directors. Hence the decision Pa g e | 2 1 Maa Kali Alloys Udyog Pvt.Ltd.
I T (S S ) A N o . 0 3 / R a n / 2 0 1 7 Assessment Year:2012-13 relied upon by the ld DR is factually distinguishable and does not advance the case of the revenue.
25.We note that in CIT Vs. Anshika Consultants Pvt Ltd (62 taxmann.com 192), the AO had added the share application monies treating it to be their unaccounted monies routed though accommodation entries since the shares were issued at a high premium. The Hon'ble Delhi High Court did not agree with this contention put forth by the Revenue, by observing as under:
"Whether the assessee-company charged a higher premium or not, should not have been the subject matter of the enquiry in the first instance. Instead, the issue was whether the amount invested by the share applicants were from legitimate sources. The objective of section 68 is to avoid inclusion of amount which are suspect. Therefore, the emphasis on genuineness of all the three aspects, identity, creditworthiness and the transaction. What is disquieting in the present case is when the assessment was completed, the investigation report which was specifically called from the concerned department was available but not discussed by the Assessing Officer. Had he cared to do so, the identity of the investors, the genuineness of the transaction and the creditworthiness of the share applicants would have been apparent. Even otherwise, the share applicants particulars were available with the Assessing Officer in the form of balance sheets income-tax returns, PAN details etc. While arriving at the conclusion that he did, the Assessing Officer did not consider it worthwhile to make any further enquiry but based his order on the high nature of the premium and certain features which appeared to be suspect, to determine that the amount had been routed from the assessee's account to the share applicants' account. As held concurrently by the Commissioner (Appeals) and the Tribunal, these conclusions were clearly baseless and false. This Court is constrained to observe that the Assessing Officer utterly failed to comply with his duty considers all the materials on record, ignoring specifically the most crucial documents."
26. To conclude: We note that in the assessee`s case the amended provisions of section 68 are not applicable, as the assessment year under consideration is A.Y. 2012-13. As noted from the judicial precedents cited above, where any sum is found credited in the books of an assessee then there is a duty casted upon the assessee to explain the nature and source of credit found in his books. In the instant case, the credit is in the form of receipt of share capital with premium from share applicant. The nature of receipt towards share capital is seen from the entries passed in the respective balance sheets of the companies as share capital and investments. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e. identity of share applicant, genuineness of transactions and creditworthiness of share applicant. For proving the identity of share applicants, the assessee furnished the name, address, PAN of share applicants together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of share applicant, as we noted supra, thiscompany ishaving sufficient fund. These transactions are also duly reflected in the balance sheets of the share Pa g e | 2 2 Maa Kali Alloys Udyog Pvt.Ltd.
I T (S S ) A N o . 0 3 / R a n / 2 0 1 7 Assessment Year:2012-13 applicant, so creditworthiness is proved. Even if there was any doubt if any regarding the creditworthiness of the share applicant was still subsisting, then AO should have made enquiries from the AO of the share subscribers as held in the several judgments cited above, which has not been done, so no adverse view could have been drawn. The third ingredient is genuineness of the transactions, for which we note that the monies have been directly paid to the assessee company by account payee cheques out of sufficient bank balances available in the bank accounts of the share applicant. It will be evident from the paper book that the assessee has even demonstrated the source of money deposited into their bank accounts, which in turn has been used by them to subscribe to the assessee company as share application. Hence the source of source is proved by the assessee in the instant case though the same is not required to be done by the assessee as per law as it stood/ applicable in this assessment year. The share applicant has confirmed the share application as well as the payments made to the assessee company, which are duly corroborated with their respective bank statements and all the payments are by account payee cheques.
We note that section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature & source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicant. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO's record. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act. Therefore, we delete the addition made by the assessing officer to the tune of Rs.2,75,00,0000/-.
27. With regard to assessee's contention that no incriminating documents were found or seized during the search and seizure action and therefore the issue of assessment of share application money cannot be taken up in the assessment u/s 153A of the Act. Since, we have allowed the assessee`s appeal on merits therefore we do not adjudicate this legal ground raised by the assessee.
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I T (S S ) A N o . 0 3 / R a n / 2 0 1 7 Assessment Year:2012-13
28.Before parting, it is noted that the order is being pronounced after 90 days of hearing. However, taking note of the extraordinary situation in the light of the Covid-19 pandemic and lockdown, the period of lockdown days need to be excluded. For coming to such a conclusion, we rely upon the decision of the Co- ordinate Bench of the Mumbai Tribunal in the case of DCIT vs. JCB Limited in ITA No. 6264/Mum/2018 and ITA No. 6103/Mum/2018 for A.Y. 2013-14 order dated 14.05.2020.
29. In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 08.07.2020
Sd/- Sd/-
(S.S.GODARA) (A.L.SAINI)
या यकसद य / JUDICIAL MEMBER लेखासद य / ACCOUNTANT MEMBER
कोलकाता /Kolkata;
दनांक/ Date: 08/07/2020
(SB, Sr.PS)
Copy of the order forwarded to:
1. Maa Kali Alloys Udyog Pvt. Ltd.
2. DCIT, CC-Dhanbad
3. C.I.T(A)- 4. C.I.T.- Ranchi
5. CIT(DR), Ranchi Bench, Ranchi .
6. Guard File.
True copy
By Order
Assistant Registrar
ITAT, Ranchi Bench
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