TMI Blog2018 (9) TMI 1026X X X X Extracts X X X X X X X X Extracts X X X X ..... , Judicial Member And Shri L.P. Sahu, Accountant Member For the Revenue : Shri S.S. Rana, CIT/DR For the Assessee : Shri Amol Sinha, Adv. Shri Ashvini Kumar, Adv. ORDER PER L.P. SAHU, A.M.: The bunch of above fives appeals at the instance of the Revenue, arise out of a common order dated 29.09.2014 of the ld. CIT(A)-XXXIII, New Delhi for the assessment years 2006-07 to 2010-11 respectively. Since the issue involved and arguments advanced in all these appeals are common, they were heard together and, therefore, the same are being disposed of by this consolidated order for the sake of convenience and brevity. Both the parties agreed that the decision in one appeal shall equally apply to other appeals. The effective grounds raised in appeal for A.Y. 2006-07, which are common in all other appeals, barring the amounts of additions, read as under : 2 1. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting addition of ₹ 5,85,00,000/- made u/s. 68 of the IT Act on account of unexplained share capital and premium. 2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in holding that on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctively for A.Yrs. 2008-09 to ₹ 2010- 11 respectively. Subsequently, notices u/s. 143(2) and 142(1) along with questionnaire were issued to the assessee on 09.01.2014 and in response to these notices, the assessee filed requisite details, which were test checked by the Assessing Officer. 2.1. During the assessment proceedings, the Assessing Officer noticed from the audited balance sheets ending on 31.03.2006, 31.03.2007, 31.03.2008, 31.03.2009, 31.03.2010 and 31.03.2011 that during the years under consideration, the assessee had shown to have received share capital including share premium at ₹ 5,85,00,000/-, ₹ 2,28,00,000/-, ₹ 4,58,50,000/-, ₹ 2,28,50,000/- and ₹ 34,22,00,000/- respectively from various companies, based on Kolkata, Guwahati and Mumbai. The Assessing Officer further noticed that during the years under consideration, the share capital of the assesseecompany was substantially increased as compared to preceding years and the assessee had issued substantial volume of equity shares of face value of ₹ 10/- at a premium of ₹ 190/-. The details of share application money received during the year under consideration from var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. M/s Artillegence Bio- Innovations Ltd. 22,850 3,75,000 71,25,000 75,00,000 23,847 4. M/s Ramkrishna Fincap Ltd. 91,845 2,00,000 38,00,000 40,00,000 91,845 5. M/s Bay Inland Finance (P) Ltd. 660 3,25,000 61,75,000 65,00,000 3,655 6. M/s Muktamani Finco Ltd. 2,180 2,50,000 47,50,000 50,00,000 2182 7 M/s Cl if tons Pearson Export Agencies Ltd. 2,048 4,62,500 87,87,500 92,50,000 2048 8 M/s Online Information Technologies Ltd. 3,985 1,40,000 26,60,000 28,00,000 39,851 9 M/s Ispat Sheet Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28,00,000 9 M/s Ispat Sheet Limited 4,00,000 76,00,000 80,00,000 10 M/s Shakti Ispat Product (P) Ltd. 4,25,000 80,75,000 85,00,000 11 M/s Wilco Finexim (P) Ltd. 1,90,000 36,10,000 38,00,000 12 M/s Om Energy Ltd. 2,25,000 42,75,000 45,00,000 13 M/s Oshin Investments and Finance (P) 50,000 9,50,000 10,00,000 14 Ltd.M/s New Outlook Securities Ltd. 40,000 7,60,000 8,00,000 A.Y. 2009-10: S.N Name of Company Share capital Share premium Total 1. M/s Alavel Finvest (P) Ltd. 50,000 9,50,000 10,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. M/s New Outlook Securities Ltd. 6,25,000 3,06,25,000 3,12,50,000 7 M/s Gateway Computers (P) Ltd., 5,06,000 2,487,94,000 2,53,00,000 8 M/s Tricon Business (P) Ltd 4,00,000 1,96,00,000 2,00,00,000 9 M/s Cliftons Pearson Export Agencies Ltd. 5,00,000 2,45,00,000 2,50,00,000 10 M/s Super Finance Ltd. 2,00,000 98,00,000 1,00,00,000 11 M/s Bhaskar Fund Management Limited 25,000 12,25,000 12,50,000 12 M/s Ispat Sheet Limited 3,00,000 1,47,00,000 1,50,00,000 13 M/s Delton Exim (P) Ltd. 4,00,000 1,96,00,000 2,00,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee to explain as to why the amounts credited in the books of assessee in the form of share capital and premium be not treated as unexplained credits u/s. 68 of the Act ? 2.3. In reply to show cause notice, the assessee submitted that complete details such as names and present addresses of the investor companies, their PANs, bank statements, balance sheets and its annexures were filed before the 8 Assessing Officer to prove their identity and creditworthiness and genuineness of transaction. A request was also made to issue summons u/s. 131 so as to enforce the presence of investor companies. It was stated that all the transactions were made through banking channel, which go to establish the creditworthiness of the share applicants and that there is no evidence on record to establish that the money of the assessee was routed through the share holders. It was, therefore, submitted that the assessee has discharged the statutory onus that lay upon it. The assessee also produced authorized representatives/principal persons of two of the investor companies, whose statements were recorded. They, however, required some time to furnish the share holding patterns and sources of invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of impugned share capital can be summarized as under:- a) During the assessment proceedings, notices issued u/s 133(6) to the impugned shareholders has returned back, and subsequent submissions of details by these shareholders company has been managed by the appellant company hence cannot be relied. b) Ld. assessing officer has found that these share investing companies does not declare income which can commensurate to the investment made. 10 c) The appellant has failed to produce the directors of these share holders company and applied judicial pronouncements of various courts including the case of N.R. Portfolio Pvt. Ltd. cited supra other decision where it has been held that the assessee being a Pvt. Ltd. company share are issued to known person not though public offer, the controlling person of such share holders are within the arm s length of the assessee and the assessee has to produce such Main arguments of Ld. AR against the addition made u/s 68 are summarized as under:- a) The appellant has submitted during the assessment proceedings complete documentary evidences inform of share application, Audit report of these share holders, photoco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Kolkata, Guwahati, the appellant has made specific request vide letter in response to assessing officer letter dt. 10.03.2014 to issue commission for the production of these directors at the address. The assessing officer has not issued such commission. Under these circumstances reliance of the assessing officer to discharge onus to produce directors u/s 68 as per various judgment such as N.R. Portfolio Pvt. Ltd. cited supra other decision are misplaced. In those cases, the assessing officer has given adverse finding on the initial evidences produced by the appellant, then onus shifted back to the assessee. Ld. AR relied on various judicial pronouncements such as stellar finance other decision cited supra in support of his argument that the appellant has discharged its onus cast upon it u/s 68. Final Decision :- I have considered all the basis of addition and arguments of Ld. AR. During the assessment proceedings, the appellant has submitted evidences such as share application form, ITR, share certificate, ITR of share investor companies, form no. 2 filed by these share investor companies before Ministry of Corporate Affairs, bank statements and other doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the evidences filed by the assessee, then the decision was given that the onus was shifted back on the assessee to produce directors. In present facts circumstances of the case, the decision relied by the Ld. AR namely the decision of hon able Supreme Court in the case of Steller Finance Ltd and decision of jurisdictional High Court in the case of Nipuan Auto (P) Ltd cited Supra appears to be more applicable that the appellant has discharged onus cast upon it u/s 68 to prove the share capital. Considering entire facts circumstances of the case, in my view the appellant has discharged its onus to prove the share capital introduced. Accordingly, I 13 delete the addition made u/s 68 in respect of share capital added for all the assessment years. These grounds of appeal are allowed. 4. Assailing the impugned order, the ld. Departmental Representative, relied on the assessment orders and submitted that the ld. CIT(A) was not justified in deleting the additions ignoring the findings reached by the ld. Assessing Officer. The notices issued u/s. 133(6) were received back unserved and the assessee failed to produce the directors of the investor companies for examination. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. vs. ITO (ITA No. 2534/Del/2018 A.Y. 2014-15- dated 10.08.2018. Addressing the issue on merits, it was submitted that substantial cogent evidences were laid before the Assessing Officer to prove all the ingredients of section 68 and to discharge the onus that lay on him by this section; that the notices u/s. 133(6) were issued on old addresses of the investor companies as mentioned in the share application forms, but did not bother to issue summons u/s. 131 at the present addresses of the companies furnished by the assessee to enforce their attendance despite earnest request in that regard; that assessee had produced representatives of two of the companies, who were not given time to furnish the details as required by Assessing Officer; that no defect has been pointed out in the documentary evidences submitted before the authorities below. The assessee has also filed a paper book containing 1645 pages. It is submitted that almost all the decisions relied by the AO were distinguishable on facts of the present cases and the ld. DR has not stated 15 anything against the distinguishing features given by the assessee in his written submissions, as reproduced in the impugned order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tocopy of Memorandum Article of Association with certificates of incorporation of the said companies. (vi). Bank account statements of the investing companies. (vii) Allotment advice issued by the assessee company, giving details of the allotment of shares against the share application money received, indicating Folio No. Certificate number, number of shares allotted, complete with distinctive numbers and amount received against such share allocation. (viii). Photocopy of ITRs acknowledgement alongwith statement of income of the investing companies. (ix). Fresh addresses of the investing companies. (x). Copies of Equity shares Certificates issued to the investors. (xi). Copy of return of allotment of shares filed by assessee company with ROC in form No. 2 (pursuant to section 75(1) of the Companies Act. (xii). Copies of MCA21, i.e., company Master Details and company/LLP Master Data of all the investing companies as obtained from the site of Ministry of Corporate Affairs. 17 8. The Assessing Officer has miserably failed to point out any defects in these documents so as to doubt the explanations of the assessee regarding three ingredients of section 68 nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any M/s. Mekastar Finlease in assessment year under appeal. For verification of the share application money, the A.O. issued notice under section 133(6) of the I.T. Act, to the investor company who have replied the same directly to the A.O, copy of which is filed at page-185 of the paper book in which the investor has confirmed the transaction with the assessee company and to make the aforesaid investment. The reply is supported by copy of the confirmation of accounts, copy of acknowledgment of filing of ITR, balance sheet ending on 31.03.2014, copy of bank statement, copy of NBFC Registered Company with source to make investment in assessee company. Thus, the investor has duly confirmed that it has made investment of ₹ 6 crores in assessee company. The assessee filed copy of their CIN No and details of their Directors and Auditors. The balance sheet of the Investor (PB-149) shows that as on 31.03.2014, it has total availability of funds of ₹ 300,36,48,781 and name of assessee-company is mentioned at PB-155. The assessee also produced before A.O. copy of the Master Data of ROC of Investor Company, Copy of Confirmation of Accounts, Copy of the Board Resolution of Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectly from Shri S.K. Jain and others. The contention of assessee has also not been disputed through any evidence or material on record that the assessee company has owned immovable property which has given on rent and assessee received rental income of ₹ 1.09 crores in assessment year under appeal. Therefore, the valuation report of the Government approved valuer was based on the material on record to show that assessee has rightly re-valued the property at its fair market value. Thus, there was no basis to take any adverse view against the assessee. Share Valuation report is filed at page-201 of paper book which is not rebutted through any evidence by Ld. D.R. 9. The Hon ble jurisdictional Delhi High Court in the case of MOD Creations Pvt. Ltd., vs. ITO (2013) 354 ITR 282 (Del.) (HC) held as under : Section 68 of the Income-tax Act, 1961, only sets up a presumption against the assessee whenever unexplained credits are found in the books of account of the assessee. The presumption is rebuttable. In refuting the presumption raised, the initial burden is on the assessee. This burden, which is placed on the assessee, shifts as soon as the assessee establishes th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to it. A bald assertion by the Assessing Officer that the credits were a circular route adopted by the assessee to plough back its own undisclosed income into its accounts, could be of no avail. The Revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The Revenue would be required to bridge the gap between the suspicions and proof in order to bring home this allegation. The Tribunal without adverting to the principle laid stress on the fact that despite opportunities, the assessee and/or the creditors had not proved the genuineness of the transaction. Based on this it construed the intentions of the assessee as being mala fide. The Tribunal ought to have analysed the material rather than be burdened by the fact that some of the creditors had chosen not to make a personal appearance before the Assessing Officer. If the Assessing Officer had any doubt about the material placed on record, which was largely bank statements of the creditors and 21 their income-tax returns, it could gather the necessary information from the sources to which the information was attributable. No such exercise had been conducted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year, that the legislative mandate is not in terms of the words shall be charged to income-tax as the income of the assessee of that previous year , that the un-satisfactiriness of the explanation does not and need not automatically result in deeming the amount credited in the books as income of the assessee. The Tribunal found that the assessee had discharged the initial onus which lay on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR numbers/ permanent account numbers and the copies of assessment orders wherever readily available, that it had also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee was not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source. Thus taking into consideration the totality of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tworthiness was the low income as reflected in their return of income. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismissed by the Hon ble High Court. 9.6. Decision of jurisdictional High Court in the case of CIT vs. Laxman Industrial Resources Pvt. Ltd., ITA.No.169 of 2017 dated 14th March, 2017, in which it was held as under : The CIT(A) took note of the material filed by the assessee and provided opportunity to the AO in Remand proceedings. The AO merely objected to the material furnished but did not undertake any verification. The CIT(A) deleted the addition by relying upon the decision of the Hon ble Apex Court in the case of Lovely Exports Pvt.Ltd. (supra) and judgement of Delhi High Court in the case of CIT vs Divine Leasing Finance Ltd. [2008] 299 ITR 268. The ITAT confirmed the opinion of the Ld.CIT(A). Hon ble High Court in view of the above findings noted that the assessee had provided several 24 documents that could have showed light into whether truly the transactions were genuine. The assessee provided details of share applicants i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In any matter, the onus of proof is not a static one. Though in section 68 of the Income Tax Act, 1961, the initial burden of proof lies on the assesses yet once he proves the identity of the creditors/share applicants by either furnishing their PAN number or income-tax assessment number and shows the genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the Revenue. Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke section 68. One must not lose sight of the fact that it is the Revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the source of source . The assessee-company was engaged in the business of financing and trading of shares. For the assessment year 2001-02 on scrutiny of accounts, the Assessing Officer found an addition of ₹ 71,75,000 in the share capital of the assessee. The Assessing Officer sought an explanation of the assessee about this addition in the share capital. The assessee offered a det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. No substantial question of law arose. 10. Considering the facts of the case, in the light of material on record and the above decisions, it is clear that assessee produced sufficient documentary evidence before A.O. at the assessment as well as appellate stage to prove ingredients of Section 68 of the I.T. Act. The A.O. however, did not make any further enquiry on the documents filed by the assessee. Thus, the A.O. failed to conduct scrutiny of the documents at assessment stage and merely suspected the transactions in question on the irrelevant reasons. The A.O. did not make any enquiry from the Banker of the Investor and Income Tax record of the Investor Company. The valuation report filed by the assessee support explanation of assessee that shares were issued at premium which were below the fair market value per share of ₹ 1221/- (PB 204 and 205). The assessee, thus, proved the identity of the Investor, its 27 creditworthiness and genuineness of the transaction in the matter. No material has been produced before us to rebut the explanation of assessee. We, therefore, did not find any justification to sustain the addition. We, accordingly, set aside the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . DR that these notices were sent at old addresses and not on the new Addresses of the investor companies admittedly submitted by the assessee. Moreover, the Assessing Officer is vested with ample powers to enforce and compel the appearance of the creditors by issuing summons u/s. 131, but the Assessing Officer did not exercise such powers despite the request made by the assessee in this behalf. Not only this, on the efforts made by the assessee, the share holders have also filed all the required evidences and details on their letter heads before the Assessing Officer, which are commented to have been filed with collusion of assessee. We, however, do not find any plausible reason to treat it as connivance of assessee with the investor companies. In presence of these facts on record, in our considered opinion, the dissatisfaction of Assessing Officer on this count has rightly been discarded by the ld. CIT(A). 10. It is not disputed that all the share applicants are companies registered under the companies Act, they are income-tax assessees and have reflected the impugned share investments in their respective balance sheets furnished before the Assessing Officer. It is also an und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the certificate of incorporation etc. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the above documents submitted to him. It has been rightly commented by the ITAT that without doubting the documents, the AO completed the assessment only on the 30 presumption that low return of income was sufficient to doubt the creditworthiness of the share holders. Similar view has been taken by Hon ble jurisdictional High Court in another decision in the case of PCIT vs. M/s. Goodview Trading Pvt. Ltd. dated 21 November, 2016 reported in 2016 (12) TMI 617 Delhi High Court, observing as under : 8. It is quite evident from the CIT(A) s reasoning in paragraph 4.3, that the materials clearly pointed to the share applicants possessing substantial means to invest in the assessee s company. The AO seized certain material to say that minimal or insubstantial amounts was paid as tax by such share applicants and did not carry out a deeper analysis or rather chose to ignore it. In these circumstances, the inferences drawn by the CIT(A) are not only factual but facially accurate. 11. The satisfaction of the Assessing Officer as to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer does not chose to issue summons and examine the creditors, he cannot subsequently treat the loans standing in the name of such creditors as non-genuine nor add the amount thereof to the assessee s income. Since in this case, the AO has not even considered the request of assessee to issue summons u/s. 131 to the investors/share holders, therefore, no adverse inference can be drawn against the assessee and the AO cannot treat the genuine credits as non-genuine for the default committed by himself. The ld. CIT(A), therefore, on proper appreciation of facts and material on record rightly deleted the addition. Similarly, in the case of DRB Exports 32 (supra) relied by the DR, the addresses of most of the purported share holders were found identical and they could not be traced out despite summons u/s. 131. No such situation is there in the present cases. In Prem Castings (P) Ltd. (supra), the identity of the investors who were close friends and business associates of assessee was never established whereas in the present case, in presence of extensive documents, no finger can be raised on the identity of investors. The distinguishing features in CIT vs. Nipun Builders ..... 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