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2015 (11) TMI 1304 - ITAT MUMBAI

2015 (11) TMI 1304 - ITAT MUMBAI - TMI - Addition made on account of share application money - CIT(A) deleted the addition - Held that:- The assessee has filed before the AO documents and details regarding share subscribers in question, so as to establish these ingredients of genuine credit. The identity of the subscribers stood proved by the fact that their names, address PAN Number balance sheet, bank statement and confirmation letters, share application and share allotment details were submit .....

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lable. The finding recorded by the CIT(A) is as per material on record and do not require any interference on our part. - Decided against revenue

Reopening of assessment - receipt of accommodation entries - CIT(A) deleted the addition by observing that purchases were genuine, however, at the very same time, the CIT(A) directed the AO to estimate the gross profit at 6% - Held that:- carefully gone through the orders of the authorities below and found that the contradictory statement wa .....

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d from some other party. Keeping in view the totality of facts and circumstances of the case the total purchases cannot be disallowed. Accordingly, we direct the AO to restrict the addition to the extent of 10% of the purchases so as to serve the end of justice. Accordingly, we uphold the addition of ₹ 2,21,600/-.

There is no merit in the action of CIT(A) for directing the AO to estimate the assessee’s GP rate at 6%, which was upheld by him in case of SKS Ispat & Power Limited,a .....

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151 crores. In case of Girish M. Mehta (2005 (2) TMI 494 - ITAT RAJKOT), the Tribunal has elaborately explained the principle of rejection of books of accounts and estimating GP rate in para 9 of the said order is precisely applicable to the facts of the case. It is also pertinent to mention here that the AO has nowhere doubted the quantitative tally/stock register maintained by the assessee. No incriminating material or evidence in respect of other transactions of the assessee have been brough .....

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Prasad & Shri Nimesh Yadav ORDER PER R.C.SHARMA (A.M): ITA No.9224/Mum/2010 (AY 2006-07): This is an appeal filed by the revenue against the order of CIT(A), Mumbai, dated 15-10-2010, for the assessment year 2006-07, in the matter of order passed u/s.143(3) r.w.s147 of the I.T.Act. 2. The solitary issue in this appeal relates to deletion of addition made on account of share application money. 3. Rival contentions have been heard and record perused. Facts in brief are that during the assessm .....

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Pvt. Ltd. 1,75,00,000/- 6 Feel Good Merchandise Pvt. ltd. 20,00,000/- 7 Information Synergies Pvt. Ltd. 30,00,000/- 8 Kamayani Commotrade (P) Ltd. 3,83,00,000/- 9 Prabhudhan Financial Services Pvt. Ltd 20,00,000/- 10 Rovam Tieups Pvt. Ltd. 25,00,000/- 11 Rubicon Pharmaceuticals Pvt. Ltd. 20,00,000/- 12 Satyam Commodeal Pvt. Ltd. 2,87,00,000/- 13 Shringar Marketing Pvt. Ltd. 4,75,00,000/- 14 Sumanta Trading &Commissioner Pvt Ltd 15,00,000/- 15 Vibhore Trading and Finance Ltd. 3,58,00,000/- To .....

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. • Confirmation received from them confirming the investment made by them in the company. • Copies of their audited Balance Sheet • Copies of appellant's bank statement showing the receipt of amount by cheque. • Copies of signed share application received • Copy of resolution • Extract of master data from the website of Ministry of Corporate Affairs, Government of India giving details of the investing companies. • I T return acknowledgement and audited acc .....

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e appellant submitted that the section 68 cannot be invoked. 14. The appellant next argued that addition in respect of share capital could not be made in its case. It was submitted that addition in respect of share capital cannot be made u/s. 68 of the Act. The appellant submitted that once the identity of the subscribers was established, there can be no basis for treating the amount as unexplained cash credit u/s. 68 of the Act. It was submitted that the appellant had furnished the PAN Nos. and .....

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isclosed income of the appellant company. 16. The appellant further relied upon following cases for establishing that the share application money received by the company cannot be added as undisclosed income in hands of the company: • CIT v. Value Capital Services P. Ltd [307 ITR 334 (Del.)] • CIT v. AKJ Granites P. Ltd. [301 ITR 298 (Raj.)) • CIT V. First Point Finance Ltd. [286 ITR 477 (Raj.)) • Shree Barkha Synthetic Ltd. v. ACIT [283 ITR 377 (Raj.)) • CIT v. Belenje .....

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e light of judicial pronouncement cited before him, after recording the following findings :- 17. I have considered the submissions of the appellant and the order of the AO. On considering the documentary evidences furnished during the course of assessment proceedings, written submissions made before me and arguments made in the course of assessment proceedings before me, I have noted the following facts of the case: 18. The appellant company had received share capital money from the shareholder .....

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disputed that the appellant had filed before the AO documents and details regarding the share subscribers in question so as to establish these ingredients of a genuine credit. The identity of the subscribers stood proved by the fact that their name, address. PAN No., Balance Sheet, Bank Statement and confirmation letters, share application and share allotment details were submitted by the appellant company. 20. All these factors go to prove the identity of the subscribers. The creditworthiness o .....

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o and physically verify the address of the applicant and see that he had sufficient funds to invest so long as the formalities involved in applying for and allotment of shares were completed. Thus, in all these cases, the creditworthiness of the creditors was proved. 21. As regards the genuineness of the transaction, there is no doubt regarding that. All transaction was made through banking channels. The confirmation letters are available on record. The shares were allotted in accordance with Co .....

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e made in the hands of the appellant. In the case of CIT vs. Stellar Investments Ltd. 192 ITR 287 (Del) Hon'ble Delhi High Court held that provisions of section 68 cannot be applied to such sums received by a company and credited in the share capital account of the company. This judgment of Hon'ble Delhi High Court did not find favour with subsequent larger bench of Delhi High Court and in the case of CIT vs. Sophia Finance Ltd 205 ITR 98 (Del) (FB) full bench of Hon'ble Delhi High C .....

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court in the case of Steller Investment Ltd. (supra) to be incorrect. In that judgment Hon'ble full bench of Delhi High Court observed that the AO would be entitled to enquire, it' would indeed be his duty to do so, whether the alleged shareholders do in fact exist or not. If the shareholder exists, then possibly no further enquiry need be made. But if the ITO finds that the alleged shareholders do not exist, in that case the ITO would have jurisdiction to treat such credits to be the i .....

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Court; Hon'ble Calcutta High Court in a series of judgments reported in Hindustan Tea Trading Co. vs. CIT 263 ITR 289 (Cal); CIT vs. Ruby Traders & Exporters ltd. 263 ITR 300 (Cal); CIT vs. Nivedan Vanijya Niyojan Ltd. 263 ITR 623 (Cal) held that Hon ble Supreme Court has not laid down any law and the provisions of section would squarely apply to share application money/share capital subscription and on the company's failure to satisfactorily explain the sum received, the same could .....

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xists. Now, Hon'ble Supreme Court have upheld this view and finally quelled the controversy whether section 68 applies or not in the case of CIT vs. Lovely Exports (P) Ltd. 216 CTR (SC) 195. In that judgment Hon'ble Supreme Court have addressed to the question, "Can the amount of share money be regarded as undisclosed income under section 68 of I T Act, 1961 and answered, "if the share application money is received by the assessee company from alleged bogus shareholders, whose .....

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in doubt, any further action would lie in the assessment of the shareholder and not in the assessment of company. 23. Recently, the Hon'ble High Court of Delhi in the case of CIT-IV vs. M/s Dwarkadhish Investment Pvt. Ltd. (2010-TIOL-617-HC-DEL-IT) has held as under: "The onus of proof was not static. Initially, the burden of proof was on the assessee. Yet, once, the assessee had proved the identity of the creditors or share applicants by either furnishing their PAN number or income tax .....

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pellant herein, all shareholders whose contributions have been assessed by the AO as appellant's income under the provisions of section 68 are duly incorporated companies. In the case of an incorporated company, the existence of the party cannot be denied. Once incorporated, a company exists until liquidated in accordance with law. If it is the case of the AO that these are bogus shareholders then the department is free to proceed to reopen their assessments in accordance with law. But in th .....

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. 7. We have considered rival contentions, carefully gone through the orders of the authorities below and found from the record that the AO has made addition in respect of share application money received during the year. The CIT(A) has found the share capital to be genuine after considering various documentary evidence filed before AO. The CIT(A) has also applied the proposition of law laid down by various Hon ble High Courts and Hon ble Supreme Court to the facts of instant case and concluded .....

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dients of genuine credit. The identity of the subscribers stood proved by the fact that their names, address PAN Number balance sheet, bank statement and confirmation letters, share application and share allotment details were submitted by the assessee company. All these facts go to prove the identity of the subscribers. The CIT(A) further recorded a finding to the effect that creditworthiness of these parties was also proved by the fact that all the payments have been made through the banking c .....

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, appeal of the revenue is dismissed. ITA No.8748/Mum/2010 (by the assessee) and ITA No.9223/Mum/2010 by the revenue) for AY 2005-06 : 9. These are the cross appeals filed by the assessee and revenue for the assessment years 2005-06 in the matter of order passed u/s.143(3) r.w.s147 of the I.T.Act. 10. Rival contentions have been heard and record perused. Facts in brief are that the assessee company is engaged in the business of freight carriers and is dealer of iron and steel products. The asses .....

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ation entries and only on paper and that the company does not have the capacity to advance such huge credit and made addition of ₹ 23.l6 lakhs. 11. Before the CIT(A), the assessee submitted as under :- The statement of Director of M/s Chevron Metal Products Pvt. Ltd. Mrs. Mehrunnisa Hussaini, was not recorded in the case of the appellant company and the copy of the same were also not made available to them. Further, the AO had accepted the purchases from the said party and also accepted th .....

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. 10. It was further argued that the amount added has been paid to the party in the subsequent year. It was stated that if the goods purchased from Director of M/s Chevron Metal Products Pvt. Ltd. Mrs. Mehrunnisa Hussaini are paper transactions then the purchases made by her are also paper transaction and then in her case also similar addition should have been made by the department, whereas, the department has made addition of only 0.25% to the commission income of 0.25% shown by Mrs. Mehrunisa .....

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sions and also considered the facts of the case. The AO in para 1 on page 2 of the order mentioned that the appellant had filed the details regarding the sundry creditors and also produced the books of accounts along with the bank statement, bills and vouchers. The appellant also produced the copies of confirmation, bank statements, ledger, stock ledger, purchase bills regarding the following entities: 1. Nupur International Pvt. Ltd. 2. Chevron Metal Products Pvt. Ltd. 3. Nemani Steels Pvt. Ltd .....

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ct of M/s Chevron Metal Products Pvt Ltd. was added to the income as unexplained creditors u/s 68 of the Income Tax Act, 1961.' 13. The addition has been made basically due to the addition made in the sister concern, which is also based on the statement of Director of M/s Chevron Metal Products Pvt. Ltd. 14. I have considered the submissions and also the order of the AO. In the case of the appeal of SKS Ispat and Power Ltd, wherein the addition has been made on the basis of the statement of .....

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f SKS Ispat and Power Ltd., wherein the addition has been made on the basis of the statement of Director of M/s. Chevron Metal Products Pvt. Ltd. Mrs. Mehrunnisa Hussaini has been partly allowed vide Order No. No CIT(A)-361 AP.27 109-10 dated 15110/2010. The GP of this concern is 2.59% and the turnover is approximately 151 crores. In order to maintain consistency, in all the orders, the GP of 6% is taken in this case also. Accordingly, since this results in enhancement, the appellant was vide or .....

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ame group and dealing in almost similar category of items. The GP of 6% is therefore applied in this case also and after giving benefit for the disclosed GP of 2.59%, the addition is made of 3.41% in the GP. Accordingly. for the turnover of about ₹ 151 crores, the addition will be ₹ 5.15 crores. Hence, there is enhancement in this case of ₹ 4,92 crores. Therefore, the ground of the appellant is dismissed. 13. Against the above order of CIT(A), both assessee and revenue are in a .....

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n respect of the purchases made from one M/s. Chevron Metal Products Private Limited for the reason 'that its director Mrs Mehrunissa Husseini had admitted that the transactions were merely accommodation entries. The assessing officer also referred to the orders passed in the case of SKS Ispat and Power Ltd. for A.Y. 2002-03 to 2007-08 wherein the additions had been made u/s.68 of the Act in respect of M/s Chevron Metal Products Private Limited on the ground that it was merely providing acco .....

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ted that transactions entered into by her are mere paper transactions. Our attention was invited to statement recorded on 15-1-2007, wherein she stated the transactions are genuine. The relevant questions are question no. 3, 4, 5, 11, 21, 22, 32, 33, 34 and 35 and answers thereto. The answers to question nos. 32 to 34 clearly show that she had confirmed her transactions with SKS Ispat and group companies as genuine when she was questioned about it. It is also evident that she has neither made an .....

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Husseini has not referred to or made any mention of the assessee in any of her statement. As per ld. AR since Mrs Mehrunissa Husseini has given two contradictory statements, her statements cannot be relied upon to sustain the addition of ₹ 23,16,000/-. It is also worth noting that the Assessing Officer has not carried out any inquiry to show that the purchases were not genuine. 16. Ld. AR vehemently argued that quantitative tally of purchase and sale has not been doubted by the AO meaning .....

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efully gone through the orders of the authorities below and found that the contradictory statement was given by Mehrunissa with regard to the sales undertaken by her. However, nowhere she has stated the name of assessee company with regard to any bogus sales. It is a matter of record that nothing wrong was found by the AO in the books of account. All the purchases have been accepted by the AO and its corresponding sales. Once the sales have been accepted, there must be purchases. Under such circ .....

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6%. There is no merit in the action of CIT(A) for directing the AO to estimate the assessee s GP rate at 6%, which was upheld by him in case of SKS Ispat & Power Limited. Neither it is the case of AO nor it is case of CIT(A) that assessee has not maintained proper books of accounts and that it had not reported true and correct state of affairs. Without rejection of books of accounts it is not justifiable to estimate the profit. In the case of Girish M. Mehta, 105 ITD 585, the Tribunal obser .....

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ces in which accounts should be rejected as unreliable or incorrect, yet the accounts may be rejected as unreliable if important entries and transactions are omitted therefrom or if proper particulars and vouchers, bills, etc. are not forthcoming or if they did not include entries relating to particular class of business transaction. The assessee should invariably be given opportunity for offering explanation regarding defects in accounts and on his failure to satisfactorily explain the defects, .....

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