Income Tax Appellate Tribunal - Ahmedabad
M/S. Deem Roll-Tech Ld.,, Ahmedabad vs The Acit, (Osd), Range-1, Now Dy. Cit, ... on 1 March, 2018
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ, अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD - "C" BENCH
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
ITA.No.3619/Ahd/2015
नधा रण वष /Asstt.Year : 2011-12
M/s.Deem Roll Tech Ltd. DCIT, Cir.1(1)(2)
C/o. Vinit Moondra CA Vs Ahmedabad.
201, Sarap
Opp: Navjivan Press
Ashram Road
Ahmedabad 380 014.
PAN: AABCD 9176 A
अपीलाथ / (Appellant) यथ / (Respondent)
Assessee by : Shri P.F. Jain, AR
Revenue by : Shri Rajdeep Singh, Sr.DR
सन
ु वाई क तार ख/ Date of Hearing : 08/01/2018
घोषणा क तार ख / Date of Pronouncement: 01/03/2018
आदे श/O RDER
PER RAJPAL YADAV, JUDICIAL MEMBER:
Assessee is in appeal before the Tribunal against order of ld.CIT(A)-6 Ahmedabad dated 23.10.2015 passed for the Asstt.Year 2011-12.
2. In the first ground of appeal, grievance of the assessee is that the ld.CIT(A) has erred in confirming addition of Rs.35.00 lakhs.
3. Brief facts of the case are that the assessee-company is engaged in manufacturing of iron and steel roll. It has filed its return of income on 30.9.2011 electronically declaring total income at Rs.3,46,00,080/-. The case of the assessee was selected for scrutiny assessment and notice under section ITA No.3619/Ahd/2015 2 143(2) of the Act was issued on 28.9.2012 which was duly served upon the assessee. On scrutiny of the accounts, it revealed to the AO that the assessee has introduced new share capital of Rs.50 lakhs. He directed the assessee to furnish identity, confirmation, credit-worthiness of the share applicants. It is also pertinent to observe that shares were offered at a premium of Rs.190/-. The assessee has filed complete details. The ld.AO has carved out details of six applicants viz. Alpesh C. Gajjar, Vishnubhai G. Patel, Haresh Ishwarbhai Patel, Jigar Patel, Heena Pael and Shanabhai Rathod. The assessee has taken share application money of Rs.8,00,000/-, Rs.8,00,000/-, Rs.3,60,000/-, Rs.5,00,000/-, Rs.5,00,000/- and Rs.5,40,000/- respectively from these individuals. Investments were made in between July to September, 2010. These amounts were taken through account payee cheques. In order to fulfill query of the AO, the assessee has filed confirmation from the applicants, bank statements, their PANs with the Income Tax Department, copies of their returns. The AO thereafter directed the assessee to produce these applicants before him on 13.2.2014. The assessee failed to produce them, and the ld.AO has made addition of Rs.35 lakhs out of Rs.50.00 lakhs share capital introduced by the assessee afresh during the year.
4. On appeal, the assessee has contended that it has fulfilled all ingredients of section 68 of the Act. It submitted all necessary details. It has made reference of various case laws of Hon'ble Gujarat High Court as well as decision of Hon'ble Supreme Court in its submissions. The ld.CIT(A) has considered contentions of the assessee and made reference to a large number of decisions, and thereafter confirmed the addition by observing as under:
"7.1 In view of the above discussion, I am of the considered view that the appellant ha failed to prove the identity, genuineness and creditworthiness of the investor therefore the AO is justified in treating ITA No.3619/Ahd/2015 3 the share premium as unexplained cash credit. The addition made by the AO of Rs.35,00,000/- is confirmed. The ground is dismissed."
5. The ld.counsel for the assessee while impugning orders of the Revenue authorities contended that in order to fulfill ingredients of section 68 the assessee has filed confirmation from the share applicants, copies of bank statements, copies of their income tax returns, copies of their PAN with Income-tax Department. Thus, the assessee has proved identity, their credit- worthiness as well as genuineness of transaction. Merely on the ground of failure of the assessee to produce share applicants, who are individuals, additions cannot be made in the hands of the assessee. In support of his contentions, he relied upon large number of decisions:
i) CIT Vs. Oasis Hospitalities P.Ltd. and Others, 333 ITR 119 (Delhi)
ii) CIT Vs. STL Extrusion P.Ltd., 333 ITR 269 (MP)
iii) CIT Vs. Creative World Telefils Ltd., 333 ITR 100 (Mum)
iv) CIT Vs. Ask Brothers Ltd., 333 ITR 111 (Kar)
6. He further relied upon decision of the Hon'ble Delhi High Court in the case of Pr.Commissioner of Income Tax Vs. Softline Creations P.Ltd., 387 ITR 636. He also made reference to decision of the Hon'ble Delhi High Court in the case of CIT Vs. Kamdhenu Steel & Alloys Ltd, 248 CTR 33 = 206 taxman.com 254. The ld.DR on the other hand relied upon order of the Revenue authorities below.
7. We have duly considered rival contentions and gone through the record carefully. before we embark upon an inquiry on the facts of the present appeal, in order to find out whether the share capital and share premium money received by the assessee during the year is required to be treated as its ITA No.3619/Ahd/2015 4 unexplained credit and deserves to be added under section 68 of the Income Tax Act, 1961. We deem it appropriate to bear in mind certain basic principles/tests propounded in various authoritative pronouncements of the Hon'ble High Courts and Hon'ble Supreme Court. It is also pertinent to observe that both the sides have made reference to a large number of decisions. We do not deem it necessary to recite and recapitulate them because that would make this order repetitive and bulky. We take cognizance of some of them. It is pertinent to observe that in so far as companies incorporated under Indian Companies Act are concerned, whether private limited or public limited companies, they raise their share capital, through shares though manner of raising share capital in private limited company on one hand and public limited company on other hand, would be different. The share capital and share premium are basically irreversible receipts or credits in the hands of the companies. Share capital is considered to be cost of shares on equivalent amount issued and premium is considered as extra amount charged by the company for issue of that capital. In the case of private limited company, normally shares are subscribed by family members or persons known/close to the promoters. Public limited company, on the other hand, generally raised by public issue inviting general public at large for subscription of these shares. Yet, it is also possible that in the case of public limited company, the share capital is issued in close-circuit. When companies incorporated under the Companies Act raise their capital through shares, various persons would apply for shares and then give share application money. This amount received from such share holder would naturally be credited in the books of accounts of the assessee. Once the alleged share capital is credited to the accounts of the assessee, then role of section 68 would come. It is pertinent to take note of this section. It reads as under:
ITA No.3619/Ahd/2015 5"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 officer, satisfactory the sum so credited may be charged to income tax as the income of the assessee of that previous year."
8. A perusal of the section would indicate that basically this section contemplates three conditions required to be fulfilled by an assessee. In other words, the assessee is required to give explanation which will exhibit nature of transaction and also explain the source of such credit. The explanation should be to the satisfaction of the AO. In order to give such type of explanation which could satisfy the AO, the assessee should fulfill three ingredients viz. (a) identity of the share applicants, (b) genuineness of the transaction, and (c) credit-worthiness of share applicants. As far as construction of section 68 and to understand its meaning is concerned, there is no much difficulty. Difficulty arises when we apply the conditions formulated in this section on the given facts and circumstances. In other words, it has been propounded in various decisions that section 68 contemplates that there should be a credit of amounts in the books of an assessee maintained by the assessee, (b) such amount has to be a sum received during the previous year, (c) the assessee offers no explanation about the nature and source of such credit found in the books, or (d) the explanation offered by the assessee is not, in the opinion of the Assessing Officer, satisfactory. The Hon'ble Delhi High Court in the case of CIT v. Novadaya Castles (P.) Ltd. 367 ITR 306 has considered a large number of decisions including the decision of Hon'ble Supreme Court in the case of CIT Vs. Durga Prasad [1971] 82 ITR 540 (SC). According to the Hon'ble Delhi High Court basically there are two sets of judgments. In one set of case, the assessee produced necessary documents/evidence to show and establish identity of the share-holder and bank account from which payment was made. The fact that payment was received through bank channels, filed necessary ITA No.3619/Ahd/2015 6 affidavit of the shareholders or confirmations of the directors of the shareholder company. But thereafter no further inquiry was made by the AO. The second set of cases are those where there was evidence and material to show that the shareholder company was only a paper company having no source of income, but had made substantial and huge investments in the form of share application money. The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and surrounding circumstances.
9. Let us take into consideration observations made by the Hon'ble Delhi High Court in the case of Softline Creations P.Ltd. (supra) while taking note of judgment of Hon'ble Delhi High court in the case of CIT Vs. Fair Finvest Ltd., 357 ITR 146 (Delhi). Hon'ble Delhi High Court made following observations:
"..... This court has considered the concurrent order of the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal. Both these authorities primarily went by the fact that the assessee had provided sufficient indication by way of permanent account numbers, to highlight the identity of the share applicants, as well as produced the affidavits of the directors. Furthermore, the bank details of the share applicants too had been provided. In the circumstances, it was held that the assessee had established the identity of the share applicants, the genuineness of transactions and their creditworthiness; The Assessing Officer chose to proceed no further but merely added the amounts because of the absence of the directors to physically present themselves before him.
The Income-tax Appellate Tribunal has relied upon a decision of this court in CIT v. fair Finvest Ltd. [2013] 357 ITR 146 (Delhi), where in somewhat similar circumstances, it was stated as follows (page 152) :
"This court has considered the submissions of the parties. In this case the discussion by the Commissioner of Income-tax ITA No.3619/Ahd/2015 7 (Appeals) would reveal that the assessee has filed documents including certified copies issued by the Registrar of Companies in relation to the share application, affidavits of the directors, Form 2 filed with the Registrar of Companies by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the Assessing Officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced mate- rial. The least that the Assessing Officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description of section 68.
Having regard to the entirety of facts and circumstances, the court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra)"
10. We also deem it appropriate to take note of some of observations of the Hon'ble Delhi High Court from the decision of Fair Finvest Ltd. (supra). The Hon'ble Court has noticed proposition laid down by the Hon'ble Delhi High Court in the case of CIT Vs. Victor Electrodes Ltd., 329 ITR 271 (Delhi) regarding non-production of share applicants before the AO. The following observations are worth to note:
...In this connection the observation of the jurisdictional High Court in case of Dwarkadhish Investment (Supra) are quite relevant where the court has observed that it is the revenue which has all the power and wherewithal to trace any person. Further in the case of CIT vs. Victor Electrodes Ltd. 329 ITR 271 it has been held that there is no legal obligation on the assessee to produce some Director or other representative of the Director or other representative of the applicant ITA No.3619/Ahd/2015 8 companies before the A.O. Therefore failure on part of the assessee to produce the Directors of the share applicant companies could not by itself have justified the additions made by the AO particularly when the seven share applicant companies through their present Directors have now again filed fresh affidavits confirming the application and allotment of shares with respect to the total amount of Rs.45 Lacs. It is observed that no attempt was made by the AO to summon the Directors of the share applicant companies. Moreover, it is settled law that the assessee need not prove the "source of source". Accordingly it was incumbent upon the department to have enforced attendance of Shri Mahesh Garg or the erstwhile Directors of the share applicant companies and confronted them with the evidences & affidavits relied upon by the appellant and thereupon given opportunity to the assessee to cross examine these applicants."
11. In the light of the above, let us examine the facts of the present case. A notice under section 143(2) providing an opportunity to make submission in support of return of income was served upon the assessee on 28.9.2012. Thereafter questionnaire under section 142(1) was issued on 26.12.2012. The AO has passed assessment order on 21.2.104. He expected the assessee to produce depositors on 14.2.2014 just in a few days before finalization of the assessment order. The Hon'ble Delhi High Court in all these cases have propounded that if the assessee has discharged primary onus by submitting confirmation, bank statements, copies of income-tax returns, PAN data then it would be construed that the assessee has discharged primary onus put upon it by virtue of section 68. It is the AO who has to carry out investigation and demonstrate that these materials are not sufficient for discharging the onus cast upon assessee by section 68. No such steps have been taken by the AO. He simply assumed that since the assessee was directed to produce applicants and it failed to produce, therefore, everything is to be construed as manipulated. The Hon'ble Delhi High Court did not approve such steps at end of the assessee. We also make reference to the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Goel Sons Golden Estate Pvt.
ITA No.3619/Ahd/2015 9Ltd., rendered in Tax Appeal No.212 of 2012 dated 11.4.2012. It is also pertinent to observe that share applicants in the present case are individuals from surrounding areas. They are not shell-companies from Kolkatta, who are indulged in providing accommodation entries. Taking into consideration all these facts, we are of the view that the AO failed to carry out any inquiry for falsifying evidence submitted by the assessee in support of its explanation. Therefore, we allow this ground of appeal and delete the addition of Rs.35,00,000/-.
12. In the next ground of appeal, grievance of the assessee is that the ld.CIT(A) has erred in confirming disallowance of Rs.1,51,697/- . The assessee has availed loan of Rs.12,64,144/-. The ld.AO found that the assessee given interest free advances. He disallowed interest at the rate of 12% and made addition of Rs.1,51,697/-. Before the ld.CIT(A) the assessee filed written submissions wherein it has given details of amounts given to various concerns. According to the assessee, these are trade advances and no interest ought to be disallowed. The ld.CIT(A) considered submissions of the assessee and held that interest on loans of Rs.9,79,300/- paid to Shri Ruchir Joshi, Dipak Patel and Shanjukta Sen ought to be calculated for disallowance. Finding recorded by the ld.CIT(A) reads as under:
"11. I have carefully considered the assessment order and the submission of the appellant. The appellant admitted that during the year advances to Ruchir Joshi of Rs. 3,00,000/- Dipak Patel of Rs.3,00,000/- and Shanjukta Sen of Rs. 3,79,300/- were given out of the interest bearing funds, It is seen that other debtors represent TDS and other legal receipt which cannot be treated as diversion of the business fund. Therefore the addition on account of interest disallowance of loan given to Ruchir Joshi, Dipak Patel and Shakuntala Sen totaling to Rs.9,79,000/- is sustained, The A.O. is directed to delete the interest disallowance on other debtors. Thus, the ground is partly allowed."ITA No.3619/Ahd/2015 10
13. After going through the above finding, we are of the view that the assessee failed to give justification as to how these advances were given for the purpose of business. The ld.CIT(A) has rightly confirmed the disallowance. This ground of appeal is rejected.
14. In the result, the appeal of the assessee is partly allowed. Order pronounced in the Court on 1st March, 2018 at Ahmedabad.
Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 01/03/2018