TMI Blog2016 (2) TMI 1161X X X X Extracts X X X X X X X X Extracts X X X X ..... the remand report of the AO and re-worked the unaccounted purchase and treating the same restricted the addition by applying profit rate. We find no infirmity in the order of CIT(A) and hence, the same is confirmed. This issue of assessee as well as revenue is dismissed. - I.T.A No. 1070/Kol/2010, I.T.A No. 1337/Kol/2010 - - - Dated:- 3-2-2016 - M. Balaganesh (Accountant Member) And Mahavir Singh (Judicial Member) For the Petitioner : S. M. Surana For the Respondent : P. B. Pramanik ORDER Mahavir Singh (Judicial Member) Both these cross appeals by assessee and revenue are arising out of order of CIT(A)-XXXII, Kolkata in Appeal No. 29/CIT(A)-XXXII/08-09/Wd-12(3)/R T/Kol dated 21.01.2010. Assessment was framed by ITO, Wd-12(3), Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) for AY 2005-06 vide its order dated 31.12.2007. 2. The first issue in this appeal of revenue is against the order of CIT(A) in deleting the addition of share capital made by AO u/s. 68 of the Act. For this, revenue has raised following ground no.1: 1. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he A.O. in making the addition and the submission of the A/R in this regard. From the perusal of the assessment order it is observed that the A.O. was not satisfied about the charging of premium of ₹ 100/- per share by the assessee, therefore, he had doubt about the genuineness of the share subscription and share premium money received by the assessee during the relevant year. The A.O. suspected the premium charged on the price of shares for the reason that such a premium was not justified considering the book value of the shares. 3.8 The A.O. has treated the entire amount of ₹ 65,50,000/-, received by the assessee on account of share subscription and share premium, as assessee's undisclosed cash credit uls.68 of the Act. Now, it needs to be examined whether such amount is assessable and taxable under the provisions of section 68 of the Act. 3.9 Applicability of provisions of section 68 to the share subscription money received by a company has been dealt with in a catena cases by various courts including the Hon'ble Apex Court. More recently, similar issue came up for consideration in the case of CIT v. Divine Leasing Finance Ltd. 299 ITR 268 (Delhi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) none of the subscribers denied subscribing to share capital of the assessee; c) the subscription money was received by the assessee through banking channel by way of cheques; d) four of the subscribers appeared before the AO and confirmed the transaction; e) three of the subscribers communicate their inability to appear before the AO for the reason that they are senior citizens or they were disabled because of their illness. In the light of the above facts of the case the explanation and proof furnished before the AO constitute acceptable proof and acceptable explanation as held by the Hon ble Court in CIT v. Divine Leasing Finance Ltd. (supra). Therefore, it is held that the AO was not justified in treating the amount of share subscription money and of share premium to be assessee s unexplained cash credit u/s. 68 of the Act. Accordingly, the addition of ₹ 65,50,000/- made by the AO is deleted. Aggrieved, now revenue is in second appeal before Tribunal. 4. We have heard rival submissions and gone through facts and circumstances of the case. Admittedly, the assessee has increased share application money along with premium on the shares to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bscribed the fresh share capital issued by the assessee during the relevant year under consideration are assessed to income tax and payments are made through banking channel by way of issuance of cheques. The assessee has furnished complete details of such shareholders like complete name, address, PAN, income tax details and bank particulars along with copies of acknowledgement of returns of income filed by them with the department along with Balance Sheets. In the Balance Sheets of all these shareholders, the investment made in this entity i.e. the assessee is disclosed and is depicted. The assessee has produced four shareholders on test check basis. The statement of Anita Mookin who has contributed share capital of ₹ 50000 and share premium of ₹ 50000 can be taken into consideration. The AO has reproduced the relevant portion of the statement recorded on behalf of smt. Anita Mookin and she admitted having given cheque in lieu of issuance of share and share premium. Vide question no. 20 the AO asked the relevant question no. 20 and assessee explained as under: As per your Balance sheet as on 31.03.05, your capital is ₹ 465184/- out of there you have invested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also entitled to examine whether the alleged shareholders do in fact exist or not. Such an inquiry was conducted by the AO in the present case. In the course of the said inquiry, the assessed had disclosed to the AO not only the names and the particulars of the subscribers of the shares but also their bank accounts and the PAN issued by the IT Department. Super added to all this was the fact that the amount received by the company was all by way of cheques. This material was, in the opinion of the Tribunal, sufficient to discharge the onus that lay upon the assessed. This is evident from the passage extracted from the order passed by the Tribunal earlier. In the absence of any perversity in the view taken by the Tribunal or anything to establish conclusively that the finding regarding the genuineness of the subscribers and the transactions suffers from any irrationality, we see no substantial question of law arising for our consideration in this appeal to warrant interference. This appeal accordingly fails and is hereby dismissed. It seems clear to us that where moneys have been received in cash or even Demand Drafts, the standard of proof would be much more rigorous and stringe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 268 ITR 211 (Del) is also on the same lines. 13. There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessed it should not be harassed by the Revenues insistence that it should prove the negative. In the case of a public issue, the Company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The Company must, however, maintain and make available to the AO for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of Section 68 and 69 of the IT Act. The burden of proof can seldom be discharged to the hilt by the assessed; if the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined regular accounts. However, the Court refused to draw an inference adverse to the assesseds interests. Instead the Calcutta High Court observed that the ITO ought to have investigated the matter more thoroughly to controvert the claim of the assessed, and concurred with the conclusion of the Tribunal that the latter had discharged the initial burden that lay on it. The High Court set aside the decision of the Tribunal which had reversed the findings of the ITO as well as the CIT (Appeals) since the assessed had supplied the income tax file number of the creditor before it. The High Court noted that the mere filing of the income tax number was not sufficient to establish the identity and creditworthiness of the creditor and genuineness of the transaction. Although Orissa Corporation was referred to the decision of the Full Bench of this Court in Sophia Finance was not even cited. Korlay Trading as well as Sophia Finance was applied by the same Division Bench of the Calcutta High Court in four decisions delivered in March 2003.In Hindusthan Tea Trading Co. Ltd. v. C.I.T. , the Bench opined that in the case of a subscription to the share capital of a company, if Section 68 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed by the Apex Court in Anantharam Veerasinghaiah Co. v. Commissioner of Income-Tax, A.P. opining that the mere falsity of the explanation given by the assessed is insufficient without there being, in addition, cogent material or evidence from which the necessary conclusion attracting a penalty can be drawn. However, as has been noted in CIT v. Jeevan Lal Sah 1995 Supp (4) SCC 247 amendments were incorporated by Finance Act, 1964, intoSection 271 which had deleted the word deliberately in its Sub-section 1(c), thereby shifting the onus of proof onto the assessed, rendering Anwar Ali ineffectual. Nevertheless, in CIT v. Mussadilal Ram Bharose it has been enunciated by the Supreme Court that though the Explanation shifts the burden to the assessed to show absence of fraud, this onus is a rebuttable one. The burden is not discharged by the assessed tendering an incredible or fantastic explanation; and every explanation does not have to be accepted. In our opinion, it is for Parliament to introduce legislation if the duty presently resting on the Department is thought to be too onerous. We ought not to twist the language of a statute to remove the burden of proof altogether from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of unexplained shares subscription; whilst it has done so with regard to the other ground viz. deletion of addition of ₹ 9,95,000/- made on account of unexplained loans. The ITAT has categorically held that the assessed has discharged its onus of proving the identity of the share subscribers. Had any suspicion still remained in the mind of the AO he could have initiated 'coercive process' but this course of action has not been adopted. In view of the concurrent finding pertaining to the factual matrix we find no merit in these Appeals which we accordingly dismiss. 6. In the instant case also facts and circumstances are identical as the assessed has prima facie proved the identity of the share subscriber, the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels, the creditworthiness or financial strength of the share subscriber. The relevant details of the address or PAN identity of the share subscriber are furnished to the AO along with copies of the Shareholders Register, Shared Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable explanation by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law as well as on facts in holding that notings recorded in HG/30 and HG/31 related to business transactions of the appellant (Para- 4.10) and that the income arising from such transactions estimated @ 13.39% was not disclosed by the appellant (Para-4.12). 3. FOR that on the facts in the circumstances of the case the Ld. CIT(Appeals) erred in holding that the notings in the impounded documents marked as HG/9, HG/30 and HG/31 represented accomplished business transactions of the assessee and that such transactions were not recorded in the regular books of accounts. He further erred in sustaining addition in respect of the said impounded documents to the extent of 13.39% of the value of the purported transactions noted in these documents. b) Without prejudice to the foregoing ground, assuming but not admitting that on physical verification stock found was short, then also no addition could be made because the alleged excess stock as per accounts was duly taken into account in the P L A/c for the year. 8. Briefly stated facts relating to this issue are that the assessee is engaged in the manufacture and trading in gold ornaments, jewelleries, diamonds, cut and polishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... During the course of survey, the assessee company claimed that the diaries so found belonged to Sri Uttam Ray and Chinu Ray respectively and said parties were summoned u/s. 131 and their statement were recorded. It is stated by them that they have no knowledge of these diaries. Thus, the assessee s earlier claim is found incorrect, the ownership of the said diaries considered to be that of the assessee. Since, both purchases and sales of items contained in these diaries is not recorded, the gross profit of the assessee i.e. 13.39% (as per TAR) is applied to the market value of gold and diamond as per value arrived above in computation of undisclosed sales. Applying the above method, the following out of books sale is determined. Item Grms. Weight Rate (Rs.) Value (Rs.) Gross Profit(Rs.) Gold 22 20,987 274/98 570 per grm 1,56,738 Gold 18 34,420 551/19 466 per grm 2,57,054 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, the question arises about the quantum of the transactions recorded therein. The A.O., in the assessment order, had determined the value of such undisclosed transactions of the assessee at ₹ 99,14,006/-. However, during the appellate proceedings the A.R. of the assessee pointed out certain discrepancies in the calculations made by the A.O., therefore, the matter was remanded to the A.O. vide this office letter no. CIT(A)-XXXII/09-10/Koll17 dated 17.04.2009. In his remand report submitted vide letter no. ITO,W-12(3)/Kol/Remand Report/09-10/l25 dated 01.06.2009, the A.O. admitted that certain discrepancies had in fact crept in the calculation of unaccounted income of the assessee on the basis of the impounded material HG-9, HG/30 HG/31while completing the assessment. As per the said remand report the quantity of unaccounted stock of diamonds, as recorded in the document HG-9, was taken in the assessment order to be at 966.661 Cts. whereas, the correct quantity of such unaccounted items has been worked out by the A.O. in the remand report as follows: Rounds Sticks Fancy Colour Stones ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecorded transactions cannot be the income of the appellant. The settled position of law as laid down by the High Court decisions - referred to in Para 4.5 (supra) is that the total value of the unrecorded transactions cannot be treated as income of the assessee; only the profit earned from such transactions can be added as income of the assessee. The A.O. has not worked out the value of the unaccounted transactions in his Remand Report. He is therefore directed to ascertain the value of the unaccounted transactions and work out the profit arising from such transactions @ 13.39% of the value (being the G.P. % shown by the assessee in regular accounts) and reduce the addition made in respect of three documents - HG-9, HG-30 and HG-31 to the extent of the profit so worked out. The addition to that extent is confirmed. 5. Grounds no.10 to 12 of the appellant are against the addition of ₹ 13,27,485/- as estimated profit @ 13.39 % on the alleged undisclosed purchases. In view of my finding in the preceding paragraph-4.12 no separate addition is called for the estimated profit on the undisclosed transactions. The separate addition of ₹ 13,27,485/- has already been conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id diary should not be gold/diamond but some other articles stick/fancy/colour stone. After verification of the diaries of Sri Uttam Ray/Chuni Ray the correct weight of gold/diamond etc. are under: HG 30 HG 31 quantity Quantity Gold (18K) 289.080 gms 430.205 gms Diamond 02.15 cts 44.43 cts. Stick (semi Precisions stones) 0.00 cts 10.79 cts. Fancy 0.00 cts. 02.85 cts Colour stone 66.00 cts. 48.99 cts. During the depositions of the above two persons, they deposed that all the notings in their diaries were not related to M/s. Harshabardhan (the assessee company) but some other parties also. However, both of them could not specify and/or identity which entries belonged to Assessee Company and others. 11. Further, in regard to HG-9 the quantity mentioned in respect to round stick, fancy, colour s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng addition of ₹ 3,14.033/- in respect of the alleged short-stock found of the value of ₹ 23,45,278/- during the survey on 05.11.2004. The Ld. CIT (Appeals) failed to consider the explanation of the appellant in the letters dated 17.12.2004, 15.11.2007 and 20.12.2007 in respect of defect in the inventory prepared at the time of survey. The appellant denies that there was shortness of stock as conceived by the survey team. The addition made on this score is wholly wrong and misconceived and liable to be deleted. 13. Briefly stated facts are that during the course of survey and assessment proceedings, the AO noted that there was a short stock of gold of 447 gms. and diamond 236 cts. as declared in the books of account and, therefore, he valued 62 items at ₹ 23,45,278/- as under: Gold 447 Gms. @ ₹ 570 ₹ 2,54,790/- Diamond 236 Cts. @ ₹ 8,858/- Rs.20,90,485/- Rs.23,45,278/- The AO accordingly made addition treating the same as sale. Aggrieved, assessee preferred appeal before CIT(A), who restr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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