Income Tax Appellate Tribunal - Mumbai
Safari Foods P. Ltd, Mumbai vs Department Of Income Tax on 9 April, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH "E",
MUMBAI
BEFORE SHRI P.M.JAGTAP (A.M) & SHRI N.V.VASUDEVAN(J.M)
ITA NO. 4454/MUM/11(A.Y.2003-04)
The ACIT 10(3), M/s. Safari Foods Pvt. Ltd.,
451, Aaykar Bhavan, 4th Floor, 511, Marathon Max. , LBS
MK Marg, Mumbai 400 020. Vs. Marg, Link Road, Junction,
(Appellant) Mulund (W),
Mumbai - 400 080.
PAN: AACCS 7667Q
(Respondent)
Appellant by : Shri Mansih Kanojia
Respondent by : None
Date of hearing : 09/04/2012
Date of pronouncement : 13/04/2012
ORDER
PER N.V.VASUDEVAN, J.M
This is an appeal by the revenue against the order dated 1/3/2011 of CIT(A)-22, Mumbai relating to assessment year 2003-04. Ground No.1 raised by the assessee reads as follows:
"1. (i) On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in deleting the addition made by the AO of an amount of Rs. 14,67,066/- u/s. 41(1) being the difference between sales tax liability and the net value paid under a scheme of Government of Maharashtra.
(ii) On the facts and in the circumstances of the case and in law, the amount of Rs. 14,67,066/- should have been taxed u/s. 28(iv) of the IT Act."
2. The facts of case are that the assessee company had filed its return of income on 28/11/2003 declaring total income at Rs. 12,31,370/-. The return was processed u/s. 143(1) and thereafter the assessment has been 2 ITA NO. 4454/MUM/11(A.Y.2003-04) completed u/s. 143(3) r.w.s. 147 on 26/12/2007 determining taxable income at Rs. 51,98,430/-. During the year the assessee company was engaged in the business of manufacturing of snack foods. In this case the AO observed that assessee was allowed deduction amounting to Rs. 14,67,066/- out of Rs. 21,14,470/- representing sales tax deferred loan scheme of Government of Maharashtra by pre-payment of Rs. 6,47,404/- as its net value and the difference of Rs. 14,67,066/- i.e. (21,14,470 - 6,67,404) has been treated by the assessee as capital reserve in the balance sheet. The AO further noted that since the amount of Rs. 14,67,066/- represents cessation of liability u/s. 41(1)(a), the same was required to be treated as income of the assessee and taxed accordingly. The AO further noted that this was an income escaping assessment, and hence AO recorded reasons and reopened assessment u/s. 147 and issued notice u/s. 148. For elaborate reasons given in the order of assessment the AO treated a sum of Rs. 14,69,066/- as income of the assessee under section 41(1) of the Act and taxed it accordingly.
3. Before CIT(A) the Assessee relied on the judgement of Hon'ble ITAT Spl. Bench in case of Sulzer India Ltd. vs. JCIT, 134 TTJ 385 wherein on similar facts Hon'ble ITAT have held that where sales tax was payable by the assessee under deferred scheme in three installments a liability payable in future but later on State Govt. came with a scheme by which it was provided that if the dealer opts then they could pay the future liability at a discounted value or at net present value immediately, and in this situation it cannot be construed as remission of liability because the State Govt. has not waived any of the liability. Accordingly, it was held that deferred sales tax liability being the difference between payment of net present value against the future liability credited by assessee under the capital reserve account in its books is a capital receipt and cannot be termed as remission/cessation of liability and consequently no benefit arises to assessee in terms of section 41(1). The CIT(A) was of the view that the ratio of the judgement of Hon'ble 3 ITA NO. 4454/MUM/11(A.Y.2003-04) ITAT Spl. Bench as above squarely applies to the case of the appellant. Following the same, A.O. was directed to delete addition of Rs. 14,67.066/-. Aggrieved by the order of the CIT(A) the revenue has raised ground No.1 before the Tribunal.
4. Before us both the parties agreed that the ratio laid down by the special Bench of ITAT in the case of Sulzer India Ltd. (supra) would squarely apply to the facts of the present case. In view of the above, we do not find any grounds to interfere with the order of the CIT(A). Consequently, Gr.No.1 raised by the Assessee is dismissed.
5. Ground. 2 raised by the revenue reads as follows:
"2. (i) On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in admitting the additional evidences submitted by the assessee.
(ii) On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in deleting the addition made u/s.68 of the Act without appreciating that the creditworthiness of the investors was not proved by the assessee."
6. During the course of assessment proceedings A.O. observed that assessee has received Rs.20.00 lakhs on account of share premium and Rs.5.00 lakhs on account of share capital issued. The Assessee had issued 50,000 shares of Rs.10/- each at a premium of Rs.50/- per share. The shares were issued to the following three persons:
1. M/S.Jatipura Investments & Finance Pvt. Ltd. 20,000 shares.
2. M/S.Tipu Investments & Trades Pvt.Ltd. 20,000 shares
3. M/S.Candle Trade & Investments Pvt.Ltd. 10,000 shares.
The AO called for details such as party wise details, copy of return of income, balance sheet, tax audit report, bank statement etc. of the persons from whom such amount received, but the assessee furnished only the name & address of the parties and amount was received. The AO further noted that onus was on the assessee to prove the identity of the creditors, 4 ITA NO. 4454/MUM/11(A.Y.2003-04) creditworthiness of the creditors and genuineness of the transaction. The AO also noted that summons u/s. 131 of the Act were issued to the creditors to attend with all the details like copy of return of income, balance sheet, tax audit report, bank statement etc., in response to which the A.R of the creditors attended, filed copy of return of income, balance sheet of all creditors but could not furnish the copies of the bank statement of all the three creditors. However, letter was filed requesting AO to call for bank statement from Bank directly as matter being old, same were not available. Name of bank Account No. etc. was intimated to A.O. In view of these facts AO noted that assessee failed to prove the genuineness and creditworthiness of the transactions. Accordingly A.O made an addition of Rs. 25.00 lacs to the total income by invoking the provisions of Sec.68 of the Act.
7. Before CIT(A) the assessee explained the circumstances under which the assessee could not produce the required documents asked by the AO viz., old records could not be traced by the concerned parties. The assessee filed the following documents as additional evidence before the CIT(A). The copies of the following bank statement with Karnataka Bank A/c. in respect of all the three companies / shareholders, were furnished before CIT(A).
(i) M/s. Jatipura Investments & Bank A/c.No.0792000100216401 for Finance P. Ltd. the period 01/02/2003 to 30/04/2003
(ii) M/s. Tipu Investments & Bank A/c. No.079200010021501 for the P. Ltd. period 01/01/2003 to 30/06/2003.
(iii) Candle Trade & Investment Bank A/c. No.CA N 12779 for the period P. Ltd. 01/01/2003 to 31/03/2003.
It was submitted that the same were not submitted during the assessment proceedings as the same were not available with us and it being document of a third party it was beyond the Assessee's capacity to have produced it 5 ITA NO. 4454/MUM/11(A.Y.2003-04) earlier. The Assessee requested that the same may now be admitted under Rule 46A of the Income Tax Rules, 1962 as additional evidence.
8. The AO called for a remand report from the AO regarding admissibility of additional evidence and also the veracity of the additional evidence filed by the Assessee. The AO after a lapse of three years filed his remand report. In his remand report he opposed the request for admission of additional evidence. Without prejudice to the above, it was submitted that the bank statement of the share applicants furnished by the assessee showed that the funds for the share applications paid to the assessee company were received by the said applicants either on the same day or one/two days prior to making the said transfers to the assessee company. He also was of the view that the funds of Rs. 10.00 lacs and Rs. 5.00 lacs were credited in the bank accounts of M/s. Jatipura Investments & Finance P. Ltd. and M/s. Tipu Investment and Trading P. Ltd. from the same account viz. CA 1920. The source of the said funds and the identity of the said funds provider was not disclosed by the assessee. In the case of Candle Trade & Investment P. Ltd. also, the funds of Rs. 9.00 lakhs were received a day before making the transfer to the assessee company. The AO submitted that it was because of these facts that the assessee and the share applicants were dilly-dallying the production of the said bank statements during the course of assessment proceedings. The AO submitted that the said details are furnished in the appellate proceedings only when there remained no other option before the assessee. The AO thus submitted that the facts show that the increase in share capital is not a straight transaction as was claimed by the assessee but was an arrangement for introduction of tainted funds, whose complete facts are not being disclosed by the assessee.
6 ITA NO. 4454/MUM/11(A.Y.2003-04)9. The CIT(A) on a consideration of the order of AO, the additional evidence sought to be filed by the Assessee and the remand report of the AO, was of the view that the assessee had received Rs.20.00 lakhs on account of share premium and Rs.5.00 lakhs on account of share capital issue during the year. In response to summons u/s. 131 issued to the investors the copy of return of income balance sheet of the three creditors were filed alongwith creditors confirmatory letter dated 10.1 2.2007. The A.O. wanted copy of bank account of all three creditors to be produced. Since the same was not produced he was of the view that the genuineness of transaction and creditworthiness was not proved. The CIT(A) noticed that the assessee had before the AO given the name of the bank in which the share applicants/investors had current account as well the A/C.No.. He also found that the stand taken by the creditor was that it was an old transaction and the details could not be traced immediately and requested the A.O. to issue summons to respective bank to call for bank statement of the three creditors. The CIT(A) found that the A.O did not accept the explanation and made addition of Rs.25 lakhs stating that creditworthiness and genuineness of the transaction was not proved for want of bank statement of these creditors. The CIT(A) was of the view that it was an admitted position that the Assessee made a request to the AO to issue summons to the bank in order to get the copy of bank statement of creditors since the same was not available with the investors. It was open to the AO to get the information from bank. The CIT(A) was of the view that the Assessee was prevented by sufficient cause in furnishing the bank statement during the original assessment proceedings since the Bank statement related to old period and request to the AO to call for these details from Bank was also made by the Assessee. Relying on the decision of the Hon'ble Orissa High Court in the case of B L Chowdhary, 105 ITR 371(Orr) wherein it was held prima facie when the information was necessary to decide the controversy in regard to genuineness of loan, the assessee should be allowed to produce the 7 ITA NO. 4454/MUM/11(A.Y.2003-04) additional evidence, the CIT(A) permitted the Assessee to rely on the additional evidence.
10. On merits, the CIT(A) was of the view that the assessee has not only flied its own bank statement, balance sheet, P&L A/c. but it has also filed confirmations, PAN, the bank statement of the investors, their copy of returns and balance sheet. He relied on the decision of the Hon'ble Delhi High Court in CIT Vs. Oasis Hospitality Pvt. Ltd. vide order dated 31.01.2010 in ITA No.2093 of 2010 wherein it was held that by Hon'ble court that where registered address, PAN of shareholders is furnished, the identity is proved, where money is received by cheque and transmitted through banking or other undisputed channels, genuineness of the transactions is proved and where the creditor/ subscriber's bank statement shows that it had sufficient balance in its account, the creditworthiness is also proved. The CIT(A) was of the view that in the case of the assessee it had produced all documents and hence the Assessee had discharged its onus. In such a situation, the CIT(A) was of the view that the onus shifted to AO who was free to make inquiries and prove that shareholders did not have the means to make investment and thereafter he could have reopened their individual assessments. The CIT(A) found that the AO did not make such enquiries even during Remand proceedings despite the fact that he had taken three years to file the remand report. In view of the facts and legal position as discussed above, the CIT(A) held that no addition u/s. 68 was required to be made. Accordingly, the addition of Rs. 25 lakhs made u/s. 68 of I.T.Act by the A.O. was directed to be deleted
11. Aggrieved by the order of the CIT(A), the revenue has raised Gr.No.2 before the Tribunal. We have given a careful consideration to the submissions of the learned DR who relied on the remand report filed by the AO before CIT(A). At the outset it will be useful to take a look at the law when there are cash credits in the books of a company by way of increased 8 ITA NO. 4454/MUM/11(A.Y.2003-04) share capital. The applicable provision of law in this regard is Sec.68 of the Act, which provides that 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 Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. In a very recent decision of the Hon'ble Delhi High Court in the case of CIT Vs. Oasis Hospitalities Pvt.Ltd. 333 ITR 119 (Delhi), the Hon'ble Delhi High Court after considering several decisions referred to by the learned D.R. in his arguments before us, summed up the approach in cases where cash credits in the books of company by way of increase in share capital is found:
"The initial burden is upon the assessee to explain the nature and source of the share application money received by the assessee. In order to discharge this burden, the assessee is required to prove (i) the identity of the share-holder, (ii) the genuineness of the transaction, and (c) the creditworthiness of the shareholders. In case the investor/shareholder is an individual, some documents will have to be filed or the shareholder will have to be produced before the Assessing Officer to prove his identity. If the creditor/subscriber is a company, then the details in the form of registered address or PAN identity, etc., can be furnished. When the money is received by cheque and is transmitted through banking or other indisputable channels, the genuineness of the transaction would be proved. Other documents showing the genuineness of the transaction could be copies of the shareholders register, share application forms, share transfer register, etc. As far as the creditworthiness or financial strength of the creditor/subscriber is concerned, that can be proved by producing the bank statement of the creditors/subscribers showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinise the same and in case he nurtures any doubt about the veracity of these documents, to probe the matter further. However, to discredit the documents produced by the assessee on the aspects, there have to be some cogent reasons and materials for the Assessing Officer and he cannot go into the realm of suspicion."9 ITA NO. 4454/MUM/11(A.Y.2003-04)
12. The Hon'ble Bombay High Court in the case of CIT Vs. Creative World Telefilms Ltd. 333 ITR 100 (Bom) observed that if the share application money is received by the assessee-company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department can always proceed against them and if necessary reopen their individual assessments. The Hon'ble Court further observed that if the assessee had given the details of names and addresses of the shareholders, their PAN/GIR numbers and had also given the cheque numbers, name of the bankers. The Assessing Officer ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the share-holders. The Hon'ble Court followed the decision of the Hon'ble Supreme Court in the case of CIT v. Lovely Exports P. Ltd. [2009] 319 ITR (St.) 5 (SC).
13. In the case of Lovely Exports (Supra), the Hon'ble Supreme Court dismissed SLP against the decision of the Hon'ble Delhi High court by the Revenue against the judgment of the Hon'ble Delhi High Court in the case of CIT Vs. Divine Leasing & Finance Ltd. 299 ITR 268(Del) by observing as follows:
"Can the amount of share money be regarded as undisclosed income under S.68 of IT 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 impuged judgment. Subject to the above, Special Leave Petition is dismissed."
14. In the case of Divine Leasing (supra), the Hon'ble Delhi High Court summed up the approach in cases where cash credits in the books of company by way of increase in share capital is found as follows:
"In the case of a company the following are the propositions of law under section 68. The assessee has to prima facie prove (1) the identity of the creditor/subscriber ; (2) the genuineness of the transaction, 10 ITA NO. 4454/MUM/11(A.Y.2003-04) namely, whether it has been transmitted through banking or other indisputable channels ; (3) the creditworthiness or financial strength of the creditor/subscriber ; (4) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the shareholders' register, share application forms, share transfer register, etc., it would constitute acceptable proof or acceptable explanation by the assessee ; (5) the Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices ; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee ; and (7) the Assessing Officer is duty bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation. In the case of a public issue, the company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. A delicate balance must be maintained while walking the tightrope of sections 68 and 69 of the Income-tax Act. The burden of proof can seldom be discharged to the hilt by the assessee ; if the Assessing Officer harbours doubts of the legitimacy of any subscription, he is empowered, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company."
15. In the light of the law laid down as above, let us examine the evidence on record. The assessee has not only flied its own bank statement, balance sheet, P&L A/c. but it has also filed confirmations, PAN, the bank statement of the investors, their copy of returns and balance sheet. The AO wanted copy of the bank statement of the investors. The same could not be furnished by the Assessee but the Assessee gave the details of the Bank Account and asked the AO to issue summons to the Bank and obtain the same. We are of the view that the CIT(A) was right in admitting the additional evidence filed before him for the reasons given in his order. The AO did not choose to issue summons to the Bank instead made addition drawing adverse inference against the Assessee. The additional evidence is 11 ITA NO. 4454/MUM/11(A.Y.2003-04) necessary for deciding the issue in appeal and in terms of Rule 46A(4) the CIT(A) had powers to consider such additional evidence. The additional evidence was duly confronted to the AO and the AO was afforded opportunity of rebutting the additional evidence filed by the Assessee. Even in the remand proceedings in the course of appeal before the CIT(A) the AO has not carried out any investigation but has merely expressed doubts about the deposits in the bank account. In our view the Assessee has sufficiently discharged its onus u/s.68 of the Act as laid down in the decisions referred to above. The CIT(A) in our view had rightly deleted the addition made by the AO. We find no grounds to interfere with the order of the CIT(A). Consequently, Gr.No.2 raised by the Revenue is also dismissed.
16. In the result, the appeal by the Revenue is dismissed.
Order pronounced in the open court on the 13th day of April 2012 Sd/- Sd/-
(P.M.JAGTAP ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 13th April 2012
Copy to: 1. The Appellant 2. The Respondent 3. The CIT City -concerned
4. The CIT(A)- concerned 5. The D.R"C" Bench.
(True copy) By Order
Asst. Registrar, ITAT, Mumbai Benches
MUMBAI.
Vm.
12 ITA NO. 4454/MUM/11(A.Y.2003-04)
Details Date Initials Designation
1 Draft dictated on 09/04/2012 Sr.PS/PS
2 Draft Placed before author 10/04/2012 Sr.PS/PS
3 Draft proposed & placed JM/AM
before the Second Member
4 Draft discussed/approved by JM/AM
Second Member
5. Approved Draft comes to the Sr.PS/PS
Sr.PS/PS
6. Kept for pronouncement on Sr.PS/PS
7. File sent to the Bench Clerk Sr.PS/PS
8 Date on which the file goes to
the Head clerk
9 Date of Dispatch of order