Income Tax Appellate Tribunal - Amritsar
Punjab Basmati Rice Ltd, Amritsar. vs Assessee on 15 March, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. A.D. JAIN, JUDICIAL MEMBER
AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER
ITA Nos. 128 & 129(Asr)/2016
Assessment years:2011-12 & 2012-13
PAN:AAACP9643H
M/s. Punjab Basmati Rice Ltd. vs. Jt. Commr. of Income Tax,
Sangrana Sahib, Tarn Taran Road, Circle-3, Amritsar.
Amritsar.
(Appellant) (Respondent)
Appellant by:S/Sh. Ashwani Kumar & Padam Bahl, CAs
Respondent by: Sh.Tarsem Lal, DR
Date of hearing: 09/03/2016
Date of pronouncement: 15/03/2016
ORDER
PER A.D. JAIN, JM:
These are the assessee's appeals for the assessment years 2011-12 & 2012-2013 against the orders, each dated 15.02.2016, passed by the ld. CIT(A)-1, Amritsar.
2. First, we shall take up the appeal in ITA No.128(Asr)/2016, for the AY 2011-12, where the assessee has raised the following grounds of appeal:
"1. The ld. CIT(A)-1, Amritsar has grossly erred in confirming the action of Joint Commissioner of Income Tax, Circle-3, Amritsar in making an addition of Rs.4,45,00,000/- u/s 68 of the Income Tax Act, 1961 in respect of fresh Capital with premium introduced by following promoter shareholders:2 ITA Nos. 128 & 129(Asr)/2015
S.No. Particulars Amount
1. Sh. Kulwinder Singh Makhni 1,60,00,000/-
2. Sh. Tejinder Singh Makhni 1,45,00,000/-
3. Smt. Jasmeet Kaur 90,00,000/-
4. Sh. Manjit Singh 25,00,000/-
5. Sh.Pritpal Singh 25,00,000/-
Total 4,45,00,000/-
2. That ld. CIT(A)-1, Amritsar has failed to appreciate that the ld. Jt. CIT had failed to follow principles of natural justice by not confronting the material collected by her against the promoter shareholders at S.No. 2 to 5 mentioned in ground no.1 above collected at their back.
3. That both the ld. CIT(A)-1, Amritsar and Jt. CIT, Circle-3, Amritsar have failed to appreciate that the assessee company had proved the identity, confirmation, creditworthiness and source of funds invested in the company by the promoter shareholders through Banking Channels.
4. That both the ld. CIT(A)-1, Amritsar and Jt. CIT, Circle-3, Amritsar have failed to appreciate that the assessee company could not be asked to explain source of the source and origin of origin of funds invested by the promoters shareholders.
5. That both the ld. CIT(A)-1, Amritsar has failed to appreciate the case laws relied upon by the assessee regarding the proposition that the source of the source and origin of origin of funds could not have been enquired into by the Assessing Officer."
3. The facts of the case are that during the assessment proceeding, it was seen that the assessee had made additions in the share capital and the share premium account, as follows:-
Particulars 31.03.2011 31.03.2010 Share Capital Authorised Share Capital 2000000 Equity Share of 10% Each 2,00,00,000 2,00,00,000 Issued and Paid Up Capital 1535605 Equity shares of Rs.10/- each share application 1,53,56,050.00 1,09,06,050.00 2.40.00.000.00 1.07.16.000.00 3,93,56,050.00 2,16,22,050.00 3 ITA Nos. 128 & 129(Asr)/2015 Reserves & Surplus 3,76,10,866.46 3,01,45,677.07 Depreciation Reserve 5,13,77,858.87 5,05,43,897.55 Profit & Loss A/c 9.21.04.450.00 5.20.54.450.00 Share Premium A/c 18,10,93,175.33 13.27.44.024.62 Considering that the assessee had made an addition of Rs.44,50,000/- in the share capital/share application account and Rs.4,00,50,000/- in the share premium account, it was asked to submit the source of such investment, vide questionnaire dated 01.08.2013. 3.1 The assessee provided the details of the investment made, vide letter dated 23.12.2013, which details are as follows:-
Share Capital Name Shares Share Capital(Rs.) Share Premium (Rs.) Kulwinder Singh 1,60,000 16,00,000 1,44,00,000 Tejinder Singh 1,45,000 - 14,50,000 1,30,50,000 Jasmeet Kaur 90,000 9,00,000 81,00,000 Manjit Singh 25,000 2,50,000 22,50,000 Pritpal Singh 25,000 2,50,000 22,50,000 Total 44,50,000 4,00,50,000 As per the assessee, the five directors of the company have made the above-mentioned investments in the share capital of the company during the year. Share application was stated to be received from M/s B.N.Exports to the tune of Rs.240 lacs.
3.2. The assessee was asked to justify the source of share capital and share premium introduced during the year in the books of the assessee.
In reply the assessee submitted that the unsecured loans had been raised from two parties namely Sh.Ram Mehar, 2632 G.F. Gali Lalten 4 ITA Nos. 128 & 129(Asr)/2015 Wali, Naya Bazar, Delhi and Sh. Parveen Kumar Sharma, 2640, Chadda Market, Naya Bazar, Delhi in the hands of the directors which, as per the bank accounts, are as follows:-
Sr.No. Name of the Director Name of Lender Date Amount Tejtadler Singh Makhni Ram Mehar 10.3.2011 20 Lac
1.
11.03.2011 40 Lac
14.03.2011 45 Lac
/ 15.03.2011 20 Lac
Total 125 Lacs
Parveen Kr. Sharma 16.03.2011 20 Lacs
Total Loan Received 145 Lacs
2 Kulwinder Singh Makhni Ram Mehar 10.03.2011 25 Lacs
15.03.2011 20 Lacs
16.03.2011 35 Lacs
21.03.2011 2 Lacs
Total 82 Lacs
Parveen Kr.Sharma 11.03.2011 35 Lacs
12.03.2011 30 Lacs
Total 14.03.2011 15 Lacs
80 Lac
Total Loan Received 162 Lacs
3. Jasmeet Kaur Ram Mehar 15.03.2011 20 Lacs
Parveen Kr. Sharma 11.03.2011 25 Lacs
12.03.2011 30 Lacs
14.03.2011 15 Lacs
70 Lacs
Total Loan Received 90 Lacs
4. Manjit Singh Makhni Ram Mehar 16.3.2011 25 Lacs
Total Loan Received 25 lacs
5. Pritpal Kaur Parveen Kr. Sharma 17.3.2011 25 lacs
Total Loan Received 25 Lacs
4. The AO, vide show cause notice dated 14.03.2014, asked the assessee to produce Sh. Ram Mehar and Sh. Parveen Kumar Sharma alongwith their Income Tax details, audited balance sheet and bank 5 ITA Nos. 128 & 129(Asr)/2015 accounts and other documentary proofs, indicating whether they are active traders in this trade and whether they had adequate financial standing. The assessee submitted, inter-alia, affidavits of these persons.
The AO carried out further investigation and found that the assessee had not established the identity of the credit entries ultimately revealed from these two persons. The AO held as follows:
"10.0. It is thus clear from the facts discussed in above paras under
the headings Identity, Creditworthiness and Genuineness that the assessee has not been able to successfully discharged its onus relating to satisfactory explanation of credit entries in share capital account which are ultimately stated to be received from the two parties already mentioned above. Thus, there is complete satisfaction that these credits fall within the ambit of section 68 of the I.T. Act, 1961. In fact, for such an inference, there is ample legal support in form of many judicial pronouncements on this issue."
5. As such, the AO assessed the amount of Rs.4,45,00,000/- as unexplained credit under section 68 of the Act.
6. Before the ld. CIT(A), the assessee raised, inter-alia, the following grounds of appeal:
"It is submitted that all the grounds of appeals are in respect of only one addition of Rs.4.45 crores made in the hands of the assessee u/s 68 of Income Tax Act. The Assessing Officer has made the addition on account of share capital and share premium introduced by the Promoter Share Holders u/s 68 of Income Tax Act, 1961 as per details given below:-
S.No. Name of the Promoter Share holder Amount (In Crores)
1. S.Kulwinder Singh Makhni 1.60
2. S.Tejinder Singh Makhni 1.45
3. Smt.Jasmeet Kaur 0.90
4. S.Manjit Singh 0.25
5. S.Pritpal Singh 0.25 Total:- 4.45 6 ITA Nos. 128 & 129(Asr)/2015 The assessee filed confirmation of the Promoter Share Holders along with their Bank Statement showing the amount given to the company. The promoter share holders had borrwered loans from outsiders and the same stood deposited in their respective bank account. They also filed affidavits of lenders for the loans received by them.
The Assessing Officer however did not accept the above evidence and asked the assessee and the promoter shareholders to explain the source from where the promoter shareholders have received the fund. The Assessing Officer further started investigation with respect to the Bank Accounts of the promoter shareholders. The Assessing Officer started the investigation of source of the source in respect of the bank account of the promoter shareholders. The Assessing Officer made detailed inquiries against the lenders and concluded that both lenders namely Sh.Ram Mehar and Sh.Parveen Kumar Sharma were not men of means and therefore the source of the source remained unexplained in the hands of promoter shareholders as well the assessee. The Assessing Officer therefore issued a show cause notice dated 14.03.2014 and also issued summons u/s 131 for personal appearance. The same is reproduced on pages 6 to 8 of the assessment order.
Your honour will kindly appreciate that summons were issued u/s 131 of the Income Tax Act, 196 lto the Managing Director Sh. Kulwinder Singh Makhni only and the statement of Sh.Kulwinder Singh Makhni only was recorded on 20.03.2014. No summons were issued against the other promoter shareholders and they were not confronted with the material collected by the Assessing Officer at their back and relied upon by the for making the addition. The additions made by the Assessing Officer in respect of the four promoter shareholders amounting to Rs.2.85 Crores were therefore made without confronting the promoter shareholder with the material collected at their back. This amounts gross miscarriage of justice and the additions so made cannot be sustained and deserve to be deleted.
It is further submitted that the case laws relied upon by the Assessing Officer and relevant to the cases where the assessee could not explain the source of the deposit. None of the cases relied upon by her are in respect of assessees where source of the source was investigated.
Again the Assessing Officer has relied upon the cases of Partnership firm without appreciating that there is a material legal difference between a Partnership Firm and a Limited Company. The reliance 7 ITA Nos. 128 & 129(Asr)/2015 placed by the Assessing Officer in respect of the Partnership firm cases is therefore legally misconceived. The assessee has proved the immediate source of the deposit, the identity of the promoter shareholder and their credit worthiness.
7. The ld. CIT(A) confirmed the addition holding as follows:
6. I have gone through the grounds of appeal, submission and the assessment order. In this case the AO has made an addition of Rs. 4,45,00,000/- on account of credits of Rs. 4,45,00,000/-
received by the assessee company as share capital from its directors/shareholders. The AO further made enquiries about the source of funds in the hands of directors/ shareholders. The AO has rightly taken reference of decision of Hon'ble Punjab & Haryana High Court in the case of CIT Jalandhar Vs M/s Udham Singh & Sons, ITA No. 112 of 2000, as she was trying to find the genuineness of the source of the source.
The assessee in his written submissions has submitted as under
with regard to principles of Natural Justice.
"The Assessing Officer made detailed inquiries against the lenders and concluded that both lenders namely Sh.Ram Mehar and Sh.Parveen Kumar Sharma were not men of means and therefore the source of the source remained unexplained in the hands of promoter shareholder as well the assessee.
The Assessing Officer therefore issued a show cause notice 14.03.2014 and also issued summons u/s 131 for personal appearance. The same is reproduced on pages 6 to 8 of the assessment order.
Your honour will kindly appreciate that summons were issued u/s 131 of the Income Tax Act, 1961to the Managing Director Sh. Kulwinder Singh Makhni only and the statement of Sh.Kulwinder Singh Makhni only was recorded on 20.03.2014. No summons were issued against the other promoter shareholders and they were not confronted with the material collected by the Assessing Officer at the back and relied upon by the for making the addition.
The additions made by the Assessing Officer in respect of the four promoter shareholders amounting to Rs.2.85 Crores were therefore made without confronting the promoter shareholder with the material collected at their back. This amounts gross miscarriage of 8 ITA Nos. 128 & 129(Asr)/2015 justice and the additions so made cannot be sustained and deserve to be deleted. "
In reference to above plea of the assessee it is clear from record that the AO summoned the Managing Director, who is the principal executive of the company and is aware about what is going on in the company. Hence there is no merit in the plea of the assessee that why other shareholder and Directors were not summoned. The AO has written a well reasoned order based on material facts and after conducting detailed enquiries related to every aspect of the case. It is clear from the order that the ultimate provider of credits, are nothing but mere conduits to plough entries in the books of accounts of the assessee company. Therefore, the assessee company has failed to successfully discharge the onus placed on it within the provisions of section 68 of Income Tax Act, 1961. Accordingly addition made by the AO is justified and reasonable. Hence the addition is upheld.
I have considered the assessment order and the written submissions of the appellant, and the grounds of appeal are disposed off as under:-
i) The ground of appeal at S.No.l is dismissed.
ii) The ground of appeal at S.No. 2,3,4,56 are general in nature and requires no adjudication."
8. Before us, the assessee has reiterated its contentions before the ld. CIT(A), as above. Further, it has been submitted that otherwise too, no sufficient opportunity was provided by the AO to the assessee in as much as the show cause notice was issued on 14.03.2014 for 20.03.2014, whereas the assessment order passed on 30.03.2014. It has been contended that if the matter is remitted to the AO and sufficient opportunity is given, the assessee shall be able to produce Sh. Ram Mehar and Sh. Parveen Kumar Sharma alongwith their details.
9. On the other hand, the ld. DR placed strong reliance on the impugned order.
9 ITA Nos. 128 & 129(Asr)/2015
10. On hearing the rival contentions in the light of the material placed on record, we find the grievance of the assessee to be justified. The show cause notice was issued by the AO to the assessee on 14.03.2014, asking it to produce, on 20.03.2014, Mr. Ram Mehar and Mr. Parveen Kumar Sharma in person alongwith their Income Tax details, audited balance sheet and bank account and other documentary proof, indicating whether they were active traders in the trade and whether they had adequate financial standing. The assessment order, however, was passed on 30.03.2014. It is, thus, evident that the assessee was not provided adequate opportunity to do the needful as required under the show cause notice.
11. Now, it is patent on record that the assessee has adequately proved the immediate source of the deposit, the identity of the promoter shareholders and their creditworthiness. So, the source of the deposit stands adequately explained by the assessee, thereby discharging its onus under section 68 of the Act.
12. In the following case laws, it has been held that the assessee cannot be asked to explain the source of the source and the origin of the origin of the deposit:
i) 'CIT vs. Daulat Ram Rawat Mull', 87 ITR 349 (SC)
ii) 'DCIT vs. Rohini Builders', 256 ITR 360 (Guj.)
iii) 'Aaravali Trading Co. vs. ITO', 3 DTR (Raj.) 199 10 ITA Nos. 128 & 129(Asr)/2015
13. Even the legislature was aware of this extant legal position and that is why that w.e.f. 01.04.2013, the following proviso to section 68 has been added in the Income Tax Act, 1961:
"Provided that where the assessee is a company, (not being a company in which the public are substantially interested)and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee company shall be deemed to be not satisfactory, unless -
(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory"
14. This proviso to section 68 has been inserted, to reiterate, w.e.f. 01.04.2013. The assessment year under consideration is AY 2011-12. Thus, this proviso is not applicable to the assessment year 2011-12, having consciously been inserted not with retrospective effect, but w.e.f. 01.04.2013.
15. Despite the above, the assessee is willing to go that extra mile in order to establish even the source of the source of the deposit in question by producing Sh. Ram Mehar and Sh. Parveen Kumar Sharma alongwith their complete details before the AO.
16. In view of the above, the matter is remitted to the AO, to be decided afresh in accordance with law, after affording due and adequate opportunity of hearing to the assessee. All pleas available to the assessee under the law shall remain so available. 11 ITA Nos. 128 & 129(Asr)/2015
17. Now, we take up the appeal in ITA No.129(Asr)/2016 for the AY 2012-13. Since the facts in the present appeal are, mutatis mutandis, the same as in ITA No.128(Asr)/2016 decided by us hereinabove, therefore, our observations in ITA No.128(Asr)/2016 are directly applicable to this appeal also and the matter concerning this appeal for the assessment year 2012-13 is also remitted to the AO on similar directions, as made for the AY 2011-12.
18. In the result, both the appeals are treated as allowed for statistical purposes.
Order pronounced in the open court on 15/03/ 2016.
Sd/- Sd/-
(T.S. KAPOOR) (A.D. JAIN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 15/03/2016
Copy of the order forwarded to:
1. The Assessee: M/s. Punjabi Basmati Rice Ltd. Sangrana Sahib, Amritsar.
2. The Jt. CIT, Circle-3, Amritsar.
3. The CIT(A), Asr.
4. The CIT Asr.
5. The SR DR, ITAT, Amritsar.
True copy By order (Assistant Registrar) Income Tax Appellate Tribunal, Amritsar Bench: Amritsar.
12 ITA Nos. 128 & 129(Asr)/2015