TMI Blog2019 (3) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments 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 - Decided against revenue - I.T.A. No. 1036/Kol/2015 - - - Dated:- 27-2-2019 - Shri A. T. Varkey, JM Dr. A. L. Saini, AM For the Appellant : Shri Saurabh Kumar, Add. CIT(DR) For the Respondent : Shri Subash Agarwal, Advocate ORDER PER SHRI A.T.VARKEY, JM This is an appeal preferred by the Revenue against the order of the CIT(A), Siliguri dated 27.05.2015 for Assessment Year 2012-13. 2. The main grievance of the Revenue is against the action of the Ld. CIT(A) in deleting ₹ 1.20 crores made by the AO u/s 68 of the Act. 3 The brief fact of the case as noted by the AO is that the assessee is a company wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vt. Ltd. 125, N.S. Road, Kol-01. 2000 10/- 490/- ₹ 10,00,000/- 11. Walnut Dealcom Pvt. Ltd. 125, N.S. Road, Kol-01. 1200 10/- 490/- ₹ 6,00,000/- 12. Walnut Tradecom Pvt. Ltd. 125, N.S. Road, Kol-01. 1600 10/- 490/- ₹ 8,00,000/- 4. From a perusal of the aforesaid chart, according to the AO, the serial no. 4 to 12 (hereinafter referred to as the share subscribing and investing companies) have subscribed the shares of Assessee Company having face value of ₹ 10 at a premium of ₹ 490. The AO noted that the assessee had submitted the name and address of the investing companies and that he had issued notice u/s 133(6) to these share subscribing companies and acknowledges to have received from them confirmation that they have invested in the assessee-company. The AO also acknowledges to have received along with the confirmation of subscribing com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d any adverse finding against the identity and genuineness of the share subscribers. However, the AO found fault only about the creditworthiness of these corporate entities that they had no capacity to make such investment, accordingly he added ₹ 1.20 crores as unexplained credit u/s 68. We do not agree with the aforesaid action of the AO because when the identity and genuineness of these corporate entities were proved by the following documents produced before the A.O which A.O acknowledges at Page 3 of the assessment order wherein A.O observes assessee submitted name and address of the investing companies (as stated above) and notices under section 133(6) were issued and confirmations were received, confirming the assessee s claims. In the confirmations, investing companies forwarded PAN, acknowledgement copy of IT Returns, relevant portion of the bank statement, copy of the audited accounts, source of funds is also provided and their PAN number and addresses are also given . So in the said scenario as noted by AO, the identity and genuineness of share subscribers cannot be doubted only because Inspectors could not find them in the address furnished by the assessee. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction and whether such transaction has been 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. The appeal is thus devoid of any substance and is summarily dismissed. 7. We note that in the instant case the AO himself has issued 133(6) notices to the share subscribing companies to verity their identity, creditworthiness and genuineness of their transactions with assessee company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .70 lacs and share premium of ₹ 14.25 cr. own fund (page 4 of AO). Likewise, in the case of M/s. Narayan Mercantile Pvt. Ltd. had a share capital of ₹ 7.48 cr. and share premium of ₹ 76.29 cr. (written as FY 2012-13 and in FY 2010-11 share capital of ₹ 99.94 lacs) and this company had invested ₹ 25 lacs (page 5 of AO). In the case of M/s. Shree Narayan Mercantile Pvt. Ltd. the AO also has gone into the source of source which provided ₹ 25 lacs to Shri Narayan Mercantile Pvt. Ltd. which is shown from M/s. Original Tradelink pvt. Ltd, which had share capital of ₹ 2.76 cr. and premium of ₹ 24.96 cr. Therefore, from the financials, it is seen that four share subscribing companies had own funds in crores of Rupees and investment was only lakhs in rupees which goes on to show that they had enough creditworthiness for investment in assessee companies. In the light of the aforesaid facts and circumstances of the case, we do not agree with the AO that the share subscribing companies are not creditworthy. Therefore, we concur with the action of the Ld. CIT(A) that in the light of all the documents filed before the AO if he still nursed any doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir bank accounts which in turn has been used by them to subscribe to the assessee company as share application. Hence the source of source of source is proved by the assessee in the instant case though the same is not required to be done by the assessee as per law as it stood/ applicable in this assessment year. The share applicants have confirmed the share application in response to the notice u/s 133(6) of the Act and have also confirmed the payments which are duly corroborated with their respective bank statements and all the payments are by account payee cheques. 9. We also note that recently the ITAT Kolkata in several cases has deleted the addition on account of share application in similar circumstances. The relevant portion of the decisions are as follows: (a) The Ld ITAT Kolkata. in DC IT Vs Global Mercantiles Pvt.Ltd in ITA No. 1669/Kol/2009 dated 13-01-2016. In this the decision the Ld. Tribunal held as follows: 3.4. We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee. The facts stated hereinabove remain undisputed are not reiterated herein for the sake of brevity. We find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und to be decided in this appeal of the Revenue is as to whether the Learned CIT(A) is justified in deleting the addition u/s 68 of the Act made in respect of allotment of shares to 20 individuals for an amount of ₹ 57,00,000/- in the facts and circumstances of the case. 4. 1. The brief fact of this issue is that the assessee had received share application monies from 20 individuals in the earlier year which were kept in share application money account. During the asst year under appeal, the assessee allotted shares to these 20 individuals out of transferring the monies from share application money account to share capital account. The details of 20 individuals are reflected in page 6 7 of the Learned CIT(A) order. The Learned AO asked the assessee to produce the shareholders before him. He found that the assessee did not do so but furnished copies of pay orders used for payments to the assessee company and also furnished income tax particulars and balance sheets of all the shareholders. The Learned AO on analyzing all the balance sheets observed that the shareholders have paltry income and small savings and none of them have any bank account and huge cash balances wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s admitted as it appears to be a genuine and bonafide error of omission on the part of the Revenue from not raising this ground in the original grounds of appeal filed along with the memorandum of appeal. Moreover, it does not require any fresh examination of facts. Hence the same is admitted herein for the sake of adjudication. 4.4. 1. We find from the details available on record that the share application monies from 20 individuals in the sum of ₹ 57,00,000/- has been received by the assessee during the financial year 2004-05 relevant to Asst Year 2005-06 and only the shares were allotted to them during the asst year under appeal. Admittedly no monies were received during the asst year under appeal and hence there is no scope for invoking the provisions of section 68 of the Act. Hence we hold that the order passed by the Learned CITA in this regard does not require any interference. Accordingly the ground no. 3 raised by the Revenue is dismissed. (b) The ITAT Kolkata in R.B Horticulture Animal Projects Co. Ltd, ITA No. 632/Koll2011 dated 13-01-2016. In this the decision the Ld. Tribunal held as follows: 6. We have heard the Learned DR and when the case was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of any substance and is dismissed. 6.2. We find that the issue is also covered by the decision of Hon'ble Delhi High Court in the case of CIT vs Value Capital Services P Ltd reported in (2008) 307 ITR 334 (Del) , wherein it was held that: In respect of amounts shown as received by the assessee towards share application money from 33 persons, the Assessing Officer required the assessee to produce all these persons. While accepting the explanation and ITA No. 632/KoI12011--C-AM M/s. R.B Horticulture 6 Animal Proj. Co. Ltd the statements given by three persons the Assessing Officer found that the response from the others was either not available or was inadequate and added an amount of ₹ 46 lakhs pertaining to 30 persons to the income of the assessee. The Commissioner (Appeals) upheld the decision of the Assessing Officer. On appeal, the Tribunal set aside the order of the Commissioner (Appeals) and deleted the additions. On further appeal: Held, dismissing the appeal, that the additional burden was on the department to show that even if the share applicants did not have the means to make the investment, the investment made by them actually emanated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporated bodies under the Companies Act. 1956 since long. They have been regularly filing their returns of income under the Income Tax Act and are being assessed by the Revenue since long. Some of them are even registered as Non-Banking Financial Companies with Reserve bank of India. They have been filing returns regularly with Registrar of Companies and RBI since long. The letters might have been received at their old addresses because in case of change in the address, people instruct the incumbents at old addresses not to refuse the receipt of letters and receive the same. Just because, a letter was received at the old address instead of present address, it cannot be said that the identity of the applicant has not been verified. All of these companies had duly replied to notice u/s. 133(6) and confirmed the transaction with all the evidences. The AO has not raised any objection on any of the information furnished before him. The AO has not asked the respective Company applicants also to explain the alleged discrepancy in the address. The AO has not brought any material on account of record to disbelief the evidences furnished with him and treat the transaction as not genuine. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I have also gone through the details and documents filed by the appellant company in the course of assessment: proceedings vide letter dt. 3-10-2007. On careful consideration of the facts and in law I am of the opinion that the AO was not justified in making, the addition aggregating to ₹ 54,00,000/- u/s.68 of the Act being the amount of share application money by holding that the appellant company has failed to prove the identity, and creditworthiness of The creditors as well as the genuineness of transactions. It is observed that all the three share applicant companies i.e. M/s. Shree Shyam Trexim Pvt. Ltd., M/s Navalco Commodities Pvt. Ltd. and M/s. Jewellock Trexim Pvt. Ltd. had filed their confirmations wherein each of them confirmed that they had applied for shares of the appellant -company. All the three companies provided- the cheque number, copy of bank statements and their PAN. It is observed that these companies also filed, copies of their return of income and financial statements for as well as copy of their assessment order u/s. 143(3) of the I. T Act for AY 2005-06. In the case of M/s. Jewellock Trexim Pvt. Ltd. the assessment for AY 2005-06 was completed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25.01.2006 is placed in the paper book. Similarly Navalco Commodities Pvt. Ltd., was assessed to tax u/s 143(3) for A Y.2005- 06 by I TO, Ward- 9(4), Kolkata by order dated 20.03.2007. Similarly Jewellock Trexim Pvt. Ltd was assessed to tax for A Y.2005-06 by the very same ITO- Ward- 9(3), Kolkata assessing the Assessee. In the light of the above factual position which is not disputed by the Revenue, it cannot be said that the identity of the share applicants remained not proved by the assessee. The decision of the Hon'ble Allahabad High Court as well as ITA T Kolkata Bench on which reliance was placed by the learned counsel for the assessee also supports the view that for non production of directors of the investor company for examination by the AO it cannot be held that the identity of a limited company has not been established. For the reasons given above we uphold the order of CIT(A) and dismiss the appeal of the Revenue. 10. Reliance in this regard is also placed on the decision of the Delhi High Court in the case of CIT Vs Gangeshwari Metal (P) Ltd (ITA No. 597 of 2012) dated 21.01.2012. In this case the assessee had received share application money of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction. The AO however chose to sit back with folded hands till the assessee exhausted all the evidence in his possession and then merely reject the same without conducting any inquiry or verification whatsoever. The Court thus held that the decision of CIT Vs Novo Promoters Finlease (P) Ltd (342 ITR 169) was not applicable to the facts of the case. Instead it was held that the issue in hands was on the lines of the decision of the Supreme Court in the case of CIT Vs Lovely Exports Pvt Ltd (319 ITR 5). Accordingly the addition made under Section 68 on account of share application was deleted. 11. We would 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 (Sat 5)(5. C) 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the Assessing Officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no addition can be made under Section 68 of the Income Tax Act 1961. Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law 12. The case on hand clearly falls in the category where there is lack of enquiry on the part of the A. O. as in the case of Ganjeshwari Metals (supra). b) In the case of Finlease Pvt Ltd. 342 ITR 169 (supra) in ITA 232/2012 judgement dt. 22.11.2012 at para 6 to 8/ it was held as follows. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the Ld. Commissioner of Income Tax (Appeals) 14. To sum up section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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