TMI Blog2018 (12) TMI 197X X X X Extracts X X X X X X X X Extracts X X X X ..... acknowledgments were placed before the AO. Accordingly, all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction were placed before the AO and the onus shifted to the AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified - no addition was warranted under Section 68 . See ITO, WARD-12 (3) , KOLKATA VERSUS M/S SPLENDOUR VILLA MAKERS PVT. LTD. [2018 (9) TMI 414 - ITAT KOLKATA] - decided in favour of assessee. - I.T.A No. 248/Kol/2017 - - - Dated:- 28-11-2018 - Shri J.Sudhakar Reddy, AM And Shri S.S. Viswanethra Ravi, JM For The Appellant : Shri M. D. Shah, ld. AR For The Revenue : Shri C.J. Singh, Sr. DR ORDER Per J.Sudhakar Reddy, AM This is an appeal filed by the assessee for assessment year 2012-13 directed against the order of the Learned Commissioner of Income Tax(Appeals)-3, Kolkata [ in short the ld. CIT(A) ] passed u/s 143(3) of the Income Tax Act, 1961 [in short the Act]. 2. The assessee is a company and is engaged in the business of manufacturing of granites slabs. It fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same day or immediately before, none of them physically exist at the given addresses. All these are indicative of the fact that what is apparent is certainly not real. The three requirements of identity, creditworthiness of the shareholders and genuineness of the transaction have not been established. The assessing officer in para 9 to 9.4 of assessment order has lucidly explained the methodology as to how through the maze of bogus companies the money has reached the file of the beneficiary company. The question posed by the Hon ble Calcutta High Court in case of Rajmandir Estates Pvt. Ltd. order dated 13.05.2016 as to who is the person sought to be helped through the device adopted stands answered here. Relying on several case laws which are applicable to the facts of the case, the Assessing officer has made an addition u/s 68 of the Act. The Highest court of the land has laid down the Human Probability Test to analyze the genuineness of the entry through logical analysis in the case of CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC) and also followed in the case of Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC). Applying the case of human probability and preponderance of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act to all the directors and that only one director had appeared before the assessing officer. He relied on the order of assessing officer as well Ld. CIT(A) and submitted that the assessee had failed to prove the identity, creditworthiness and genuineness of the cash credits introduced in its book as share capital and share premium from five private limited companies. Alternatively he prayed that the matter may be restored to the file of the Ld. CIT(A) to the file of the assessing officer, to verify the claims of the assessee regarding justification of share premium and their claim about creditworthiness of the investor companies. 6. After hearing rival submissions and on a careful consideration of the facts and circumstances of the case, a perusal of papers on record and orders of the lower authorities below, as well as case law cited, we hold as follows. 7. The assessee company in this case is a genuine functional company. It is a company having business of manufacturing of granite slabs. It has issued share at a premium. The justification for issue of shares is given at page 54 of the paper book which is extracted for ready reference. Justification regarding issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29.03.2012 and this amount was invested by it in the assessee company. The balance sheet of this company shows that it had total share holder fund of ₹ 5,96,24,817/- as against the investment of ₹ 30 lakhs in the assessee company. This investor has demonstrated the source of source as well as creditworthiness in this case. No adverse material is brought on record by the revenue to negate this claim. ii) Sanmati Synfab Pvt. Ltd.: This company had invested an amount of ₹ 35,00,000/- in the assessee company. It was submitted in reply to notice u/s 133(6) that the amount in question was received from three companies i.e. ₹ 10,00,000/- from M/s Ronak Vyapaar Pvt. Ltd., ₹ 15,00,000/- from M/s Sanmati Printers Pvt Ltd. and ₹ 10,00,000/- from M/s Ronak Vyapaar Pvt. Ltd. through banking channels. From the annual report of the Sanmati Synfab Pvt. Ltd, it can be seek that the total share holder funds is more than 5.96 crores as against this investment of ₹ 35 lakhs. In this case also, in our view, the share applicant has demonstrated source of source of funds as well as the creditworthiness of the investor company. No adverse material is brought on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bs and has huge turnover running into crores of rupees. All the share application companies have filed all necessary documents in support of their claim that the transactions are genuine. No adverse material is brought on record by the revenue. On the facts of this case, we consider the case on this issue. 13. The Hon ble B Bench of the Tribunal in the case of ITO vs. Splendour Villa Pvt. Ltd. I.T.A. No. 1768/Kol/2016 order dated 05.09.2018 with a similar view and has at para 5.2 onward held as follows: 5.2. From the aforesaid details, we find that in case of all the share applicants a) The share application form and allotment letters are available. b) The share applicants are income tax assessees and had filed their income tax returns regularly. c) The investment in share application money were made out by account payee cheques. d) The bank accounts of the share applicants reveal that there were no deposits of cash before issue of cheques to the assessee company. e) The share applicants are having substantial creditworthiness in the form of free reserves and capital in their balance sheet. 5.3. As per the mandate of section 68 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he share applicant companies, drawing an adverse inference against the assessee company to treat the receipt of share capital as bogus is unwarranted. Reliance in this regard is placed on the decision of the Hon ble Supreme Court in the case of Orissa Corporation P Ltd reported in 159 ITR 78 (SC) and Hon ble Gujarat High Court in the case of DCIT vs Rohini Builders reported in 256 ITR 360 (Guj) , wherein it was held that onus of the assessee (in whose books of account, the credit appears) stands fully discharged, if the identity of the creditor is establishd and actual receipt of money from such creditor is proved. In case, the Assessing Officer is dissatisfied about the source of cash deposited in the bank accounts of the creditors , the proper course would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor). In arriving at this conclusion, the Hon ble Court has further stressed the presence of word may in section 68 of the Act. Relevant observations of Hon ble Gujarat High Court at pages 369 370 are as under :- Merely because summons issued to some of the creditors could not be served or they failed to attend before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT vs. Smt. P.K. Noorjahan [1999] 237 I TR 570. It would be pertinent to note that against the said decision of Hon ble Gujarat High Court, the Special Leave Petition (SLP in short) preferred by the revenue was dismissed by the Hon ble Supreme Court. 5.5. Undisputedly the Share Applicants in this case are the bank account holder in their respective banks in their own name and are sole owner of the credits appearing in their bank account from where they issued cheques to the appellant. For the proposition that a Bank Account holder himself is the 'owner' of 'credits' appearing in his account (with the result that he himself is accountable to explain the source of such credits in whatever way and form, the same have emerged) support can be derived from section 4 of Bankers Book Evidence Act 1891 which reads as under:- 4. Mode of proof of entries in bankers' books Subject to the provisions of this Act, a certified copy of any entry in a bankers' book shall in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 68, by holding that the same should be decided by taking into consideration the provision of section 106 of the Evidence Act which says that a person can be required to prove only such facts which are in his knowledge. The Hon'ble Court in the said case held that, once it is found that an assessee has actually taken money from depositor/lender who has been fully identified, the assessee/borrower cannot be called upon to explain, much less prove the affairs of such third party, which he is not even supposed to know or about which he cannot be held to be accredited with any knowledge. In this view, the Hon'ble Court has laid down that section 68 of Incometax Act, should be read along with section 106 of Evidence Act. The relevant observations at page 260 to 262, 264 and 265 of the report are reproduced herein below:- While interpreting the meaning and scope of section 68, one has to bear in mind that normally, interpretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 68 are to stand together, which they must, then, the interpretation of section 68 are to stand together, which they must, then the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of section 106 of the Evidence Act and section 68 of the Income- tax Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been. eventually, received by the assessee. It, therefore, further logically follows that the creditor's creditworthine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditor to the creditor was income of the assessee from undisclosed source unless there is evidence, direct or circumstantial, to show that the amount which has been advanced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee . ********** 5.7. We find that the Hon ble Jurisdictional High Court in the case of S.K. Bothra Sons, HUF v. Income-tax Officer, Ward- 46(3), Kolkata reported in 347 ITR 347(Cal) wherein Keeping in view the above position of law, when we turn to the factual matrix of the present case, we find that so far as the appellant is concerned, he has established the identity of the creditors, namely, Nemichand Nahata and Sons (HUF) and Pawan Kumar Agarwalla. The appellant had also shown, in accordance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors aforementioned. In fact the fact that the assessee had received the said amounts by way of cheques was not in dispute. Once the assessee had established that he had received the said amounts from the creditors aforementioned by way of cheques, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt account numbers and address and further indicating that the loan was taken by account payee cheques, no doubt, prima facie, discharged the initial burden and those materials disclosed by the assessee prompted the Assessing Officer to enquire through the Inspector to verify the statements. 5.8. We find that the Hon ble Jurisdictional High Court in yet another case of Crystal Networks (P) Ltd vs CIT reported in 353 ITR 171 (Cal) had held that when the basic evidences are on record, the mere failure of the creditor to appear before the Assessing Officer cannot be the basis to make addition. The relevant observations of the Hon ble Court are as under:- 8. Assailing the said judgment of the learned Tribunal learned counsel for the appellant submits that Income-tax Officer did not consider the material evidence showing the creditworthiness and also other documents, viz., confirmatory statements of the persons, of having advanced cash amount as against the supply of bidis. These evidence were duly considered by the Commissioner of Income-tax (Appeals). Therefore, the failure of the person to turn up pursuant to the summons issued to any witness is immaterial when the mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 464, the Supreme Court has observed as follows: The Income-tax Appellate Tribunal performs a judicial function under the Indian Income-tax Act; it is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. 11. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity. 12. Taking inspiration from the Supreme Court observations we are constrained to hold in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness of transaction through account payee cheque has been established. We find that both the Commissioner of Income Tax (Appeal) and the Tribunal below followed the well-accepted principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities. 5.10. We find that the Hon'ble Jurisdictional High Court in the case of CIT vs Roseberry Mercantile (P) Ltd in ITAT No. 241 of 2010 dated 10.1.2011 , while relying on the Hon ble Supreme Court in the case of Lovely Exports reported in 216 CTR 295 (SC) , had held :- On the facts and in the circumstances of the case, Ld. CIT(A) ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w erred in law in deleting the addition of ₹ 8,52,000/-, ₹ 91,50,000/- and ₹ 13,00,000/- made by the Assessing Officer on account of share capital, share application money and investment in HTCCL respectively. After hearing Md. Nizamuddin, learned Advocate appearing on behalf of the appellant and after going through the materials on record, we find that all such application money were received by the assessee by way of account payee cheques and the assessee also disclosed the complete list of shareholders with their complete addresses and GIR Numbers for the relevant assessment years in which share application was contributed. It further appears that all the payments were made by the applicants by account payee cheques. It appears from the Assessing Officers order that his grievance was that the assessee was not willing to produce the parties who had allegedly advanced the fund. In our opinion, both the Commissioner of Income-tax (Appeals) and the Tribunal below were justified in holding that after disclosure of the full particulars indicated above, the initial onus of the assessee was shifted and it was the duty of the Assessing Officer to enqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are application money from five share applicants. The nature of receipt towards share application money is well established from the entries passed in the respective balance sheets of the companies as investments. Hence the nature of receipt is proved by the assessee beyond doubt. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e identity of share applicants, genuineness of transactions and creditworthiness of share applicants. In the instant case, we find that the identity of share applicants is proved beyond doubt by the assessee by furnishing the name, address, PAN of share applicants together with the copies of balance sheets and Income Tax Returns . With regard to the creditworthiness of share applicants, the ld AO himself states that the five share applicants had invested in assessee company s shares by taking money from some other companies. Hence the source of the share applicants for making investment in share application monies of assessee company is also proved. By this, the creditworthiness of the share applicants is also proved beyond doubt. Third ingredient is genuineness of the transactions. We find that the five share appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. Hence we do not find any infirmity in the order of the ld CITA in this regard. Accordingly, the grounds raised by the revenue are dismissed. 5.13. We find that the co-ordinate bench of this tribunal recently in the case of ITO vs Wiz-Tech Solutions Pvt Ltd in ITA No. 1162/Kol/2015 dated 14.6.2018 had held as under:- 28. From the details as aforesaid which emerges from the paper book filed before us as well as before the lower authorities, it is vivid that all the share applicants are (i) income tax assessee s, (ii) they are filing their return of income, (iii) the share application form and allotment letter is available on record, (iv) the share application money was made by account payee cheques, (v) the details of the bank accounts belonging to the share applicants and their bank statements, (vi) in none of the transactions the AO found deposit in cash before issuing cheques to the assessee company, (vii) the applicants are having substantial creditworthiness which is represented by a capital and reserve as noted above. 29. As noted from the judicial precedents cited above, where any sum is found credited in the books of an assessee then there is a duty cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld like to reproduce the Hon'ble High Court order in CIT vs. Gangeshwari Metal P.Ltd. in ITA no. 597/2012 judgement dated 21.1.2013, the Hon'ble High Court after considering the decisions in the case of Nova Promoters and Finlease Pvt. Ltd. 342 ITR 169 and judgement in the case of CIT vs. Lovely Exports 319 ITR (St) 5(SC) held as follows:- As can be seen from the above extract, two types of cases have been indicated. One in which the Assessing Officer carries out the exercise which is required in law and the other in which the Assessing Officer 'sits back with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case 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 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. This Court has considered the submissions of the parties. In this case the discussion by the Commissioner of Income Tax (Appeals) would reveal that the assessee has filed documents including certified copies issued by the ROC in relation to the share application affidavits of the directors, form 2 filed with the ROC by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the Assessing Officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the Assessing Officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edgments were placed on AO's record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act. Therefore, we do not want to interfere in the impugned order of Ld. CIT(A) which is confirmed and consequently the appeal of Revenue is dismissed. 5.14. We find that the Hon ble Supreme Court in the case of M/s Earthmetal Electricals P Ltd vs CIT Anr. reported in 2010 (7) TMI 1137 in Civil Appeal No. 21073 / 2009 dated 30.7.2010 arising from the order of Hon ble Bombay High Court had held as under:- ORDER Delay condoned. Leave granted. Heard learned counsel on both sides. We have examined the position. We find that the shareholders are genuine parties. They are not bogus and fictitious. Therefore, the impugned order is set aside. The appeal is allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusion that the amount credited in the assessee s books in the form of share capital and share premium actually represented assessee s undisclosed income. This factual finding remain uncontroverted by the revenue before us. Once the replies to notices issued u/s 133(6) of the Act were received from the share subscribing companies, if at all, the ld AO had any doubt that the details filed thereon warranted further examination, nothing prevented him from issuing summons u/s 131 of the Act to the directors of the share subscribing companies or carry out examination through the Assessing Officer of the share subscribing companies. Why should the director of the assessee company produce the directors of the share subscribing companies. The assessee could only furnish the relevant details to prove its primary onus. Thereafter the onus shifts to the revenue to decide whether to make further examination or not in the given set of facts and circumstances. The shifting of onus is like a pendulum clock between the assessee and the ld AO. The ld AO after carrying out the requisite verification on his part independently, should confront the assessee, if necessary, based on the materials gathe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already been addressed by this tribunal in the case of VSP Steel P Ltd supra. No decision whatsoever was rendered by the Hon ble Jurisdictional High Court in the case of Raj mandir Estates P ltd on merits of the addition and hence does not come to the rescue of the revenue in the facts of the instant case. 5.16. We also find that the Hon ble Apex Court recently in the case of Principal CIT vs Vaishnodevi Refoils Solvex reported in (2018) 96 taxmann.com 469 (SC) wherein the SLP of the Revenue has been dismissed by the Hon ble Apex Court. The brief facts of that case were that the addition u/s 68 of the Act was made by the Assessing Officer in respect of capital contributed by the partner of the firm. The Hon ble Gujarat High Court noted that when the concerned partner had confirmed before the Assessing Officer about his fact of making capital contribution in the firm and that the said investment is also reflected in his individual books of accounts, then no addition could be made u/s 68 of the Act. The decision of Hon ble Gujarat High Court is reported in (2018) 89 taxmann.com 80 (Guj HC) . The SLP of the revenue against this judgment was dismissed by the Hon ble Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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