TMI Blog2018 (11) TMI 596X X X X Extracts X X X X X X X X Extracts X X X X ..... share applicant and genuineness of the transaction. In view of above addition to be deleted - decided in favour of assessee - ITA No. 1215/Kol/2015 - - - Dated:- 9-11-2018 - Sri J. Sudhakar Reddy, Accountant Member And Smt. Madhumita Roy, Judicial Member For The Assessee : Shri Manish Tiwari, A/R For The Revenue : Shri Saurabh Kumar, Addl. CIT, D/R. ORDER Per J. Sudhakar Reddy, AM :- This appeal filed by the assessee is directed against the order of the Learned Commissioner of Income Tax (Appeals) - 2, Kolkata, (hereinafter the Ld. CIT(A) ), dt. 29/06/2015, passed u/s 250 of the Income Tax Act, 1961 (hereinafter the Act ), relating to Assessment Year 2011-12. 2. The assessee is a company and is in the business of trading in shares and finance. During the year, it had issued share capital and ten different Private Limited Companies had subscribed for the same. The shares were of face value of ₹ 10/- were issued at a premium of ₹ 90/-. The Assessing Officer called for details from the share applicants who had applied for allotment of shares. These were furnished. Thereafter he issued notice u/s 131 of the Act, to the Directors of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share applicant companies have furnished all possible details in support of the identity, creditworthiness and genuineness of the transactions and the Assessing Officer could not point out any deficiencies in the same. He pointed out that none of the share applicant companies can be called paper companies and that all these companies are having huge turnover and good income. He relied heavily on the order of the ld. CIT(A) and submitted that all these aspects were considered by the ld. CIT(A) and a factually and legally correct order was passed and that the same should be upheld. He also relied on the following case-law in support of his contentions, that no addition can be made in the case of genuine companies which raise share capital from genuine sources. He submitted that no addition can be made merely because the directors did not appear before the ld. Assessing Officer in response to summons issued to them. He relied on the following case-law:- a) Orrissa Corporation Ltd. 159 ITR 78 (SC) b) Orchid Industries (P) Ltd. 397 ITR 136 (Mumbai HC) c) Gagandeep Infrastructure P. Ltd. 394 ITR 680 (Mumbai HC) 4.1.1. He specifically pointed out to the factual findings of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drawn in the same. There are grievous errors with regard to the adverse findings recorded by the assessing officer as explained below:- i. The share applicants and the appellant company do not have same directors. ii. The share applicants have different addresses. iii. No adverse view can be taken merely for reason that the share applicants and appellant companies have bank accounts in the same bank. The appellant have argued that the same and is acceptable. same is a commercial decision and cannot be interfered upon. iv. Nominal balance maintained in banks by share applicant appellant company cannot be viewed adversely since admittedly the bank accounts are current accounts wherein no interest is received. In view of the above the parties being investment companies invested their funds in shares. The explanation of the appellant is not unreasonable. Even otherwise the same is a commercial decision and cannot be interfered upon. v. Fact that funds received on the same day or earlier day of making investment by the investors cannot be viewed adversely since admittedly the funds of share applicants companies were fully deployed in shares and in or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of AO that deposit of cash in bank accounts of share subscribers. The details of source of funds from which this company had made the share application was also explained in respective reply filed in the paper book. From the above it can be seen that this company has gross receipt of ₹ 6.72 Cores. The investment is only ₹ 13 Lakhs. Apostel Distributors Pvt. Ltd. The company invested a sum of ₹ 45,00,000/- in the appellant company. The share application was made by account payee cheque. This company was incorporated on 10.06.2004 and was having company identification number U5190WB2004PTC098805. This company duly filed its return of income before ITO Ward 4(3), Kolkata and was having PAN AAFCA0625H. This company was having a paid up capital with free reserves and surplus of ₹ 10,71,32,502/- as on 31/03/2011. The company has total gross receipts of ₹ 6,42,85,619/- i.e. (Interest on loans of ₹ 4,85,619/- Sale of shares' of ₹ 6,38,00,000/-) as per Profit Loss A/c placed at page 74 of paper book. There is no allegation of AO that deposit of cash in bank accounts of share subscribers. The details of source of funds from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 18.05.2007 and was having company identification number 15531WB2007PTCl15908. This company duly filed its return of income before ITO Ward 6(2), Kolkata and was having PAN AACCJ1261D. This company was having a paid up capital with free reserves and surplus of ₹ 4,55,30,000/- as on 31/03/2011. The company has total gross receipts of ₹ 2,21,918/- i.e. (Interest on loans of ₹ 2,21,918/-) as per Profit Loss A/c placed at page 127 of paper book. There is no allegation of AO that deposit of cash in bank accounts of share subscribers. The details of source of funds from which this company had made the share application was also explained in respective reply filed in the paper book. This company has invested only ₹ 25 Lakhs in the assessee company. It has capital and revenue of ₹ 4.55 Crores. Nandankanan Iron Steel Pvt. Ltd. The company invested a sum of ₹ 80,00,000/- in the appellant company. The share application was made by account payee cheque. This company was incorporated on 31.03.1997 and was having company identification number 27109WB1997PTC083793. This company duly filed its return of income before ITO Ward 6(3), Kolkata a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er book. There is no allegation of AO that deposit of cash in bank accounts of share subscribers. The details of source of funds from which this company had made the share application was also explained in respective reply filed in the paper book. The gross receipts of this company is ₹ 7.50 Crores and the investment is only ₹ 16.50 Lakhs. Swarnapriya Vanijya Pvt. Ltd. The company invested a sum of ₹ 5,00,000/- in the assessee company. The share application was made by account payee cheque. This company was incorporated on 16.03.2005 and was having company identification number 51109W82005PTC102300. This company duly filed its return of income before ITO Ward 5(1), Kolkata and was having PAN AAJCS0595E. This company was having a paid up capital with free reserves and surplus of ₹ 12,86,53,471/- as on 31/03/2011. The company has total gross receipts of ₹ 9,30,37,881/- Le. (Interest on loans of ₹ 10,62,131/- Sales of Rs .. 9,19,75,750/-) as per Profit Loss A/c placed at page 199 of paper book. There is no allegation of AO that deposit of cash in bank accounts of share subscribers. The details of source of funds from which this com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or abnormal on the facts of this case. From the audited financial statements, it could be seen that the assessee has gross income of ₹ 5,59,283/- and has shareholder funds of ₹ 12,91,40,498/-. It had advanced long term loans and advances of ₹ 4,73,00,140/-. The total assets are ₹ 14,45,98,802/-. Thus, the premium charged per share cannot be said to be not genuine or exorbitant. In this case, four companies are the share applicants. These are Jai Hind Promoters Pvt. Ltd., Ninachal Barter Pvt. Ltd., Dynamo Infrastructures Pvt. Ltd., Dhanraksha Investment Consultants Pvt. Ltd. All these companies which have subscribed for the shares of the assessee company are also active companies. They are not paper companies. This is clear from the financial statements filed by them. In case of Dhanraksha Investment Consultants Pvt. Ltd., the assets are about ₹ 47.20 Lakhs and the investment in the assessee company is about ₹ 5 Lakhs. In the case of Dynamo Infrastructures Pvt. Ltd., the assets are to the extent of ₹ 2,44,57,638/- and the investment in the assessee company is around ₹ 88 Lakhs/-. In the case of Jai Hind Promoters Pvt. Ltd., the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ept the arguments tendered by the AR of the appellant in this respect. In view of the foregoing, I have no hesitation to hold that the impugned addition of ₹ 2,64,20,000/- made by the AO u/s 68 of the Act is not justified in the circumstances and accordingly such addition is directed to be deleted in respect of the four shareholders. Therefore, Ground Nos. 3 to 6 of the appeal are accordingly allowed. 4.2. The ground on which the addition has been made by the Assessing Officer is that there is not compliance to the summons issued to the share subscribers u/s 131 of the Act. The share applicant companies, as well as the assessee company, belong to the same group of companies, with a common director Mr. Sanjay Kumar Khemka. When all the information as required by law, is given, an addition cannot be made solely on the ground that the directors failed to appear in response to summons issued u/s 131 of the Act. The Hon ble Supreme Court in the case of Commissioner of Income Tax vs. Orissa Corporation Pvt. Ltd. 159 ITR 78 SC and the Hon ble Bombay High Court in the case of Commissioner of Income Tax v. Orchid Industries Pvt. Ltd. 397 ITR 136, have held that an addition cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by assessee-company from alleged bogus shareholders, whose names are given to Assessing Officer, then Department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of assessee-company 6.1. Just because the Directors did not appear to summons issued u/s 131 of the Act, no addition u/s 68 of the Act, can be made, when the Directors have otherwise confirmed the transaction to the Assessing Officer with evidence. 6.2. The Hon ble Supreme Court in the case of Commissioner Of Income-Tax, vs Orissa Corporation (P) Ltd [1986] 159 ITR 78 (SC), held as follows:- In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... falls in the latter category. Here the Assessing Officer after noting the facts, merely rejected the same. This would be apparent from the observations of the Assessing Officer in the assessment order to the following effect Investigation made by the Investigation Wing of the department clearly showed that this was nothing but a sham transaction of accommodation entry. The assessee was asked to explain as to why the said amount of ₹ 1,11,50,000 may not be added to its income. In response, the assessee has submitted that there is no such credit in the books of the assessee. Rather, the assessee company has received the share application money for allotment of its share. It was stated that the actual amount received was ₹ 55,50,000 and not ₹ 1,11,50,000 as mentioned in the notice. The assessee has furnished details of such receipts and the contention of the assessee in respect of the amount is found correct. As such the unexplained amount is to be taken at ₹ 55,50,000. The assessee has further tries to explain the source of this amount of ₹ 55,50,000 by furnishing copies of share application money, balance sheet, etc. of the parties mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description of S. 68 of the Income Tax Act, 1961. 6.7 The Hon'ble Calcutta High Court in the case of CIT v. Roseberry Mercantile (P.) Ltd. GA No. 3296 of 2010 ITAT No. 241 of 2010 dated 10.1.2011, wherein the questions raised before their lordships and decision rendered thereon is as under:- On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT(A) ought to have held that the assessee had not established the genuineness of the transaction. Held After hearing the learned counsel for the appellant and after going through the decision of the Supreme Court in the case of CIT v. M/s Lovely Exports Pvt Ltd, we are at one with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only in their hands and not in the hands of the company as held by the Hon ble A.P. High Court in the case of Lanco Industries Ltd. (supra). No contrary evidence to controvert the evidence produced by the assessee, is brought on record. Simply because the directors/shareholders did not present themselves before the Assessing Officer, an addition u/s 68 of the Act, cannot be made. In view of the above circumstances, we cannot uphold this addition made u/s 68 of the Act. Under these circumstances, we delete the addition and allow this appeal of the assessee. 7. In the result, appeal of the assessee is allowed. 5. In view of the above discussion, we uphold the order of the ld. First Appellate Authority and dismiss this appeal of the revenue. 7. Consistent with the view taken therein and in view of the facts and circumstances as discussed above, we uphold the decision of the ld. CIT(A), wherein he held as follows:- Under the facts and circumstances of the case there is no dispute to the identities of the share applicants who are companies having PAN and regularly filing their returns of income. All the notices issued to the share applicants were duly served u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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