Income Tax Appellate Tribunal - Kolkata
M/S. Paras Surti Products Pvt. Ltd.,, ... vs Ito, Ward - 14(3), Kolkata, Kolkata on 9 August, 2019
1
ITA Nos. 2060 & 2097/Kol/2017
Paras Surti Products Pvt. Ltd., AY 2012-13
आयकर अपील य अधीकरण, यायपीठ - "B" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH: KOLKATA
(सम ) ी ऐ. ट . वक , यायीक सद य एवं डॉ. अजन
ु$ लाल सैनी, लेखा सद य)
[Before Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
I.T.A. No. 2060/Kol/2017
Assessment Year: 2012-13
Income-tax Officer, Wd-13(4), Kolkata Vs. M/s. Paras Surti Products Pvt. Ltd.
(PAN: AAECP3714D)
Appellant Respondent
&
I.T.A. No. 2097/Kol/2017
Assessment Year: 2012-13
M/s. Paras Surti Products Pvt. Ltd. Vs. Income-tax Officer, Wd-13(4), Kolkata
Appellant Respondent
Date of Hearing 20.06.2019
Date of Pronouncement 09.08.2019
For the Revenue Shri Robin Choudhury, Addl. CIT, Sr. DR,
For the Assessee Shri A. K. Tibrewal, FCA & Shri Amit
Agarwal, Advocate
ORDER
Per Shri A. T. Varkey, JM:
These are cross appeals filed by the revenue and assessee respectively against the order of Ld. CIT(A)-5, Kolkata dated 14.07.2017 for AY 2012-13. Since issues are arising from the same issues, they are going to be dealt together. The grounds of appeal preferred by the revenue are as under:
"1. Whether on the basis of facts & circumstances of the case and in law the Ld. CIT(A), Kolkata erred in allowing relief to the assessee to the extent of Rs.1,50,00,000/- which was added u/s. 68 of the I. T. Act, 1961 inspite of failure of the assessee to establish the existence, creditworthiness and genuineness of transactions."2
ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 Grounds of appeal raised by the assessee are as under:
"1. That the learned Commissioner of Income Tax (Appeals) - 5, Kolkata erred in confirming the addition of Rs. 90,00,000/- made by the Assessing Officer under section 68 of the Income Tax Act, 1961 on irrelevant considerations and arbitrary grounds.
2. That the learned Commissioner of Income Tax (Appeals)-5, Kolkata erred in confirming the addition of Rs. 90,00,000/- made by the Assessing Officer under section 68 of the Income Tax Act, 1961 on the basis of judgments which are distinguishable on facts as well as on law.
3. That the learned Commissioner of Income Tax (Appeals)-5, Kolkata erred in confirming the addition of share capital of Rs. 90,00,000/- made under section 68 of the Income Tax Act, 1961 in disregard to the binding judgments of Hon'ble Apex Court, Hon'ble Jurisdictional High Court and the Hon'ble Jurisdictional ITAT which directly lays down ratio on the merits of the addition of share capital under section 68 of the Income Tax Act, 1961."
2. Brief facts relating to the grounds for both the appeals are that the AO noted that the assessee company was incorporated on 14.08.2007 and is in the business activity of manufacturing "Gutkha". The AO noted that during the year under consideration a total amount of Rs.2,40,00,000/- was credited in the books of account of the assessee company in which the share capital was to the tune of Rs.80,00,000/- and share premium was to the tune of Rs.1,60,00,000/-. Thereafter, the AO issued letter dated 26.02.2015 to the assessee company asking them to produce on 09.03.2015 all the directors of the companies or persons from whom share application money has been received and shares allotted subsequently during this assessment year. However, according to AO, the assessee failed to produce any of the directors on the stipulated date and time. Thereafter, the AO issued summons to the director of the assessee company Shri Shyamal Kumar Dutta u/s. 131 of the Income-tax Act, 1961 (hereinafter referred to as the "Act") on 26.02.2015 and also to the director/principal officer of the assessee company. However, according to the AO, there was no compliance to the summons issued by him. However, the AO acknowledges that certain statements and documents were furnished before him. The AO further noticed that Shri Bhim Prasad, director also submitted certain documents belatedly on 17.03.2015 citing that he was suffering from illness. The AO noticed that despite summons being issued to director/principal officer of the assessee company any one of directors could have appeared before him other than Shri Bhim Prasad who was suffering from illness. The AO thereafter noticed that he issued final show cause notice on 12.03.2015 and that the 3 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 assessee furnished a reply on 20.03.2015. Thereafter, the AO framed the assessment order. Thereafter, he started analysing the investors' credentials (existence, creditworthiness and genuineness of the transactions). After analysing the documents submitted before him, AO was of the opinion that there was remarkable similarity in terms of paper used, font type and sizes, colour and layout of headings and body of the letter, rubber stamp font type, size and cases, drafting of the body of the letter, inclusion, order and arrangement of enclosed documents, similarity in photocopies, mode of service, dates of service etc. These infirmities, according to AO, gave an impression that these documents are all managed by a common Manager which points finger towards a sham arrangement belying genuineness of the transaction. According to AO, the Balance Sheet of the share subscribing companies showed little or no tangible assets and they were mostly investments in unquoted shares which showed that principles of sound investing had not been followed. Thus, according to AO, these discrepancies raises question mark on long term viability of such companies in terms of returns on investments. According to AO, the income levels of many of these investors are either meager or negative and thus, according to AO, there was hardly any business activity to justify such large amounts of investments and premium. Thus, the AO made observations from (i) to (ix) which is evident from pages 2 and 3 of the assessment order, with those reasons AO was of the opinion that the assessee failed to show the genuineness and creditworthiness of the transaction and moreover, the assessee's failure to produce its own directors as well as the directors of the share subscribing companies made the AO drew adverse inference against the assessee and after citing few case laws made the entire addition of Rs.2.40 cr. u/s. 68 of the Act. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to give partial relief to the assessee by deleting the sum of Rs.1.5 cr. and confirmed Rs. 90 lakhs against the assessee. Aggrieved, the revenue has challenged the deletion of Rs. 1.50 cr. and assessee has assailed the confirmation of Rs.90 lakhs by the Ld. CIT(A).
3. The Ld. DR assailing the decision of the Ld. CIT(A) brought to our notice that during the assessment stage the assessee did not produce any of the directors of the share subscribing companies, so the AO after taking note of the faults specified in pages 2 and 3 4 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 of the assessment order has rightly made the addition where as the Ld. CIT(A) has deleted Rs. 1.5 cr. even without exercising his co-terminous powers to summon the directors of the share subscribing companies which action of the Ld. CIT(A) needs to be interdicted and pleads for reversal of the order by sustaining addition of Rs.1.5 cr.
4. Per contra, the Ld. AR drew our attention to the bulky paper book which contains Volume I, 155 pages, Volume II, 156 to 308 pages and case law paper book, to show the fact that the assessee had filed all the documents substantiating the identity, creditworthiness and genuineness of the transaction. However, the AO without finding any fault with the same has drawn adverse inference because the assessee failed to produce the share subscribing company's directors before him. According to Ld. AR, out of eight (8) share subscribing companies, five (5) of the very same share subscribing companies were allotted shares by the assessee company during the next assessment year i.e. AY 2013-14 also; and the assessment for that year of the assessee i.e. AY 2013-14 was conducted by the AO u/s. 143(3) of the Act and the AO has accepted the genuinity of the transaction with these five share subscribers which fact has been taken into consideration by the Ld. CIT(A) to give relief of Rs.1.5 cr. to the assessee qua these five share subscribers. Therefore, it was stressed by Ld. AR that the decision of the Ld. CIT(A) on this count cannot or should not be disturbed. Assailing the action of Ld. CIT(A) confirming Rs. 90 lakhs which was allotted to three other share subscribing companies, the Ld. AR brought to our notice that all the other three share subscribers are having PAN, and they are corporate entities and are therefore, duly registered with the Registrar of Companies, their account are audited, they have confirmed directly to the AO pursuant to the notice issued u/s. 133(6) of the Act, and they have disclosed their source of funds etc. which, according to Ld. AR, the AO has not found any fault with, still the Ld. CIT(A) sustained the addition which, according to Ld. AR, the decision of Ld CIT(A) in respect to the three (3) other share subscribers is erroneous when the assessee has discharged the onus casted upon it to prove the identity, creditworthiness and genuineness of the transaction. Therefore, according to the Ld. AR, the confirmation of Rs. 90 lakhs by Ld. CIT(A) is erroneous and need to be deleted. Controverting the submissions of the Ld. AR in respect to the assessee's appeal the Ld. DR 5 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 submitted that the Ld. CIT(A) rightly confirmed Rs. 90 lakhs from three share subscribers which action of the Ld. CIT(A) should not be disturbed.
5. Having heard both the parties, we note that the Ld. CIT(A) has given relief to the assessee to the tune of Rs.1.5 cr. out of Rs.2.40 cr. share capital and premium received by the assessee. We note that assessee collected Rs. 2.40 cr. in total which consists of share capital to the tune of Rs. 80 lakhs and share premium was Rs. 1.60 cr. We note that the assessee had allotted the shares to eight (8) corporate entities which are all registered with the Registrar of Companies as per the Companies Act. We note that the Ld. CIT(A) has taken note of the important fact that in the subsequent assessment year i.e. AY 2013-14 five (5) share allottees being (i) M/s. Mukesh Life Style Pvt. Ltd., (ii) M/s. Navkar Barter Pvt. Ltd., (iii) M/s. Faithful Vinimay Pvt. Ltd., (iv) M/s. Ashwini Vinimay Pvt. Ltd. and (v) M/s. Prospect Tie-up Pvt. Ltd. are common share subscribers for both this AYs 2012-13 and AY 2013-14 and the AO has framed the scrutiny assessment u/s. 143(3) for AY 2013- 14 in which he has accepted the share allotted to these five companies meaning thereby in the subsequent AY 2013-14 the AO has accepted the identity, creditworthiness and genuineness of the share transaction between the assessee company and these five companies which had subscribed in this assessment year share capital and share premium to the tune of Rs. 1.50 cr. Taking into consideration this fact, the Ld. CIT(A) ordered deletion of share capital plus share premium given by these five share subscribers and gave relief of Rs. 1.50 cr. which needs no interference because the AO himself in the scrutiny assessment in the subsequent assessment years was satisfied with the identity, creditworthiness and genuineness of these five share subscribers so, the Ld. CIT(A) has rightly deleted Rs. 1.50 cr. and we find no reason to interfere in the order of the Ld. CIT(A). Moreover, we have in addition taken note of the various documents produced before us by the assessee to prove the identity, creditworthiness and genuineness of the transaction of Rs.1.50 cr. by these five share subscriber companies and find that assessee has discharged the onus to prove the identity, creditworthiness and genuineness of the transaction of Rs.1.50 cr. The documents submitted by these five entities would also be discussed infra along with the documents produced for other share subscribers .
6ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13
6. Coming to the assessee's appeal against the confirmation of Rs. 90 lakh by the Ld. CIT(A), we note that the assessee had filed the following documents to substantiate the identity, creditworthiness and genuineness of the transaction of all the eight share subscribing companies out of which the share capital plus premium of three share subscribing companies have not been accepted by the Ld. CIT(A). The three share subscribing companies are (i) M/s. Fantasy Distributor Pvt. Ltd., (ii) M/s. Jaguar Housing Pvt. Ltd. and (iii) M/s. Sanskriti Housing Pvt. Ltd. Let us take the case one by one of these three share subscribers.
(i) M/s. Fantasy Distributor Pvt. Ltd. filed the letter of confirmation of subscribing share capital plus premium to the AO directly pursuant to his notice u/s. 133(6) of the Act, is found placed at pages 131 to 132 of the paper book which is letter dated 20.11.2014 to the AO. We note that the share application forms submitted by M/s. Fantasy Distributor Pvt. Ltd. to the assessee company is found placed at pages 134 to 137 of the paper book.
The income tax return acknowledgment of M/s. Fantasy Distributor Pvt. Ltd. is found placed at page 144 of the paper book wherein we note the PAN of M/s. Fantasy Distributor Pvt. Ltd. is AABCF3443Q and M/s. Fantasy Distributor Pvt. Ltd. is assessed by ITO, Wd- 9(1)-WBG/W/109/01, bank statement of M/s. Fantasy Distributor Pvt. Ltd. wherein it had account with Federal Bank is found at page 145 of the paper book. Its audited accounts are placed from pages 146 to 150 of the paper book and from a perusal of page 150, we note that the investment made in the assessee company (M/s. Paras Surti Products Ltd.) is to the tune of Rs.30,00,000/- found reflected. This company's Memorandum & Article of Association is placed at pages 151 to 155 of the paper book. We also note that the certificate explaining the source of funds is found placed at pages 138 to 142 of the paper book. We also note that M/s. Fantassy Distributors Pvt. Ltd. had investible funds to the tune of Rs.2.93 cr. as on 31.03.2012 which is evident from page 148 of the paper book (share capital of Rs.15,65,000 + Reserve & Surplus of Rs.2,78,07,180 thus total of Rs.2,93,72,180) whereas this company has subscribed to share capital of Rs.10 lakhs plus share premium of Rs. 20 lakhs totalling to Rs.30 lakhs , which shows that it had invested only very less amount when it has got sufficient own funds.
7ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13
(ii) Coming to next subscribing company M/s. Jaguar Housing Pvt. Ltd., we note from a perusal of the paper book pages 198 to 199 which is a letter written by M/s. Jaguar Housing Pvt. Ltd. to the AO pursuant to the notice u/s. 133(6) of the Act. From a perusal of pages 200 and 201 shown the application form filed by M/s. Jaguar Housing Pvt. Ltd. with the assessee company for allotment of shares. The income tax return acknowledgment of M/s. Jaguar Housing Pvt. Ltd. is found placed at page 207 of the paper book, from which we note that the PAN is AACCJ2834N and M/s. Jaguar Housing Pvt. Ltd. is assessed by ITO, Wd-5(1)-WBG/W/105/01. The audited accounts are placed from pages 209 to 115 of the paper book. A perusal of page 206 of paper book reveals the bank statement of M/s. Jaguar Housing Pvt. Ltd. which maintained with Federal Bank. This company's Memorandum & Article of Association is placed at pages 216 to 220 of the paper book and the certificate explaining the source of funds is found placed at pages 202 to 204 of the paper book. From a perusal of page 211 the Balance Sheet of M/s. Jaguar Housing Pvt. Ltd. as at 31.03.2012 reveals that it has a share capital of Rs.7,50,000/- and Reserves and surplus to the tune of Rs.58,31,075/- totaling to Rs.65,81,075/- whereas it has subscribed only Rs. 10 lacs share capital and premium of Rs. 20 lakhs (page 211 of paper book, which shows that it had invested only very less amount when it has got sufficient own funds.
(iii) Coming to the next M/s. Sanskriti Housing Pvt. Ltd.. We note that M/s. Sanskriti Housing Pvt. Ltd. had written letter to the AO pursuant to 133(6) notice which is found placed at pages 221 to 222 of the paper book which is a letter dated 18.11.2014. The share application forms filed by M/s. Sanskriti Housing Pvt. Ltd. to the assessee company is found placed at pages 223 to 226 of the paper book. The income tax return acknowledgment is found placed at page 232 of the paper book wherefrom we note that the PAN of M/s. Sanskriti Housing Pvt. Ltd.. is AANCS7871B. We note that the AO of M/s. Sanskriti Housing Pvt. Ltd. is ITO, Wd. 5(1)/WBG/W/105/01. Bank statement of M/s. Sanskriti Housing Pvt. Ltd. is found placed at page 233 of paper book which is maintained at Federal Bank. The audited accounts are found placed from pages 234 to 238 of paper book and the investment made by M/s. Sanskriti Housing Pvt. Ltd. on the assessee company is to the tune of Rs. 30 lacs which is found placed at page 238 of the paper book 8 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 which is a part of the audited accounts. The Memorandum & Articles of Association is found placed at paper book pages 239 to 243 of the paper book. From a perusal of the page 236 of the paper book, we note that M/s. Sanskriti Housing Pvt. Ltd. had share capital of Rs.11,80,000/- and Reserve & Surplus to the tune of Rs.97,21,654/- totaling to Rs.1,09,01,654/- whereas this company has invested only Rs. 10 lacs as share capital and Rs. 20 lacs as share premium which shows that it had enough own fund to invest in this company. Thus, we note that by producing the ITR, bank statement, PAN details of the share subscribing companies the assessee has proven their identity, the transactions have taken place through banking channel which shows the genuineness of the transaction. The creditworthiness has already been found to be there with both the three share subscribing companies, therefore, the assessee has discharged that the onus casted upon it to prove the identity, creditworthiness and genuineness of the transaction the AO has not found the documents furnished as aforesaid to be sham or fabricated merely because the directors did not appear has no ground to disbelieve/brush aside the documents produced before him and to draw adverse inference as held by the Hon'ble Supreme Court in the case of Orissa Corporation [1986] 159 ITR 78.
7. Before we advert to the additions u/s. 68 of the Act, we note that the assessee had filed paper book pages from 1 to 308 (volume 1 & II) to prove the identity, creditworthiness and genuineness of the transaction of Rs.2.40 cr. (share capital Plus premium)
(a) Income Tax Return of the share holders
(b) Audited Accounts of the share holders
(c) Share Application Forms
(d) Share Allotment Letters
(e) Copy of the bank account of the share holders
(f) Transaction with the appellant was duly highlighted in the bank statement 9 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13
(g) Copy of assessment orders of the shareholders
(h) Evidences of source of source of the share holders
8. Taking note of the fact that out of the 8 share subscribers 5 share subscribers were also allotted shares in the next assessment year 2013-14 which was also scrutinized by the AO under section 143(3) of the Act and he has accepted the identity, creditworthiness and genuineness of the transaction when the 5 share subscribers who had subscribed Rs.1.50 cr. in this assessment year 2012-13 the Ld. CIT(A) has given relief to the assessee. Before, we adjudicate as to whether the Ld. CIT(A)'s action is right or erroneous, let us look at section 68 of the Act and the judicial precedents on the issue at hand.
9. Section 68 under which the addition has been made by the Assessing Officer reads as under:
"68. 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. "
The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this case the legislative mandate is not in terms of the words 'shall' be charged to income-tax as the income of the assessee of that previous year". The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word "may" and not "shall". Thus the un-satisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan [1999] 237 ITR 570. We note that against the said decision of Hon'ble Gujarat High Court the special leave petition filed by the Revenue has also been dismissed by the Hon'ble Apex Court.
10ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13
10. The main plank on which the AO made the addition was because the directors of the share subscribers did not turn up before him. In such a case the Hon'ble Apex Court in the case of Orissa Corpn. (P) Ltd. (supra) 159 ITR 78 and the Hon'ble Gujarat High Court, in the case of Dy. CIT v. Rohini Builders [2002] 256 ITR 360 /[2003] 127 Taxman 523 , has held that onus of the assessee (in whose books of account credit appears) stands fully discharged if the identity of the creditor is established and actual receipt of money from such creditor is proved. In case, the Assessing Officer is dissatisfied about the source of cash deposited in the bank accounts of the creditors, the proper course would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor). In arriving at this conclusion, the Hon'ble Court has further stressed the presence of word "may" in section 68. Relevant observations at pages 369 and 370 of this report are reproduced hereunder:-
"Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation [1986] 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw and adverse inference against the assessee. in the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by' treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69.
11. In the case of Nemi Chand Kothari 136 Taxman 213, (supra), the Hon'ble Guahati High Court has thrown light on another aspect touching the issue of onus on assessee under section 68, by holding that the same should be decided by taking into consideration the provision of section 106 of the Evidence Act which says that a person can be required to prove only such facts which are in his knowledge. The Hon'ble Court in the said case held that, once it is found that an assessee has actually taken money from depositor/lender who has been fully identified, the assessee/borrower cannot be called upon to explain, much less 11 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 prove the affairs of such third party, which he is not even supposed to know or about which he cannot be held to be accredited with any knowledge. In this view, the Hon'ble Court has laid down that section 68 of Income-tax Act, should be read along with section 106 of Evidence Act. The relevant observations at page 260 to 262, 264 and 265 of the report are reproduced herein below:-
"While interpreting the meaning and scope of section 68, one has to bear in mind that normally, interpretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation of statutes, when we read carefully the provisions of section 68, we notice nothing in section 68 to show that the scope of the inquiry under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorize the Revenue Department to make inquiry into the source(s) of the credit and/or sub-creditor. The language employed by section 68 cannot be read to impose such limitations on the powers of the Assessing Officer. The logical conclusion, therefore, has to be, and we hold that an inquiry under section 68 need not necessarily be kept confined by the Assessing Officer within the transactions, which took place between the assessee and his creditor, but that the same may be extended to the transactions, which have taken place between the creditor and his sub-creditor. Thus, while the Assessing Officer is under section 68, free to look into the source(s) of the creditor and/or of the sub-creditor, the burden on the assessee under section 68 is definitely limited. This limit has been imposed by section 106 of the Evidence Act which reads as follows:
"Burden of proving fact especially within knowledge.-When any fact is especially within the knowledge of any person, the burden) of proving that fact is upon him. "
******** What, thus, transpires from the above discussion is that white section 106 of the Evidence Act limits the onus of the assessee to the extent of his proving the source from which he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s)of the creditor but also of his (creditor's) sub-creditors and prove, as a result, of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/source from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and IT is not the burden of the assessee to prove the creditworthiness of the source(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then, the interpretation of section 68 are to stand together, which they must, then the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of section 106 of the Evidence Act and section 68 of the Income- tax Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of 12 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the assessee to prove that the sub- creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been. eventually, received by the assessee. It, therefore, further logically follows that the creditor's creditworthiness has to be Judged vis-a-vis the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub- creditors, for, these aspects may not be within the special knowledge of the assessee. "
********** " ... If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis-a-vis the transactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuineness of the transaction and the creditworthiness of the creditor vis-a-vis the transactions which had taken place between the assessee and the creditor and not between the creditor and the sub-creditors, for, it is not even required under the law for the assessee to try to find out as to what sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had' with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub-creditor... "
********** "In other words, though under section 68 an Assessing Officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-creditor to the creditor was income of the assessee from undisclosed source unless there is evidence, direct or circumstantial, to show that the amount which has been advanced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee ...."
********** 13 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 "Keeping in view the above position of law, when we turn to the factual matrix of the present case, we find that so far as the appellant is concerned, he has established the identity of the creditors, namely, Nemichand Nahata and Sons (HUF) and Pawan Kumar Agarwalla. The appellant had also shown, in accordance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors aforementioned. In fact the fact that the assessee had received the said amounts by way of cheques was not in dispute. Once the assessee had established that he had received the said amounts from the creditors aforementioned by way of cheques, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter the burden had shifted to the Assessing Officer to prove the contrary. On mere failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee, such failure, as a corollary, could not have been and ought not to have been, under the law, treated as the income from the undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. Viewed from this angle, we have no hesitation in holding that in the case at hand, the Assessing Officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. In the absence of any such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the appellant from undisclosed sources. The learned Tribunal seriously fell into error in treating the said amounts as income derived by the appellant from. undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness."
12. Further, in the case of CIT v. S. Kamaljeet Singh [2005] 147 Taxman 18(All.) their lordships, on the issue of discharge of assessee's onus in relation to a cash credit appearing in his books of account, has observed and held as under:-
"4. The Tribunal has recorded a finding that the assessee has discharged the onus which was on him to explain the nature and source of cash credit in question. The assessee discharged the onus by placing (i) confirmation letters of the cash creditors; (ii) their affidavits; (iii) their full addresses and GIR numbers and permanent account numbers. It has found that the assessee's burden stood discharged and so, no addition to his total income on account of cash credit was called for. In view of this finding, we find that the Tribunal was right in reversing the order of the AA C, setting aside the assessment order."
13. We also take note of the decision of the Hon'ble High Court, Calcutta in the case of S.K. Bothra & Sons, HUF v. Income-tax Officer, Ward- 46(3), Kolkata 347 ITR 347 wherein the Court 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 14 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 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."
14. In a case where the issue was whether the assessee availed cash credit as against future sale of product, the AO issued summons to the creditors who did not turn up before him, so AO disbelieved the existence of creditors and saddled the addition, which was overturned by Ld. CIT(A). However, the Tribunal reversed the decision of the Ld. CIT(A) and upheld the AO's decision, which action of Tribunal was challenged by the Hon'ble High Court, Calcutta in the case of Crystal Networks (P.) Ltd. v. Commissioner of Income-tax 353 ITR 171 wherein the Tribunal's decision was overturned and decision of Ld. CIT(A) upheld and the Hon'ble High Court has held that when the basic evidences are on record the mere failure of the creditor to appear cannot be basis to make addition. The court held as follows:
8. Assailing the said judgment of the learned Tribunal learned counsel for the appellant submits that Income-tax Officer did not consider the material evidence showing the creditworthiness and also other documents, viz., confirmatory statements of the persons, of having advanced cash amount as against the supply of bidis. These evidence were duly considered by the Commissioner of Income-tax (Appeals). Therefore, the failure of the person to turn up pursuant to the summons issued to any witness is immaterial when the material documents made available, should have been accepted and indeed in subsequent year the same explanation was accepted by the Income-tax Officer. He further contended that when the Tribunal has relied on the entire judgment of the Commissioner of Income-tax (Appeals), therefore, it was not proper to take up some portion of the judgment of the Commissioner of Income-tax (Appeals) and to ignore the other portion of the same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so the Tribunal committed grave error in law in upsetting the judgment in the order of the Commissioner of Income-tax (Appeals).
9. In this connection he has drawn our attention to a decision of the Supreme Court in the case of Udhavdas Kewalram v. CIT [19671 66 ITR 462. In this judgment it is noticed that the Supreme Court as proposition of law held that the Tribunal must In deciding an appeal, consider with due care, all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner in the light of the evidence and the relevant law.15
ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13
10. We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore, it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter the creditworthiness. As rightly pointed out by the learned counsel that the Commissioner of Income-tax (Appeals) has taken the trouble of examining of all other materials and documents, viz., confirmatory statements, invoices, challans and vouchers showing supply of bidis as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued, in our view, is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the product of the assessee or not. When it was found by the Commissioner of Income- tax (Appeals) on facts having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this -fact finding. Indeed the Tribunal did not really touch the aforesaid fact finding of the Commissioner of Income-tax (Appeals) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 464, the Supreme Court has observed as follows:
"The Income-tax Appellate Tribunal performs a judicial function under the Indian Income-tax Act; it is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. "
11. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity.
12. Taking inspiration from the Supreme Court observations we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Commissioner of Income-tax (Appeals). We also found no single word has been spared to up set the fact finding of the Commissioner of Income-tax (Appeals) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made.
13. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Commissioner of Income-tax (Appeals). The appeal is allowed.
15. When a question as to the creditworthiness of a creditor is to be adjudicated and if the creditor is an Income Tax assessee, it is now well settled by the decision of the Calcutta High Court that the creditworthiness of the creditor cannot be disputed by the AO of the assessee but the AO of the creditor. In this regards our attention was drawn to the decision of the Hon'ble High Court, Calcutta in the COMMISSIONER OF INCOME TAX, KOLKA TA-Ill Versus DATAWARE PRIVATE LIMITED ITAT No. 263 of 2011 Date: 21st September, 2011 wherein the Court held as follows:
16ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 "In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness" of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence.
So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness" of transaction through account payee cheque has been established.
We find that both the Commissioner of Income Tax (Appeal) and the Tribunal below followed the well-accepted principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities."
16. Our attention was also drawn to the decision of the Hon'ble Supreme Court while dismissing SLP in the case of Lovely Exports as has been reported as judgment delivered by the CTR at 216 CTR 295:
"Can the amount of share money be regarded as undisclosed income under section 68 of the Income tax 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 to 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.
17. Our attention was also drawn to the decision of the Hon'ble Calcutta High Court while relying on the case of Lovely Exports, in the appeal of COMISSIONER OF INCOME TAX, KOLKATA-IV Vs ROSEBERRY MERCANTILE (P) LTD., ITAT No. 241 of 2010 dated 10- 01-2011 has held:
"On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT (A) ought to have held that the assessee had not established the genuineness of the transaction. "
It appears from the record that in the assessment proceedings it was noticed that the assessee company during the year under consideration had brought Rs. 4, 00, 000/- and Rs.20,00,000/- towards share capital and share premium respectively amounting to Rs.24,00, 000/- from four shareholders being private limited companies. The Assessing Officer on his part called for the details from the assessee and also from the share applicants and analyzed the facts and ultimately observed certain abnormal features, which were mentioned in the assessment order. The Assessing Officer, therefore, concluded that nature and source of such money was 17 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 questionable and evidence produced was unsatisfactory. Consequently, the Assessing Officer invoked the provisions under Section 68/69 of the Income Tax Act and made addition of Rs.24,00,000/-.
On appeal the Learned CIT (A) by following the decision of the Supreme Court in the case of Cl. T. vs. M/s. Lovely Exports Pvt. Ltd., reported in (2008) 216 CTR 195 allowed the appeal by holding -that share capital/premium of Rs. 24,00,000/- received from the investors was not liable to be treated under Section 68 as unexplained credits and it should not be taxed in the hands of the appellant company.
As indicated earlier, the Tribunal below dismissed the appeal filed by the Revenue.
After hearing the learned counsel for the appellant and after going through the decision of the Supreme Court in the case of Cl. T. vs. M/s. Lovely Exports Pvt. Ltd. [supra], we are at one with the Tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed.
18. Our attention was drawn to the decision of the Hon'ble High Court, Calcutta in the case of Commissioner Of Income Tax vs M/s. Nishan Indo Commerce Ltd dated 2 December, 2013 in INCOME TAX APPEAL NO.52 OF 2001 wherein the Court held as follows:
"The Assessing Officer was of the view that the increase in share capital by RS.52,03,500/- was nothing but the introduction of the assessee's own undisclosed funds/income into the books of accounts of the assessee company. The Assessing Officer accordingly treated the investment as unexplained credit under Section 68 of the Income Tax Act and added the same to the income of the assessee.
Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) being the First Appellate Authority and contended that the Assessing Officer had no material to show that the share capital was the income of the assessee company and as such the addition made by the Assessing Officer under Section 68 of the Act was wrong.
The learned Commissioner of Income Tax (Appeals) after hearing the department and the Assessee Company deleted the addition of Rs. 52, 03,500/- to the income of the assessee company during the Assessment Year in question. The learned Commissioner of Income Tax Appeals found that there were as many as 2155 allottees, whose names, addresses and respective shares allocation had been disclosed.
The Commissioner of Income Tax Appeals, further found that the Assessee Company received the applications through bankers to the issue, who had been appointed under the guidelines of the Stock Exchange and the Assessee Company had been allotted shares on the basis of allotment approved by the Stock Exchange. The Assessee Company had duly filed the return of allotment with the Registrar of Companies, giving complete particulars of the allottees.
The Commissioner of Income Tax (Appeals) found that inquires had confirmed the existence of most of the shareholders at the addresses intimated to the Assessing Officer, but the Assessing Officer took the view that their investment in the Assessee Company was not 18 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 genuine, on the basis of some extraneous reasons. The Commissioner of Income Tax (Appeals) took note of the observation of the Assessing Officer that enquiry conducted by the Income Tax Inspector had revealed that nine persons making applications for 900 shares were not available at the given address and rightly concluded that the total share capital issued by the Assessee Company could not be added as unexplained cash credit under 'Section 68 of the Income Tax Act. Moreover, if the nature and source of investment by any shareholder, in shares of the Assessee Company remained unexplained, liability could not be foisted on the company. The concerned shareholders would have to explain the source of their fund.
The learned Commissioner on considering the submissions of the, respective parties and considering the materials, found that the Assessing Officer had applied the provisions of Section 68 of the Income Tax Act arbitrarily and illegally and in any case without giving the assessee adequate opportunity of representation and/or hearing.
Learned Tribunal agreed with the factual findings of the learned Commissioner and accordingly the learned Tribunal dismissed the appeal of the Revenue and affirmed the decision of the learned Commissioner.
Mr. Dutta appearing on behalf of the petitioners cited judgment of the Division Bench of this Court in Commissioner of Income Tax Vs. Ruby Traders and Exporters Limited reported in 236 (2003) ITR 3000 where a Division Bench of this Court held that when Section 68 is resorted to, it is incumbent on the assessee company to prove and establish the identity of the subscribers, their credit worthiness and the genuineness of the transaction.
The aforesaid judgment was rendered in the context of the factual background of the aforesaid case where, despite several opportunities being given to the assessee, nothing was disclosed about the identity of the shareholders. In the instant case, the assessee disclosed the identity and address and particulars of share allocation of the shareholders. It was also found on the facts that all the shareholders were in existence. Only nine shareholders subscribing to about 900 shares out of 6, 12,000 shares were not found available at their addresses, and that too, in course of assessment proceedings in the year 1994, i.e., almost 3 years after the allotment.
By an order dated 2nd May, 2001, this Court admitted the appeal on three questions which essentially centre around the question of whether the Appellate Commissioner erred in law in deleting the addition of Rs. 52, 03, 500/- to the income of the assessee as made by the Assessing Officer. We are of the view that there is no question of law involved in this appeal far less any substantial question of law.
The learned Tribunal has concurred with the learned Commissioner on facts and found that there were materials to show that the assessee had disclosed the particulars of the shareholders. The factual findings cannot be interfered with, in appeal. We are of the view that once the identity and other relevant particulars of shareholders are disclosed, it is for those shareholders to explain the source of their funds and not for the assessee company to show wherefrom these shareholders obtained funds."
19. Further, our attention was drawn to the decision of the Hon'ble High Court, Calcutta in the case of Commissioner of Income Tax vs M/s. Leonard Commercial (P) Ltd on 13 June, 2011 in ITAT NO 114 of 2011 wherein the Court held as follows:
19ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 "The only question raised in this appeal is whether the Commissioner of Income-tax (Appeals) and the Tribunal below erred in law in deleting the addition of Rs.8,52,000/-, Rs. 91,50,000/- and Rs. 13,00,000/- made by the Assessing Officer on account of share capital, share application money and investment in HTCCL respectively.
After hearing Md. Nizamuddin, learned Advocate appearing on behalf of the appellant and after going through the materials on record, we find that all such application money were received by the assessee by way of account payee cheques and the assessee also disclosed the complete list of shareholders with their complete addresses and GIR Numbers for the relevant assessment years in which share application was contributed. It further appears that all the payments were made by the applicants by account payee cheques.
It appears from the Assessing Officers order that his grievance was that the assessee was not willing to produce the parties who had allegedly advanced the fund.
In our opinion, both the Commissioner of Income-tax (Appeals) and the Tribunal below were justified in holding that after disclosure of the full particulars indicated above, the initial onus of the assessee was shifted and it was the duty of the Assessing Officer to enquire whether those particulars were correct or not and if the Assessing Officer was of the view that the particulars supplied were insufficient to detect the real share applicants, to ask for further particulars.
The Assessing Officer has not adopted either of the aforesaid courses but has simply blamed the assessee for not producing those share applicants.
In our view, in the case before us so long the Assessing Officer was unable to arrive at a finding that the particulars given by the assessee were false, there was no scope of adding those money under section 68 of the Income- tax Act and the Tribunal below rightly held that the onus was validly discharged.
We, thus, find that both the authorities below, on consideration of the materials on record, rightly applied the correct law which are required to be applied in the facts of the present case and, thus, we do not find any reason to interfere with the concurrent findings of fact based on materials on record.
The appeal is, thus, devoid of any substance and is dismissed summarily as it does not involve any substantial question of law.
20. In the light of the aforesaid decisions of the Hon'ble Apex Court and jurisdictional High Court and other High Courts, we have examined each share subscribers totaling. We note that the assessee had produced the following documents shown in Sl. No. 1 to 8 in the chart given below;
Sl. Particulars of documents Mukesh Navkar Faithful Ashwini Prospect Tie No. of the share applicants Lifestyle Barter Pvt. Vinimay Pvt. Vinimay Pvt. Up Pvt. Ltd.
Pvt. Ltd. Ltd. Ltd. Ltd.
Page Nos. Page Nos. Page Nos. Page Nos. Page Nos.
1. Letter furnished u/s. 66-67 86-87 106-107 156-157 176
133(6)
20
ITA Nos. 2060 & 2097/Kol/2017
Paras Surti Products Pvt. Ltd., AY 2012-13
2. Share Applicant Forms 68-69 88-89 108-112 158-160 177-179
3. Certificate explaining 70-71 90-91 113-117 161 180-182
source of funds
4. Income Tax Return 73 93 119 163 184
acknowledgment
5. Bank Statements 74 94-95 120 164 185
6. Audited Accounts 75-79 96-99 121-124 165-170 186-191
7. Details of investment as 79 99 125 170 191
appearing in audited
accounts showing
investment in Assessee
company
8. Memorandum & Articles 80-85 100-105 126-130 171-175 193-197
of Association
Sl. No. Particulars of documents of the share applicantsFantasy Jaguar Sanskriti
Distributors Housing Housing Pvt.
Pvt. Ltd. Pvt. Ltd. . Ltd.
Page Nos. Page Nos. Page Nos.
1. Letter furnished u/s. 133(6) 131-132 198-199 221-222
2. Share Applicant Forms 133-137 200-201 223-226
3. Certificate explaining source of funds 138-142 202-205 227-230
4. Income Tax Return acknowledgment 144 207 232
5. Bank Statements 145 206 233
6. Audited Accounts 146-149 209-215 234-238
7. Details of investment as appearing in audited 150 - 238
accounts showing investment in Assessee company
8. Memorandum & Articles of Association 151-155 216-220 239-243
21. From the aforesaid chart we note that the assessee has discharged its onus casted upon it to prove the identity, creditworthiness and genuineness of the transaction. Since we have already discussed about the creditworthiness of the three assessee companies namely M/s. Fantasy Distributors Pvt. Ltd., M/s. Jaguar Housing Pvt. Ltd. and M/s. Sanskriti Housing Pvt. Ltd. pertaining to the assessee's appeal, we would like to see the creditworthiness of the remaining five share subscribers which are involved in the revenue's appeal in the following manner:
i) In respect of M/s. Mukesh Lifestyle pvt. Ltd., on perusal of the Balance Sheet as at 31.03.2012 placed at paper book page 77 reveals that it had a share capital of Rs.33,65,000/- and Reserve & Surplus of Rs.2,25,68,054/- totaling to Rs.2,59,33,054/- and 21 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 whereas it has invested share capital of only Rs. 10 lacs and share premium of Rs. 20 lacs totaling Rs.30 lacs. So M/s. Mukesh Lifestyle Pvt. Ltd. has sufficient own funds so it has got creditworthiness.
ii) In respect of M/s. Navkar Barter Pvt. Ltd. on perusal of the Balance Sheet as at 31.03.2012 placed at paper book page 98 reveals that it had a share capital of Rs.26,36,000/- and Reserve & Surplus of Rs.2,28,35,436/- totaling to Rs.2,54,71,436/- and whereas it has invested share capital of only Rs. 10 lacs and share premium of Rs. 20 lacs totaling Rs.30 lacs. So M/s. Navkar Barter Pvt. Ltd. has sufficient own funds so it has got creditworthiness.
iii) In respect of M/s. Faithful Vinimay Pvt. Ltd. on perusal of the Balance Sheet as at 31.03.2012 placed at paper book page 123 reveals that it had a share capital of Rs.10,55,000/- and Reserve & Surplus of Rs.1,81,33,386/- totaling to Rs.1,91,88,386/- and whereas it has invested share capital of only Rs. 10 lacs and share premium of Rs. 20 lacs totaling Rs.30 lacs. So M/s. Faithful Vinimay Pvt. Ltd. has sufficient own funds so it has got creditworthiness.
iv) In respect of M/s. Ashwini Vinimay Pvt. Ltd. on perusal of the Balance Sheet as at 31.03.2012 placed at paper book page 166 reveals that it had a share capital of Rs.9,50,000/- and Reserve & Surplus of Rs.1,61,37,556 /- totaling to Rs. 1,70,87,556/- and whereas it has invested share capital of only Rs. 10 lacs and share premium of Rs. 20 lacs totaling Rs.30 lacs. So M/s. Ashwini Vinimay Pvt. Ltd. has sufficient own funds so it has got creditworthiness.
v) In respect of M/s. Prospect Tie Up Pvt. Ltd. on perusal of the Balance Sheet as at 31.03.2012 placed at paper book page 189 reveals that it had a share capital of Rs.32,87,000/- and Reserve & Surplus of Rs.2,86,96,419 /- totaling to Rs. 3,19,83,419/-
and whereas it has invested share capital of only Rs. 10 lacs and share premium of Rs. 20 lacs totaling Rs.30 lacs. So M/s. Prospect Tie Up Pvt. Ltd. has sufficient own funds so it has got creditworthiness.
22ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13
22. From the details as aforesaid which emerges from the paper book filed before us as well as before the lower authorities, it is vivid that all the share applicants are (i) income tax assessee's, (ii) they are filing their return of income, (iii) the share application form and allotment letter is available on record, (iv) the share application money was made by account payee cheques, (v) the details of the bank accounts belonging to the share applicants and their bank statements, (vi) in none of the transactions the AO found deposit in cash before issuing cheques to the assessee company, (vii) the applicants are having substantial creditworthiness which is represented by a capital and reserve as noted above.
23. As noted from the judicial precedents cited above, where any sum is found credited in the books of an assessee then there is a duty casted upon the assessee to explain the nature and source of credit found in his books. In the instant case, the credit is in the form of receipt of share capital with premium from share applicants. The nature of receipt towards share capital is seen from the entries passed in the respective balance sheets of the companies as share capital and investments. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e. identity of share applicants, genuineness of transactions and creditworthiness of share applicants. For proving the identity of share applicants, the assessee furnished 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, as we noted supra, these Companies are having capital in several crores of rupees and the investment made in the appellant company is only a small part of their capital. These transactions are also duly reflected in the balance sheets of the share applicants, so creditworthiness is proved. Even if there was any doubt if any regarding the creditworthiness of the share applicants was still subsisting, then AO should have made enquiries from the AO of the share subscribers as held by Hon'ble jurisdictional High Court in CIT vs DATAWARE (supra) which has not been done, so no adverse view could have been drawn. Third ingredient is genuineness of the transactions, for which we note that the monies have been directly paid to the assessee company by account payee cheques out of sufficient bank balances available in their bank accounts on behalf of the share applicants. It will be evident from the paper book that the appellant has even demonstrated the source of 23 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 money deposited into their bank accounts which in turn has been used by them to subscribe to the assessee company as share application. Hence the source of source of source is proved by the assessee in the instant case though the same is not required to be done by the assessee as per law as it stood/ applicable in this assessment year. The share applicants have confirmed the share application in response to the notice u/s 133(6) of the Act and have also confirmed the payments which are duly corroborated with their respective bank statements and all the payments are by account payee cheques.
24. We also note that recently the ITAT Kolkata in several cases has deleted the addition on account of share application in similar circumstances. The relevant portion of the decisions are as follows:
(a) The Ld ITAT Kolkata. in DC IT Vs Global Mercantiles Pvt.Ltd in ITA No. 1669/Kol/2009 dated 13-01-2016. In this the decision the Ld. Tribunal held as follows:
"3.4. We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee. The facts stated hereinabove remain undisputed are not reiterated herein for the sake of brevity. We find that the assessee had given the complete details about the share applicants clearly establishing their identity, creditworthiness and genuineness of transaction proved beyond doubt and had duly discharged its onus in full. Nothing prevented the Learned AO to make enquiries from the assessing officers of the concerned share applicants for which every details were very much made available to him by the assessee. We find that the reliance placed by the Learned Ld. CIT(1) on the decision of the Hon'ble Apex Court in the case of CIT vs Lovely Exports (P) Ud reported in (2008) 216 CTR 195 (SC) is very well founded, wherein, it has been very clearly held that the only obligation of the company receiving the share application money is to prove the existence of the shareholders and for which the assessee had discharged the onus of proving their existence and also the source of share application money received.
3.4. 1. We also find that the impugned issue is also covered by the decision of Hon'ble Calcutta High Court in the case of CIT vs Roseberry Mercantile (P) Ltd in GA No. 3296 of 2010 ITAT No. 241 of 2010 dated 10.1.2011, wherein the- questions raised before their lordships and decision rendered thereon is as under:-
"On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT(A) ought to have held that the assessee had not established the genuineness of the transaction. "
IT A No. 1669/KoI/2009-C-AM M/s. Global Mercantiles Pvt. Ltd 11 Held After hearing the learned counsel for the appellant and after going through the decision of 24 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 the Supreme Court in the cases of CIT vs M/s Lovelv Exports Pvt Ltd, we are at one with the tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed.
3.4.2. In view of the aforesaid findings and respectfully following the decision of the apex court (supra) and Jurisdictional High Court (supra) , we find no infirmity in the order of the Learned CIT(A) and accordingly, the ground no.2 raised by the Revenue is dismissed.
4. The last ground to be decided in this appeal of the Revenue is as to whether the Learned CIT(A) is justified in deleting the addition u/s 68 of the Act made in respect of allotment of shares to 20 individuals for an amount of Rs.57,00,000/- in the facts and circumstances of the case.
4. 1. The brief fact of this issue is that the assessee had received share application monies from 20 individuals in the earlier year which were kept in share application money account. During the asst year under appeal, the assessee allotted shares to these 20 individuals out of transferring the monies from share application money account to share capital account. The details of 20 individuals are reflected in page 6 & 7 of the Learned CIT(A) order. The Learned AO asked the assessee to produce the shareholders before him. He found that the assessee did not do so but furnished copies of pay orders used for payments to the assessee company and also furnished income tax particulars and balance sheets of all the shareholders. The Learned AO on analyzing all the balance sheets observed that the shareholders have paltry income and small savings and none of them have any bank account and huge cash balances were shown in their hands out of which Pay orders were obtained. Based on this, the Learned AO concluded that these shareholders do not have creditworthiness to invest in the assessee company and brought the entire sum of Rs. 57,00,000/- to tax as unexplained cash credit u/s 68 of the Act.
4.2. On first appeal, the Learned CIT(A) observed that entire share application monies of Rs. 57,00,000/- we received during the previous year 2004-05 relevant to Asst Year 2005-06 from 20 persons and the shares were allotted to them during the asst year under appeal. He observed that the assessee had furnished details of the share applicants giving the date wise receipts, mode of payment, amount, name, address, income tax returns, PA No. of share applicants along with their balance sheet. The Learned CITA also observed that the assessee in its reply to show cause notice before the Learned AO had requested him to use his power and authority for the physical appearance of the shareholders which was not exercised by the Learned AO. Instead the Learned AO continued to insist on the assessee to produce the shareholders before him. He ultimately concluded that the assessee had duly discharged its onus of providing complete details of the shareholders and in any case, no addition could be made u/s 68 of the Act in the asst year under appeal as no share application monies were received during the asst year under appeal. Aggrieved, the Revenue is in appeal before us by filing the following ground:-
"That in the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made u/s 68 in respect of the allotment of shares to 20 numbers of individual investors for an amount of Rs. 57 lakhs, where genuineness of the transactions and creditworthiness of the investors were not established."25
ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 4.3. The Learned DR prayed for admission of the additional ground raised before us and vehemently supported the order of the Learned AO. In response to this, the Learned AR fairly conceded to admission of this additional ground and vehemently supported the order of the Learned CIT(A).
4.4. We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee. We find that the additional ground raised by the assessee separately before us vide its covering letter dated 9. 12.2011 is admitted as it appears to be a genuine and bonafide error of omission on the part of the Revenue from not raising this ground in the original grounds of appeal filed along with the memorandum of appeal. Moreover, it does not require any fresh examination of facts. Hence the same is admitted herein for the sake of adjudication.
4.4. 1. We find from the details available on record that the share application monies from 20 individuals in the sum of Rs.57,00,000/- has been received by the assessee during the financial year 2004-05 relevant to Asst Year 2005-06 and only the shares were allotted to them during the asst year under appeal. Admittedly no monies were received during the asst year under appeal and hence there is no scope for invoking the provisions of section 68 of the Act. Hence we hold that the order passed by the Learned CITA in this regard does not require any interference. Accordingly the ground no. 3 raised by the Revenue is dismissed.
(b) The ITAT Kolkata in R.B Horticulture & Animal Projects Co. Ltd, ITA No. 632/Koll2011 dated 13-01-2016. In this the decision the Ld. Tribunal held as follows:
"6. We have heard the Learned DR and when the case was called on for hearing , none was present on behalf of the assessee. However, we find from the file that the assessee had filed a detailed paper book and written submissions. Hence the case is disposed off based on the arguments of the Learned DR and written submissions and paper book already available on record. The facts stated in the Learned CIT(A) were not controverted by the Learned DR before us. We find that the assessee had given the complete details about the share applicants clearly establishing their identity, creditworthiness and genuineness of transaction proved beyond doubt and had duly discharged its onus in full. Nothing prevented the Learned AO to make enquiries from the assessing officers of the concerned share applicants for which every details were very much made available to him by the assessee. We find that the reliance placed by the Learned CITA on the decision of the Hon'ble Apex Court in the case of CIT vs Lovelv Exports (p) Ltd reported in (2008) 216 CTR 195 (SC) is very well founded, wherein, it has been very clearly held that the only obligation of the company receiving the share application money is to prove the existence of the shareholders and for which the assessee had discharged the onus of proving their existence and also the source of share application money received.
6. 1. We also find that the impugned issue is also covered by the decision of Hon'ble Calcutta High Court in the case of CIT vs Roseberrv Mercantile (P) Ltd in GA No. 3296 of 2010 ITAT No. 241 of 2010 dated 10.1.2011, wherein the questions raised before their lordships and decision rendered thereon is as under:- -
"On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for 26 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 laundering black money into white money or accounted money and the Ld. CIT(A) ought to have held that the assessee had not established the genuineness of the transaction." Held After hearing the learned counsel for the appellant and after going through the decision of the Supreme Court in the cases of CIT vs M/s Lovely Exports Pvt Ltd, we are at one with the tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed."
6.2. We find that the issue is also covered by the decision of Hon'ble Delhi High Court in the case of CIT vs Value Capital Services P Ltd reported in (2008) 307 ITR 334 (Del) , wherein it was held that:
"In respect of amounts shown as received by the assessee towards share application money from 33 persons, the Assessing Officer required the assessee to produce all these persons. While accepting the explanation and ITA No. 632/KoI12011--C-AM M/s. R.B Horticulture 6 & Animal Proj. Co. Ltd the statements given by three persons the Assessing Officer found that the response from the others was either not available or was inadequate and added an amount of Rs. 46 lakhs pertaining to 30 persons to the income of the assessee.
The Commissioner (Appeals) upheld the decision of the Assessing Officer. On appeal, the Tribunal set aside the order of the Commissioner (Appeals) and deleted the additions. On further appeal:
Held, dismissing the appeal, that the additional burden was on the department to show that even if the share applicants did not have the means to make the investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. No substantial question of law arose. "
6.3. We find that the argument of the Learned DR to set aside this issue to the file of the Learned AO for verification of share subscribers would not serve any purpose as the ratio decided in the above cases is that in any case, no addition could be made in the hands of the recipient assessee. In view of the aforesaid findings and respectfully following the decision of the apex court (supra), Jurisdictional High Court (supra) and Delhi High Court (supra) , we find no infirmity in the order of the Learned CIT(A) and accordingly, the grounds raised by the Revenue are dismissed."
(c) The Ld. ITAT Kolkata in ITA No.1061/Ko1/2012 in the case of ITO Wd.3(2) Kol, vs. M/s. Steel Emporium Ltd dated 05-02-2016. In this the decision the Ld. Tribunal held as follows:
"10. We have heard both the rival parties and perused the materials available on record. The Ld. DR vehemently supported the order of the AO. Before us the Ld. AR submitted that the assessee raised share application money during the year from 25 applicants. The AO was furnished with the copy of Form 2 of Allotment of Shares to the Applicants as filed with the Registrar of Companies, West Bengal. On the date of receipt of Share applications from the Applicants, they furnished their addresses, which were recorded in the Register of Members. The AO observed that as per ROC records the addresses of the nine companies were different 27 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 from the address as per Form filed with him. The AO issued notices u/s.133(6) to all the companies at the addresses furnished in Form 2 as filed with him, which were duly served at the given addresses. The A0 argued that the letters should not have been served at the given address by the assessee. He served a show a cause notice dated 09.12.2011 asking for the explanation from the assessee as to how the notices u/s. 133(6) could be served to these nine companies who had different address as per ROC records. The AO was explained vide letter dated 20.12.2011 of the assessee that those companies had changed their addresses since filing of Form 2 with the Registrar. Further, it was none of the business of the assessee to question the addresses of the applicants as long as they affirm the address. The applicants were duly incorporated bodies under the Companies Act. 1956 since long. They have been regularly filing their returns of income under the Income Tax Act and are being assessed by the Revenue since long. Some of them are even registered as Non-Banking Financial Companies with Reserve bank of India. They have been filing returns regularly with Registrar of Companies and RBI since long. The letters might have been received at their old addresses because in case of change in the address, people instruct the incumbents at old addresses not to refuse the receipt of letters and receive the same. Just because, a letter was received at the old address instead of present address, it cannot be said that the identity of the applicant has not been verified. All of these companies had duly replied to notice u/s. 133(6) and confirmed the transaction with all the evidences. The AO has not raised any objection on any of the information furnished before him. The AO has not asked the respective Company applicants also to explain the alleged discrepancy in the address. The AO has not brought any material on account of record to disbelief the evidences furnished with him and treat the transaction as not genuine. The assessee submitted the following material at the time of assessment.
a) Copy of share applications from the share applicants (copies enclosed)
b) Copy of Form 2 filed with Registrar of Companies, West Bengal (copy enclosed)
c) Copy of Form 18 about the Registered Office of the applicants for change of address subsequent to the date of allotment, i.e. 31.03.2009 (copies enclosed)
d) Members register
e) Share application & Allotment Register
f) Copy of board resolution.
g) Replies from Share applicants to the notice u/s. 133(6) issued to them by the AO seeking information and documents about the sources and to examine their identity, genuineness of the transaction and their creditworthiness. (copy enclosed).
h) Copy of audited accounts.
i) Copy of bank statements.
j) Copy of Income tax acknowledgment of return filed for AY 2009-
k) Copy of PAN Card.
l) Details of sources of funds.
m) Copy of covering letter for delivery of shares.28
ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13
n) Copy of master data as per ministry of Company Affairs records.
o) Copy of Annual return.
p) Copy of Memorandum and articles of Association.
Finally the Ld. AR relied on the order of the Ld. CIT(A 10. 1 From the aforesaid discussion we find that the AO has made the addition of the share application money because all the nine companies were having the common address and the notice sent under section 133(6) was received by the single person. Accordingly the AO opined that the assessee has used its unaccounted money in the share application transactions. However we find that all the money received in the form of share capital is duly supported with the requisite document as discussed above. To our mind the basis on which the addition was made by the AO is not tenable. The Ld. DR also could not brought anything on record to controvert the findings of the Ld. CIT(A). In view of above we find no reason to interfere in the order of the Id. CIT(A). Accordingly the ground raised by Revenue is dismissed."
(d) The Ld ITAT Kolkata in ITO vs Cygnus Developers (I) P Ltd in ITA No. 282/Kol/2012 dated 2.3.2016. In this the decision the Ld. Tribunal held as follows:
"6. On appeal by the assessee the CIT(A) deleted the addition made by the AO observing as follows "6) I have considered the submission of the appellant and perused the assessment order. I have also gone through the details and documents filed by the appellant company in the course of assessment: proceedings vide letter dt. 3-10-2007. On careful consideration of the facts and in law I am of the opinion that the AO was not justified in making, the addition aggregating to Rs.54,00,000/- u/s.68 of the Act being the amount of share application money by holding that the appellant company has failed to prove the identity, and creditworthiness of The creditors as well as the genuineness of transactions. It is observed that all the three share applicant companies i.e. M/s. Shree Shyam Trexim Pvt. Ltd., M/s Navalco Commodities Pvt.
Ltd. and M/s. Jewellock Trexim Pvt. Ltd. had filed their confirmations wherein each of them confirmed that they had applied for shares of the appellant -company. All the three companies provided- the cheque number, copy of bank statements and their PAN. It is observed that these companies also filed, copies of their return of income and financial statements for as well as copy of their assessment order u/s. 143(3) of the I. T Act for AY 2005-06. In the case of M/s. Jewellock Trexim Pvt. Ltd. the assessment for AY 2005-06 was completed by the ITO Ward 9(3), Kolkata and the assessments in the case of M/s. Navalco Commodities Pvt. Ltd. and M/s. Shree Shyam Trexim Pvt. Ltd. for A. Y.2005-06 and AY.2004-05 respectively were completed by the I TO, Ward 9(4), Kolkata. Under the circumstances, I am of the opinion that the AO was not justified in holding that the share applicant companies were not in existence. The assessment orders were completed on the address as provided by the appellant company in the course of assessment proceedings. It is not known as to how the AO's inspector had reported that the aforesaid companies were not in existence at the given address. Since the appellant company had provided sufficient documentary evidences in support of its claim of receipt of share application money, I am of the opinion that the no addition u/s.68 could be made in the hands of appellant company. On going through the various judicial pronouncements relied upon by the appellant, it is observed that the view taken as above is also supported by them. In view of above the AO is directed to delete the addition of Rs.54,00,000/ -. The ground Nos. 2 and 3 are allowed, "
29ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13
7. Aggrieved by the order of CIT{A) the Revenue is in appeal before the Tribunal.
8. We have heard the submissions of the learned DR, who relied on the order of AO. The learned counsel for the assessee relied on the order of CIT(A) and further drew our attention to the decision of Hon'ble Allahabad High Court in the case of CIT vs Raj Kumar Agarwal vide ITA No. 179/2008, dated 17. 11.2009 wherein the Hon 'ble Allahabad High Court took a view that non production of the director of a Public Limited company which is regularly assessed to Income tax having PAN, on the ground that the identity of the investor is not proved cannot be sustained. Attention was also to the similar ruling of the ITAT Kolkata bench in the case of ITO vs Devinder Singh Shant in IT A No.20BIKo112009 vide order dated 17.04.2009.
9. We have considered the rival submissions., We are of the view that order of CIT(A) does not call for any interference. It may be seen from the grounds of appeal raised by the Revenue that the Revenue disputed only the proof of identity of the shareholder. In this regard it is seen that for A Y.2004-05 Shree Shyam Trexim Pvt. Ltd., was assessed by ITO, Ward- 9(4), Kolkata and the order of assessment u/s/143(3) dated 25.01.2006 is placed in the paper book. Similarly Navalco Commodities Pvt. Ltd., was assessed to tax u/s 143(3) for A Y.2005- 06 by I TO, Ward- 9(4), Kolkata by order dated 20.03.2007. Similarly Jewellock Trexim Pvt. Ltd was assessed to tax for A Y.2005-06 by the very same ITO- Ward- 9(3), Kolkata assessing the Assessee. In the light of the above factual position which is not disputed by the Revenue, it cannot be said that the identity of the share applicants remained not proved by the assessee. The decision of the Hon'ble Allahabad High Court as well as ITA T Kolkata Bench on which reliance was placed by the learned counsel for the assessee also supports the view that for non production of directors of the investor company for examination by the AO it cannot be held that the identity of a limited company has not been established. For the reasons given above we uphold the order of CIT(A) and dismiss the appeal of the Revenue. "
25. Reliance in this regard is also placed on the decision of the Delhi High Court in the case of CIT Vs Gangeshwari Metal (P) Ltd (ITA No. 597 of 2012) dated 21.01.2012. In this case the assessee had received share application money of Rs.55.50 lacs during the year in question. The assessee filed the complete names, addresses of the share applicants, confirmatory letters from them, copies of bank statements of both the company as well as the share applicants and copies of share application forms. In spite of the aforesaid documentary evidences the AO held the explanation to be unacceptable and treated the share application as unexplained cash credit thereby making addition under Section 68 of the Income-tax Act, 1961. On appeal the CIT(Appeals) deleted the aforesaid addition holding that the identity of the share applicants stood established beyond doubt, all the payments were through account payee cheques and the share applicants were regular income-tax assessees. The CIT(Appeals) further held that the Revenue did not bring any evidence on record to suggest that the share application had been received by the assessee from its own undisclosed sources nor any material was brought on record to show that .the 30 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 applicants were bogus. The Revenue was neither able to controvert the documentary evidences filed by the appellant nor prove that the share application were ingenuine or the applicants were non-creditworthy. The findings of the CIT(Appeals) were upheld by the Income-tax Appellate Tribunal. On appeal to the High Court, the Revenue placed strong reliance on the decision of another coordinate Bench of the same Court in the" case of CIT Vs Novo Promoters & Finlease (P) Ltd (342 ITR 169). The High Court however held that the aforesaid judgment was distinguishable from the facts of the present case. The Court observed that in that judgment the Assessing Officer had brought on record enough corroborative evidence to show that the assessee had routed unaccounted monies into its books through medium of share subscription. The share applicants had confessed that they were "accommodation entry providers". The Assessing Officer in the latter case was able to prove with enough material that the share subscription was a pre-meditated plan to route unaccounted monies. In the present case however the Department was unable to bring any material whatsoever shows that share application was in the nature of accommodation entries. The Court observed that the appellant had filed sufficient documentary evidences to establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. The AO however chose to sit back with folded hands till the assessee exhausted all the evidence in his possession and then merely reject the same without conducting any inquiry or verification whatsoever. The Court thus held that the decision of CIT Vs Novo Promoters & Finlease (P) Ltd (342 ITR 169) was not applicable to the facts of the case. Instead it was held that the issue in hands was on the lines of the decision of the Supreme Court in the case of CIT Vs Lovely Exports Pvt Ltd (319 ITR 5). Accordingly the addition made under Section 68 on account of share application was deleted.
26. We would like to reproduce the Hon'ble High Court order in CIT vs. Gangeshwari Metal P.Ltd. in ITA no. 597/2012 judgement dated 21.1.2013, the Hon'ble High Court after considering the decisions in the case of Nova Promoters and Finlease Pvt. Ltd. 342 ITR 169 and judgement in the case of CIT vs. Lovely Exports 319 ITR (Sat 5)(5. C) held as follows:-
"As can be seen from the above extract, two types of cases have been indicated. One in which the Assessing Officer carries out the exercise which is required in law and the other in which 31 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 the Assessing Officer 'sits back with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the Assessing Officer after noting the facts, merely rejected the same. This would be apparent from the observations of the Assessing Officer in the assessment order to the following effect:-
''Investigation made by the Investigation Wing of the department clearly showed that this was nothing but a sham transaction of accommodation entry. The assessee was asked to explain as to why the said amount of Rs.1,11,50,000/- may not be added to its income. In response, the assessee has submitted that there is no such credit in the books of the assessee. Rather, the assessee company has received the share application money for allotment of its share. It was stated that the actual amount received was Rs.55,50,000/- and not Rs.1,11,50,000/- as mentioned in the notice. The assessee has furnished details of such receipts and the contention of the assessee in respect of the amount is found correct. As such the unexplained amount is to be taken at Rs.55,50,000/-. The assessee has further tries to explain the source of this amount of Rs.55,50,000/- by furnishing copies of share application money, balance4 sheet etc. of the parties mentioned above and asserted that the question of addition in the income of the assessee does not arise. This explanation of the assessee has been duly considered and found not acceptable. This entry remains unexplained in the hands of the assessee as has been arrived by the Investigation wing of the department. As such entries of Rs.5~50/000/- received by the assessee are treated as an unexplained cash credit in the hands of the assessee and added to its income. Since I am satisfied that the assessee has furnished inaccurate particulars of its income/ penalty proceedings under Section 271(1)(c) are being initiated separately.
The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in the former category and that is why this Court decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of inquiry on the part of the Assessing Officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no addition can be made under Section 68 of the Income Tax Act 1961. Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law"
27. The case on hand clearly falls in the category where there is lack of enquiry on the part of the A. O. as in the case of Ganjeshwari Metals (supra).
b) In the case of Finlease Pvt Ltd. 342 ITR 169 (supra) in ITA 232/2012 judgement dt. 22.11.2012 at para 6 to 8/ it was held as follows.
"6. This Court has considered the submissions of the parties. In this case the discussion by the Commissioner of Income Tax (Appeals) would reveal that the assessee has filed documents including certified copies issued by the ROC in relation to the share application affidavits of the directors, form 2 filed with the ROC by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the Assessing Officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahes Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the 32 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 assessee produced material. The least that the Assessing Officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr.Mahesh Garg that the income sought to be added fell within the description ofS.68 of the Income Tax Act 1961. Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra).
The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (supra). Where the assessee adduces evidence in support of the share application monies, it is open to the Assessing Officer to examine it and reject it on tenable grounds. In case he wishes to rely on the report of the investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between the assessee and the alleged hawala operators, such a link was shown to be present in the case of Nova Promoters & Finlease (P) Ltd. (supra) relied upon by the revenue. We are therefore not to be understood to convey that in all cases of share capital added under Section the ratio of Lovely Exports (supra) is attracted, irrespective of the facts, evidence and material. "
28. In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee cannot be brushed aside by the AO to draw adverse view cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, we hold that an addition cannot be sustained merely based on inferences drawn by circumstance. Applying the propositions laid down in these case laws to the facts of this case, we are inclined to uphold the order of the Ld. Commissioner of Income Tax (Appeals)
29. To sum up section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature & source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO's record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials 33 ITA Nos. 2060 & 2097/Kol/2017 Paras Surti Products Pvt. Ltd., AY 2012-13 placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act. Therefore, as far as Revenue Appeal is concerned, we do not want to interfere in the impugned order of Ld. CIT(A) which is confirmed and consequently the appeal of Revenue is dismissed and as far as appeal of assessee is concerned we set-aside the order of Ld CIT(A) and is inclined to allow the same.
30. In the result, the appeal of the revenue is dismissed and that of the assessee is allowed.
Order pronounced in the open court on 9th August, 2019
Sd/- Sd/-
(Dr. A. L. Saini) (A. T. Varkey)
Accountant Member Judicial Member
Dated: 9th August, 2019
Jd.(Sr.P.S.)
Copy of the order forwarded to:
1 Appellant -ITO, Ward-13(4), Kolkata.
2 Respondent - M/s. Paras Surti Products Pvt. Ltd., Ground floor, Kadamgachi Chandigari Panchayat Road, Badu Madhyamgram, Kolkata-700 128.
3 CIT(A)-5, Kolkata. (sent through e-mail)
4 CIT , Kolkata
5 DR, Kolkata Benches, Kolkata (sent through e-mail)
/True Copy, By order,
Assistant Registrar