Income Tax Appellate Tribunal - Mumbai
Sweta Syntheitcs P.Ltd, Mumbai vs Ito 4(3)(4), Mumbai on 12 July, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL "G", BENCH
MUMBAI
BEFORE SHRI PAWAN SINGH, JM
&
SHRI M.BALAGANESH, AM
ITA No.3000/Mum/2017
(Assessment Year : 2007-08)
ITO 4(3)(4) Vs. M/s. Sweta Synthet ics Pvt.
th
R.No.637, 6 Floor Ltd.,
Aayakar Bhavan 219/221, Mehta Mansion
Mumbai - 400 020 Zaveri Bazar,
Kalbadevi Road
Mumbai - 02
PAN/GIR No.AAACS9101K
(Appellant) .. (Respondent)
CO No.46/Mum/2019
(Arising out of ITA No.3000/Mum/2017)
(Assessment Year : 2007-08)
M/s. Sweta Synthetics Vs. ITO 4(3)(4)
Pvt. Ltd., R.No.637, 6th Floor
219/221, Mehta Mansion Aayakar Bhavan
Zaveri Bazar, Mumbai - 400 020
Kalbadevi Road
Mumbai - 02
PAN/GIR No.AAACS9101K
(Appellant) .. (Respondent)
Revenue by Shri Satish Rajore
Assessee by Shri N.R.Agrawal & Ms. Jenisha
Mehta
Date of Hearing 12/06/2019
Date of Pronouncement 12/07/2019
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M/s. Sweta Synthetics Pvt. Ltd.,
आदे श / O R D E R
PER M. BALAGANESH (A.M):
This appeal in ITA No.3000/Mum/2017 and CO No.46/Mum/2019
for A.Y.2007-08 arise out of the order by the ld. Commissioner of Income
Tax (Appeals)-9, Mumbai in appeal No.CIT(A)-9/Cir-4/155/2015-16 dated
16/01/2017 (ld. CIT(A) in short) against the order of assessment passed
u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred
to as Act) dated 25/03/2015 by the ld. Income Tax Officer 4(3)(4),
Mumbai (hereinafter referred to as ld. AO).
2. At the outset, the ld AR stated before us that he is not pressing the
Cross Objection preferred by the assessee. The same is reckoned as a
statement made from the Bar and accordingly the Cross Objections of the
assessee is dismissed as not pressed.
3. The only issue to be decided in the appeal of the revenue is as to
whether the ld CITA was justified in deleting the addition made towards
share application money in the sum of Rs 2,41,20,000/- u/s 68 of the Act
in the facts and circumstances of the case.
4. The brief facts of this issue are that the assessee company is engaged
in the business of trading in suiting and shirtings. The return of income
for the Asst Year 2007-08 was electronically filed by the assessee
declaring total income at Rs Nil. The case was reopened u/s 147 of the
Act by issuance of notice u/s 148 of the Act dated 24.3.2014 on the basis
of information received from DDIT (Inv.- Unit -III(2)) , Mumbai that in
the statement recorded in search and seizure action carried out in the
case of Shri Praveen Kumar Jain Group on 1.10.2013, he had admitted
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M/s. Sweta Synthetics Pvt. Ltd.,
that the only activity carried out by all the concerns controlled by him was
to providing accommodation entries.
4.1. The ld AO observed that during the year the assessee received share
application money with premium on account of private placement to
companies totaling to Rs 2,41,20,000/- as under:-
Nakshatra Business Pvt Ltd
(Hema Trading Company Pvt Ltd) - Rs 25,20,000/-
Javda India Impex Ltd - Rs 25,20,000/-
Kush Hindusthan Entertainment Ltd - Rs 64,20,000/-
Olive Overseas Pvt Ltd
(Real Gold Trading Co. Pvt Ltd) - Rs 25,20,000/-
Lexus Infotech Ltd - Rs 25,20,000/-
----------------------
Rs 1,65,00,000/-
Reynolds Petro Chem Ltd Rs 51,00,000/-
Utkantha Trading Pvt Ltd Rs 25,20,000/-
------------------------
Total Rs 2,41,20,000/-
------------------------
4.2. The ld AO issued a show cause notice on 3.3.2015 to the assessee
wherein it was mentioned that the search action in the case of Shri
Praveen Kumar Jain and his group resulted in collection of evidences and
other findings, which conclusively proved that Shri Praveen Kumar Jain,
through a web of concerns run, operated and controlled by him was
engaged only in providing accommodation entries of various nature like
Bogus Unsecured Loans, Bogus Share Application Money , Bogus Sales
etc. The said show cause notice also mentioned that on verification of
the data gathered during the course of search action of Shri Praveen
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M/s. Sweta Synthetics Pvt. Ltd.,
Kumar Jain, it was found that the persons, which are claimed to have
invested in assessee's company to acquire shares on premium , are the
concerns operated and / or controlled by Shri Praveen Kumar Jain.
Accordingly, the ld AO concluded that the assessee company had brought
its unaccounted money into the books in the garb of Share Capital
through accommodation entries provided by Shri Praveen Kumar Jain and
his group concerns and as to why the same should not be treated as
income of the assessee company u/s 68 of the Act.
4.3. The assessee submitted that it had not received any accommodation
entries from any accommodation entry provider and that the amounts
received towards share capital / application money with premium are
genuine transactions and the shares were actually allotted to those
investors. The assessee submitted the details of the same as under:-
SWETA SYNTHETICS PVT
LTD
Sl.
No Date Name of the investor No. of Face Premium Equity Equity Total
Shares Value per share Capital Premium
Kush Hindusthan
1 7.7.06 Entertainment Ltd 107000 10 50 1070000 5350000 6420000
2 20.6.06 Reynolds Petro Chem Ltd 85000 10 50 850000 4250000 5100000
3 25.7.06 Javda India Impex Ltd 42000 10 50 420000 2100000 2520000
4 25.7.06 Lexus Infotech LTd 42000 10 50 420000 2100000 2520000
5 25.7.06 Utkantha Trading Pvt Ltd 42000 10 50 420000 2100000 2520000
Hema Trading Company Pvt
6 25.7.06 Ltd 42000 10 50 420000 2100000 2520000
Real Gold Trading Co. Pvt
7 25.7.06 Ltd 42000 10 50 420000 2100000 2520000
402000 4020000 20100000 24120000
4.4. The assessee also submitted the following documents in support of
the aforesaid receipt of share capital and share premium :-
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M/s. Sweta Synthetics Pvt. Ltd.,
a) Share application forms made by all the above companies duly signed
by their respective authorized signatories.
b) Confirmation from the above parties confirming that the payments
have been made through regular banking channels, giving the details of
the same and stating that the payments have been made for the purpose
of share application.
c) Board Resolution resolving that the company has applied for equity
shares of assessee company and sanctioning the permission for utilization
of funds.
d) Copy of PAN card of all the above companies proving their identity.
e) Copy of financial statements of the above companies as a proof of
creditworthiness of the investors to make investment in assessee
company. In the said financial statements, the fact of investments made
in assessee company was duly reflected.
f) Bank statements of all the above companies showing the payment of
above share application money has been done through bank account of
the above companies and therefore transactions are totally valid and
genuine which is made out of companies own source.
g) Memorandum and Articles of Association of all the above companies
together with the Certificate of Incorporation of the aforesaid companies.
h) Copy of Income Tax Returns filed by all the above companies.
i) Evidence to prove that the aforesaid companies are still shown in
'Active' category in the records of Registrar of Companies.
j) Affidavits of Directors of subscriber companies affirming the fact of
making investment in shares of the assessee company with premium.
k) Copy of Form No.2 filed with Registrar of Companies evidencing the
allotment of equity shares to the aforesaid investors.
4.5. The assessee also made some legal submissions that the amounts
received towards share capital and share premium from the aforesaid
investors cannot be taxed as income in the hands of the assessee
company merely based on the reliance of the statement recorded from
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M/s. Sweta Synthetics Pvt. Ltd.,
Shri Praveen Kumar Jain , which had also been subsequently retracted by
him. It was also submitted that Shri Praveen Kumar Jain was neither a
director nor a substantial shareholder in the aforesaid investor companies.
While that be so, how can he be controlling those entities. Hence any
statement given by him who does not possess any power in those
investor companies, cannot be accepted in the eyes of law. Hence it was
submitted that the allegation leveled in this regard was not warranted.
5. The ld AO however completely disregarded all the aforesaid evidences
and explained the modus operandi adopted by Shri Praveen Kumar Jain
with the help of certain brokers and how the unaccounted money was
laundered by various concerns in the form of bogus purchases, bogus
unsecured loans and bogus share capital and premium. The ld AO in
para 3.19 of his order accepted the fact of retraction statement of Shri
Praveen Kumar Jain submitted before the investigation wing and
observed that the same cannot be accepted as retraction was done after
a considerable lapse of time. Accordingly, the ld AO proceeded to treat
the sum of Rs 2,41,20,000/- being share application money / share capital
and share premium received from aforesaid 7 persons as income u/s 68
of the Act and added the same to the total income of the assessee.
6. The assessee before the ld CITA reiterated the contentions raised
before the ld AO apart from placing reliance on various documentary
evidences as listed above. The assessee also submitted that assessee had
requested for a copy of the statement of Shri Praveen Kumar Jain before
the ld AO which was the main basis for making the entire addition in the
hands of the assessee. It was pleaded that the ld AO however, did not
provide the statement copy / extract of the statement to the assessee.
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M/s. Sweta Synthetics Pvt. Ltd.,
No opportunity to cross examine Shri Praveen Kumar Jain was also
afforded to the assessee by the ld AO.
7. The ld CITA observed in his order as under:-
"6.3.1 I have considered the stand of the AO in the assessment order as
well as the submissions filed by the AR of the appellant. It has been
observed by the AO that during the course of search in the case of Shri
Pravin by the Investigation Wing, it was stated by Shri Pravin Kumar
Jain that he was indulging in providing accommodation entry to various
parties through various concerns. Further observations of the AO has
already been discussed in earlier paragraphs.
The above being the basic thrust of the case against the appellant, the
impugned assessment order needs to be examined to figure out the quality
of appellant-specific evidence, if any available. Before proceeding further
it will be pertinent to examine the following questions which may be
helpful in deciding the issue.
a. What is the nature of evidence that has been brought on record to
show that the lender parties, who advanced the impugned share
capital/share application to the P appellant, were benamis of Shri Pravin
Jain?
b. Is there any material that has been brought out by the AO to show that
the share application money in question are paper entries purchased
against payment of unaccounted cash?
c. Has the Assessing Officer brought any material on record to show that
commission was paid to Shri Pravin Jain?
6.3.2. First of all, it would be worthwhile to examine the impugned
assessment order with regard to material that shows that the hawala
racket was run through benami entities of Shri Pravin Jain. In this
regard, it may be mentioned that:
a. In the assessment order, the AO has relied upon the general statement
given by Shri Pravin Jain.
b. According to the AO, these concerns were dummy concerns used by
Shri Pravin Jam in the running his hawala racket. However, no details of
the evidence, if any collected from these persons regarding their role in
the alleged hawala racket, has been mentioned.
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M/s. Sweta Synthetics Pvt. Ltd.,
c. When it comes to detailing the adverse material, if any, the AO, merely
refers to statements made Shri Pravin jain. However, AO not mentioned
anywhere in the assessment order whether these concerns/parties from
whom the appellant has taken share application money, are treated as
non-genuine borrowings by the AO.
6.3.3. Certain conclusions are obvious, One, the AO himself is not so
clear about facts and has referred to mostly the material facts which are
not relevant to the case. Two, the AO has referred to any adverse material
in the cases of share applicants that are being dubbed by him to be
benamis of Shri Pravinjain.
6.3.4. Hence, it is to be inferred that the quality of evidence, specific to
the appellant is but poor and not fully relief upon. This flaw7 is further
magnified as the adverse material if any (report of the Investigation Wing
and alleged confessional statements of Shri Pravin Jain and others) have
never been brought on record by making them available to the appellant.
From the impugned assessment order, it is seen that though the AO
appears to have taken the view that the impugned share applicants are
mere entry providers and that the impugned share application money
entries have been obtained by the appellant against payments made to the
said entry providers in cash, who specific material has been brought on
record to show that creditors, from whom the impugned share money of
Rs.66,00,000/- were taken are entry providers and that entries for the
share application money in question have actually been obtained against
payments made by the appellant in cash outside regular books of account.
There is no evidence brought on record for payment of any commission or
fee having been made by the appellant that AO has passed the order on
the basis of mere conjectures and surmises, without bothering to bring
any concrete material on record:
6.3.5. The appellant, had furnished various details regarding the lenders -
their names, PAN, constitution, names of Proprietor/Partner/Director
before the AO. Further, the appellant provided copies of
acknowledgement of respective income tax returns, balance sheets and
relevant bank statements of all the share applicants. Obviously, other
than a general statement of Shri Pravin Jain that had reportedly been
retracted subsequently, no specific material to suggest the loans are
hawala entries. There was nothing to show that there was any actual
exchange of case between the appellant and the alleged hawala givers
before the impugned loans were incorporated in the books of account of
the appellant. Also, there was no material to show that any commission
for arranging the hawala had been paid by the appellant to the said Shri
Pravin Jain. The situation remained unaltered in the course for
assessment proceedings, and the AO did not in any manner improved
upon what had rr ry the Investigation Wing.
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M/s. Sweta Synthetics Pvt. Ltd.,
Non-observance of Principle of Natural Justice: Not making available
material used against the appellant and denying opportunity to cross
examine witnesses:
It has been submitted that the AO did not observe the principles of natural
justice ?,nd the material relied upon is not made available to the
appellant and denying the opportunity of cross examination of witnesses
or did not make available to the appellant any adverse material, if at all
there was any in the possession of the AO.
6.3.7. On the above facts, it is obvious that the AO while supposedly
acting on a report of the investigation Wing and some alleged third party
statement, never made the said report and evidence available to the
appellant. Thus, the appellant was denied a chance to rebut the evidence
by cross examining those, who had allegedly given statements that could
incriminate the appellant. All this is a clear violation of the principles of
natural justice, a fundamental point to the validity of the proceedings,
before the AO.
6.3.8. The facts of the appellant's case are identical to those of in the case
of H.R.Mehta decided by the Bombay High Court through an order dated
30/06/2016 in ITA No.58 of 2001. In that case, the assessee had adduced
evidence by way of bank record to show that loan had been received from
a creditor through banking channels. The creditor was not physically
traceable, as much time had elapsed and his address had changed. The
assessment had been reopened on the basis of third party evidence
collected in a search action in the case of a charitable trust. Despite
specific request in this regard, the AO concerned did not provide to H R
Mehta a copy of the appraisal report and third party statement etc. and
proceeded to treat the loan as unexplained. The Hon'ble High Court
struck down the order of reassessment by observing that revenue was
justified in making the addition without having first given the assessee an
opportunity to cross examine, the deponents on the statements relied upon
by the ACIT. The relevant discussion, contained in paragraphs 16 & 17 of
the High Court's order, is reproduced below:
"16. In the instant case although the appellant assessee has called upon
us to drawn inference that the burden shifted to the revenue in tlie present
case once it was established that the payments were made and repaid by
cheque we need not hasten and adopt that view after having given our
through to various issued raised and the decisions cited by Mr.
Tralshawalla and finding that on a very fundamental aspect, the revenue
was not justified in making addition at the time of reassessment without
having first given the assessee an opportunity to cross examine the
deponent on the statements relied upon by tlie ACIT. Quite apart from
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M/s. Sweta Synthetics Pvt. Ltd.,
denial of an opportunity of cross examination, the revenue did not even
provide the material on the basis of which the department sought to
conclude that the loan was a bogus transaction.
17. In our view in the light of the fact that the monies were advanced
apparently by the account payee cheque and was repaid vide account
payee cheque the least that the revenue should have done was to grant cm
opportunity to the assessee to meet the case against him by providing the
material sought to be used against assessee in arriving before passing the
order of reassessment. This not having been done, the denial of such
opportunity goes to root of the matter and strikes at the very foundation of
the reassessment and therefore renders the orders passed by the CIT(A)
and the Tribunal vulnerable. In our view the assessee was bound to be
provided with the material used against him apart from being permitting
him to cross examine the deponents. Despite the request dt. 15th
February, 1996 seeking an opportunity to cross examine the deponent
and furnish the assessee with copies of statement and disclose material,
these were denied to him. In this view of the matter we are inclined to
allow the appeal on this very issue."
6.3.9. Opportunity of cross examination of witnesses is an essential
ingredient of the A principle of natural justice. This has been affirmed by
the Hon'ble Supreme Court in the * case of Andaman Timber
Industries [Civil Appeal No.4228 of 2006, Date of Pronouncement -
September 02, 20151 In that case, the Hon'ble Supreme Court held 'that
not allowing assessee the opportunity to cross-examine witnesses, whose
statements were made the basis of a demand, is a serious flaw which
makes order a nullity, as it amounts to violation of principles of natural
justice.
6.3.10. In the case of Kishinchand Chellaram vs. CIT, Bombay City II
11980] 125 ITR 713 (SC), it has been held by the Apex Court that in
income tax proceedings when an evidence is to be used against the
assessee and if it is not shown to the assessee and if no opportunity to
controvert is given to the assessee, that evidence is not admissible. It
further held the department ought to have called upon the manager to
produce the documents and papers on the basis of which he made the
statements and confronted the assessee with those documents and papers.
Before, the income tax authorities could rely upon the evidence, they were
bound to produce it before the assessee so that the assessee could
controvert the statements contained in it by asking for an opportunity to
cross examine the manager of the bank with reference to the statements
made by him.
6.3.11. On principles of Natural Justice, it has been held by the Apex
Court in the case of swadesh Cotton Mills vs Union of India in 1981 AIR
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M/s. Sweta Synthetics Pvt. Ltd.,
818 that phrase "Natural justice" is not capable of a static and precise
definition." "Two fundamental maxims of natural justice have now
become deeply and indelibly ingrained in the common consciousness of
mankind as preeminently necessary to ensure that law is applied
impartially objectively and fairly. These twin principles are (i)
audialtermpartem and (ii) nemojudex in re sua. Audi altermpartem is a
highly effective rule devised by the Courts to ensure that a statutory
authority arrives at a just decision and it is calculated to act as a healthy
check on the abuse or misuse of power." "The maxim audialtermpartem
has many facets. Two of there are (a) notice of case to be met and (b)
opportunity to explain. "In facts and circumstances of a particular case
when non-compliance with the implied requirements of the
audialtermpartem, rule of natural justice at the pre decisional stage, the
impugned order can be struck down as invalid on that score alone."
6.3.12. It has been also held by the Apex Court in the case of Delhi
Transport Corporation vs DTC Mazdoor Congress, in 1991 AIR 101 that
the audialtermpartem, rule which is essence enforces the equality clause
of Article 14 of the Constitution and is applicable not only to quasi-
judicial orders but to administrative orders affecting prejudicially the
party in question.
6.3.13. A similar matter came up before the Hon'ble Supreme Court in the
case of M/s. Gira Enterprises & Another (Civil Appeal Nos. 433-434 of
2006) Dated 21/08/2014. In that case, it was alleged that prices declared
for import purposes had been suppressed. The case was based on
evidence contained in a computer printout, reportedly prepared on the
basis of import data, allegedly collected from Mumbai Port. This print out
showed import prices, higher than those declared by the assessee. This
printout was not made available to the assessee in the course of
adjudication proceedings. After hearing the matter, the Hon'ble Supreme
Court went on to set aside the order with below extracted observations:
"22. ...the respondent (revenue) did not supply the information (alleged
computer printout) which fanned the basis of conclusion that the
appellants herein under- valued the goods imported. In such a situation,
appellants obviously cannot and did not have any opportunity of
establishing that the claim of the revenue is unsustainable in law. If the
information, which formed the basis for the revenue to reject the
appellant's -valuation is supplied to the appellants, the -Hants perhaps
will have the opportunity to dispute the comparability of the import
actions allegedly contained in the computer printout on various counts
may not be possible to catalogue.
23. In UK absence of any material produced by the revenue in proof of the
alleged comparable imports at a higher value, the impugned order which
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eventually confirmed the original order of assessment ..... cannot be
sustained for two reasons - (1) the mere existence of an alleged computer
printout is not proof of the existence of comparable imports; (2) assuming
such a printout exists and the contents thereof are true, the question still
remains whether the transaction of the appellant. The appellant will have
to be given reasonable opportunity to establish (if he can) that the
transactions are not comparable."
6.3.14 Going by the discussion contained above, it is obvious that the
inference drawn by the AO against the appellant is not sustainable for the
simple reason that the principles of natural justice have not been
followed. First and foremost, the appellant has not been given any access
to the material (reports, intimations, statements etc. used against it.
Secondly, by withholding the said material, the AO has denied of the
appellant an opportunity to rebut the evidence by cross examining the
witnesses, statements, if any made by whom, incriminated the appellant.
On both counts the impugned assessment order fails squarely.
6.3.15. Absence of material_to_show that the share application money
are unexplained:
From the forgoing, it is obvious that there is no scope for arriving at a
conclusion that the appellant had taken hawala entries to incorporate the
impugned loans in its books of account. Hence, the only issue that
remains to be seen is whether on the basis of facts brought on record the
impugned loans could be treated as unexplained with the fore corners of
section 68 of the Act. At the outset, it will necessary to look at some legal
precedents with regard to the intent and application of section 68. It
needs no elaboration that through a catena of decisions the Courts have
laid down the following 3 fundamental tests which have to be established
to discharge the burden u/s.68 of the Act;
- Identity of the creditors/share applicants
- Creditworthiness of creditors/share applicants, and
- Genuineness of the transitions i.e, whether the transaction was through
banking channel.
6.3.16 The Honble Supreme Court in the case of CIT vs. P Mohankala
[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 AO for not accepting the explanation offered by the assessee as not
satisfactory is required to be based on proper appreciation of material
and other attending circumstances available on record. The opinion of
the AO is required to be formed objectively with reference to the material
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available on record. Application of mind is the sine qua non for forming
the opinion.
6.3.17. The law is well settled that the onus of proving the source of a sum
of money found to have been received by an assessee is on him and where
the nature and source of a receipt; whether it be of money or other
property, cannot be satisfactorily explained by the assessee, it is open to
the revenue to held that it is the income of the assessee and no further
burden lies on the revenue to show that the income is from any particular
source [Roshan Di Haiti vs. CIT [1997] 107 ITR 938(SC).
Thereafter the ld CITA placed reliance on various judgements in support
of his findings in para 6.3.18 (i) of his order.
7.1. The ld CITA further observed with regard to the issue of share
premium, share application money and share capital as under:-
"6.3.18.ii. As regards issue related to additions for share premium
amount included in the share application money share capital money,
reference is made and reliance is placed to the various Judicial
Pronouncements. These are as under:
In the case of M/s. Vodafone India Services Pvt Ltd vs. Addl. CIT
reported in 368 ITR 001, Hon'ble Bombay High Court decided that :-
"The amounts received on issue of share capital including the premium
are undoubtedly on capital account. Share premium have been made
taxable by a legal fiction under Section 56(2)(viib) of the Act and the
same is enumerated as Income in Section 2(24)(xvi) of the Act. However,
what is bought into the ambit of income is the premium received from a
resident in excess of UK fair market value of the shares. In this case what
is being sought to be taxed is capital not received from a nonresident i.e.
premium allegedly not received on application of ALP. Therefore, absent
express legislation, no amount received, accrued or arising on capital
account transaction can be subjected to tax as Income. Court finds
considerable substance in the Petitioner's case that neither tlie capital
receipts received by the Petitioner on issue of equity shares to its holding
company, a non-resident entity, nor the. alleged short-fall between the so
called fair market price of its equity shares and the issue price of the
equity shares can be considered as income within the meaning of the
expression as
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defined under the Act. "
(ii) The CBDT vide instructions No - 02/2015 dated 29/1/2015 directed
the revenue not to file the SLP before Hon'ble to Supreme Court and
directed Ld AOs to accept the High Court order. The relevant
instructions is as under :-
"In reference to the above cited subject, I am directed to draw your
attention to the decision of the High Court of Bombay in the case of
Vodafone India Services Pvt. Ltd for A.Y.2QQ9-1Q (WP No.871/2014) =
20U-TII-19-HC-MUM-TP, wherein in the Court has held, inter-alia, that
the premium on share issue was on account of a capita! account
transaction and does not give rise to income and, hence, not liable to
transfer pricing adjustment. .. It is hereby informed that the Board has
accepted the decision of the High Court of Bombay in the above
mentioned Writ Petition. In view of the acceptance of the above
judgement, it is directed that the ratio decided of the judgement must be
adhered to by the field officers in all cases where this issue is involved.
This may also be brought to the notice of the ITAT, DRPs and CsIT
(Appeals)."
(iii) In the case of ACIT vs. Gagandeep Infrastructure Pvt. Ltd bearing
ITA No.5784/Mum/2014 dated 23/04/2014, Hon'ble Mumbai ITAT
decided that :
"We have carefully perused the orders of the lower authorities. In our
considered view, the issue of shares at premium is always a commercial
decision which does not require any -justification. Further the premium
is a capital receipt which has to be dealt with in accordance with Sec.78
of the Companies Act, 1956. further, the company is not required to
prove the genuineness, purpose or justification for charging premium of
shares, share premium by its very nature in a capital receipts and is not
income for its ordinary sense......, The entire dispute revolves around the
fact that the assessee has charged a premium of Rs.190/-per share. No
doubt a non-est company or a zero balance sheet company asking for
Rs.190/- per share defies all commercial prudence but at the same time
we cannot ignore the fact that it is a prerogative of the Board of
Directors of the company to decide the premium amount and it is the
wisdom of the share holders whether they want to subscribe to such a
heavy premium. The Revenue authorities cannot question the charging of
such huge premium without any bar from any legislated law of the land.
The amendment has been brought in the Income Tax Act under the head
"Income from other sources" by inserting Clause (viib) to Sec.56 of the
Act wherein it has been provided that any consideration for issue of
shares, that exceeds the fair value of such shares, the aggregate
15
ITA No.3000/Mum/2017 & CO No.46/Mum/2019
M/s. Sweta Synthetics Pvt. Ltd.,
consideration received for such shares as exceeds the fair market value
of the shares shall be treated as the income of the assessee but the
legislature in its wisdom has made this provision applicable
w.e.f.l.4.2013 i.e. on and from A.Y.2013-14. In so far as the year under
consideration is consideration is concerned, the transaction has to be
considered in the light of the provision of Sec.68 of the Act: There is no
dispute that the assessee has given details of names and addresses of the
share holders, their PAN Nos, the bank details and the confirmatory
letters... Considering all these undisputed facts, it can be safely
concluded that the initial burden of proof as rested upon the assessee has
been successfully discharged by the assessee. Even if it is held that
excess premium has been charged, it does not become income as it is a
capital receipt. The receipt is not in the revenue field. What is to be
probed by the AO is whether the identity of the assessee is proved or not.
In the case of share capital, if the identity is proved, no addition can be
made u/s.68 of the Act. We draw support from the decision of the Hon'ble
Supreme Court in the case of Lovely Exports Pvt Ltd. 317 ITR 218. We,
therefore do not find any error or infirmity in the findings of the Ld.
CIT(A). Ground No.1 is accordingly dismissed."
(iv) In the case of Green Infra Ltd vs. ITO reported in 38 taxmann.com
253 (Mum-ITAT) dated 23/08/2013 Hon'ble Mumbai ITAT decided that :
"During previous ending on 31-3-2009, it had collected share premium
on allotment of shares of Rs. 10 each at a premium of Rs. 490 per share -
It had credited said amount in balance-sheet under head share premium
account - It claimed that share premium was a capital receipt not
exigible to tax. - Assessing Officer had taxed share premium under
section 56(1) as assessee's income from other sources - Whether since
expenditure and receipts directly relating to share capital of a company
are of capital in nature, share premium collected by assessee could not
be taxed under section 56(1) as income from other sources - Held, yes -
Whether since entire transaction relating to allotment of shares had been
done through banking channel and assessee had invested share premium
in its three subsidiary companies, provisions of section 68 as suggested
by revenue had also not applicable to instant case - Held, 'yes.... No
doubt a non est company or a zero balance company asking for a share
premium of Rs.490 per share defies all commercial prudence, but at the
same time one cannot ignore the fact that it is a prerogative of the Board
of Directors of a company to decide the premium amount and it is the
wisdom of the shareholders whether they want to subscribe to such a
very premium. The revenue authorities cannot question the charging of
such of huge premium without any bar from any legislated law of the
land."
16
ITA No.3000/Mum/2017 & CO No.46/Mum/2019
M/s. Sweta Synthetics Pvt. Ltd.,
(v) In the case of CIT vs. Goa Sponge and Power Ltd reported in Appeal
No. 16 of 2012, Hon'ble Bombay High Court decided that:
"Once the authorities have got all the details, including the name and
'addresses of the sltareholders, their PAN/GIR number, so also the name
of the Bank from which the alleged investors received money as share
application, then, it cannot be termed as "bogus". The controversy is
covered by the judgements rendered b y the Hon'ble Supreme Court in
the case of Lovely Exports Pvt Ltd, vs. CIT, (2008) 216 CTR (SC) 195, as
also by this Court in CIT vs. Creative World Telefilms Ltd, (2011) 333
ITR 100 (Bom). In such circumstances, we are of the view that the
Tribunal's finding that there is no justification in the addition made
under Section 68 of the Income Tax Act, 1961 neither suffers from any
perversity nor gives rise to any substantial question of law."
(vi) In the case of CIT vs. Creative World Telefilms Ltd reported in 333
ITR 100. Hon'ble Bombay High Court decided that:
"...the Tribunal was pleased to follow the judgment of the apex Court in
the case of CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195
(2008) 6 DTR (SC) 308 : (2009) 319 ITR 5 (St.) wherein the apex Court
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 can always proceed against them and if necessary reopen
their individual assessments. In the case in hand, it is not disputed that
the assessee had given the details of name and address of the holder,
their PAN/GIR number and had also given the cheque number, name of
the bank. It was expected on the part of the AO to make proper
investigation and reach the shareholders. The AO did nothing except
issuing summons which were ultimately returned back with an
endorsement "not traceable'1. In our considered view, the A O ought to
have found out their details through PAN cards, bank account details or
from their bankers so as to reach the shareholders since all the relevant
material details and particulars were given by the assessee to the AO. In
the above circumstances, the view taken by the Tribunal cannot be
faulted."
(vii) In the case of CIT vs. Lovely Exports (P) Ltd reported in 216 CTR
195, Hon'ble Apex court decided 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, but it cannot be regarded as undisclosed income
of assessee company."
17
ITA No.3000/Mum/2017 & CO No.46/Mum/2019
M/s. Sweta Synthetics Pvt. Ltd.,
(viii) In the case of CIT vs. Steller Investment Ltd reported in 251 ITR
263, Hon'ble Apex court decided that:
"That the increase in subscribed capital of the respondent-company
could not be a device of converting black money into white with the help
of formation of an investment company, on the round that, even if it be
assumed that the subscribers to the increased capital were not genuine,
under no circumstances could the amount of share capital be regarded
as undisclosed income, an appeal was taken by the Department to the
Supreme Court. The Supreme Court dismissed the appeal holding that
the Tribunal had come to a conclusion on facts and no interference was
called for."
(ix) In the case of CIT vs. Expo Globe India Ltd reported in 361 ITR 147,
Hon'ble Delhi High Court decided that:
"It has been held by Hon'ble Supreme Court and various High Courts
that no addition can be made on account of share application money
once the names of the share applicants are given. In the instant case,
identity of these persons are not or doubt and assessment particulars of
all the persons are on record and then hold that credit worthiness of
these persons are not established. The judgement of Hon'ble Supreme
Court in the case of Lovely Export 216 CTR 195 and also the
juedgement of Hon'ble Delhi High Court in the case of CIT vs. Value
Capital Services Pvt. Ltd 307 ITR 334 are relevant of this issue. It was
held by Hon'ble Madras High Court in the case of CIT vs. Electro
Polychem Ltd. 294 ITR 661 and Hon'ble Allahabad High Court in the
case of Securities Ltd 166 Taxman 7 that no addition can be made on
account of share application money even if subscriber to capital are not
genuine. The above said judgements were challenged by the Department
by way of SLP before Supreme Court of India and SLP has been
dismissed by Supreme Court in both the cases, hi view of above said
facts of case and position of law, I hereby direct the AO to delete the
addition of Rs.69,75,000/-. "
(x) In the case of CIT v. Vacmet Packaging (India) Pvt Ltd reported in
88 CCH 065, Hon'ble Allahabad High Court decided that:
"Held, assessee had filed documentary evidence to prove genuineness of
share application money consisting of(i) share application forms; (ii)
copies of bank accounts of share applicants; (Hi) copies of income tax
returns of share allottees; (iv)balance sheets; and (v) copies of share
allotment certificates and of Board's resolution of the share applicants -
Identity of applicants was established by production of copies of PAN
cards and registration certificate with tlie Registrar of Companies -
Financial capacity was also proved by filing of copies of the bank
18
ITA No.3000/Mum/2017 & CO No.46/Mum/2019
M/s. Sweta Synthetics Pvt. Ltd.,
accounts from where the share application money was transferred
through banking channels to the assessee- Assessee had discharged onus
placed upon him by 68- Concurrent finding of facts also rendered by
CIT(A) and tribunal in this regard - No substantial question of law
arises- Revenue's appeal Dismissed"
(xi) In the case of Jaya Securities Ltd vs. CIT reported in 166 Taxman 7
(SLP filed by department dismissed), Hon'ble Allahabad High Court
decided that:
"Whether any addition under section 68 can be made in respect of
investment made by different persons in share capital of assessee
company, limited by shares, whether public or private - Held, no."
7.1.1. The ld CITA further observed in his order as under:-
6.3.20. Hence, it is to be inferred that in a case where the assessee has
supplied all possible information to the AO to explain the share application
money transaction, he has satisfactorily discharged the burden cast on him,
still the AO without bringing any adverse material, except general
statement of Pravin Jam, proceeded to make addition. From the assessment
order it is seen that at no point of time, the AO has brought any material to
prove that the party was not genuine or not having own funds to invest in
share capital or the transactions were not routed through banking channel.
As stated earlier, it has been explained by the Ld.AR that the companies
who has invested share application money with the appellant company are
existing company and they are verifiable on the website of Registrar of
Company and they are having their own CIN Number, PAN Number and
regularly filing returns. As regards genuineness of transactions of share
application money through banking channel and credit worthiness of the
party having sufficient own funds in their books/balance sheet, this may be
seen from the charts given in subsequent paragraphs.
6.3.21. In the case before me, the record also shows that to prove the
genuineness of the impugned share application money from the said
parties, the appellant has furnished to the AO the various details which has
been also produced during the course of appellate proceedings and may be
seen from the appellant's submissions reproduced above and therefore, for
the sake of brevity not being repeated here.
6.3.22. The various facts and figures related to these issues can be seen
from the various charts as narrated below: Siveta Synthetics Private
Limited
19
ITA No.3000/Mum/2017 & CO No.46/Mum/2019
M/s. Sweta Synthetics Pvt. Ltd.,
A.Y.: 2007-08
SI. Details of shares Bank Cheque/ Date Amounts Remarks, if
No. applicant/Loan details DD/etc any
Creditors
i Reynolds Petro Indusind 970488 16-06-2006 15,00,000.00 No cash
Chems. Limited Bank deposit in
Limited Bank a/c
before
970489 21-06-2006 12,00,000.00 issuing of
cheque
970490 21-06-2006 12,00,000.00
970491 21-06-2006 12,00,000.00
51,00,000.00
2 Kush Hindustan Punjab 325029 10-07-2006 14,00,000.00 No cash
Entertainment National deposit in
Limited Bank Bank a/c
before
325028 10-07-2006 50,00,000.00 issuing of
cheque
325061 16-11-2006 20,000.00
64,20,000.00
3 Javda India Impex Punjab 325751 07-06-2006 10,00,000.00 No cash
Limited National deposit in
Bank Bank a/c
before
325752 12-06-2006 15,00,000.00 issuing of
cheque
050509 26-07-2006 20,000.00
25,20,000.00
4 Realgold Trading Punjab 325645 13-06-2006 25,00,000.00 No cash
Company Private National deposit in
Limited Bank Bank a/c
before
069107 26-07-2006 20,000.00 issuing of
cheque
20
ITA No.3000/Mum/2017 & CO No.46/Mum/2019
M/s. Sweta Synthetics Pvt. Ltd.,
25,20,000.00
5 Utkanda Trading HDFC Bank 177680 21-06-2006 10,00,000.00 No cash
Private Limited Limited deposit in
Bank a/c
177683 22-06-2006 15,00,000.00 before
issuing of
559827 26-07-2006 20,000.00 cheque
25,20,000.00
6 Hema Trading Corporation 290915 01-07-2006 25,00,000.00 No cash
Company Private Bank deposit in
Limited Bank a/c
before
Punjab 332041 26-07-2006 20,000.00 issuing of
National cheque
Bank
25,20,000.00
7 Lexus Infotech Punjab 325530 03-07-2006 25,00,000.00
Limited National No cash
Bank deposit in
Bank a/c
325541 26-07-2006 20,000.00 before
issuing of
cheque
25,20,000.00
2,41,20,000.00
2. Genuinity of persons/creditors
Sl. Name Of Parties PAN Details CIN Whether
Existing
No. Company with
ROC/ Latest
Annual Return
Filed
i Reynolds Petro Chems. AABCR1282P 31-03-2016
Limited
2 Rush Hindustan Entertainment AACCK3597M U921HMH2003PLC143690 31-03-2016
Limited
21
ITA No.3000/Mum/2017 & CO No.46/Mum/2019
M/s. Sweta Synthetics Pvt. Ltd.,
3 Javda India Impex Limited AAACA7065L U67i2oMHi995PLCo88743 31-03-2016
4 Realgold Trading Company AACCR4512K U51909MH2003PTC139464 31-03-2016
Private Limited
5 Utkanda Trading Private AAACU6984E U5i909MH2004PLCi46o6i 31-03-2016
Limited
6 Hema Trading Company AABCH4279G U5i909MH2004PTCi45254 31-03-2016
Private Limited
7 Lexus Infotech Limited AAACL4646G U74999MHi998PLCii6845 31-03-2014
l. Transactions through bank
3. Sources of Funds of the contributors / Share holders/applicants/loan creditors
SI. Details of share Contributors Nature and amount Amount loan/ Remarks, If
No. applicant/ loan creditors capital as on of fund in the Capital
31.03.06 of the balance sheet of the contributed by
previous year creditors this party to
(preceding FY prior appellant
to the FY in which
contribution made)
1 Reynolds Petro Chems. As on 31.03.06 Own Fund
Limited
Address: 7, Vidhi Tower Rs.48,86,267 1.Equity Shares Rs.51,00,000 Own Fund borrowed
No.2, Sanghvi Tower, Rs.5,00,000 fund of party being
Adajan Road, Surat, Rs.1,18,10,137 is
Gujarat - 395 009 higher than the
amount received
2. Reserves &
Surplus
Rs.43,86,267
3. Borrowed fund
Rs.69,23,870
2. Kush Hindustan As on 31.03.06 Own Fund Own Fund of party
Entertainment Limited being
Address: Cs-2, Silver Rs. 2,56,99,802 1. Equity Shares Rs. 64,20,000 Rs..2,56,99,802 is
Ankletyatri Road, Rs.2,52,90,000 higher than the
Versova, Mumbai, amount received
Maharashtra - 400061
2. Reserves &
Surplus Rs.
4,09,802
Javda India Impex As on 31. 03. 06 Own Fund
Limited Own Fund of party
being Rs.
22
ITA No.3000/Mum/2017 & CO No.46/Mum/2019
M/s. Sweta Synthetics Pvt. Ltd.,
Address: 626 Panchratna Rs. 3,82,05,088 i. Equity Shares Rs. 25,20,000 3,82,05,088 is higher
Opera House, Mumbai, Rs. 3,67,90,000 than the amount
Maharashtra -400 004 received
2. Reserves &
Surplus Rs.
14,15,088
4 Olive Overseas Private As on 31. 03. 06 Own Fund
Limited Own Fund of party
being Rs.
Formerly Known As Rs. 1,78,17,989 i. Equity Shares Rs. 25,20,000 1,78,17,989 is
Realgold Trading Rs. higher than the
Company Private Limited 1,75,92,000 amount received
Address: 211, 2Nd 2. Reserves &
Floor, Near Surplus Rs,
SejalGlass.Balaji Arcade 2,25,989
Premises, S.V. Road,
Kandivali -W Mumbai ,
Maharashtra 400067
5 Utkanda Trading Private As on 31. 03. 06 Own Fund Own Fund &
Limited borrowed fund of
party being Rs.
Address: C-204, 2Nd Rs. 1,00,000 i. Equity Shares Rs. 25,20,000 4,16,51,315
Floor, Vishal Apartment Rs. 1,00,000 is higher than
Taki Road, the amount received
TulinjNallasopara (E)
Thane,
Maharashtra 401209 In
2. Reserves &
Surplus Rs.
14,72,665
3. Borrowed
Fund Rs.
4,15,51.315
6 Nakshatra Business As on 31.03.06 Own Fund Own fund of being
Private Rs.
Limited formerly known
as Hema Trading
Company Private
Limited
Rs. 1,79,33,155 i. Equity Shares Rs. 25,20,000 1,79,33,155 is
Rs. 1,76,00,000 higher than the
amount received
23
ITA No.3000/Mum/2017 & CO No.46/Mum/2019
M/s. Sweta Synthetics Pvt. Ltd.,
Address: 211, 2nd 2. Reserves &
Floor, Near Sejal Glass, Surplus Rs.
Balaji Arcade Premises, 3,33,155
S.V. Road, Kandivali -W
Mumbai, Maharashtra
400067
7 Triangular Infocom As on 31. 03. 06 Own Fund Own Fund of party
Limited being Rs.
2,03,39,339 is
Formerly known as higher than
Lexus Infotech Limited the amount
received
Address: Cs-2, Silver Rs. 2,03,39,339 i. Equity Shares Rs. 25,20,000
Ankle tyari Road, Rs. 2,01,32,000
Versova, Mumbai 400
061
2. Reserves &
Surplus Rs.
1,19,339
The above chart has been culled out from various details filed by the appellant
and will show that the relevant parties/companies were in existence since they
were having PAN number and regularly filing IT returns and also having CIN
number and were in existence in the records of Registrar of companies. The AO
has not brought any adverse material against this.
As regards sufficiency of funds, it may be seen from the above chart that the
respective parties had sufficient funds to advance loan or invest in share capital
in any other entity including the appellant and the AO has not brought any
material on record to prove that any undisclosed taxable income of the appellant
company had gone to the above stated concerns of Pravin Jain in any specific
manner and the same has come back in the form of share capital/share
application money to the appellant.
As regards transaction, the AO has no where been able to bring on record that
any undisclosed cash amount of the appellant company was deposited in the bank
account/any account of the share applicants and the same amount was utilized in
issuing the cheque or RTGs or DD by the share applicants to invest in the
appellant's company. On the contrary, it has been submitted by the Ld. AR that
the bank account show that no cash has been deposited before issuing the
cheque/RTGS/DD for the appellant.
6.2.23. Thus, it has to be said that the appellant had done everything in its power
to prove the 3 ingredients required to prove the satisfactory nature of the loan
transactions. In these circumstances, the onus had shifted to the AO. If the AO
was still not satisfied, he had the option of making inquiries from the alleged
24
ITA No.3000/Mum/2017 & CO No.46/Mum/2019
M/s. Sweta Synthetics Pvt. Ltd.,
share applicants by summoning them. However, as seen from assessment order,
he did not any such thing. Further, if the AO was not satisfied with what had been
given to him by the appellant, he was duty bound to specify what more material
he wanted the appellant to furnish. The AO never asked for any further material,
though time and again the appellant asked in their submissions. This leads to the
inescapable conclusion that the AO could not think of any further material to ask
for and proceeded to reject the appellant's claims, relying upon the information /
material which he never even brought to the notice of the appellant for any
rebuttal. The unequivocal conclusion is that all the 3 ingredients having been
satisfied, the impugned share application money have to be treated as explained
satisfactorily and the AO was not justified in having disregarded overwhelmingly
supportive evidence. No cogent material was adduced by him to show that loans
were unexplained. Therefore, the impugned addition of under the heading share
application money as made in the assessment order, fails on several counts - (1)
reliance on evidence that is totally inadequate (2) failure to make available
incriminating material (reports, statements etc.) forming basis for action by the
AO (3) failure to give due opportunity to the appellant to cross examine
witnesses, whose statement might have been relief upon; and (4) failure to
recognize the satisfactory nature of explanation / evidence tendered by the
appellant to explain identity of creditors, creditworthiness of the creditors and
the genuineness of the loan transactions. Hence, the impugned addition cannot be
sustained.
6.3.24. In view of the facts and circumstances of the case as well as judicial
pronouncements referred and relied above by me and also certain judicial
pronouncements relied upon by the appellant in its written submission which has
reproduced above, addition made by the AO under the heading share capital /
share application money amount cannot be sustained and therefore, the AO is
directed to delete the amount of Rs.1,65,00,000/- + 51,00,000/- + Rs.25,20,000/-
totaling Rs.2,41,20,000/-.
In the result, this ground of appeal is to be treated as Allowed."
8. Aggrieved, the revenue is in appeal before us.
9. We have heard the rival submissions and perused the materials
available on record together with the judicial pronouncements relied upon
by both the counsels before us at the time of hearing. We find that the ld
DR before us vehemently reiterated the findings of the ld AO and stated
that Shri Praveen Kumar Jain was involved in providing accommodation
entries which is evident from the statement on oath recorded from him at
the time of his search. The ld DR argued that subsequent retraction of
25
ITA No.3000/Mum/2017 & CO No.46/Mum/2019
M/s. Sweta Synthetics Pvt. Ltd.,
statement by Shri Praveen Kumar Jain could not be taken into
consideration as the same was done after a considerable lapse of time.
The ld DR argued that the assessee had only received bogus share
capital/share application and share premium monies from aforesaid
entities from parties who have been found to be mere accommodation
entry providers. The ld DR vehemently relied on the following decisions in
support of his arguments:-
a) PCIT vs Bikram Singh reported in 85 taxmann.com 104 (Del HC)
b) PCIT vs NRA Iron & Steel P Ltd reported in 412 ITR 161 (SC)
9.1. We find from the materials available on record that :-
a) There is a clear finding to the fact that Shri Praveen Kumar Jain is
neither a substantial shareholder nor a director in any of the investor
companies.
b) The assessee had sought for the statement recorded from Shri Praveen
Kumar Jain from the ld AO which was not furnished to him. Hence any
statement taken behind the back of the assessee and which was not put
to the assessee for his rebuttal, does not have any evidentiary value and
hence cannot be relied upon.
c) All the relevant details for receipt of share application / share capital /
share premium as listed hereinabove have been duly filed by the assessee
on which no adverse inferences were drawn by the ld AO.
d) No verification whatsoever was carried out by the ld AO with the said
investor companies on the said evidences furnished by the assessee.
26
ITA No.3000/Mum/2017 & CO No.46/Mum/2019
M/s. Sweta Synthetics Pvt. Ltd.,
9.2. We find that all the investor companies are having sufficient
creditworthiness to make investment in the assessee company which
would be evident from the table hereinbelow:-
9.3. Now it would be relevant to address the case laws relied upon by the
ld DR before us.
PCIT vs Bikram Singh reported in 85 taxmann.com 104 (Del HC)
In this case, the loans were received from 8 persons whose identities
were not established. There was a clear finding that the lenders did not
have sufficient financial strength to advance the loans to the assessee
therein, that too without any collateral security, without any interest and
without a loan agreement. The relevant observations of the assessing
officer in that case on facts were as under:-
9. A brief summary of each of the eight transactions and creditors thereof, as per
the AO's order is as under:
(i) Shri Amar Singh - Only a letter of confirmation was filed. Name of the father
and address was not given. PAN number was not given. The information
requested from Gurgaon Gramin Bank, from where the cheque was issued
with respect to the compensation from land acquisition, was also not
received. The person was not produced. Thus, the identity, creditworthiness
and genuineness of Shri Amar Singh were not proved.
27
ITA No.3000/Mum/2017 & CO No.46/Mum/2019
M/s. Sweta Synthetics Pvt. Ltd.,
(ii) Shri Chandan Singh - A confirmation letter of Shri Chandan Singh was filed
along with the bank statement. The AO noticed that the bank account was
opened with a cash deposit of Rs.500/- and huge amounts of cash was
deposited in this account before the cheques of Rs.60, 00,000/- and Rs.50,
00,000/- were issued. The AO concluded that since the source of cash was
unverified and Shri Chandan Singh was also not produced, the identity,
creditworthiness and genuineness of Shri Chandan Singh was not proved.
(iii) Shri Harpreet Singh - No documents were filed by the Assessee to establish
the identity, address etc. Even the PAN number or ID proof was not filed and
he was also not even produced.
(iv) Shri Om Prakash - No documents to establish the address, PAN number,
source of deposit and ID proof, were filed. Neither was a confirmation letter
filed nor was he produced.
(v) Shri Shiv Tej - No documents to establish the address, PAN number, source of
deposit and ID proof, were filed. Neither was a confirmation letter filed nor
was he produced.
(vi) Shri Ram Chander - Only a confirmation letter was filed. However, the AO
observed that the same was not supported by any evidence of identification,
cheque numbers, sources of income or sources of loan. The person was not
produced.
(vii) Smt. Sunita - Only a confirmation letter was filed. However, the AO observed
that the same was not supported by any evidence of identification, cheque
numbers, sources of income or sources of loan and even she was not
produced.
(viii) Shri Virender Yadav - A confirmation letter was produced but no PAN
number was mentioned. The AO observed that the bank statements reveal the
deposit of cash of Rs.13,00,000/- and Rs.7,00,000/- immediately before the
issuance of the cheque in favour of the Assessee. He was also not produced.
15. The ITAT by order dated 19th July, 2016 partly allowed the Assessee's
appeal and deleted the additions in respect of four of the creditors. The summary
of the conclusions of the ITAT in respect of the eight creditors and the
transactions is set out below:
(i) In respect of Smt. Sunita, the ITAT held that additional evidence was
submitted by the Assessee and the same was taken on record. The ITAT
observed that Smt. Sunita, being the wife of the Assessee and her financial
affairs having been handled by the Assessee himself, the identity and
creditworthiness of Smt. Sunita was established. Her PAN Card has been
filed. By assessing the bank accounts of Smt. Sunita, the ITAT concluded that
the genuineness and creditworthiness was also established.
(ii) In respect of Shri Virender Yadav, the ITAT observed that since his PAN card
28
ITA No.3000/Mum/2017 & CO No.46/Mum/2019
M/s. Sweta Synthetics Pvt. Ltd.,
had been submitted by the Assessee, the matter deserved to be remanded to
the AO to pass a speaking order.
(iii) In respect of Shri Shiv Tej, the ITAT after relying upon the documents,
produced by the Assessee, restored the matter to the file of the AO as he had
not been produced before the AO.
(iv) In respect of Shri Om Prakash, the Assessee relied upon the letter of
confirmation, the PAN card and Voter Identity Card to establish the identity
and also submitted that the AO did not record the statement of Shri Om
Prakash despite his appearance before the AO. Thus, the ITAT concluded that
the matter deserved to be restored to the file of the AO.
(v) In respect of Shri Ram Chander, the ITAT referred to the confirmation letter
issued by him, Voter ID Card, the copy of bank statement and the cheque of
Rs. 18.48 Lakhs, which was explained by him as having been received from
his sister Vidya. Thus, the ITAT concluded that the identity, creditworthiness
and genuineness was established and the addition of Rs.10 lakhs in respect of
Shri Ram Chander was deleted.
(vi) In respect of Shri Chandan Singh, the ITAT referred to the copy of PAN Card,
Voter ID Card and the bank statement, which was submitted by the Assessee.
The ITAT held that the identity, genuineness and creditworthiness was
established and the addition made to the tune of Rs.1.10 Crores was deleted.
(vii) In respect of Shri Amar Singh, the ITAT referred to the letter of confirmation
and Voter ID Card to establish the identity of this creditor. He further
referred to the bank statement, which showed a deposit of Rs.84,44,762/- in
his bank account, just before the issuance of cheque of Rs.50 lakhs to the
Assessee. According to the Assessee, this amount was received from the Land
Acquisition Officer, Gurgaon in favour of Shri Amar Singh. The ITAT thus
deleted the addition of rupees Rs.50 lakhs in respect of Shri Amar Singh.
(viii) In respect of Shri Harpreet Singh, the ITAT referred to the letter issued by
him explaining that the loan was given by his son Mr. Dakshdeep Singh vide
cheque no. 58913 dated 18th June, 2010 drawn on HDFC Bank. He also
referred to the confirmation letter given by Mr. Dakshdeep Singh. The ITAT
noted that the creditworthiness of Mr. Dakshdeep Singh was not established
and hence the matter was restored to the file of the AO to examine the
identity, genuineness and creditworthiness. However, for statistical purpose,
addition of Rs.3,50,000/- in respect of Shri Harpreet Singh was allowed.
16. Thus, the ITAT
• deleted the following additions qua Shri. Amar Singh, Shri. Chandan Singh,
Shri. Ram Chander, and Smt. Sunita.
• restored the additions with respect to Shri. Virender Yadav, Shri. Om
Prakash, Shri. Shiv Tej Singh, and Shri. Harpreet Singh, to the AO for
29
ITA No.3000/Mum/2017 & CO No.46/Mum/2019
M/s. Sweta Synthetics Pvt. Ltd.,
reconsideration.
It was held by Hon'ble Delhi High Court as under:-
41. An analysis of the above facts shows that none of these four
individuals have the financial strength to lend such huge sums of money
to the Assessee, that too without any collateral security, without interest
and without a loan agreement. The mere establishing of their identity
and the fact that the amounts have been transferred through cheque
payments, does not by itself mean that the transactions are genuine. The
AO and the CIT (A) have rightly held that the identity, creditworthiness
and the genuineness are all in doubt. Moreover, the Court notes that
that these amounts have been advanced to the Assessee without any
explanation as to their relationship with the Assessee, the reason for the
payment of such huge amounts, as also whether any repayments have,
in fact, been made. There are contradictions in the explanation given by
the Assessee and the statements recorded by these four individuals,
which are irreconcilable. For example, in the case of Shri Ram
Chander/Ram Charan, he had initially stated that he had given
Rs.10,00,000/- out of the proceeds of sale of the land but thereafter it
was claimed by him that the money had come from her sister Vidya.
Such contradictions clearly render all these transactions dubious. The
ITAT could not have, merely because the payments were through
cheques, held that the transactions were genuine. The ITAT erred in
simply accepting the explanation of the Assessee qua the four
transactions. The ITAT, clearly, did not follow the binding precedent
in Divine Leasing & Finance Ltd. (supra), which in no uncertain terms
requires that the authorities are duty bound to investigate the
creditworthiness of the creditors, subscribers and the genuineness of
the transactions. Thus the ITAT did not merely give findings of fact but
misapplied the law. Hence the authorities CIT v. S. Nelliappan [1967]
66 ITR 722 (SC), Orissa Corpn. Pvt. Ltd. (supra), Gun Nidhi
Dalmia (supra) do not support the Assessee's case. The Assessee has
failed to discharge his initial burden as the explanation given by the
Assessee and the four individuals does not appear to be credible.
Hence it could be seen that the aforesaid narration of facts are totally
distinguishable with facts of the instant case before us, which are not
reiterated for the sake of brevity.
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M/s. Sweta Synthetics Pvt. Ltd.,
9.4. Finally the ld DR placed reliance on the recent decision of the Hon'ble
Apex Court in the case of Principal CIT vs NRA Iron & Steel (P) Ltd
reported in 412 ITR 161 (SC) wherein the decision on addition made
towards cash credit was rendered in favour of the revenue. We have
gone through the said judgement and we find in that case, the ld AO had
made extensive enquiries and from that he had found that some of the
investor companies were non-existent which is not the case before us.
Certain investor companies did not produce their bank statements proving
the source for making investments in assessee company, which is not the
case before us. Source of funds were never established by the investor
companies in the case before the Hon'ble Apex Court, whereas in the
instant case, the entire details of source of source were duly furnished by
all the respective share subscribing companies before the ld AO in
response to summons u/s 131 of the Act by complying with the personal
appearance of directors. In the instant case before us, after the relevant
details were furnished by the assessee before the ld AO , no enquiries
were further made by the ld AO with the share subscribers. The ld AO
merely relied on the statement of Shri Praveen Kumar Jain and proceeded
to make the addition. Hence the decision relied upon by the ld DR is
factually distinguishable and does not advance the case of the revenue.
9.5. We find that as per the mandate of section 68 of the Act, the nature
and source of credit in the books of the assessee company has been duly
explained by the assessee. The credit is in the form of receipt of share
capital and share premium from share applicants. The nature of receipt
towards share capital is well established from the entries passed in the
respective balance sheets of the companies as share capital and
investments, as the case may be. Hence the nature of receipt is proved
by the assessee beyond doubt. In respect of source of credit, the
31
ITA No.3000/Mum/2017 & CO No.46/Mum/2019
M/s. Sweta Synthetics Pvt. Ltd.,
assessee has to prove the three necessary ingredients i.e identity of share
applicants, genuineness of transactions and creditworthiness of share
applicants. The identity of share applicants is proved beyond doubt by
the assessee by furnishing the name, address, PAN of share applicants
together with the copies of balance sheets and income tax returns. With
regard to the creditworthiness of share applicants, these companies are
having capital and reserves in several crores of rupees and the
investment made in the assessee company is a small part of their capital
as could be evident from the aforesaid table. These transactions are also
duly reflected in the balance sheets of the share applicants. By this, the
creditworthiness of share applicants is also proved beyond doubt. With
regard to genuineness of transactions, the monies have been directly paid
to the assessee company by account payee cheques out of sufficient bank
balances available in their respective bank accounts. The share
applicants have confirmed the fact of investment in share capital and
share premium by filing a confirmation together with an affidavit from
their directors and have also confirmed the payments which are duly
corroborated with their respective bank statements and all the payments
are by account payee cheques. No verification was carried out by the ld
AO in the instant case either by issuing notices u/s 133(6) of the Act or by
issuing summons u/s 131 of the Act with the share applicants.
9.6. Undisputedly the Share Applicants in this case are the bank account
holders in their respective banks in their own name and are sole owner of
the credits appearing in their bank account from where they issued
cheques to the assessee. For the proposition that a Bank Account holder
himself is the 'owner' of 'credits' appearing in his account (with the result
that he himself is accountable to explain the source of such credits in
32
ITA No.3000/Mum/2017 & CO No.46/Mum/2019
M/s. Sweta Synthetics Pvt. Ltd.,
whatever way and form, the same have emerged) support can be derived
from section 4 of Bankers Book Evidence Act 1891 which reads as under:-
"4. Mode of proof of entries in bankers' books: Subject to the provisions
of this Act, a certified copy of any entry in a bankers' book shall in all
legal proceedings be received as prima facie evidence of the existence of
such entry, and shall be admitted as evidence of the matters, transactions
and accounts therein recorded in every cases where, and to the same
extent as, the original entry itself is now by law admissible, but not further
or otherwise."
9.6.1. Following the said provisions, the co-ordinate bench of Allahabad
Tribunal in the case of Anand Prakash Agarwal reported in 6 DTR (All-
Trib) 191 held as under:-
"The question that remains to be decided now is whether the subject
matter of transfer was the asset belonging to the transferor/donors
themselves. There is enough material on record which goes to show that
there were various credits in the bank accounts of the donors, prior to the
transaction of gifts, which undisputedly belonging to the respective donors
themselves, in their own rights. No part of the credits in the said bank'
accounts was generated from the appellant and/or from its associates, in
any manner. The certificates issued by the banks are construable as
evidence about the ownership of the transferors or their respective bank
accounts, as per s.4 of the Bankers' Books evidence Act 1891, which read
as under:
"4. Where an extract of account was duly signed by the agent of the bank
and implicit in its was a certificate that it was a true copy of an entry
contained in one of the ordinary books of the bank and was made in the
usual and ordinary course of business and that such book was in the
custody of the bank, it was held admissible in evidence. Radheshyam v.
Safiyabai Ibrahim AIR 1988 Bom. 361 : 1987 Mah. 725: 1987 Bank J
552."
In view of the position of law as discussed above, it is always open for a
borrower to contend, that even the "creditworthiness" of the lender stands
proved to the extent of credits appearing in his Bank Account and he
should be held to be successful in this contention."
33
ITA No.3000/Mum/2017 & CO No.46/Mum/2019
M/s. Sweta Synthetics Pvt. Ltd.,
9.7. We find that the Hon'ble Calcutta High Court in the case of S.K.
Bothra & Sons, HUF v. Income-tax Officer, Ward- 46(3), Kolkata reported
in 347 ITR 347(Cal) had held as follows:
"15. It is now a settled law that while considering the question whether the
alleged loan taken by the assessee was a genuine transaction, the initial
onus is always upon the assessee and if no explanation is given or the
explanation given by the appellant is not satisfactory, the Assessing Officer
can disbelieve the alleged transaction of loan. But the law is equally
settled that if the initial burden is discharged by the assessee by producing
sufficient materials in support of the loan transaction, the onus shifts upon
the Assessing Officer and after verification, he can call for further
explanation from the assessee and in the process, the onus may again shift
from the Assessing Officer to assessee.
16. In the case before us, the appellant by producing the loan-
confirmation-certificates signed by the creditors, disclosing their
permanent account numbers and address and further indicating that the
loan was taken by account payee cheques, no doubt, prima facie,
discharged the initial burden and those materials disclosed by the assessee
prompted the Assessing Officer to enquire through the Inspector to verify
the statements."
9.8. We find that the Hon'ble Supreme Court in the case of M/s
Earthmetal Electricals P Ltd vs CIT & Anr. reported in 2010 (7) TMI 1137
in Civil Appeal No. 21073 / 2009 dated 30.7.2010 arising from the order
of Hon'ble Bombay High Court had held as under:-
ORDER
Delay condoned.
Leave granted.
Heard learned counsel on both sides.
We have examined the position. We find that the shareholders are genuine parties. They are not bogus and fictitious. Therefore, the impugned order is set aside.
The appeal is allowed accordingly.
No order as to costs.
In the instant case before us, the share subscribing companies are duly assessed to income tax. It is not in dispute that the share subscribing companies are in existence. It is not in dispute that the share subscribing 34 ITA No.3000/Mum/2017 & CO No.46/Mum/2019 M/s. Sweta Synthetics Pvt. Ltd., companies are duly assessed to income tax and their income tax particulars together with the copies of respective income tax returns with their balance sheets are already on record . Hence it could be safely concluded that they are genuine shareholders and not bogus and fictitious. Accordingly, the ratio laid down by the Hon'ble Apex Court in the case of M/s Earthmetal Electricals P Ltd supra would be squarely applicable to the facts of the instant case.
9.9. We would like to add that receipt of share capital for a company is not a prohibited transaction, as that is one of the main source of raising funds for a company to run its intended activities. Once all the relevant details of the investor companies were filed by the assessee before the ld AO , it is incumbent on the part of the ld AO to trigger the further verification on the investor companies by either issuing notice u/s 133(6) or summons u/s 131 of the Act to examine the veracity of the documents furnished before him. In the instant case, admittedly no such verification was carried out by the ld AO. The only premise on which addition was made was by placing reliance on the statement recorded from Shri Praveen Kumar Jain during the course of his search action. In these facts and circumstances, there is absolutely no reason to draw any adverse inference on the impugned transactions and the documents submitted by the assessee.
9.10. We find that the same investor companies were subject matter of adjudication by the co-ordinate bench of this tribunal in the case of Ambee Investment & Finance Pvt Ltd vs ITO in ITA Nos. 3899 and 3948/Mum/2017 dated 8.2.2019 wherein the transactions with the investor companies Olive Overseas Pvt Ltd (Real Gold Trading Pvt Ltd) ; Nakshatra Business Pvt Ltd (Hema Trading Co. Pvt Ltd) ; Javda India 35 ITA No.3000/Mum/2017 & CO No.46/Mum/2019 M/s. Sweta Synthetics Pvt. Ltd., Impex Ltd ; Lexus Infotech Ltd and Kush Hindusthan Entertainment Ltd were considered and issue decided in favour of the assessee. The relevant operative portion of the order passed by this tribunal in ITA Nos. 3899 & 3948/Mum/2017 dated 8.2.2019 supra are as under:-
"8. We have gone through the assessment order and the order of CIT(A) and noted that the AO noticed from the Bank Account submitted by the assessee that these are non-genuine transactions. The entire basis of the AO was on the investigation done by the office of DGIT Investigation, Mumbai. From the above assessment order, it is clear that the AO has not made any enquiry or investigation and no evidence to controvert the factual details submitted by the assessee was brought on record by the Assessing Officer. The statement of Shri Pravin Kumar was supplied and no cross-examination was provided. There nothing on record about the result of investigation having done by the DGIT (Investigation), Mumbai. The papers filed by the assessee clearly demonstrate that the identity, creditworthiness and genuineness of the transaction is proved. The assessee has prima facie discharged its onus and AO has not carried out any inquiry. In view of the above, we confirm the order of CIT(A) and this issue of Revenue's appeal is dismissed."
The facts of the instant case before us squarely fit in into the facts before the co-ordinate bench of this tribunal in the aforesaid case. Though this decision was rendered in the context of transactions with 5 parties mentioned supra, the same documents that were filed for these 5 parties were filed by the assessee herein for the other two parties also viz Reynolds Petro Chem Ltd and Utkantha Trading Pvt Ltd. Hence the decision rendered thereon would apply with equal force for these two companies also.
9.11. We find that the Hon'ble Apex Court recently in the case of Principal CIT vs Vaishnodevi Refoils & Solvex reported in (2018) 96 taxmann.com 469 (SC) had dismissed the SLP of the Revenue. The brief facts were that the addition u/s 68 of the Act was made by the Assessing Officer in respect of capital contributed by the partner of the firm. The Hon'ble High Court noted that when the concerned partner had confirmed before the 36 ITA No.3000/Mum/2017 & CO No.46/Mum/2019 M/s. Sweta Synthetics Pvt. Ltd., Assessing Officer about his fact of making capital contribution in the firm and that the said investment is also reflected in his individual books of accounts, then no addition could be made u/s 68 of the Act. The decision of Hon'ble Gujarat High Court is reported in (2018) 89 taxmann.com 80 (Guj HC) . The SLP of the revenue against this judgement was dismissed by the Hon'ble Supreme Court.
9.12. We also find that the Hon'ble Jurisdictional High Court in the case of CIT vs Orchid Industries Pvt Ltd reported in 397 ITR 136 (Bom) had held as under:-
"5. The Assessing Officer added Rs. 95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account.
6. The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P.) Ltd. (supra) would be applicable in the facts and circumstances of the present case."
9.13. We find that the various case laws relied upon by the ld CITA including the various decisions of Hon'ble Jurisdictional High Court among other High Courts are squarely applicable to the facts of the instant case before us.
37 ITA No.3000/Mum/2017 & CO No.46/Mum/2019M/s. Sweta Synthetics Pvt. Ltd., 9.14. In view of the aforesaid observations in the facts and circumstances of the case and by respectfully following the various judicial precedents relied upon hereinabove, we hold that the ld CITA had rightly deleted the addition made u/s 68 of the Act in the instant case on which we do not find any infirmity in his order. Accordingly, the grounds raised by the revenue are dismissed.
10. In the result, the appeal of the revenue is dismissed and cross objection of the assessee is also dismissed as not pressed.
Order pronounced in the open court on this 12/07/2019
Sd/- Sd/-
(PAWAN SINGH) (M.BALAGANESH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated 12/07/2019
KARUNA, sr.ps
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
//True Copy//
BY ORDER,
(Asstt. Registrar)
ITAT, Mumbai