Income Tax Appellate Tribunal - Mumbai
Ito 3(2)(4), Mumbai vs Pyramid Realty P.Ltd, Mumbai on 6 December, 2017
THE INCOME TAX APPELLATE TRIBUNAL
"SMC" Bench, Mumbai
Before Shri B.R. Baskaran (AM)
I.T.A. No. 3579/Mum/2017 (Assessment Year 2007-08)
Income Tax Officer-3(2)(4) M/s. Pyramid Realty
Room No. 673,6 t h Floor Vs. Pvt. Ltd.
Aayakar Bhavan 163C, Mittal Tower
M.K. Road Nariman Point
Mumbai-400 020. Mumbai-400 021.
PAN : AAECP0037H
(Appellant) (Respondent)
Assessee by Shri Prakash Jhunjhunwalla
Department by Ms. N. Hemlatha
Date of He aring 5.12.2017
Date of P ronouncement 6.12.2017
ORDER
The appeal of the revenue is directed against the order 01-03-2017 passed by Ld CIT(A)-8, Mumbai and it relates to the assessment year 2007-
08. The revenue is aggrieved by the decision of Ld CIT(A) in deleting the addition of Rs.41.00 lakhs relating to Share application money made by the AO u/s 68 of the Act.
2. The assessee is doing real estate business. The revenue carried out search operations in the case of a person named Shri Praveen Kumar Jain and it was revealed that he and his group of companies were providing accommodation entries in the form of bogus investment, share application money etc. It was noticed that the assessee has received from the companies belonging to Praveen Kumar Jain, share application money to the tune of Rs.41.00 lakhs a detailed below:-
Name of share holders Amount `
M/s. Khush Hindustan Entertainment Ltd. 11,00,000/-
M/s. Alka Diamond Industries Ltd. 10,00,000/-
M/s. Javda India Impex Ltd. 5,00,000/-
2
M /s . P y r a m i d R e a l ty P v t. L td .
M/s. Yash-V-Jewelers Ltd. 5,00,000/-
M/s. Vanguard Jewels Ltd. 5,00,000/-
M/s. Hema Trading Co. Pvt. Ltd. 5,00,000/-
Total 41,00,000/-
The assessing officer assessed the same as unexplained cash credit u/s 68 of the Act.
3. The Ld CIT(A) noticed that the assessee has discharged the initial onus placed upon it u/s 68 of the Act by furnishing necessary evidences to prove the identity of the applicants, credit worthiness of the applicants and the genuineness of the transactions. On the other hand, the Ld CIT(A) noticed that the AO did not take any steps to disprove the evidences furnished by the assessee. Accordingly he deleted the addition and hence the revenue has filed this appeal.
4. The Ld D.R submitted that the assessee has taken share application money from paper companies and hence the evidences furnished by the assessee are not sufficient and the test of human probabilities should be applied. In this regard, she placed reliance on the decision rendered by Hon'ble Delhi High Court in the case of CIT Vs. Independent Media (P) Ltd (210 Taxmann 14).
5. The Ld A.R submitted that the revenue was not justified in alleging that the share applicants are paper companies. He submitted that the assessee has carried out search in the site of Ministry of Corporate affairs and found that all the share applicant companies are active, meaning thereby, they still exist. Accordingly he submitted that none of the share applicant companies can be considered as paper companies. He submitted that the assessee has proved the share applicant companies' identity and credit worthiness. It also has proved the genuineness of transaction. On the contrary, the AO has simply placed reliance on the statement of Praveen kumar Jain without considering the various evidences furnished by the assessee. The Ld A.R 3 M /s . P y r a m i d R e a l ty P v t. L td .
placed reliance on the order dated 21.9.2017 passed in the case of M/s Kushboo Exports P Ltd (ITA No.3647/Mum/2017) by the SMC bench and submitted that the bench, on identical set of facts, has confirmed the order passed by Ld CIT(A) in deleting identical addition made in that case.
6. I heard the parties and perused the record. I notice that the Ld CIT(A) has deleted the addition with the following observations:-
5. Decision I have carefully considered the facts of the case, assessment order, submissions and contention of the appellant as summarized above and the relevant case laws pertaining to the issues to be decided.
5.1 Ground Nos. 1&2 5.1.1 These grounds of appeal pertains to addition of ` 41,00,000/-
u/s. 68 being share application/share premium received by the appellant from the following parties :
Name of share holders Amount `
M/s. Khush Hindustan Entertainment Ltd. 11,00,000/-
M/s. Alka Diamond Industries Ltd. 10,00,000/-
M/s. Javda India Impex Ltd. 5,00,000/-
M/s. Yash-V-Jewelers Ltd. 5,00,000/-
M/s. Vanguard Jewels Ltd. 5,00,000/-
M/s. Hema Trading Co. Pvt. Ltd. 5,00,000/-
Total 41,00,000/-
5.1.2 According to the Assessing Officer the share applicants were not engaged in genuine business activities. At para 11 of his order, the Assessing Officer has referred to one Shri Praveen Kumar Jain as "one of the leading entry providers in Mumbai indulging in providing accommodation entries....". The basis for issuing notice u/s 148 was also information received from Investigation Wing, Mumbai w.r.t. search operation on Shri Praveen Kumar Jain and his group companies (PKJ Group). He further stated that the appellant had failed to submit documentary evidence to support the transactions. In course of assessment proceedings, the Assessing Officer had issued notices u/s 133(6) of the Act to the above parties. As per paras 13 and 14 of the order, no responses were received from any party. Accordingly, the Assessing Officer held that identity, creditworthiness and genuineness 4 M /s . P y r a m i d R e a l ty P v t. L td .
of transaction were not established in terms of section 68 of the Act. Therefore, he concluded that the share application/premium received was "bogus/accommodation entry" and added the impugned amount u/s 68. of the Act.
5.1.2 Perusal of copies of letters/details filed by the appellant before the Assessing Officer in course of appellate proceedings reveal that the appellant vide letters dated 19/03/2015 &24/03/2015 had filed the following :
a) Name, address and PAN of share holders from whom the share capital/premium is received during the year;
b) IT acknowledgement of the shareholders;
c) GIN Master data of shareholders issued by Registrar of Companies. The said company, as on date, is disclosed as 'active' companies;
d) Share application forms disclosing the mode of payment, number of shares subscribed, bank details, etc;
e) Confirmation of account;
f) Balance sheet of shareholders disclosing their capacity and reflection of their investment made in shares of appellant company.
g) Bank statement of shareholders evidencing the payments made by A/c payee cheques. The source of shareholder's funds is not out of cash deposits, but is out of their accounted money and disclosed funds recorded in their audited balance sheet and bank statements;
5.1.3 It is unfortunate that the Assessing Officer has not even mentioned this in the assessment order or explained why these evidences/documents were not sufficient to satisfy him. Further, despite the appellant's request to be given copies of statements of Shri Praveen Kumar Jain made during search, the Assessing Officer did not provide them, although his assessment is based on presumptions arising out of those statements. In the recent case of Green Infra Ltd. v. ITO [TS-420- ITAT-2013(Mum)] Hon'ble ITAT Mumbai held that if the genuineness and identity of the depositor is established and the transaction was carried out through banking channels, the transaction cannot be taxed under section 68 of the Act. It is the prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of the 5 M /s . P y r a m i d R e a l ty P v t. L td .
shareholders whether they want to subscribe to shares at such a premium or not. In the absence of any restriction from any law in force, the revenue cannot question the charging of premium. In the instant case, the Assessing Officer has expressed doubts as to why anyone would want to pay "heavy" premium to a company like the appellant. This approach is not supported by the decision of Hon'ble ITAT.
5.1.4 The Hon'ble Supreme Court in case of C/7"v. P. Mohanakala [2007] 291 ITR 278/161 Taxman 169 held that the expression "assessee offers no explanation" means where the assessee offers no proper, reasonable and acceptable explanation as regards the sum found credited in the books maintained by the assessee. It further held that the opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material & other attending circumstances available on record. The opinion of the AO is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the In the instant case, the appellant filed all reasonable and acceptable explanation and the AO has not even mentioned them or explained why he has rejected them.
5.1.5 In the case of Orient Trading Co. Ltd. v. Commissioner of Income-tax (1963) 49 ITR 723 (Bom.), one of the questions referred to the Bombay High Court was whether there was any material before the Tribunal to hold that a sum standing in the books of the assessee to the credit of a third party belonged to the assessee. The Bombay High Court discussed the nature and significance of cash credits in such cases and observed as follows:
"When cash credits appear in the accounts of an assessee, whether in his own name or in the name of third parties, the income-tax Officer is entitled to satisfy himself as to the true nature and source of the amounts entered therein, and if after investigation or inquiry he is satisfied that there is no satisfactory explanation as to the said entries, he would be entitled to regard them as representing the undisclosed income of the assessee. When these credit entries stand in the name of the assessee himself, the burden is undoubtedly on him to prove satisfactorily the nature and source of these entries and to show that they do not constitute a part of his business income liable to tax. When, however, entries stand, not in the assessee's own name, but in the name of third parties, there has been some divergence of opinion expressed as to the question of the burden of proof. The Income-tax Officer's rejection not of the explanation of the assessee, but of the explanation regarding the source of income of 6 M /s . P y r a m i d R e a l ty P v t. L td .
the depositors, cannot by itself lead to any inference regarding the non-genuine or fictitious character of the entries in the assessee's books of account."
5.1.6 The expression "nature and source" in Section 68 has to be understood together as a requirement of identification of the source and the nature of the source, so that the genuineness or otherwise could be inferred. The Law on the subject has been illustrated in a number of decisions prior to 1968. Hon. Supreme Court, in Kale Khan Mohd. Man if Vs. CIT (supra), pointed out that the onus on the assessee has to be understood with reference to the facts of each case and proper inference drawn from the facts. The law after Section 68 is not different. If the prima facie inference on the fact is that the assessee's explanation is probable, the onus will shift to the Revenue. In this case, the appellant had shown the impugned amount as share application/premium. The evidences are not disputed by the AO. Thus, prima facie, the explanation of the appellant is probable. The AO has not shown anything that can dispute the fact of share application/premium into appellant's books, from an identifiable source, through banking channels.
5.1.7 The law does not expect the impossible on the part of the tax payer as was pointed out in Life Insurance Corporation of India vs. CIT (1996) 219 ITR 410 (SC), although pronounced in a different context. All that matters is that the explanation is prima facie reasonable. If it is so, it cannot be rejected on mere surmises. It was so held in CIT vs. Bedi & Co. Pvt Ltd. (198) 230 ITR 580 (SC). In Mehta Parikh & Co. vs. CIT (1956) 30 ITR 181 (SC), it was pointed out that where the assessee's account were accepted as genuine, it is ordinarily not possible to show that the credits therein do not come from the sources attributed for them.
5.1.8 In the instant case, the Assessing Officer has not brought forth any evidence but has based his conclusions on suspicion. It is trite law that on suspicion of the highest degree cannot take place of evidence. There must be some material on record as evidence for addition. Addition made on the basis of presumption cannot be sustained in law. This position is strongly supported by the following decisions:
a) CIT V Roman & Co (1968) 67 ITR 11 (SC)
b) CIT v Calcutta Discount Co Ltd (1973) 91 ITR 8 (SC)
c) OmarSalayMohamedSaitvsCIT195937ITR151 (SC)
d) Dhirajlal Girdharilal v CIT (26 ITR 734)(SC) 7 M /s . P y r a m i d R e a l ty P v t. L td .
e) Dr Anita Sahai v DIT (266 ITR 97)(AII)
f) MODI Creations Pvt Ltd v/s. ITO [2011] 13 taxmann.com 114 (Delhi)
g) CIT-IV v Shree Rama Multi Tech Ltd [2013 34 taxmann.com 32 (Gujarat)
h) CIT v Divine Leasing & Finance Ltd 158 Taxmann 440 (Delhi) (2007)
i) Nemichand Kothari v CIT (136 Taxman 216) (Gau)(2004).
j) CIT v value capital services (P) Ltd 307 ITR 334 (Delhi)(2008).
k) Parmit Textiles v ITO (ITA No. 4012 to 405 and 4020 to 2041/Mum/2012.
5.1.9 Income assessed by Assessing Officer without supporting material is not justified. This ratio has emerged in following judgements:
• CIT v Bhuvanendra 303 ITR235(Mad) • Vinod Solanki Vs UOI (233) ELT 157(SC) • CIT v Kashiram Textile Mills (P) Ltd [2006] 284 ITR 61 (GUJ) • Saraswathi Oil Traders v CIT [2000] 254 ITR 259 (SC) • CIT vs P V Kalyanasundram (203 CTR 499) 5.1.10 It is also noted that while the Assessing Officer has made the addition on basis of statements of third party, he did not accord the appellant the opportunity to cross-examine that person/s. Without opportunity to cross-examine, it would not be sufficient to charge third party with the liability. In/2075/ 59 taxmann.com 65 (Mumbai - Trib.) ITAT MUMBAI BENCH 'C' Cannon Industries (P.) Ltd. v. Deputy Commissioner of Income-tax was held:
In absence of any direct evidence showing non genuineness of purchases, addition made on account of bogus purchases by merely relying on statements of third parties recorded under survey proceedings, was not sustainable.8
M /s . P y r a m i d R e a l ty P v t. L td .
5.1.11 The Hon'ble Supreme Court in the case of Andaman Timber Industries vs. Commissioner of Central Excise (2015) 281 CTR 0241 have held:
'Not allowing assessee to cross-examine witnesses by Adjudicating authority though statements of those witnesses were made as basis of impugned order, amounted in serious flaw which make impugned order 'nullity as it amounted to violation of principles of natural justice".
5.1.12 The Assessing Officer has acknowledged the above mentioned letter dated 19/03/2015 & 24/03/2015 whereby details and evidences were submitted by the appellant. He has not disputed them nor has he mentioned them in the assessment order. In the context of the body of unchallenged documentary evidence and details submitted by the appellant, the same could not be rejected merely on the ground that there were no responses to notices u/s. 133(6), more so, when the Assessing Officer has accepted other aspects of the audited accounts of the appellant.
5.1.13 In Balaji Textile Industries (P.) Ltd. v. ITO (1994) 49 ITD 177 (Mum.)(Trib.), summons issued to 12 parties returned unserved.
Payments were crossed cheque (Not account payee cheques). There was no allegation or proof that the amount was received back by assessee. Sales were accepted - No sales can be made without purchases. Addition was deleted.
5.1.14 Lastly, the term accommodation entry is used to denote "fake loans" or bogus purchases or share application/capital that shows in the accounts of the recipient and gets absorbed there. For an entry to be considered "accommodation entry", there must be some evidence that the appellant had paid unexplained cash to the share applicant which was routed through share application/premium back to the appellant. In the instant case, there is no such evidence. In a similar case involving PKJ Group companies, where no other incriminating evidence was brought on record by the AO, Hon'ble ITAT Mumbai, in their decision in Shri Jitendra Kumar Jain vs DC/7, ITA Nos.5788 to 5794/M/201 f ,had observed:
9. We have heard the Id. representatives of both the parties and also have gone through the record. The contention of the Id. A.R. has been that the Revenue has failed to establish any link between Shri Pravin Kumar Jain and the assessee. No incriminating material except a few cheques and two letter heads belonging to other persons was found. The two of the said persons were also examined by the revenue authorities. The 9 M /s . P y r a m i d R e a l ty P v t. L td .
purchase parties/sale parties having business links with the assessee responded to the notices served by the AO and furnished the necessary details/confirmations also. Confirmations by the sundry creditors were also filed. No defect in the books of the accounts of the assessee was 'ound by the AO. Merely because the said Shri Pravin Kumar Jain, with om the Revenue has failed to establish any link of the assessee, itted in his statement to have given accommodation entries to one person that itself could not be a ground to reject the books of accounts of the assesses.
5.1.15 In the case of Vitrag Metals P. Ltd. vs ITO in ITA NO.680/Mum/2012, Hon'ble ITAT Mumbai decided a similar issue relating to share capital received from Shri Mukesh Choksi group companies. While deleting the addition u/s 68, Hon'ble Bench observed:
"3.13. It is noted that in the case before us, gist of the submissions made by the assessee was that the assessee had discharged its onus by placing complete evidences on record, and if at all some discrepancy was noted in the accounts of shareholder company, then addition could be made in the hands of the shareholder only and not in the assessee company. In support of its claim, the assessee relied upon judgment of Hon'ble Supreme Court in the case ofCIT vs Lovely Exports P Ltd 216 CTR
195. But the assessing officer was not satisfied with the submissions of the assessee, he pointed out some discrepancy in the balance sheet of M/s. Buniyaad Chemicals Ltd. and treated amount of shares capital as unexplained cash credit u/s 68 of the Act, and added same to the income of the assessee. But before doing so, the AO neither provided opportunity of cross examination of his witness, as was demanded by the assessee, nor he brought on record any other adverse material to controvert the evidences placed on record by the assessee. It is worth noting here that the AO had made direct inquiries with M/s Buniyaad Chemicals u/s 133(6), in response to which confirmation was filed by the said company. But Ld. AO preferred to rely upon the 'statement' of Mr. Mukesh Choksi and disregarded all the evidences filed by the assessee as well as evidences collected by him directly from the shareholder company which confirmed claim of the assessee. Thus, respectfully following aforesaid isions of Coordinate Bench, we find that in the peculiar facts and rcumstances of this case, the addition made by the AO is not stainable as per law and the same is directed to be deleted."
5.1.16 In the instant case also, the Assessing Officer has not pointed out any specific defects in the accounts of the appellant or confirmations 10 M /s . P y r a m i d R e a l ty P v t. L td .
and other details of shareholders. His decision is merely based on the appellant taking share application from PKJ group companies. There is no other incriminating evidence against the appellant. The ratio of Hon'ble Supreme Court in Lovely Export Pvt. Ltd 216 CTR 195 cited by the appellant also applies to the instant case. In the facts and circumstances of the case and in view of the ratios of judgements cited above, the addition of Rs. 41 lakhs u/s. 68 is deleted. These grounds are allowed.
7. On a perusal of the order passed by Ld CIT(A), I notice that the first appellate authority was satisfied that the assessee has discharged the initial burden of proof placed on its shoulders by sec. 68 of the Act. Once the assessee discharges the burden placed upon him, then the burden to disprove the same would shift upon the shoulders of the AO. As pointed out by Ld CIT(A), the AO has failed to discharge the burden shifted upon his shoulders. Before me, no material was placed by the revenue to contradict the findings given by Ld CIT(A). Since the Ld CIT(A) has passed an reasoned order, I am of the view that the same does not call for any interference. The Ld D.R submitted that the share applicants are paper companies, but the Assessee has shown that those companies are "active companies". Accordingly I uphold the order passed by Ld CIT(A).
8. In the result, the appeal filed by the revenue is dismissed.
Order has been pronounced in the Court on 06.12.2017.
Sd/-
(B.R.BASKARAN) ACCOUNTANT MEMBER Mumbai; Dated : 06/12/2017 Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT(A)
4. CIT
5. DR, ITAT, Mumbai 11 M /s . P y r a m i d R e a l ty P v t. L td .
6. Guard File.
BY ORDER, //True Copy// (Asstt. Registrar/Senior PS) PS ITAT, Mumbai