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TMI Blog2020 (2) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... nd on facts in upholding the additions made by the Assessing Officer u/s. 143(3) r.w.s. 153A of the Income-tax Act, 1961 which is invalid and bad in law. 2. The learned CIT(A) has erred in upholding the addition of Rs. 80,00,000/- made by the Assessing Officer u/s.68 of the Act. 3. The learned CIT(A) has erred in upholding the addition of Rs. 60,000/- made by the Assessing Officer, being alleged unexplained expenditure @ 0.75% on aforesaid alleged capital introduced of Rs,80,00,000/-. 4. The learned CIT(A) has erred in law and on facts in upholding the disallowance made by the Assessing Officer u/s. 14A of the Act read with Rule 8D of I.T. Rules, 1962. 5. The order passed by the learned CIT(A) is in violation of principles of natural Justice and bad in law. 6. The appellant craves leave to add to, amend, alter or delete all or any of the foregoing grounds of appeal, 3. The Brief facts of the case extracted from ITA No.2568/Mum/2018 for AY 2010-11 are that a search and seizure action u/s 132(1) of the I.T.Act, 1961 was conducted in the Anand Rathi Group along with their group concerns on 24/09/2013. During the course of search proceedings, it was noticed that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hairman and Director of Anand Rathi Group was also recorded on 17/07/2014, in the post search investigation proceedings, for which he did not provide any satisfactory explanation to explain various documents and to prove, the genuineness of the source of share capital, so received from the subscribers. 4. Consequent to search proceedings, the case has been selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee has received huge sum of shares capital from various companies. Therefore, he called upon the assesee to furnish necessary evidences, including name and address of the person from whom share capital is received, copy of blank statement highlighting relevant entries, ITR acknowledgment with annexure, name of the bank and branch from where amount has been received, amount of premium charged on issue of shares, copies of correspondence with the share subscriber and other details. In response, the assessee vide letter dated 30/11/2015 filed complete details of name and address, including PAN of the subscribers, copy of bank statement, ITR with annexure, profit and loss account, balance sheet etc., justification note on issue of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thiness of the shareholders are not proved. The entire gamut of transactions shows that the funds, in form of share capital has been brought in by way of capital in the name of the various companies, whose very existence could not be established by the assesses company, nor the source of these funds. Therefore, he opined that the assessee has failed to prove credit found in form of share capital as genuine transactions and accordingly, made additions of Rs. 80,00,000/- towards share capital u/s 68 of the I.T.Act, 1961. Similarly, the AO has made additions towards probable commission paid by the assessee to hawala dealers for obtaining accommodation entry and by taking note of industrial practice estimated 0.75% commission on total share capital received by the assesee and made additions of Rs. 60,000/-. Likewise, the AO has made additions towards disallowances of expenditure incurred in relation to exempt income U/s 14A r.w.Rule 8D amounting to Rs. 38,882/-. 6. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has reiterated its submissions made before the AO to argue that it has discharged initial onus by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edients have been collectively discharged or not, in the given facts and circumstances of the case. Accordingly, by taking note of various facts brought out by the AO and also by relied upon various judicial precedents, including the decision of Hon'ble Supreme Court in the case of Union of India vs Gosalia Shipping Pvt.Ltd. 1978 113 ITR 307 held that the assessee has failed to prove, the true identity, genuineness of transactions and creditworthiness of the parties, more particularly, in the backdrop of clear findings, during search proceedings and post search investigation carried, during the course of assessment proceedings and accordingly, opined that there is no error in the findings of the AO in making additions towards share capital u/s 68 of the I.T.Act, 1961. Similarly, the Ld.CIT(A) upheld additions made by the AO towards probable commission payment on accommodation entries obtained from Hawala dealers. Likewise, the Ld.CIT(A) has also upheld additions made by the AO towards disallowances of expenditure incurred, in relation to exempt income u/s 14A by invoking Rule 8D(2)(iii) of the I.T.Rules, 1962 @ 0.5% average value of investments. Aggrieved by the Ld.CIT(A) order, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in order to bring any credit within the ambit of section 68 of the Act, the Assessing Officer should prove that the credit is, in fact, the income of the assessee from undisclosed sources. In this case, nothing has been pointed out by the Assessing Officer. The learned AR further referring to various judicial precedents including the decision of Hon'ble Bombay High Court in the case of CIT vs. Creative World Telefilms Ltd. (333 ITR 100) submitted that once the assessee has discharged initial onus of proving identity, genuineness of transaction and credit worthiness of the parties, then the Assessing Officer can proceed to re-open the assessment of the creditors, but sum so received from the creditors cannot be regarded as undisclosed income of the assessee. The assessee has further relied on the following judicial precedents: a) CIT vs. Green Infra Ltd (2017) 292 CTR 233(Bombay) b) CIT vs. Gagandeep Infrastructure Pvt Ltd.(2017) 394 ITR 680(Bombay) c) CIT vs. Goa Sponge and Power Ltd Tax Appeal No. 16 of 2012 (Bombay High Court) d) CIT vs. Creative World Telefilms Ltd 333 ITR 100 (Bom- High Court) e) CIT vs. Lovely Exports (P) Ltd 216 CTR 195 (SC) f) CIT vs. Stelle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er forms and other evidences, during the course of search. Further, when these materials were confronted to the director of Anand Rathi company group, he was not able explain, the said documents, but only reiterated that said blank documents have been kept to have right of first refusal for purchase of shares from the investors. The Ld. DR submitted that in order to prove genuineness of transactions, the assessee has to prove beyond doubt with credible evidences, especially when, the shadow cast on genuineness of transactions thta tranactions are genuine. In this case although, assesee has filed various evidences, including confirmation from the parties, but when the AO as well as, the Ld.CIT(A) carried out investigations by issuing 133(6) and 131 notices, none of the investors have responded with details sought for by the authorities. 11. The Ld. DR further submitted that filing of confirmation letter and evidences to prove identity is not sufficient enough and what is to be seen is whether, the transactions between the parties are genuine in the given facts and circumstances of the case. In this case, on perusal of facts it is abundantly clear that all documents including confir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N PRESUMED COMMISSION: RAJRANI GUPTA (2000) 72 ITD 155 (MUM) 12. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that the issue involved in the present appeal is squarely covered in favour of the assessee by the decision of ITAT in assessee's own group company case in ITA No.2563/Mum/2018 and other order dated 29/08/2019, where under identical set of facts, the Tribunal has deleted additions made by the Ld. AO towards share capital and share premium u/s 68 of the I.T.Act, 1961. We further noted that the Tribunal has also deleted additions made by the Ld. AO towards probable commission paid on said share capital, on the ground that once, additions u/s 68 of the Act has been deleted, then consequent additions towards commission also needs to be deleted. The relevant findings of the Tribunal are as under:- 12. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The Ld. AO has made additions towards share capital and share premium, on the ground that although, the assesee has filed various details to prove identity, genuineness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dients i.e., identity, genuineness of transactions and creditworthiness of the parties. In this factual and legal background, if you examine, the present case in the light of various evidences filed by the assessee, in order to prove credit found in the form of share capital and share premium, one has to see, whether the assessee has discharged its initial onus cast upon u/s 68 of the I.T.Act, 1961 or not. In this case, the assesee has filed various details, including share application form, copy of declaration, board resolution, bank statement of Investor Company, PAN card, acknowledgment of return of income, financial statement of Investor Company, form No. 2 for allotment of equity shares and bank statement reflecting, the amount received through banking channels. Once, the assessee has discharged its initial onus by filing various details, then the onus shift to the AO to carry out further verification, in the light of evidences filed by the assessee to ascertain true nature of transactions between the parties before, he come to the conclusion that the transactions between the parties are genuine or not. In this case although, the AO has issued 133(6) notices to the parties, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the person, who gave the statement, when such opportunity has been availed by the person against whom, such statements are used. This legal proposition is supported by the decision of Hon'ble Supreme Court in the case of Kishanchand Chellaram vs CIT 1980 125 ITR 713 (SC), where it was held that when, third party information is relied upon to draw an adverse inference against the assessee, the same needs to be provided and also opportunity of cross examination shall be given, if such opportunity is availed by the assessee. The Hon'ble Supreme Court in the case of Andaman Timber Industries Ltd Vs CCE, Kolkata II in Appeal No 4228 of 2006 has vide order dated 02.09.2015 had also upheld a similar legal position and held that not allowing the assessee to cross-examine the witnesses by the adjudicating the authority, though the statements and those witnesses were made the basis of the impugned order is a serious flaw, which makes the order nullity in, as much as, it amount to violation of principle of natural justice, because of which, the assessee was adversely affected. Therefore, on this count also the additions made by the AO cannot be sustained. 14. Coming to the other aspe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erted to section 68 is considered to be prospective in nature, obviously sub clause (viib) inserted to section 56(2) is also considered to be prospective and cannot be applied to the assessment year in question. Even otherwise, assuming for a moment above provisions are applicable for the year under consideration, in order to apply said amended provisions, the AO has to prove that the assessee has not proved capacity of the investors and also not offered any justification for issue of shares at premium. In this case, from the facts on record, it is clear that the assessee has proved identity and genuineness of the transactions by filing necessary evidences. The assessee has filed valuation report from registered valuer as per which the share price of the company is over and above premium charged by the assessee. Therefore, we are of the considered view that provisions of section 56(2)(viib) has no application. 15. Coming to the case laws relied upon by the assessee. The assessee has relied upon plethora of judgements, including the decision of Hon'ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd (2008) 216 CTR 195 (SC). In the case laws relied upon by the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company." CIT vs. Steller Investment Ltd (2001) 251 ITR 263 (SC) (civil appeal) "That the increase in subscribed capital of the respondent company could not be a device of converting black money into white with the help of formation of an investment company, on the round that, even if it be assumed that the subscribers to the increased capital were not genuine, tinder no circumstances could the amount of share capital be regarded as un disclosed income, an appeal was taken by the Department to the Supreme Court. The Supreme Court dismissed the appeal holding that the Tribunal had come to a conclusion on facts and no interference was called for." CIT vs. Nav Bharat Duolex Ltd (2013) 35 Taxmann.com289 (All- High Court) "We have considered the arguments of the counsel for the parties. CIT(A) found that five companies subscribing the equity shares amounting to Rs. 25,00.000/- were identified and they had submitted their bank statements, cash extracts and returns filing receipts. As such identity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue still had a doubt with regard to the genuineness of the transactions in issue or as regards the creditworthiness of the creditors, it would have had to discharge the onus which had shifted on 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act, 1961, in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented the company's own income from undisclosed sources. It was nobody's case that the non resident Indian company was a bogus or non-existent company or that the amount subscribed by the company by way of share subscription was in fact the money of the assessee. The assessee had established the identity of the investor who had provided the share subscription an d that the transaction was genuine. Though the assessee's contention was that the creditworthiness of the creditor was also established, in this case, the establishment of the identity of the investor alone was to be seen. Thus, the addition was rightly deleted." CIT vs. Shree Rama Multi Tech Ltd (2013) 34 Taxmann.com177 (Guj-HC) "It is noted that Commissioner (Appeals) as well as the Tribunal have duly considered issue and having found complete details of the receipts of share application money, along with the form names and addresses, PAN and other requisite details, they found complete absence of the grounds noted for invoking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of DCIT vs. NRA Iron & Steel Pvt. Ltd. (supra). Insofar as most of case laws relied upon by the ld. DR we, noticed that the issue involved is factual and has to be examined ratios of case laws in light of facts of present case. When we had examined case laws relied upon by the ld. DR in light of facts of present case, we find that the coordinate benches have considered all those case laws and held that most of cases are not applicable to facts of present case. Therefore, we do not wish to discuss those case laws. But when it comes to Hon'ble Supreme Court decision in case of PCIT vs. NRA IRON & STEEL PVT LTD, we find that co-ordinate Bench of ITAT vide its order dated 03.05.2019 in the case of Shree Laxmi Estate Pvt. Ltd. in ITA No. 6557/Mum2017 for A.Y. 2013-14 had considered the decision of Hon'ble Supreme Court in the case of NRA Iron & Steel P. Ltd. and held that the facts of the case before the Hon'ble Supreme Court are entirely different, where on the basis of facts of that case Hon'ble Supreme Court came to the conclusion that mere furnishing of certain documents is not sufficient enough and what is relevant is all three ingredients, i.e. identity, genuineness of transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is not in dispute that the assessee and the concerned loan creditors had duly filed their respective bank statements to prove the immediate source of credit for advancing loans to the assessee company, confirmation of having given loans to the assessee company, together with their income tax return acknowledgements and other requisite details called for by the ld AO in the notice u/s 133(6) of the Act. In case if the ld AO had any doubt on the veracity of the documents submitted by the loan creditors, the same could have been confronted on the said loan creditors by issuing summons u/s 131 of the Act and examine them on oath or correspondingly verify the same through the Assessing Offficers of the concerned loan creditors through the internal source of the department. The ld AO did not do either of these in the instant case and merely disregarded the evidences submitted on record before him both by the assessee as well as by the loan creditors directly to him. The written submissions filed by the ld DR in this regard is repetition of various contentions already available on record by the lower authorities, apart from placing reliance on certain decisions. We find that both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e unsecured loans are bogus accommodation entries provided by Shri Pravinkumar Jain through his hawala companies. The provisions of section 68 deal with cases where any sum found credited in the books of account of the assessee in any financial year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the AO, satisfactory, then sum so credited may be charged to income-tax as the income of the assessee of that previous year. A plain reading M/s Shree Laxmi Developers of section 68 makes it clear that the initial burden of proof lies on the assessee. It is well settled legal position that the assessee has to discharge 3 main ingredients in order to discharge the initial burden of proof, i.e. the identity of the creditor, the genuineness of transaction and creditworthiness of the creditors. Once the assessee discharges initial burden placed upon him, then the burden todis prove the said claim shifts upon the AO. In this case, the assessee has discharged his onus cast u/s 68 by filing identity of the creditors, genuineness of transactions and creditworthiness of the parties which is evident from the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013-14 onwards and not for the subject assessment year. In fact, before the Tribunal, it was not even the case of the Revenue that section 68 as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1-42013 was its normal meaning. The Parliament did not introduced to proviso of section 68, with retrospective effect nor does the proviso to introduced states that it was introduced 'for removal of doubts' or that it is 'declaratory'. Therefore, it is not open to give it retrospective effect, by proceeding the basis that the addition of the proviso to section 68is M/s Shree Laxmi Developers immaterial and does not change the interpretation of section 68 both before and after the adding of the proviso. In view of the matter the three essential tests while confirming the section 68 laid down by the Court namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on fact it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application money cannot be regarded as undisclosed income u/s 68 of the Income-tax Act, 1961. 10. Coming to the case laws relied upon by the Ld.DR. The Ld.DR relied upon the decision of Hon'ble Delhi High Court in the case of Principal CIT vs Bikram Singh in ITA No.55/Del/2017 dated 25-03-2017. We have gone through the case law relied by the Ld.DR in the light of facts of the present case and find that the facts of case before Hon'ble Delhi High Court are entirely different from facts of the present case. The Hon'ble Delhi High Court, has considered the fact that the individuals, who advanced loans had no financial strength to lend such huge sum of money to the assessee, that too, without any collateral security without interest and without a lender agreement. Under these facts, the Hon'ble Court held that mere establishing of their identity and the fact that the amounts have been transferred through cheque payment does not by itself mean that the transactions are genuine. In this case, the assessee has furnished all evidences and also the parties personally responded to the notices M/s Shree Laxmi Developers issued by the AO u/s 133(6) by filing various details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Some of the investor companies were found to be closed at their correct address ; c) Notice could not be served on some of the investor companies ; d) Some of the investor companies replied to notice u/s 133(6) of the Act wherein they had confirmed having made investment in share application money in NRA Iron & Steel Pvt Ltd but had limited income as per their income tax returns which in turn resulted in doubting of creditworthiness ; e) Most of the investor companies though confirmed the fact of having made investment in share application money in NRA Iron & Steel Pvt Ltd , but had not filed their bank statements to prove the immediate source of credit available to them for making the said investment. 8.1.1. In the instant case before us, the ld AO did not issue any summons u/s 131 of the Act or make further enquiries to examine the veracity of the evidences filed on record before him by the assessee as well as by the loan creditors in response to notice u/s 133(6) of the Act. Moreover, all the loan creditors had duly furnished their respective bank statements proving the immediate source of credit for them to justify that they had sufficient creditworthiness to advance lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company vis a vis the facts before the Hon'ble Supreme Court, we hold that the reliance placed by the ld DR on the decision of Hon'ble Supreme Court supra does not come to the rescue of the revenue. 8.3. At the cost of repetition, we would like to state that the ld CIT(A) had merely placed reliance on the decision taken by his predecessor in Asst Year 2012-13 in assessee's own case in similar set of facts. We find that this decision for Asst Year 2012-13 in assessee's own case has been reversed by this tribunal vide its order dated 29.12.2017 referred to supra. In view of our aforesaid findings in the facts and circumstances of the case and respectfully following the decision of this tribunal in assessee's own case for Asst Year 2012-13, we hold that the assessee company had duly proved the nature and source of credit in the form of unsecured loan and had duly satisfied the three necessary ingredients of section 68 of the Act viz, the identity of the loan creditors , creditworthiness of loan creditors and genuineness of loan transactions. Hence we direct the ld AO to delete the addition made in the sums of Rs. 50 lacs and Rs. 25 lacs towards unsecured loan u/s 68 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total transactions is also incorrect and accordingly, direct the AO to delete additions made towards commission estimation. 13. In this view of the matter and by respectfully following the decision of co-ordinate bench in assesee group company case, we are of the considered view that the identity, genuineness of transaction and creditworthiness of subscribers has been proved as required u/s 68 of the Act. We, therefore, direct the Ld. AO to delete additions made towards share capital and consequent commission u/s 68 of the I.T.Act, 1961. 14. The next issue that came up for our consideration from ground No.4 of assessee's appeal is disallowances of expenditure incurred in relation to exempt income u/s 14A of the Act r.w.Rule 8D of the I.T.Rules, 1962. We find that an identical issue has been considered by us in ITA No. 2563/Mum/2018, in the case of M/s Asha Leasing and Finance Pvt.Ltd., where under identical set of facts, the Tribunal has deleted additions made by the Ld. AO u/s 14A r.w.s.Rule 8D of I.T.Rules, 1962, on the ground that in absence of incriminating material found as a result of search no additions could be made in the assessments framed u/s 143(3) r.w.153A of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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