Madras High Court
The Commissioner Of Income Tax vs Pranav Foundations Ltd on 12 August, 2014
Bench: R.Sudhakar, G.M.Akbar Ali
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 12.8.2014 CORAM THE HON'BLE MR.JUSTICE R.SUDHAKAR AND THE HON'BLE MR.JUSTICE G.M.AKBAR ALI T.C.(A).No.262 of 2014 The Commissioner of Income Tax Chennai. .. Appellant Vs. Pranav Foundations Ltd. No.7/4, Rangamannar Street Agaram, Chennai 600 082. .. Respondent PRAYER: Appeal under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal Chennai 'C' Bench, dated 8.10.2010 made in ITA No.683/Mds/2010 for the assessment year 2007-2008. For Appellant : Mr.T.R.Senthilkumar Senior Standing Counsel J U D G M E N T
(Delivered by R.SUDHAKAR, J.) This appeal is filed by the Revenue challenging the order of the Income Tax Appellate Tribunal Chennai 'C' Bench, dated 8.10.2010, made in ITA No.683/Mds/2010 for the assessment year 2007-2008, raising the following substantial question of law:
Whether on the facts and in the circumstances of the case, the Income Tax Tribunal was right in upholding the order of the CIT(A) who deleted the addition of Rs.2,20,00,000/- made under Section 68 of the Income Tax Act, 1961, being the share application money and share premium amount credited by the assessee which was not proved?
2.1. The brief facts of the case are as under: The respondent/ assessee, it appears, received share application money and share premium money totaling to Rs.2.20 Crores from four parties, which are all limited companies. According to the department, the said amount was liable to be treated as unexplained credit under Section 68 of the Act. That was resisted by the assessee stating that the share application money and share premium money was received from limited companies and since the nature and source of the said amount has been established as contemplated under Section 68 of the Act, it is a bona fide transaction and should not be treated as unexplained credit under Section 68 of the Act. However, the Assessing Officer treated the share application money and share premium money as unexplained credit under Section 68 of the Act.
2.2. The assessee preferred an appeal to the Commissioner of Income Tax (Appeals), who reversed the finding of the Assessing Officer in the following manner:
5. I have carefully gone through the assessment order and the submissions made by the AR of the appellant. There are basically two issues and one issue is the addition on account of share application money received by the appellant company. The assessing officer had called for the confirmations from the share applicants and they had replied. The applicants were companies registered with ROC. The assessing officer had also called for their IT assessment details and the same were also provided by the applicant companies. The assessing officer rejected these confirmations and added all these contributions as unexplained credit u/s 68 of the IT Act.
5.1. Aggrieved by this, the appellant had stated that the share applicants were registered companies and that they had duly furnished the confirmations along with their IT Asst. details. When these were available on record, the assessing officer ought to have accepted these contributions towards share capital as genuine and should have refrained from making addition u/s 68 of the IT Act. The appellant further placed their relevance on the decisions in the cases of-
(a) Stellar Finance Ltd. Vs. Commissioner of Income Tax, reported in 251 ITR 263 (Hon'ble Supreme Court)
(b) Commissioner of Income Tax Vs. Electropoly Chem Ltd., reported in 294 ITR 661 (Hon'ble Madras High Court) wherein it was held that in no circumstances can the share application money received by a company can be added u/s 68 of the IT Act.
5.2. I have carefully gone through the case and the case law submitted by the appellant. I am of the considered opinion that the addition u/s 68 of the IT Act can not be made on account of share application money received by the appellant company. Even otherwise the appellant had discharged its onus of proving the genuineness and creditworthiness of the parties. Hence the appellant stands to gain on this ground. Hence, the learned Assessing Officer is hereby directed to delete the entire addition on account of the share application money received. 2.3. The Tribunal upheld the order of the Commissioner of Income Tax (Appeals) by distinguishing the decision of the Delhi High Court in Commissioner of Income Tax v. Sophia Finance Limited, [1994] 205 ITR 98 and relying upon a decision of the Supreme Court in Commissioner of Income Tax v. Lovely Exports (p) Ltd., [2008] 216 CTR 195 (SC). In paragraph (6) of the order, the Tribunal has held as under:
6. We have perused the orders and considered the rival submissions. Assessee had received share application money and share premium money totaling to Rs.2,20,00,000/- from four parties which were all limited companies. Enquiries were made and replies were also received from the said four companies. There is no case for Revenue that the parties had denied, having given the share application money and share premium money. No doubt, ld. D.R. has strongly relied on the decision of the Hon'ble Delhi High Court in the case of Sophia Finance Ltd. (supra). In our opinion, the question has been clearly answered by the decision of the Hon'ble Apex Court in the case of CIT v. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195. Para 2 of the judgment of the Hon'ble Apex Court is reproduced hereunder:
'2. Can the amount of share money be regarded as undisclosed income under s.68 of the 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 go 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.' There is no case for the Revenue that the applicants for the shares were bogus. In our opinion, the additions were rightly deleted by the CIT (A). No interference is called for. 2.4. Aggrieved by the said order, the present appeal is filed raising the substantial question of law, referred supra.
3. We have heard the learned Senior Standing Counsel appearing for the appellant and perused the order passed by the Tribunal and the authorities below.
4. Before adverting to the merits of the case, it would be relevant to refer to Section 68 of the Act, which reads as under:
Section 68. Cash credits.-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.
5. A bare reading of Section 68 of the Act makes it clear that in a case where any sum is found credited in the books of account and the assessee has not given satisfactory explanation in respect of the same, the Assessing Officer can treat the same as undisclosed income and add it to the income of the assessee. All that the said provision contemplates is that the assessee has to give satisfactory explanation about the nature and source of such sum found credited in the books of account.
6. From the facts as enumerated above, we are of the view that the decision of the Supreme Court in Lovely Exports (P) Ltd. case, referred supra, applies on all fours to the present case, in view of the fact that all the four parties, who are subscribers of the shares, are limited companies and enquiries were made and received from the four companies and all the companies accepted their investment. Thus, the assessee has categorically established the nature and source of the said sum and discharged the onus that lies on it in terms of Section 68 of the Act. When the nature and source of the amount so invested is known, it cannot be said to be undisclosed income. Therefore, the addition of such subscriptions as unexplained credit under Section 68 of the Act is unwarranted.
7. That apart, a reading of the decision of the Supreme Court in Lovely Exports (P) Ltd. case, referred supra, makes it clear that the department has a right to reopen the individual assessment if the allegation of bogus shareholding is proved. This is not a case of investment by bogus shareholders. The four limited companies have made investment and that is borne out by records. The Commissioner of Income Tax (Appeals) and the Tribunal, on facts, have found that the transaction in this case is beyond the pale of controversy and the assessee has explained in no uncertain terms the nature and source of the income.
8. We find that the decision of the Delhi High Court in Sophia Finance Ltd., referred supra, does not get attracted to the facts of the present case, as rightly held by the Tribunal. That apart, the decision of the Calcutta High Court in Commissioner of Income Tax v. Ruby Traders and Exporters Ltd., [2003] 263 ITR 300, relied upon by the learned Senior Standing Counsel for the Revenue, also does not support the case of the Revenue, as all that the assessee is required to establish is the nature and source of the subscriber, the creditworthiness and genuineness of the transaction. That proof has already been submitted by the assessee and it has discharged its burden in terms of Section 68 of the Act. It is always open to the department to proceed against such investors, if so advised, in view of the decision in Lovely Exports (p) Ltd. case, referred supra.
9. Resultantly, we find no merits in the appeal. Hence, no substantial question of law arises for consideration. In the result, the appeal is dismissed. No costs.
(R.S.J.) (G.M.A.J.)
12.8.2014
Index : Yes
Internet : Yes
sasi
To:
1.The Assistant Registrar,
Income Tax Appellate Tribunal
Chennai Bench "C", Chennai.
2.The Secretary, Central Board
of Direct Taxes, New Delhi.
3.The Commissioner of Income Tax (Appeals)-V
Chennai.
4. The Assistant Commissioner of Income Tax
Company Circle-V(2), Chennai.
R.SUDHAKAR,J.
and
G.M.AKBAR ALI,J.
(sasi)
T.C.(A).No.262 of 2014
12.8.2014