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2016 (4) TMI 585 - ITAT MUMBAI

2016 (4) TMI 585 - ITAT MUMBAI - TMI - Additions made u/s 68 - Held that:- The assessing officer has not disproved the documents furnished by the assessee to discharge the initial burden placed upon it u/s 68 of the Act. - Decided in favour of assessee. - ITA No.2066/Mum/2013, ITA No. 2071/Mum/2013 - Dated:- 4-3-2016 - Sh. B.R. Baskaran,Accountant Member and Sandeep Gosain,Judicial Member For The Assessee : S/Shri Rajiv Khandelwal and Neelkanth Khandelwal For The Revenue : Ms. Sasmita Misra-CIT- .....

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cord. The assessee herein is a public limited company engaged in the business of investments in securities. During the years under consideration, the assessee had raised capital by way of allotment of preference share capital and also through receipt of share application money. During the course of assessment proceedings, the assessee furnished all the details relating to the share application money as well as preference share capital., i.e., according to the assessee, it has discharged the init .....

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he addition on the basis of orders passed by the Tribunal in the hands of the sister concerns of the assessee, viz.,M/s Chat Computers Ltd (ITA No.3859/Mum/2009 dated 22-07-2011) and M/s Netscape Software Ltd (ITA No.3852/Mum/2009 dated 19-10-2011) and also the decision rendered by the Tribunal in the assessee s own case relating to AY 2005-06 & 2006-07 passed in ITA No.1715 and 3858/Mum/2009. Aggrieved, the revenue has filed these appeals before us. 4. We have gone through the orders passed .....

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t with this issue in great detail and has relied on the statement of one Shri Kishan Kumar Verma, resident of Howrah. Ld. A.O. has also adverted to the fact that Director of the appellant company, Shri Kaushik: Chhota Lal Shah denied to have paid any cash to any of the companies. Further, the Ld. A.O. has made a reference to the opportunity given to the appellant to cross examine the share applicants on 13.12.2010 and 21.12.2010 respectively. In this connection, it is also pertinent to mention t .....

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, as indicated earlier and as you are aware the companies are based in Kolkata and hence, we cannot insist them to travel to Mumbai for cross. examination. Moreover, they are your witness and hence, you are required to produce them for cross examination. Further, you are vested with powers under section 131 to issue them summons and produce them for cross examination. During the course of appellate proceedings, the Ld. A.R. has made a detailed submission in the form of 5 spiral bound paper books .....

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re application money being taxed by the Ld.A.O. and which were received from several Kolkata based companies was also a subject matter of appeal before Hon'ble ITAT, Mmnbai in appellant's own case for A.Y.2005-06 & 2006-07 as well as in two other related cases viz. Chat Computers Ltd. and Netscape Software Ltd. in ITA Nos. 1715 and 3858/M/09 dated 25.01.2012 , ITA No.3859/M/09 dated 27.7.2011 and ITA No.3852/M/09 dated 19.10.2011 respectively. It has been stated that under similar ci .....

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rough account payee cheques and not through any cash transaction. Hon'ble ITAT further held that statements recorded during the course of investigation by the Investigation Wing, Kolkata without any corroborative evidence had no evidentiary value. It may be pertinent to advert to the decision of the Hon'ble ITAT in the appellant's own case for A.Y.2005-06 & 2006-07 where Hon'ble ITAT. Mumbai vide order dated 25.01.2012, inter alia, held/noted as under:- ……&helli .....

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e assessee routed though various. level and then reached to the assessee in the form of share application money. The stand of the revenue is not in consonance with the statements of the directors of the investing companies which is the basis of the investigation report as well as addition by the AO. In their statements the directors stated to have received cash from assessee for investing in the preferential share of the assessee company, whereas, this fact was not found to be correct from the r .....

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t support the case of the revenue and the reliance place by the AO on such statements is highly misplaced and improper. When the stand of the revenue is in total contraction of the material on record then in view of the latest decision of the Hon'ble Delhi High Court in the case of Oasis Hospitalities P Ltd (supra), we are of the considered opinion that the issue can be decided on merit and need not to be remand to the record of the AO because at the time of the order for the AY 2005-06, the .....

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pplication money cannot be treated as income of the assessee company until and unless it is proved beyond doubt that the assessee's own money has come back through some closely related applicant. Once the identity of the applicant. is disclosed and found as correct then, even if the said transaction is suspected by the revenue authorities, the same cannot be treated as income of the assessee company which is a public limited company. Accordingly, we delete the addition made by the Assessing .....

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re cash credits in the books of a company by way of increased share capital. The applicable provision of law in this regard is Sec. 68 of the Act, which provides that 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 Income-tax Officer; satisfactory, the sum so credited may be charged to income-tax as the income. of .....

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e of the share application money received by the assessee. In order to discharge this burden, the assessee is required to prove (i) the identity of the share-holder, (ii) the genuineness of the transaction, and (c) the creditworthiness of the shareholders. In case the investor/shareholder is an individual, some documents will have to be filed or the shareholder will have to be produced before the Assessing Officer to prove his identity. If the creditor/subscriber is a company, then the details i .....

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ed by producing the bank statement of the creditors/subscribers showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinise the same and in case he nurtures any doubt about the veracity of these documents, to probe the matter further. However, to discredit the documents produced by the ass .....

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eir individual assessments. The Hon'ble Court further observed that if the assessee had given the details of names and addresses of the shareholders, their PAN / GIR numbers and had also given the cheque numbers, name of the bankers. The Assessing Officer ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the share-holders. The Hon'ble Court followed the decision of the Hon'hle Supreme Court in the case of CIT v. Lovely .....

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etition 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. Subject to the above, Special Leave Petition is dismissed. " 17. In the case of Divine Leasing (supra), the Hon 'ble Delhi High Court summed up the approach in cases .....

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s of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the shareholders' register, share application forms, share transfer register, etc., it would constitute acceptable proof or acceptable explanation by the assessee ; (5) the Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/ subsc .....

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nancial worth of each of its subscribers. The company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. A delicate balance must be maintained while walking the tightrope of sections 68 and 69 of the Income-tax Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the Assessing Officer harbours doubts of the legitimacy of any subscription, he is empowered, to .....

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llip;…………….. 21. The Hon'ble Delhi High Court in the case of Divine Leasing (supra) has laid down that if the Assessee satisfies prima fade the three ingredients as set out above then what the AO has to do. The Hon ble Court has held that the onus thereupon shifts to the AO and he has to show that 'the money in question is that of the Assessee. …. ….. ………… …………. ……&helli .....

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f the paper book. The other facts with regard to the evidence gathered by the Assessee are in the case of the Assessee are identical to the case of Chat Computers Ltd. (supra) and the Tribunal has already analysed the evidence gathered by the AO against the Assessee and has held as follows: "6. It is evident from the assessment order that the Assessing Officer has not conducted any independent enquiry during the assessment proceedings; but simply relied upon the report of the ADIT (Inv.)Uni .....

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Assessing Officer has heavily relied upon the investigation report and proceedings and specifically on the point that the assessee was given opportunity to cross examine the directors of the investing companies, who paid the application money and further, the assessee was also asked by the Assessing Officer to produce the directors, whose statements were recorded by the investigation unit 1, Kolkata for cross examination of them. 6.1 ………… 6.2 Since the investigation .....

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cer dated 01.10.2008 as well as dated 16.9.2008 that the Assessing Officer did not summon these directors to be present in the office of the Assessing Officer for the purpose of cross examination by the assessee; but on the contrary, the assessee was asked to produce these directors for cross examination purpose. This is a gross violation of principles of natural justice when the' Assessing Officer asked the assessee to produce the directors for availing opportunity of cross examination. The .....

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ity to the assessee to cross examine the persons, whose statements are used against the assessee. 6.3 Further, when the director of the assessee categorically denied, during the investigation, the allegation of giving cash to those investing companies then the onus is on the revenue to prove that the application money received by the assessee is assesse s own money routed through those applicants companies. There is no evidence or material brought on record by the Assessing Officer, except the u .....

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sited through account payee cheques,· therefore, no cash transaction was found by the Assessing Officer in the bank account of the investing companies. 6.4 The Assessing Officer doubted the movement of cash from the assessee as being passing through various levels and reached to the assessee company. However, no finding has been given to the effect as to how the alleged cash/money of the assessee company routed through various levels finally reached to the assessee. Not an iota of evidenc .....

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ntial shares. The Investing companies have shown the said amount as investment in their books of account. The money routed through banking channels and through account payee cheques/bank draft, undisputed given by the parties. Even, the source of the application money was found in the bank account of the investing companies not by any cash deposit; but through account payee cheques. Therefore, when al1 the documentary evidence contradicts the statements of the directors recorded by the investiga .....

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rocess of corroboration and cross examination. Even otherwise, the statement without cross examination and corroborative evidence cannot be used against the assessee. 6.6 As pointed out by the ld AR of the assessee the credibility of the statements is also not free from doubt as it appears that all the statements are prepared by the department in an identical fashion and manner before those were got signed on. different dates. It is apparent that certain identical mistakes are appearing in those .....

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: I have gone through the above statement and the same has been recorded correctly and without any fabrication. The above statement gas been given by me without the use of any force, coercion or threat. The mistake in the answer no. 6 is also identical in all the statements recorded on different dates. Since the statements were recorded by the investigation team of ADIT(Inv) Unit 1, Kolkata and not during the proceedings before any Court of law; therefore, all these facts suggest and indicate to .....

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taken a note of the finding of the Tribunal in para 2 as under: "2. The Tribunal has confirmed the order passed by the CIT(A) which held the entire addition made by the Assessing Officer to be invalid and had deleted the same. The CIT(A) had clearly held that the Assessing Officer had passed the assessment order in violation of the Principles of natural justice in as much as he had neither Provided copies of the seized material to the assessee nor had he allowed the assessee to cross-examin .....

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upon, amounts to denial of opportunity and would be fatal to the proceedings. The Hon'ble Delhi High Court has observed in para 7 as under: "7. In view of the foregoing circumstances, we feel that no interference with the impugned order is called for. The Tribunal has correctly understood the law and applied it to the facts of the case. Once there is a violation of the Principles of natural justice in as much as seized material is not provided to an assessee nor is crossexamination of t .....

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pra), after considering all the relevant decisions on the issue including the decision of the Hon'ble Supreme Court in the case of Lovely Exports P Ltd (supra), decision of the Full Bench of the Hon'ble Delhi High Court in the case of Sophia Finance Ltd reported in 205ITR98 (Del)(FB) and the decision in the case of Divine Leasing & Finance Ltd (supra) has observed in paras 11 to 16 as under: " It is clear from the above that the initial burden is upon the assessee to explain the .....

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he details in the form of registered address or PAN identity, etc., can be furnished. 13 The genuineness of the transaction is to be demonstrated by showing that the assessee had, in fact, received money from the - said shareholder and it came from the coffers of that very shareholder. The Division Bench held that when the money is received by cheque and is transmitted through banking or other indisputable channels, the genuineness of transaction would be proved. Other documents showing the genu .....

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orily discharged the onus cast Upon him. Thereafter, it is for the Assessing Officer to scrutinize the same and in case he nurtures any doubt about the veracity of these documents to Probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there have to be some cogent reasons and materials for the Assessing Officer and he cannot go into the realm of suspicion. 15 At this stage, we would like to refer to the judgment of the Bombay High Court .....

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e Assessing Officer did nothing except issuing summons which were ultimately returned back with an endorsement 'not traceable'. In our considered view, the Assessing Officer ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the-assessee to the Assessing Officer . In the above circumstances. the view taken by the Tribunal cannot be faulted .....

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ere returned back with the endorsement "not traceable". The same view is taken by the Karnataka High Court in Madhuri Investments Pvt. Ltd. v. Asst. CIT (in I T. A. No. 110 of 2004, decided on February 18, 2006). In this case also, some of the share applicants did not appear and notices sent to them were returned with remarks "with no such person". Addition was made on that basis. which was turned down by the High Court in the following words: " 6. Having heard the learn .....

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applicants, the assesseecompany cannot be blamed. Therefore, we are of the view that the Tribunal was not justified in allowing the appeal of the Revenue only relying upon the statement of Sri Anil Raj Mehta, a chartered accountant. " 8.1 The Hon 'ble High Court further discussed the issue in paras 20 to 24 as under: " 20 The observations of the Supreme Court in the case of Lovely Exports P. Ltd. [2009J 319 ITR (St.) 5 (SC) go to suggest that the Department is free to proceed to re .....

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pertaining to the identity and the financial worth of the subscribers. Further the initial burden on the assessee would be somewhat heavy in case the assessee is a private limited company where the shareholders are family friends/close acquaintances, etc. It is because of the reason that in such circumstance, the assessee cannot feign ignorance about the status of these parties. 21 We may also usefully refer to the judgment of the Supreme Court in the case of CIT Y. P. Mohanakala /[2007] 291 IT .....

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that a bare reading of section 68 of the Act suggests that (iJ there has to be credit of amounts in the books maintained by the assessee; (ii) such credit has to be a sum of money during the previous year; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books, or (b) the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. It is only then that the sum so credited may be charged to incom .....

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ord. The opinion of the Assessing Officer is required to be formed objectively with reference to the material on. record. Application of mind is the sine qua non for forming the opinion. In cases where the explanation offered by the assessee about the nature and source of the sums found credited in the books is not satisfactory there is, prima facie, evidence against the assessee, viz., the receipt of money. The burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be .....

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held that the additional burden was on the Department to show that even if share applicants did not have the means to make 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. In the absence of such findings, addition could not be made in the income of the assessee under section 68 of the Act. 23. It is also of relevance to point out that in CIT v. Stellar Investment Ltd. [1991] 192 .....

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ncreased share capital were not genuine, under no circumstances the amount of share capital could be regarded as undisclosed income of the company. This view was confirmed by the apex court in CIT v. Steller Investment Ltd. [2001] 251 ITR 263. 24. Having taken note of the legal position in detail, we now proceed to decide each appeal on the application of the aforesaid Principles. I T. A. No. 2093 of 2010 and I T. A. No. 2095/2010" 9. It is clear from the decision of the Hon 'ble Delhi .....

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f the applicants etc. 10. In the case in hand, there is no dispute about the identity of the applicant companies, who had paid the application money and the source of the application money was also found in the respective bank accounts of the investing companies and there was no trace of cash deposit in the bank accounts of the investing companies, then, the action of the Assessing Officer under influenced of the report of the investigation wing without giving opportunity to the assessee for cro .....

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ase of Oasis Hospitalities P Ltd supra) in para 33 and 34 has observed as under: "33 The Tribunal while confirming the aforesaid view of the Commissioner of Incometax (Appeals) has summarized the discussion as under: "9. We have carefully considered the rival submissions in the light of the material placed before us. The necessary details were filed by the assessee with the Assessing Officer to show the identity of the person who had applied for the shares. The shares also been allotte .....

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unced by the hon 'ble Supreme Court in the case of CIT v. Lovely Exports P. Ltd. [2009] 319 ITR (St.) 5 is clear that if the share application money is received by the assessee-company from alleged bogus shareholders whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law, but the same cannot be regarded as undisclosed income of the assessee. In this view of the situation, we find no infirmity in the .....

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ey had deposed certain cash and source thereof was questionable. The Assessing' Officer should have made further Probe which he failed to do. Moreover, the remedy of the Department lies in reopening the case of these investors and the addition cannot be made in the hands of the assessee. Thus in view of the above observation of hon 'ble High Court when requite document were produced and available with the AO to establish that no cash was deposited in the bank accounts of the investing co .....

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p;……………………………………………………………. …………………… ……………………………………………………………………………. …&hell .....

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of any additional evidence or fresh material produced by any of the parties before -US which requires examination or investigation to verify the correctness of the new facts first time brought before us. The case of the revenue is that the cash moved from the assesse routed though various level and then reached to the assesse in the form of share application money. The stand of the revenue is not in consonance with the statements of the directors of the investing companies which is the basis of .....

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of the investing companies was deposited through a/c payee cheques than it is apparent that the statements of the directors are in total contradiction of the facts emerged from the record as well as stand of the revenue. Hence the said statements do not support the case of the revenue and the reliance place by the AO on such statements is highly misplaced and improper. When the stand of the revenue is in total contraction of the material on record then in view of the latest decision of the Hon& .....

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see no reason for giving the A.O. any further innings to fill up the lacunas or lapses in the assessment which would cause a great injustice to the assesse; 15. In 'View of the above discussion and the facts and circumstances of the case, the share application money cannot be treated as income of the assessee company until and unless it is proved beyond doubt that- the assesse's own money has come back through some closely related applicant. Once the identity of the applicant is disclose .....

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sessment years. " 23. The above observations of the Tribunal in our view are squarely applicable to the case of the Assessee also as the statement of the directors of the companies who applied for shares were also similar in the case of the Assessee as well as the case of Chat Computers (supra). The order of the AD as well as that of the CIT(A) in both the cases are verbatim the same. 24. Apart from the above, we also find that the Assessee has filed before the Registrar of Companies return .....

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ctions cannot be the basis to hold that the Assessee has not satisfactorily explained credit entry in its books of accounts. The investigation referred to by the AD in the order of assessment, as we have already seen has been held by the Tribunal in the case of Chat Computers (supra) to be insufficient to hold that the credits in question were unexplained. We are therefore of the view that the addition of ₹ 27,61,50,000/· being the share capital received by the Assessee during the p .....

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