TMI Blog2011 (3) TMI 1683X X X X Extracts X X X X X X X X Extracts X X X X ..... tement and IT return of the persons giving loan to the company. Vide letter dated 1/12/08 the appellant explained that out of unsecured loans of ₹ 1,06,27,633/- last year (opening balance as on 1/4/05) the amount aggregating to ₹ 53,18,200 has been converted into share capital while total amount of ₹ 13,35,416/- has been returned to respective parties. Accordingly, the Assessing Officer observed that the appellant has added fresh unsecured loans of ₹ 1,23,35,523/- to the net old loans of ₹ 39,74,017/-. The appellant furnished copy of accounts duly confirmed by the party advancing loans. On perusal of the same it was noticed that in all the accounts there were cash deposits. This fact was brought to the notice of the appellant. In response to which following explanation was filed:- The company was under establishment till 17/08/05. The manufacturing was started w.e.f. 24/8/05. During the establishment the cheques were issued to suppliers of machineries, building material, transportation and other expenses. The cash received from the directors of the company and other person against purchase of shares and deposited in the bank for clearing the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T it is noted that the party had made a turn over of ₹ 12.8 crores and net profit of ₹ 6.96 lacs. This shows that the party was in the regular business and not some bogus or paper entity. In fact it was explained by the appellant s A.R. that one of the directors of the appellant company was a partner in the firm SST. The firm was also in the business of trading of steel products and the appellant company had purchased HR Coil from it. Since the appellant has proved with sufficient evidence, the genuineness of transaction of receipt of unsecured loan, addition of ₹ 1,23,35,523/- made by the Assessing Officer is not justified. Hence the same is deleted. 5. Against this order the Revenue is in appeal before us. 6. We have heard both the counsel and perused the records. Upon careful consideration of the facts and circumstances of the case, we find that assessee has clearly established that it has taken the loan by cheque and no cash transaction was involved as found by the Ld. Commissioner of Income Tax (Appeals). Furthermore Ld. Commissioner of Income Tax (Appeals) has also given a clear finding that the lender has the capacity and creditworthiness to give t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of appellant. The details of additional/fresh share capital received can be seen from the table furnished by the appellant and annexed to this order. It may be noted that some of the amount has been added by way of conversion of loan from the share holders received in earlier years into share capital in this year. Some additional/ fresh amount has also been received from various share holders. As can be seen from discussion made by the AO in the assessment order, he had asked to the appellant to furnish documentary evidence to prove identity creditworthiness of the investors. In response to that the appellant furnished before the AO various documents like affidavits, acknowledgment of return, balance sheet and in some cases the bank statement as well as copy of cheque from various parties. The copy of these documents has been filed in appeal proceedings also. From these documents and the summary of details in the table shown in Annexure-A it is seen that all the share holders existing and new are separately assessed to tax. Their PAN number and wards etc have been mentioned. They have all confirmed, by way of affidavit, having invested in the appellant company, the relevant am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan about was less than what was actual amount stated by the appellant, the share capital added by the AO is much higher than what is actual amount received by the appellant. In any case since the AO has made addition of ₹ 1,48,82,000 which is deleted. The AO is however directed to pass on the information to the AOs having jurisdiction over the concerned share holders. 10. Against the above order, the Revenue is in appeal before us. 11. We have heard both the counsel and perused the records. Upon careful consideration, we find that Ld. Commissioner of Income Tax (Appeals) has given a categorical finding that assessee has provided all the necessary details relating to share capital. The names, addresses, PAN numbers, copy of IT return and all the necessary documents were furnished. In such situation, in our considered opinion the ratio of Hon ble Apex Court in the case of Lovely Exports 216 CTR 195 clearly applies. In the said case it was held 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 assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital and other resources on the basis of which the source of share application money as well as share capital was established. The three directors of the appellant company were partners in other family firms like Kamdenu Metal Indus Shri Sidhata Steel Tubes etc. They have taken loan from these firms, which was reflected in their balance sheets. It may be noted that the AO has merely expressed his doubts suspicion about the creditworthiness of these parties on the basis of income declared by them in their returns. But he did not bring on record any cogent material to support his doubts. The Assessing Officer also had doubts about investment in the appellant company because it was running into heavy losses. However he again did not appreciate that this was a family concern and the current year was the first year of its manufacturing operation where it worked only for part of the year. In any case such doubts or suspicions alone cannot be the basis of addition u/s 68. Otherwise also the identity of the parties has been established beyond doubt and even their sources explained. The amount has been received towards share application money. Therefore no addition can be made in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ravention of section 269SS for ₹ 3,70,47,523/-. The Addl. C.I.T. observed that this is a fit case for invoking section 269SS and accordingly penalty was imposed u/s 271D read with section 269SS of the Act. Imposing penalty of ₹ 3,70,47,523/-, raising a demand of ₹ 3,70,47,523/-. 21. Upon assessee s appeal Ld. Commissioner of Income Tax (Appeals) gave a finding that share capital of ₹ 19,00,000/- has been received by way of cheque. In this connection, Ld. Commissioner of Income Tax (Appeals) referred the decision of the Hon ble High Court of Jharkhand in the case of Bhalotia Engineering Works (P) Ltd. vs. C.I.T. (2005) 275 ITR 399 for the proposition that acceptance of share application money in cash violates the provision of section 269SS attracting penalty u/s 271D. Ld. Commissioner of Income Tax (Appeals) concluded as under:- Herein the instant case the appellant accepted unsecured loan in cash. He has accepted share capital of ₹ 1,48,82,000/- entirely in cash (barring ₹ 19,00,000/- which was taken by cheque). Again he has received share application money of ₹ 98,30,000/- in cash. There is no evidence on record to suggest that any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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