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2015 (10) TMI 2011 - ITAT DELHI

2015 (10) TMI 2011 - ITAT DELHI - TMI - Addition under section 68 - unexplained share application money - CIT(A) deleted the addition - Held that:- CIT(A) granted relief to the assessee on the basis of remand report of the AO and other relevant and supportive evidence and documents and the CIT(A) also considered surrounding circumstances and correctly reached to a conclusion that the CIT(A) has discharged its onus cast upon him u/s 68 of the Act by establishing the identity of the investors, alo .....

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e remand report favoring the assessee and judgment of Hon’ble Supreme Court in the case of CIT vs Lovely Export (P) Ltd. (2008 (1) TMI 575 - SUPREME COURT OF INDIA) and CIT vs Anshika Consultants Pvt. Ltd. (2015 (4) TMI 842 - DELHI HIGH COURT), we have no hesitation to hold that in the extant case the identity of the investors, genuineness of the transaction and the creditworthiness of the share applicants have been established by the assessee by way of submission of particulars of the share app .....

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ANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER For The Appellant : ShriVikram Sahay, Sr. DR For The Respondent : Shri M.P. Rastogi, Adv. PER CHANDRA MOHAN GARG, JUDICIAL MEMBER This appeal by the Revenue has been directed against the order of the CIT(A)-Muzaffarnagar dated 29.06.2011 in Appeal No. 220/2010-11/MZR/ for AY 2008-09. 2. The sole ground of appeal raised by the Revenue is as under: On the facts in the circumstances of the case the CIT(A) has erred in law by deleting the addit .....

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CIT 192), without appreciating the full facts of the case. 3. Briefly stated the facts giving rise to this appeal are that the assessee is a closely held company engaged in the manufacturing and marketing of pesticides. The assessee company filed return of income electronically on 30.09.2008 declaring total income of ₹ 17,43,930/-. During the year under consideration, the assessee company introduced share capital of ₹ 1,59,00,000/-. The case was selected for scrutiny through computer .....

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nvestors through notice u/s 133(6) of the Act. The notices in case of 14 investors were served through notice server and in case of balance four (4), notices were sent through speed post which returned back with remark person not residing . It was claimed by the Assessing Officer that in response to those notices issued by him, one person filed reply on behalf of all the 14 investors. The Assessing Officer also gathered information in respect of the introducers of the bank accounts from the Unio .....

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for making risk investment in the assessee company which was neither a blue chip company nor had safety of Government instrument. In view of the observances, the Assessing Officer held that the assessee failed to prove creditworthiness of the investors and genuineness of the transaction of share investment and therefore he added the entire amount of share capital of ₹ 1,59,00, 000/- u/s 68 of the Act to the income of the assessee. 4. Aggrieved, the assessee filed appeal before the commissi .....

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1,06,70,000 was received by investors from encashment of their loan, fixed deposits etc with the assessee company. The assessee company contended that the source of investment in share capital introduced was fully explained. Pursuant to calling for a remand report on the submissions of the assessee company by the Commissioner of Income-tax (Appeal), the Assessing Officer again reiterated that the assessee company had failed to discharge its onus to prove genuineness of share holders. The Commis .....

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report admitting the genuineness of the investors. The CIT(A) in his para 3.1.1 has reproduced the relevant part of remand report dated 23.05.2011 . 5. The Commissioner of Income-tax (Appeal) after considering all the facts and circumstances arrived at the conclusion that the disallowance of the share capital of ₹ 1,59,00,000/- invested in the assessee company was not justified. The Commissioner of Income-tax (Appeal) granted relief to the assessee and concluded his finding as under: The f .....

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ts admitted to have made investment in shares with the appellant company. The A.O. has further given a chart explaining source of investment made by the share applicants as Annexvre-A which is not repealed here for the sake of brevity, it has been submitted by the A.O. in his remand report that some part of the amount was the outcome/income of investment made by them with the appellant company which had been received back by them during the year of investment in share holdings. The amount was ke .....

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identifiable persons being assessed to tax. The transaction is genuine since the investment in shares have been made through banking channel. Copies of bank accounts have been filed which reflects the transactions. What is relevant is the identity, credit worthiness of the donor and genuineness of the transaction. All these three conditions have been beyond doubt been established and to that extent onus of the assessee/appellant has been discharged. On the basis of the remand report of the A.O. .....

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f both the sides were heard and we also perused all relevant material placed on record before us. The Ld. Departmental Representative (DR) relied on the order of the Assessing Officer and further referred page 8 and 253 of the paper book of the assessee and argued that the source of investment was not fully explained by the investors as in number of cases amount of investment was more than the money received back from encashment of fixed deposit/ loans etc . He also argued that in some cases cas .....

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t hold ground. He further relied on the decision of the Income-tax Appellate Tribunal (ITAT), Agra Bench in the case of DCIT Vs. M/s Kaiser Constructions Engineers & Contractors in ITA No. 211 & 212/Agr/2012. 8. We have heard rival submissions and perused the relevant material available on record. From bare reading of impugned order its ample clear that in the remand proceedings, the Assessing Officer has examined the investors and accepted the identity & creditworthiness of the shar .....

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ions etc. even though in remand proceeding, burden of the assessee to prove the genuineness stands discharged. The identity of the investors was not even disputed by the ld. senior departmental representative. The source of investment has been examined in detail by the Assessing Officer as well by the CIT(A) and nothing adverse has been noted by both authorities. Further the transactions have been carried out through bank and no infirmity has been found in this regard. The assessee company has s .....

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or share of share application money was sourced by the respective contributors out of money/funds received on realisation and maturity of their respective fixed deposit accounts. We further note that the 10 applicants case were examined by the AO on sample basis wherein it was found that only in two cases of Shri Anil Agrawal and Shri Dharamveer Singh Dhaka a minor cash amount of ₹ 2500 and ₹ 45,500 (23500 + 22000) respectively have been found to be deposited in cash and in all cases .....

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r capacity and creditworthiness and submitted that in the case of D.S. Dhaka, Smt. Kusum Lata, Smt. Neelam Goel, Shri Neeraj Garg, Rajeev Kumar, there was cash deposit of ₹ 45,500, ₹ 80,000, ₹ 1.14 lakh, ₹ 1 lakh and ₹ 1.42 lakh respectively and therefore this is a case of fictitious share application money contribution. Ld. DR also pointed out that as per their statement of account, income/balance sheet filed along with their respective return of income, they have .....

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y doubt about the source of this amount. 11. Ld. Counsel further pointed out that merely because share applicants are employees or relatives of the directors of the assessee company does not mean that the assessee company introduced its own unaccounted money by way of share application contribution. Ld. Counsel vehemently contended that per contra, for a private limited company, it is obvious that the share capital is raised on behalf of company on the basis of financial and working reputation o .....

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sing Officers having different points of view but the details and original analysis submitted by the AO in the remand report placed at pages 263 to 310 of the assessee s paper book, it is amply clear that the APO applied the endeavours and mind for proper analysis of the supporting evidence and other documents of the assessee and submitted a fortified unrebutted conclusion that in the statement/affidavit, all the persons/shareholders admitted about having the investment/purchase of shares of the .....

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ubmissions, at the very outset, we note that the AO submitted remand report dated 25.3.11 of the CIT(A) by submitting as under:- Sir, Subject: Remand report u/s 250(4) of the I.T Act1961-A. No. 220/10-11/MZR in the case of M/s Ravi Organics Limited. 19-A, New Mandi, MZR for A.Y 2008-09 Regarding- Kindly refer to your office letter F. No. Remand Report /CIT(A)-MZR 2011-12 dated 26/04/2011 on the subject mentioned above. In this regard it is submitted that summons u/s 131 of the I.T. Act 1961 were .....

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ed back by them during the year of investment in share holdings with the company. The amount was kept in the form of FD with the company some years back and the complete amount along with interest has been received back by them. In the meantime they came to know about the shares of the company and they invested the complete amount in shares. All the shareholders are existing assessee in the Income Tax Office, Muzaffarnagar and regularly filing their return of income. Copies of ITR for A.Y 2007-0 .....

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ent at a hospital in Gurgaon. She is 92 years old. An affidavit along with medical papers and relevant ITRs have been filed by the family members of Smt. Ratan Devi. She is mother of Shri Devender Garg who is one of the Director of Company. Statement of another person Shri Dharamveer Singh Dhaka could also not be recorded. His son Shri Suresh Pal attended along with affidavit from his father and also copies of ITRs have been filed by him Shri Dhaka is 86 years old and could not move as stated by .....

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report which is self explanatory. In the statements/affidavits all the persons/shareholders admitted about having the investments/purchase of shares of the company. It was also contended that the balance investment is from business/salary income earned by them from the relevant current year and earlier years. It may also be pointed out that the ladies (except Smt. Kusum Lata) are close relatives of the Directors of the Company. As all the persons are existing assesses, their admission and conte .....

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d 22.2.2013 in ITA No. 211 & 212/Agra/2012 in respect of AY 2006-07 has been dismissed confirming the conclusion of the Tribunal favouring the assessee. The relevant operative part of the Tribunal order (supra) reads as under:- 12. As regards the addition on account of creditors, we find that the A.O. himself has accepted the document filed by the assessee containing copy of bank statement and confirmation and the A.O. did not doubt about the genuineness of those parties. The A.O. himself re .....

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t any contrary material to the finding of CIT(A) in respect of disallowed amount as well as on account of creditors being the addition made under section 68. In the light of the fact, we confirm the order of CIT(A). 14. We also respectfully consider the dicta laid down by Hon ble High Court of Delhi in the judgment dated 16.4.15 in ITA 467/2014 in the case of CIT vs Anshika Consultants Pvt. Ltd. and other related appeals wherein referring to the judgement of Hon ble Supreme Court in the case of .....

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s of the transaction which are based on sound reasoning do not call for any interference. The relevant operative part of this order of Hon ble High Corut of Delhi reads as under:- 5. The ITAT also noted that the balance sheets of the investors showed that the share applicants were possessed of considerable means and had been existing for a long period of time prior to the transaction in question. The ITAT reasoned as follows: 10. On an analysis of these records, we are of the view that the depar .....

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5. According to the assessee, these were realized by the said investors and invested a sum of ₹129,75,000 in A.R. Leasing Pvt. Ltd. Similarly, other investments are made in the other companies. In the case of Shri Mahabir Management Services, it is demonstrated that this concern had investment of ₹ 1186,00,080 as on 31.3.2005.It had loan and advances of ₹1179,50,000 which were realized during the year and ₹ 2 crores was invested in the A.R. Leasing Pvt Ltd. In the case of .....

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ssee has produced the details of bank account. All the share application money have been issued through baking channel. The ADIT, Calcutta has pointed out that these companies were still holding the share i.e. on December 2007. During the course of hearing, we enquired about the present status of these companies as well as position of investment. The learned counsel for the assessee has placed on record the details of shareholding pattern as on 31.3.2013, it reveals that these companies are stil .....

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13, these were referred by the assessee, in response to query and only for the purpose that these share applicant companies are not only proper entities. They are in existence. 6. The onus cast upon the assessee under Section 68 of the Act to satisfy the department about the true identity of an investor, its creditworthiness and genuineness of a transaction was explained by the Supreme Court in CIT Vs. Lovely Exports (P) Ltd., 216 CTR 295,. Whilst, the AO acted legitimately in enquiring into the .....

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itworthiness and the transaction. What is disquieting in the present case is when the assessment was completed on 31.12.2007, the investigation report which was specifically called from the concerned department in Kolkata was available but not discussed by the AO. Had he cared to do so, the identity of the investors, the genuineness of the transaction and the creditworthiness of the share applicants would have been apparent. Even otherwise, the share applicants particulars were available with th .....

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. This Court is constrained to observe that the AO utterly failed to comply with his duty considers all the materials on record, ignoring specifically the most crucial documents. We place these observations on the record and direct a copy of the judgment to be furnished to the concerned income tax authorities for appropriate action towards reflecting these observations suitably in service record of the concerned AO to avoid such instances in the future. 7. For the above reasons, this Court is of .....

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ply clear that during the remand proceedings, the AO recorded the finding that all the persons viz. share application contributors are existing assesses and their admission and contention appears to be correct. After considering remand report dated 23.5.11, as reproduced hereinabove, the CIT(A) in the first appellate proceedings while passing the impugned order held that the share applicants are identifiable persons being assessed to tax, the transactions are genuine since the investment in shar .....

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that the CIT(A) has also considered the remand report of the AO as the main basis of deletion of impugned addition and held that the assessee has amply proved and has discharged this onus or burden to prove these requirements by filing the necessary documentary evidence in support of alleged share application money received by it. 16. On the basis of foregoing discussion, we reach to a conclusion that the CIT(A) granted relief to the assessee on the basis of remand report of the AO and other rel .....

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