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Income Tax Officer, Ward 8 (1) , New Delhi Versus M/s Shantam Fashion Fabrics Pvt. Ltd.

2015 (12) TMI 764 - ITAT DELHI

Addition under section 68 - CIT(A) deleted the addition - Held that:- The assessee by producing the address of the companies, PAN, confirmation from the share subscribers, ROC details that shares have been allotted to these companies, assessment order u/s 143(3) of one lender company for AY 2007-08 in which the AO has accepted the transaction, the bank details, bank statements, cheque number, etc., the assessee has discharged the preliminary onus on it to prove the identity, creditworthiness and .....

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filed against the order of CIT (Appeals)-XI, New Delhi dated 02.11.2011 for the assessment year 2007- 08. 2. The solitary ground taken by the revenue is against the deletion of addition of ₹ 20 lakhs made by the AO under section 68 of the Income-tax Act, 1961 (hereinafter 'the Act'). 3. Brief facts of the case are that the assessee is engaged in the business of trading of cloths including velvet. During the assessment proceedings, the AO noted that the assessee had received a sum .....

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evidence for credit of these ₹ 20 lakhs in its books, the assessee had filed the copies of income tax returns of these companies for AY 2007-08 along with their balance sheet etc. & bank statements. The AO made detailed inquiries from the bank and from the assessee by issuing summons to the directors of the aforesaid companies. The AO observed that for proving a credit in books u/s 68, the three main ingredients to be proved are identity, creditworthiness and genuineness of the transac .....

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s brought to the notice of the assessee company vide letter dated 16.11.2009. The AO further took note that the chartered accountant who is auditing the balance sheet of all these four companies was the same and was also having his office in the same premises where those companies were having their registered offices. So the AO came to an irresistible conclusion that these companies were merely name tenders. He also mentions about one M/s Shaily Builders Pvt Ltd which was an assessee in his ward .....

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atisfactorily proved and accordingly, held that the amount of ₹ 20 lakhs was deemed as income of the assessee u/s 68 of the Act. 3.1 Aggrieved, the assessee went in appeal before the first appellate authority and the ld. CIT (A) deleted the addition by observing as under:- "I have considered the facts of the case, the submissions mode by the appellant and also perused the evidences filed by the appellant. The issue in this case is the share capital of ₹ 20,00,000/- received by t .....

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y Builders Pvt Ltd are in existence. On going through the assessment order, I notice that the AO is relying on the three parameters of Section 68 i.e identity, creditworthiness and genuineness of the transaction. The Issue of share capital has been settled in various judicial pronouncements. In my opinion the latest judgement of the Hon'ble Delhi High Court in the case of CIT vs Oasis Hospitalities Pvt Ltd. dated 31st January, 2011 has dealt with the issue at length and after examining the v .....

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re application money received by the assessee. The Court further observed in case the investor/shareholder is an individual some documents will have to be filed or the said shareholder will have to be produced before the AO to prove his identity. If the creditor/subscriber is a company then the details in the form of resolution or PAN Identity, etc. can be furnished. As regards the genuineness of the transaction to be demonstrated, the Court held that by showing that the assessee had in fact rec .....

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editworthiness or the financial strength of the creditor or subscriber is concerned that con be proved by producing bank statement of the creditor/subscriber showing that it had sufficient balance in its account to enable it to subscribe to the share capital. Once these documents are produced the assessee would have satisfactorily discharged the onus placed upon him. Thereafter, it is for the AO to scrutinize the same and in case he has any doubt about the veracity of these documents, to probe t .....

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eholders and the AO cannot burden the assessee merely on the ground that summons issued to the investors were returned, Thereafter the court referred to the judgment of Delhi High Court in the case of CIT vs Value Capital Services (P) Ltd. 307 ITR 334 (Delhi) whereby it was observed that additional burden was on the department to show that even if the applicants did not have the means to make the investment, the investment made by them actually emanated from the coffers of the assessee to enable .....

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alance sheet showing investment in the appellant company on its assets' side establish the creditworthiness of the party while the genuineness of the transaction is borne out by the fact that the transaction was through banking channels. In this regard, reference is made to the decision of the Hon'ble Apex Court delivered in the case of CIT Vs Lovely Exports 216 CTR 195. In this case it was held that if the share application money is received by the assessee company from alleged bogus sh .....

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duced herein below:- "In our opinion, as section 68 of the Act, 1961 has been interpreted as recently as 2008 by a Division Bench of this Court in Divine Leasing and Finance Ltd. (Supra) after considering all the relevant judgements we do not have to reconsider all the judgements referred to by Mr. Sohni which are prior in date and time to the aforesaid judgement. In fact, a Special Leave Petition filed against the said Division Bench judgement was dismissed by the Supreme Court by way of s .....

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dual assessments in accordance with law. Hence, we find no infirmity with the impugned judgement." Consequently, the doctrine of merger would apply and the judgement of the Supreme Court in Lovely Exports (P) Ltd (Supra) would cover the field with regard to interpretation of section 68 of the Act. In any manner, the onus of proof is not a static one. Though in Section 68 proceedings, the initial burden of proof lies on the assessee yet once he proves the identity of the creditors/share/appl .....

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established the identity of the shareholders, their credit worthiness and genuineness of the transactions. The addition of ₹ 20 lacs made by the AO u/s 68 is therefore deleted." 4. The revenue, being aggrieved, is in appeal before us. 5. Ld. DR relied on the order of the Assessing Officer and submitted that the identity, creditworthiness and genuineness of the transaction has to be proved for getting a credit in the books u/s 68 of the Act. He submitted that the ld. CIT (A) has not ri .....

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documents before the AO :- (i) PAN of all four investing companies; (ii) Name and address of all four companies; (iii) Copy of Income Tax Return for AY 2007-08 of all the four companies; (iv) Audited Balance Sheet & Profit & Loss account with allannexures. The ld. AR further submitted that the AO raised the question of genuineness of the transaction and creditworthiness of the investing companies and in this regard, the assessee had submitted the following documents to prove the genuinen .....

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bank account of the assessee company; (iii) Copy of Form 2 filed with Registrar of Companies as return of allotment of shares; (iv) Confirmation from all four investing companies. The ld. AR further submitted that the entire transaction has been done through proper banking channel and net worth of the companies are more than enough for making an investment of ₹ 5 lakhs. He further contended that the AO could not deny the fact that the money has come to assessee's account through bank o .....

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bank corroborated that the bank statements filed by the assessee was correct. He also submitted that merely because some companies have common address or that they were having same Auditor cannot lead to a conclusive conclusion that these companies were merely name lenders. According to the ld. AR, the adverse inference drawn by the AO due to the aforesaid reason alone was totally baseless. The ld. AR, relying on the decision of the ld. CIT (A), want us not to interfere with the order of the ld. .....

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entity, creditworthiness and genuineness of the transaction has provided the details in respect of the said shareholders with the PAN Nos., copies of audited balance sheet & P&L account, copies of assessment orders, names and addresses of all four companies, bank statements. However, the AO was not satisfied by the aforesaid documents produced by the assessee and held it to be undisclosed income of the assessee u/s 68 of the Act on the reasoning that the lender companies had the same add .....

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