TMI Blog2022 (1) TMI 1378X X X X Extracts X X X X X X X X Extracts X X X X ..... tigation / inquiry, in this case. The documents filed reflect that SWEI Inc, is a Company having substantial operating revenues and it has enough shareholders equity to make investment in assessee-company. Documents also show that the investment has been made through a proper channel of foreign remittances and by following due procedure under FCGPR. The same is also reflected in the balance sheet of M/s SWEI Inc. The assessing officer has not given any contrary finding on any of the documents / details filed. The assessing officer has made addition only in respect of two companies. The assessee has filed basic relevant documents at assessment stage and wherever the Assessing Officer has issued notices, they are complied with and investigations/ examination of director has not thrown up any contrary fact. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urce of income and no business and capacity of their shareholder is not proved. 4. On the facts and in the circumstances of the case, the Ld CIT(A) has ought to have upheld the order of the Assessing Officer. 5. It is, therefore, prayed that the order of the CIT(A) may be set aside and that of Assessing Officer may be restored to the above extent. 3. The relevant material facts, as culled out from the material on record, are as follows. Assessee before us is a Private Limited Company. The assessee company filed return of income in respect of assessment year 2012-13, declaring income of Rs. 5,53,68,190/-, on 29.09.2012. The same was processed by accepting the returned income. Consequent to selection of the assessee`s case for scrutiny, statutory notice under section 143(2) of the Income Tax Act, dated 12.08.2013 was issued to the assessee. A notice under 142(1) dated 03.07.2014 was issued calling for basic documents and details. In response to notice under section 142(1), the assessee filed details and documents, such as Balance Sheet, Profit and loss account, Bank statements, PAN Number, ROC details, name and address of share subscribing companies. The main source of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RI, BEGAWAN BS, 8811, NEGARA, BRUNE1 250000 10 440 25,00,000 11,00,00,000 11,25,00,000 4. Therefore, Assessing Officer issued notice under section 142(1) of the Act, dated 15.01.2015, (vide assessing officer page 3) requiring the assessee to furnish the supporting material to establish the identity, genuineness and creditworthiness in respect of the share capital and share premium during the year. 5. The Assessing Officer also issued notice under section 133(6) of the Act dated 30.01.2015 to the Investor Companies. These notices were served on the Investor companies. In response to notice under section 133(6) of the Act, the Investor Companies had replied to the assessing officer with documentary evidences which is recorded by the Assessing Officer in page no.5 of his assessment order, which is reproduced below: Details of responses to notice u/s 133(6) In the facts and circumstance of the case, notices u/s 133(6) were issued to the investors who had paid share application money to the assessee company towards share capital and share premium. Details of relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer. Aggrieved, the Revenue is in appeal before us. 10. Shri H. P. Meena, Learned Departmental Representative (ld. DR) for the Revenue argued a lot and also submitted written submissions before the Bench. The sum and substance of the written submission are that share subscribing companies were having meager income and not doing any business activity but only engaged in giving accommodation entries. The assessee had shown total receipt of Rs. 30,27,80,000/- in the garb of share capital including share premium. Since, the transaction with the entity was not found to be genuine, therefore, the Assessing Officer made addition of Rs. 30,27,80,000/- in A.Y. 2012-13 under section 68 of the IT Act. From the perusal of the details/document filed by the assessee, it is clear that share subscribing Companies were not having any business activity. They were having meager income from which it is clear that they were paper/shell companies and engaged in giving accommodation entries to the beneficiaries in the garb of share capital including share premium. Just to submit before assessing officer PAN, Balance Sheet, Profit and loss account, Bank statements of share subscribing com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-company. Therefore, in case of M/s Anushka Soft-Tel Pvt. Limited, the three ingredients of section 68, that is, identity, creditworthiness and genuineness have been fulfilled. The learned Counsel submitted that assessee company has also proved identity; genuineness and creditworthiness in respect of amount received from M/s Sunny Wisdom Enterprise INC. In case of M/s Sunny Wisdom Enterprise INC, the amount has been received through proper foreign remittance channels, after following due procedure as evident by application FC-GPR submitted by the assessee to RBI and Part A' of Form no FC-GPR and declaration-cum- undertaking u/s 10 (5) of FEMA, letter to branch manager of Punjab National Bank and Kotak Mahindra and the letter of RBI dated 13.07.2012. The assessee company also submitted Balance Sheet, Profit and loss account, Bank statements, and other documents as required by the assessing officer. Learned Counsel further contends that assessing officer has himself decided not to make any addition under section 68 of the Act, in respect of M/s Kuber Metals Private Limited, one of the share applicant companies. Hence, there is a merit in assessee`s case. On appeal, l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sort Tel Pvt Ltd and (ii) M/s Sunny Widsom Enterprise INC Barussalam. During the assessment stage, assessee submitted Profit and Loss account, Balance sheet, Bank statement, books of accounts, ROC records, PAN Number and other documents as were required by the assessing officer. The Assessing Officer issued notice u/s 133 (6) of the Act to the three investors; companies (referred supra) and as mentioned in page no. 11 of the assessment order, the notices were duly complied with by the above two investor companies, thereby filing replies. (vide page NO.5 and 11 of the assessment order). It is important to mention here that notices u/s 133(6) were issued only to (i) M/s Anushka Sort Tel Pvt Ltd (ASTPL) and (ii) M/s Kuber Metals P Ltd. However, we note that no notice was issued in case of Sunny Wisdom Enterprises. However, addition u/s 68 has been made in the case of M/s Anushka Soft-Tel Pvt. Limited and Sunny Wisdom Enterprise Inc. The notices u/s 133 (6) of the Act were served and they are also complied with. We note that directors of M/s Anushka Sort Tel Pvt Ltd, Shri Viral Gujjaar appeared before the Assessing Officer in response to summons u/s 131 of the Act and the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mine, three ingredients of section 68 in the case of M/s Anushka Soft-Tel Pvt. Limited. We note that ld CIT(A) on perusal of the details, observed that M/s Anushka Soft-Tel Pvt. Limited was incorporated on 15th February 2008 as evident from copy of Certificate of Incorporation, etc. filed before the assessing officer. Before, ld CIT(A), assessee furnished a print out of a website of MCA, which shows that status of M/s Anushka Soft-Tel Pvt. Limited is active . This indicates that M/s Anushka Soft-Tel Pvt. Limited has been filing all the statutory returns with the Registrar of Companies regularly and company is an active company. The Assessing Officer asked the director about the address of M/s Anushka Soft-Tel Pvt. Limited (question no. 21), wherein the director has stated that Registered Office of the company is changed on 30.04.2012 and that the form no. 8 has been filed with the ROC for change of address and the copy of the same is also provided. This reply of the director is not discussed by the assessing officer and no adverse inference drawn. M/s Anushka Soft-Tel Pvt. Limited has been filing income tax returns. The assessee has filed copy of income tax return of M/s Anushka S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing officer concludes that, M/s Anushka Soft-Tel Pvt. Limited does not have any business which is worthy of mention, but, goes on to give finding that the company is into investing the funds and in securities and Short Term Loans. This fact clearly shows that M/s Anushka Soft-Tel Pvt. Limited is into investment activity. Thus, it is not necessary for the company who is engaged in investment activity to have tangible assets in its Balance Sheet. This aspect was asked to the director of M/s Anushka Soft-Tel Pvt. Limited in question no.17 wherein he has explained as under:- ANS: We have made investment in shares of above company in view of future potential by way of appreciation in value of shares. At present, there is no manufacturing activity. Initially, we had planned to do business of software developers and do outsourcing work of foreign companies, but the business could not take off due to non-availability of required software engineers and lack of outsourcing work due to policy of U S Government, which has emphasized to get the work done in their company only . However, the assessing officer has not mentioned this part of statement anywhere in the assessment order. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on the ground that there is no significant income. We do not agree with this logic of the assessing officer. As ld CIT(A) has rightly pointed out that investments need not always be made from the current year's income. Investments can be made from accumulated Capital or Savings and even from borrowed funds. It is also important to see that on examination of bank account the assessing officer noticed that there are no cash deposits in its bank account. The bank accounts shows that M/s Anushka Soft-Tel Pvt. Limited has received funds from another investee company and as soon as the amounts invested elsewhere in another investee company are realized the same are invested in the assessee s company. The ld Counsel contended that the assessee - company has no obligation nor is it required to explain the source of M/s Anushka Soft-Tel Pvt. Limited as it tantamount to source of source . The ld Counsel argued that, if the source of M/s Anushka Soft-Tel Pvt. Limited is found to be of doubtful nature, it can be examined in the assessment of M/s Anushka Soft-Tel Pvt. Limited and brought to tax, in its hands. The ld Counsel pointed out that, there are no cash deposits and no sign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han Rs. 200 crores and its returned income is Rs. 5.53 crores, on the total share capital of Rs. 1.32 crores. The director of M/s Anushka Soft-Tel Pvt. Limited in reply to question nos. 16 to 18 has explained the reason for paying the premium which is as under: ANSWER TO Q.NO.16 :- We have studies that this company is engaged in textile for a long period of time. Further, they: have good technical knowledge, management, goodwill, and we personally visited their Sivassa Factory. We also studied their future potential before investing in Geelon Industries P Ltd and also consulted my CA and relatives as explained in earlier reply. ANSWER To Q.NO 18:- As explained above, we have studied the working of above company and considering the volume of activity and market it possess, we thought it prudent to make investment in shares at a premium in above 'company. We have also seen the credit rating given to above company by JCRA. We analyzed their strategy and, product line which was very unique on this basis, we were of the opinion that the price of shares will increase. Therefore, ld CIT(A) has rightly observed that assessing officer has not further interrogate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess and genuineness. It is not clear why the documents and details were not examined and conclusions were not drawn, when they were available before the ld Assessing Officer? Therefore, assessing officer has not given any reason as to why he is rejecting the identity; creditworthiness and genuineness of M/s Sunny Wisdom Enterprise INC. (b) From the details filed, it is clear that amount has been received through proper foreign remittance channels, after following due procedure as evident by application FC - GPR submitted by the assessee to RBI and Part A' of Form no FC - GPR and declaration-cum-undertaking u/s 10 (5) of FEMA, letter to branch manager of Punjab National Bank and Kotak Mahindra and the letter of RBI dated 13.07.2012. It is also observed from the Income and Expenditure Account and the Balance Sheet ( forming part of paper book (page Nos 121 to 125) that SWEI has operating revenues (turnover) of 82,34,593 USD and net income of is at 6,33,128 USD. This shows that the SWEI is not a dummy company as it has significant operating revenues. (c) From the balance sheet (PB 122), it can be seen that SWEI has total shareholders equity of 38,69,938 .99 USD. A copy of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viso section 68 of the Act laid down by the Courts 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 facts 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 the genuineness (identity) if the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the pre-amended section 68 of the Act has held that where the revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the revenue to add the same to the assessee s income as unexplained cash credit. 19. From the above judgment of the Hon ble Bombay High Court in the case of M/s. Gagandeep Infrastructure Pvt. Ltd (supra), it is vivid that proviso to section 68 of the Act which has been introduced by the Finance Act 2012 with effect from 1st April, 2013, is effective only from the Assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e lenders, whether in their respective return they had shown existence of such amount of money and had further shown that those amount of money had been lent to the assessee. If before verifying of such fact from the Assessing Officer of the lenders of the assessee, the Assessing Officer decides to examine the lenders and asks the assessee to further prove the genuineness and creditworthiness of the transaction, in our opinion, the Assessing Officer did not follow the principle laid down under Section 68 of the Income Tax Act. 17. If on verification, it was found that those lenders did not disclose in their income tax return the transaction or that they had not disclosed the aforesaid amount, the Assessing Officer could call for further explanation from the assessee to prove the genuineness of the transaction or creditworthiness of the same. However, without verifying such fact from the income tax return of the creditors, the action taken by the Assessing Officer in examining the lenders of the assessee was a wrong approach. Moreover, we find that those lenders have made inconsistent statement as pointed out by the Commissioner of Income Tax (Appeals) and in such circumstances, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he five share applicant-companies for the assessment year 2002-03; (vi) Duly audited balance-sheet of all the five share applicant-companies for the financial year 2001-02 along with the audit report. 11. On making independent inquiry by the Assessing Officer by issuing notice under Section 133(6) to all the five share applicant-companies, the following further details were supplied by them; (a) Covering letter in reply to the said notice by speed post; (b) Explanation of the sources from which investments were made by the respective companies; (c) Copy of the bank statement showing the aforesaid transaction. 12. The following facts are apparent on record to establish the creditworthiness of the share applicant-companies: (i) All the applicant-companies are 9 to 10 years old companies as can be verified from the date of incorporation written on the return of income; (ii) All the share applicant-companies are having authorized and paid up share capital ranging from 50 lakhs to 65 lakhs; (iii) All the share applicant companies are non-banking finance companies registered with the Reserve Bank of India to carry on the business of non-banking financial instit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain sale of shares made by these parties. 14. From the aforesaid facts, we are of the view that the Tribunal has considered each and every finding recorded by the Assessing Officer as well as the Commissioner of Income Tax (Appeals), Ahmedabad and it cannot be said that the points raised before the Assessing Officer as well as the first appellate authority were not dealt with by the Tribunal. Hence, reliance placed on the decision of this Court in the case of Rameshchandra M. Luthra : (2002) 257 ITR 460 by the learned standing counsel for the Revenue is uncalled for. Since the Tribunal has recorded findings of fact and after appreciation of the evidence has come to the correct conclusion, we are of the view that no substantial question of law arises out of the order of the Tribunal. We, therefore, dismiss the appeal. 23. The main plank on which the assessing officer made the addition was because the directors of the share subscribers did not turn up before him. However, we note that director of M/s Anushka Soft-Tel Pvt. Limited, one of the share subscribing companies, appeared before assessing officer and assessing officer took statement under section 131 of the Act. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. in the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by' treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69. 24. In the case of Nemi Chand Kothari 136 Taxman 213, the Hon'ble Guahati High Court has thrown light on another aspect touching the issue of onus on assessee under section 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y not only into the source(s)of the creditor but also of his (creditor's) sub-creditors and prove, as a result, of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/source from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and it is not the burden of the assessee to prove the creditworthiness of the source(s) of the sub-creditors. If section 106 and section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had' with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub creditor ********** In other words, though under section 68 an Assessing Officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-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 subcreditor from the assessee . ********** 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, name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R numbers and permanent account numbers. It has found that the assessee's burden stood discharged and so, no addition to his total income on account of cash credit was called for. In view of this finding, we find that the Tribunal was right in reversing the order of the AA C, setting aside the assessment order. 26. We also take note of the decision of the Hon'ble High Court, Calcutta in the case of S.K. Bothra Sons, HUF v. Income-tax Officer, Ward- 46(3), Kolkata 347 ITR 347 wherein the Court held as follows: 15. It is now a settled law that while considering the question whether the alleged loan taken by the assessee was a genuine transaction, the initial onus is always upon the assessee and if no explanation is given or the explanation given by the appellant is not satisfactory, the Assessing Officer can disbelieve the alleged transaction of loan. But the law is equally settled that if the initial burden is discharged by the assessee by producing sufficient materials in support of the loan transaction, the onus shifts upon the Assessing Officer and after verification, he can call for further explanation from the assessee and in the process, the onus may again sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal committed grave error in law in upsetting the judgment in the order of the Commissioner of Income-tax (Appeals). 9. In this connection he has drawn our attention to a decision of the Supreme Court in the case of Udhavdas Kewalram v. CIT [1967) 66 ITR 462. In this judgment it is noticed that the Supreme Court as proposition of law held that 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. 10. We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore, it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter the creditworthiness. As rightly pointed out by the learned counsel that the Commissioner of Income-tax (Appeals) has taken the trouble of examining of all other materials and documents, viz., confirmatory statements, invoices, challans and vouchers showing supply of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appeal is allowed. 28. The Hon'ble jurisdictional ITAT in the case of Pankaj Enka v/s DCIT in ITA No. 816/Ahd/2013 has held that: the assessee has discharged the primary onus to prove as genuine share application money. On perusal of bank statement, no cash has been deposited by them before issue of cheque to the assessee towards share application money. If the assessing officer doubts the source of source, he was free to conduct inquiry in the case of person from whom assessee has received funds . The Hon'ble jurisdictional High Court has concurred with this view of Hon'ble ITAT in ITA No. 967/2015 dated 05.01.2016 . 29. On the identical facts, in Tax appeal no. 442 of 2011 of Hon'ble Gujarat High Court in the case of CIT v/s Belgium Glass Ceramics P Ltd (date of pronouncement 13.06.2012), held as follows: 4. On consideration of facts and the order of the Tribunal, it is seen that while reversing the order of the Commissioner (Appeals) the Tribunal took view that once the applicants admit to have made the payment of share application money, no further inquiry was necessary into the creditworthiness and genuineness of the transactions in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company, there was no warrant for making addition of the said amount as undisclosed income under section 68 of the Act in its hands. In the circumstances, the Tribunal was justified in deleting the addition of Rs. 50,00,000 made under section 68 of the Act. The question stands answered accordingly, that is, in favour of the assessee and against the Revenue. 31.The Hon'ble jurisdictional High Court of Gujarat in many cases held that once the basic document such as, confirmation, copy of bank account, copy of share application and copy of income tax returns of the creditors, or share applicants have been furnished by the assessee, the onus of proving the above three elements required for section 68 is discharged. It is also held that it is not for the assessee to prove or to explain the source of the share applicant or loan creditor. It is also held that if there is any doubt regarding source of the said creditors / share applicants, the matter can be examined by the concerned assessing officer in their own assessment. For this, reliance can be placed on the judgment of the Hon`ble Gujarat High Court in the case of Hindustan Inks Resigns Ltd v/s DCIT, 60 DTR 001 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ka Soft-Tel Pvt. Limited, during this period, of making investment in the assessee-company. There is no finding of involvement of any entry provider or hawala operator. M/s Anushka Soft-Tel Pvt. Limited is not found to be-part of any group of Companies floated by any entry provider. A detailed interrogation was conducted by the assessing officer and the director of M/s Anushka Soft-Tel Pvt. Limited has answered all the questions, which show that the director is having full knowledge of operations of M/s Anushka Soft-Tel Pvt. Limited as well as the assessee-company. The director is not a name lender as generally happens in the case of dummy companies and Shell Company. The statement of the director has not been rebutted or discredited by the assessing officer. The assessee company is having a turnover of Rs. 200 crores and the Share Capital of the company is Rs 1.32 crores. Hence, the premium is charged by the assessee- company. In the case of M/s SWEI Inc, the details and documents have been filed before the Id assessing officer however, the assessing officer has not examined and / or rebutted them with any cogent or discernible line of reasoning. The assessing officer has not made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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