TMI Blog2021 (3) TMI 875X X X X Extracts X X X X X X X X Extracts X X X X ..... on money and unsecured loan in respect of different investors as mentioned earlier, the same, in our opinion, does not call for any interference and, accordingly, the same is upheld. The grounds raised by the Revenue are accordingly dismissed. - ITA No. 5204/Del/2015 - - - Dated:- 9-3-2021 - R. K. Panda, Member (A) And Suchitra Kamble, Member (J) For the Appellant : Aditya Kumar and Ashwani Kumar, CAs For the Respondents : Aashna Paul, CIT-DR ORDER R.K. Panda, Member (A) This appeal filed by the Revenue is directed against order dated 31st March, 2015 of the CIT(A)-9, New Delhi relating to assessment year 2011-12. 2. Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacturing of sheet metal components and tools dies. It filed its return of income on 29th September, 2011 declaring 'nil' income. The said return was revised on 14th September, 2012 declaring a loss of ₹ 3,61,68,075/-. During the course of assessment proceedings, the AO, on perusal of the balance sheet filed by the assessee, noted that the assessee company has issued 14,72,000 equity shares at a premium of ₹ 115. From the var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by a credit entry/credit entries of same amount. Further, all figures are rounded off figures and unlike regularly operated accounts where it can be seen transactions of different amounts with varying figures. 7. In the case of M/s. ARG Autosystems P. Ltd., he observed that as per income-tax return, the income declared is only ₹ 10,921/-. From the bank statement, he noted that funds were first deposited into its accounts and, thereafter, transferred to the assessee company. The entire bank statement has debits and credits of equal amounts and no other transactions except intercity transaction charges. He, therefore, doubted the capacity of the above concern to invest such amount in the assessee company. Similarly, in the case of Mr. Arun Gupta, he noted that the income declared is only ₹ 1,11,40,185/-. From the bank statement, he noted that each debit entry is preceded by a credit entry of same or similar amount. He, therefore, was of the opinion that the credit worthiness of Mr. Arun Gupta could not be ascertained towards the share capital and share premium as well as unsecured loans amounting to a total of ₹ 6,75,75,579/-. 8. So far as Shiroki Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that the investor companies cannot be considered as non-existent since these companies were incorporated following the due process of law as prescribed under the Companies Act, 1956. All are assessed to income-tax and their copies of tax return along with audited balance sheets were filed before the AO. So far as the credit worthiness of the parties are concerned, the assessee filed details to substantiate their credit worthiness. The assessee explained item-wise the credit worthiness of the parties. 11.1. So far as share capital and unsecured loan obtained from Arun Gupta is concerned, it was argued that income of Arun Gupta is ₹ 1,11,40,185/-. A chart showing the source of various deposits made by him in the assessee company was enclosed and it was submitted that an amount of ₹ 1,05,00,000/- being cancelled cheques in respect of which no funds were actually received and the amount was specifically reversed was added by the AO while passing the order. Similarly, an amount of ₹ 1 crore was transferred by means of journal entry to the share application money account which has been added by the AO under the head 'unsecured loan' as well as 'sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,50,00,000/- towards share application money and ₹ 4,33,15,223/- towards unsecured loan from M/s. ARG Udyog Pvt. Ltd. is concerned, it was argued that the assessee in the instant case has proved the source of the source and, consequently, the onus cast even after the amended provisions of section 68 by the Finance Act, 2012 has been comprehensively discharged by producing the confirmation, income-tax computation, balance sheet, etc. It was submitted that the net addition in the accounts of M/s. ARG Udyog Pvt. Ltd. on account of unsecured loan would come to Rs. nil and not ₹ 4,33,15,223/- which is evidenced from the following facts:- (a) A sum of ₹ 30,00,000/- represents cheques cancelled i.e. in respect of which no funds were actually received and the amount was subsequently reversed which has also been added back while passing the order. (b) A sum of ₹ 4,50,00,000/- was transferred by means of journal entry to the Share Application Money Account which has been added both under the head Unsecured Loans as well as Share Application Money resulting in double addition of the like amount. (c) The cumulative effect, again without prejudice to the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... automotive company with sales of more than ₹ 125 Cr. It was argued that vide agreement dated 31.11.10(sic)(sic), M/s. ARG Udyog Pvt. Ltd. had sold its 10,97,548 preference shares in Technico Kongsberg Automotive India Ltd. to M/s. Kongsberg Automotive Holding ASA, an internationally renowned manufacturer of auto components, and the sale proceeds were utilized to give loan to the assessee company. It was stated that the transactions involved well known manufacturing companies, that all transactions were by cheque through bank account and M/s. ARG Udyog Pvt. Ltd. was regularly filing its income tax returns. 16. So far as ARG Auto Components Pvt. Ltd. is concerned, a chart showing the source of the various deposits made by it in the assessee Company was filed. It was argued that even a cursory review of the same would reveal that even the source of source stands duly proved in his case and consequently the onus cast even after the amendment of Section 68 by the Finance Act, 2012 has been comprehensively discharged. It was argued that the net addition in the accounts of M/s. ARG Auto Components Pvt. Ltd. on account of Unsecured Loans stand only at ₹ 3,16,63,403/- and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s argued that the above company is a Japan based related party of the assessee company. During the year under consideration, the assessee had received a sum of ₹ 9,20,00,000/- from the above company against which 73600 shares of the face value of ₹ 10/- per share were allotted at a premium of ₹ 115/- per share aggregating to ₹ 9,20,00,000/-. It was submitted that the entire process of allotment of shares was fully compliant with the regulator and statutory provisions in force at the relevant point of time including the Foreign Exchange Management Act, 1999, the policy relating to overseas direct investment formulated thereunder and the Companies Act, 1956. It was emphasized that the investment made by M/s. Shiroki Corporation was duly approved by the RBI vide letter dated 16th March, 2011 wherein the Registration No. NDT 07071005372 was allotted to it. The assessee submitted that the investment made in the assessee company by M/s. Shiroki Corporation was pursuant to an arrangement duly approved by the RBI and the confirmations thereto was duly filed before the AO. So far as the bank statement is concerned, it was submitted that obtaining the bank certificate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding Shri Arun Gupta. The appellant has filed a chart giving details of various replies/submissions made before the A.O. during assessment proceedings. Regarding Shri Arun Gupta, the appellant has stated that it filed a copy of confirmation, bank statement, income tax return and balance sheet before the A.O. vide replies dated 11.12.13, 24.1.14 and 14.3.14. The appellant stated that it is clear from the bank statement of Shri Gupta that he has the capacity to make investment in share application money and loans. 3.4 The appellant stated that the A.O. has added the entire credits in the loan account of Shri Arun Gupta amounting to ₹ 6,75,75,579/-, and then again added ₹ 1,00,00,000/- u/s. 68 towards share application money, even though this 1,00,00,000/- has been transferred from his loan account to the share application account, by debiting loan account and crediting share application money account. The appellant stated that this was a double addition of the same amount. The appellant further stated that the credit of ₹ 1,05,00,000/- is actually a credit towards cheque issued to Shri Arun Gupta which was later cancelled. Therefore, this does not represent a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g receipt of bogus accommodation entries in this case. If this was a case of bogus accommodation entries unearthed through enquiries by the Investigation Wing, then the appellant could be expected to furnish a higher degree of proof, but when no such allegation is made in the assessment order, the appellant has clearly discharged its burden of proof by filing the confirmation and copy of income tax return and bank statement of this creditor. In the asstt. order, the A.O. has observed that the bank account shows that investments have been made out of amounts received immediately before, but this observation is hardly sufficient to make such an addition, particularly considering the evidence filed by the appellant. In view of the evidence filed by the appellant, the onus had clearly shifted to the A.O. however, the A.O. has not brought any material on record to controvert the evidence filed by the appellant. Such an addition is not legally sustainable merely on the basis of general observations. The appellant contended that it has furnished details of the source of credits received from the creditor even though it was not required to specify the 'source of source'. The credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appellant stated that it was not obliged to explain the 'source of source' of creditors, however, it had without prejudice to its position, still filed a detailed explanation in respect of the credits received and this was supported by the copy of bank statement and balance sheet filed before the A.O. 4.4 The appellant stated that the total credits in the loan account of M/s. ARG Udyog Pvt. Ltd. were ₹ 4,33,15,223/- and the entire amount has been added by the A.O. as unexplained loans u/s. 68. The appellant stated that the A.O. has further added ₹ 4.5 Cr. towards unexplained share application money even though, this amount had been transferred from the loan account of M/s. ARG Udyog Pvt. Ltd., by debiting the loan a/c and crediting the share application money a/c. The appellant stated that when all the credits in the loan account have already been, added u/s. 68, there can be no possible reason for again adding an amount, which has been debited to the loan account and credited to the share application account. The appellant further stated that ₹ 30,00,000/- credited in this account represented a cheque which was cancelled and there was no receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. ARG Udyog Pvt. Ltd. has substantial funds from which these credits have been received. The appellant has stated that it had filed a detailed explanation in respect of the credits received from this company. The appellant stated that in any case, it was not required to prove the 'source of source' and it was for the creditor to explain the source of funds. The appellant raised other arguments as were raised in respect of the credits from Shri Arun Gupta, which have been discussed above 4.7 It is clear from the above that the appellant has discharged its onus of proving the identity and capacity of this company and the genuineness of the transactions. Considering these facts, if the A.O. still had any doubts about the source from which the creditor has made investment in loans/share capital of the appellant, then this information could have been passed to the A.O. of the creditor, and he could have afterwards considered taking necessary action, if there were any adverse findings warranting action in the case of the appellant. In the assessment order, the A.O. has not brought any material on record to controvert the evidence filed by the appellant. The A.O. has based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome tax return and balance sheet before the A.O., vide replies filed dated 11.12.13, 24.1.14 and 14.3.14. The appellant stated that it was not obliged to explain the 'source of source' of the creditor, however, it had still explained the source of credits received from this company and filed a bank statement and balance sheet before the A.O. in support of these credits. 6.4 The appellant stated that the loan account of M/s. ARG Autosystems Ltd. (formerly known as Kwang Jin Technico Engineering Ltd.) had an opening credit balance of ₹ 2,51,14,095/-. The appellant stated that the total credits in the loan account were ₹ 35,85,513/- and the entire amount has been added by the A.O. as unexplained credits u/s. 68. The appellant staged that the A.O. has further added ₹ 2.5 Or. towards unexplained share application money even though, this amount had been transferred from the loan account of M/s. ARG Autosystems Ltd., by debiting the loan a/c and crediting the share application money a/c. The appellant stated that when all the credits in the loan account have already been added u/s. 68, there can be no possible reason for again adding an amount, which has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o controvert the evidence filed by the appellant. The A.O. has based her decision only on the income shown in the return but has not considered the funds available with the creditor. Considering the facts and judicial decisions on this subject, the appellant has clearly discharged its burden of proving the identity and capacity of the creditor and the genuineness of the transactions. In view of these facts, the addition made by the A.O. in respect of this company is not sustainable in law and is deleted. 18.5. So far as the deletion of ₹ 9,20,00,000/- being the share application money received from Shiroki Corporation is concerned, the ld. CIT(A) deleted the same by observing as under:- 7.2 The submissions of the appellant and the facts have been carefully considered. The appellant stated that the appellant company is an affiliate of M/s. Shiroki Corporation, Japan, and this amount had been received as foreign direct investment by sale of shares to M/s. Shiroki Corporation, Japan. The appellant has stated that M/s. Shiroki Corporation was one of the largest Japanese companies in the field of auto components and the FDI from this company had been approved by the RBI. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 68 of the I.T, Act, 1961 violation of the provisions of Rule 46A of the Income Tax Rules, 1961. 3. The appellant craves, leave or revising the right to amend, modify, alter add or forego any of the Ground(s) of appeal at any time before or during the hearing of this appeal. 20. The ld. DR strongly objected to the order of the CIT(A) in deleting the addition made by the AO. She submitted that the AO had given categorical finding as to how and why the assessee could not discharge the onus cast on it by proving the identity and credit worthiness of the loan creditor/share applicants and the genuineness of the transactions. 21. The ld. DR submitted that the ld. CIT(A) has admitted additional evidence and has adjudicated the matter on the basis of those documents in complete violation of the provisions of Rule 46A. She submitted that the AO has categorically given a finding that the shares were issued at a premium of ₹ 115 per share as against the NAV of ₹ 52.50. Further, the AO had also given a categorical finding that the returned incomes of the investors are very meager and each debit entry was preceded by equal amount of credit entry and the remaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, ld. DR submitted that the order of the CIT(A) accepting the additional evidences in violation of Rule 46A(2) and (3) is not justified. 23. So far as ARG Autosystems Ltd. is concerned, the ld. DR submitted that here also every debit entry is preceded by a credit entry of same or similar amount and, therefore, this issue should be considered on the basis of material available on record. So far as Shiroki Corporation is concerned, the ld. DR submitted that the assessee failed to furnish the financials of the above creditor or its credit appraisal. Referring to the order of the CIT(A), she submitted that the ld. CIT(A) has deleted the addition based on the documents filed by the assessee which are in the nature of intimation issued by the RBI regarding foreign investment received from the said corporation and the acknowledgement of the said intimation by RBI. The RBI has never examined the financials of the above creditor. She submitted that the proceedings under the Income-tax Act are separate proceedings and the assessee has to discharge the onus as regards the identity, credit worthiness and genuineness of the transaction. 24. Relying on the following decisions, the ld. DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) has rightly deleted the addition made by the AO after thoroughly going through the various documents filed before him and after obtaining a remand report from the AO. He submitted that the assessee by producing the various documents before the AO has discharged the onus cast on it by proving the three ingredients of the provisions of section 68, i.e., the identity and credit worthiness of the loan creditors and genuineness of the transaction. He submitted that the assessment year involved in the instant case is 2011-12 and, therefore, the assessee is not required to prove the source of the source. However, in most of the cases the assessee has not only proved the source, but, has also proved the source of the source. He submitted that based on the various documents filed by the assessee, the ld. CIT(A) has obtained a remand report from the AO by giving him an opportunity to go through the same and only after considering the remand report the ld. CIT(A) has deleted the addition. 25.1. The ld. Counsel for the assessee drew the attention of the Bench to the following chart and drew the attention of the Bench as to how the AO has made double addition of ₹ 7,94,00,73 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 9,20,00,000/- Page no 44 to 47 of the PB Page no 167-175 of the PB Total ₹ 34,21,33,718/- ₹ 7,94,00,736/- ₹ 26,27,38,982/- Note 1 (a) A sum of ₹ 1,05,00,000/- represents cheques cancelled i.e. in respect of which no funds were actually received. (b) A sum of ₹ 1,00,00,000/- was transferred by means of journal entry to the Share Application Money Account which has been added both under the head Unsecured Loans as well as Share Application Money resulting in double addition of the like amount. (c) The cumulative effect of the above is an excess addition of ₹ 2,05,00,000/-. Note 2 (a) A sum of ₹ 30,00,000/- represents cheques cancelled i.e. in respect of which no funds were actually received. (b) A sum of ₹ 4,50,00,000/- was transferred by means of journal entry to the Share Application Money Account which has been added both under the head Unsecured Loans as well as Share Application Money resulting in dou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ete compliance and due disclosure by the assessee company. He submitted that the application under Rule 46A along with submissions were duly sent by him to the AO for her comments vide letter dated 21st July, 2014 which is evident from para 5.4 at page 34 of the order of the CIT(A). As such, in this respect also there was no deviation from the procedure laid down in Rule 46A which was complied with. He submitted that the complete documentary evidence with regard to share capital/share premium and unsecured loan was duly filed before the AO vide letters dated 11th December, 2013, 24th November, 2014 and 14th March, 2014, respectively. This fact was also reiterated vide letter dated 29th March, 2014 filed before the AO in response to the show cause notice issued by her and it was the assessee company's bona fide and firm belief that the bank statement of ARG Udyog Ltd. was also filed as part of the said replies. However, only after the assessment order was passed that the assessee came to know that the bank statement was mistakenly left out of file and which was duly filed before the CIT(A) vide submissions dated 15th July, 2014 and a prayer was made simultaneously for the same t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat CIT(A) has given justifiable reasons while deleting the addition on this account. The ld. Counsel, referring to the order of the CIT(A) submitted that the ld. CIT(A) has discussed party-wise details and has given justifiable reasons for deleting the addition of share application money/share premium and the unsecured loans. He accordingly submitted that the order of the ld. CIT(A) be upheld and the grounds raised by the Revenue be dismissed. 29. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the AO, in the instant case, made an addition of ₹ 34,21,39,718/- being the amount of share capital and share premium and unsecured loan received by the assessee from the following parties/persons on the ground that the assessee could not substantiate the ingredients of section 68 of the IT Act:- Share capital/premium: S No. Name Address of the Party Amount (in Rs.) (a) Arun Gupta 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also her submission that the case of the assessee should have been decided on merit considering the surrounding circumstances in which the assessee has accepted huge share capital and share premium without any substantial business or net worth. It is the submission of the ld. Counsel for the assessee that it has substantiated with evidence regarding the identity and credit worthiness of the loan creditors/share applicants and the genuineness of the transactions. It is also his submission that the ld. CIT(A) after considering the details filed by the assessee has passed a speaking order while deleting each of the addition and, therefore, the same should be upheld. 31. We have given our careful consideration to the rival arguments made by both the sides. So far as the addition of ₹ 6,75,75,529/- being unsecured loan and addition of ₹ 1 Crore on account of share capital and share premium made by the AO in respect of Shri Arun Gupta is concerned, we find, the assessee before the AO has filed the confirmation statement, bank statement, ITR along with computation and balance sheet of the said party. The assessee has filed a chart showing the source of various deposits m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the assessee has accepted the same by withdrawing the appeal by going under Vivad Se Vishwas Scheme 2020 and since the amount of ₹ 120 lakhs has been transferred from the loan amount of ₹ 4,36,63,403/-, therefore, making addition of the same would amount to double addition. The ld. CIT(A), after considering the totality of the facts of the case, has deleted the addition, which, in our opinion, is just and proper under the facts and circumstances of the case. Accordingly, the order of the CIT(A) deleting the addition of ₹ 120 lakhs in respect of unexplained share application money is upheld. 33. So far as ARG Autosystems Ltd. is concerned, we find, the AO made addition of ₹ 250 lakhs being share capital and security premium and unsecured loan of ₹ 35,85,513/- on the ground that assessee failed to explain the source of the same from the above party in terms of section 68 of the IT Act, 1961. It was demonstrated by the assessee that a sum of ₹ 250 lakhs was transferred by means of journal entry to the share application money amount whereby a sum of ₹ 35,85,513/- has been added both under the head 'unsecured loans' as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction including that with the assessee. However, in the instant case, as mentioned earlier, the FDI from this company had been approved by RBI and the allotment of shares was fully in compliance with the regulatory and statutory provisions in force at the relevant point of time including the Foreign Exchange Management Act, 1999, the policy relating to overseas direct investment formulated thereunder and the Companies Act, 1956. In view of the above and in view of the detailed discussion by the ld. CIT(A) on this issue deleting the addition, we find no infirmity in the same and accordingly the order of the CIT(A) on this issue is upheld. 35. Now, coming to the addition of ₹ 450 lakhs on account of share capital and share premium and unsecured loan of ₹ 4,33,15,223/- in respect of ARG Udyog Pvt. Ltd. is concerned, it is the submission of the ld. Counsel for the assessee that a sum of ₹ 30 lakhs represents cheques cancelled in respect of which no funds were received and a sum of ₹ 450 lakhs was transferred by means of journal entry to share application money account which has been added both under the head 'unsecured loans' as well as 'sha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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