TMI Blog2023 (12) TMI 1087X X X X Extracts X X X X X X X X Extracts X X X X ..... interfere with the findings of the ld. CIT(A) deleting the addition made u/s 68 of the Act. Appeal of the revenue is dismissed. - Shri Rajpal Yadav, Hon ble Vice President And Dr. Manish Borad, Hon ble Accountant Member For the Assessee : Shri Siddharth Agarwal, Advocate For the Revenue : Shri Rakesh Kumar Das, CIT, D/R ORDER PER DR. MANISH BORAD, ACCOUNTANT MEMBER : The above captioned appeal is directed at the instance of the revenue against the order of the Commissioner of Income Tax (Appeals), Kolkata 17, (hereinafter the ld. CIT(A) ) dt. 29/03/2019, passed u/s 250 of the Income Tax Act, 1961 ( the Act ) for the Assessment Year 2012- 13. 2. The revenue has raised the following grounds of appeal:- That on the facts and circumstances of the case and in law; the Ld. CIT(A)-17, has erred by deleting the additions to the tune of Rs. 27,22,00,000/- made by the AO under section 68 in respect of undisclosed cash credit found in the books of the assessee in the garb of share application money, received during the F.Y.201 1-12, from Bhillai Holding Pvt. Ltd., without judging the case on merits and appreciating the fact that the source of funds re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Exports P. Ltd. [2008] 216 CTR 195 (SC), and other case-laws. 4.2. The ld. CIT(A) observed that the assessee has filed documentary evidence in support of the claim of the nature and source being explained for the alleged transactions and also referred to various judicial decisions The ld. CIT(A) observe that the ld. Assessing Officer obtained all these details from the investment companies when summons issued u/s 131 of the Act and again failed to find any discrepancy in the documents filed with regard to the share subscriber companies. The ld. CIT(A) considering these details and also the fact that the assessee is carrying out regular business activity of manufacturing sponge iron and that the share subscriber had sufficient net worth to cover up the investments made in the equity capital of the assessee company, decided in favour of the assessee by deleting the impugned addition u/s 68 of the Act. 5. Aggrieved, the revenue is now in appeal before this Tribunal. 6. The ld. CIT D/R submitted that the ld. Assessing Officer has examined the facts of the case extensively and also scrutinised the financial statements of the share applicant and came to a plausible conclusion. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant Company) Bhillai Holding Pvt. Ltd. (Investor Company) 1 UPENDRA RAI (00558583) DIRECTOR DIRECTOR 2 HARENDRA ROY (00558688) DIRECTOR DIRECTOR 3 PARMESHWAR NATH RAI (00869571) DIRECTOR DIRECTOR (4) Details Shareholders S. No. Name of Shareholder Rabindra Enterprises Pvt. Ltd. (Appellant Company) Bhillai Holdings Pvt. Ltd. (Investor Company) 1 PARMESHWAR NATH RAI SHAREHOLDER SHAREHOLDER 2 HARENDRA RAI SHAREHOLDER SHAREHOLDER 3 MAHADEV COKE LTD. SHAREHOLDER SHAREHOLDER 4 MAYA FUELS PVT. LTD. SHAREHOLDER SHAREHOLDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04-05-2011 RTGS 25,00,000.00 Premature withdrawal of F.D 09-05-2011 RTGS 15,000,000.00 Premature withdrawal of F.D 20-05-2011 RTGS 17,000,000.00 Premature withdrawal of F.D Rs. 1,24,69,832 40,00,000 from sale of Investment 27-05-2011 RTGS 35,00,000.00 Premature withdrawal of F.D 02-06-2011 RTGS 25,00,000.00 Bank Balance 03-06-2011 RTGS 25,00,000.00 Premature withdrawal of F.D Rs. 9,70,000 10,00,000 from sale of Investment 28-06-2011 RTGS 19,000,000.00 From Sister concern Maithan Resort Carrier Pvt. Ltd. 14-07-2011 RTGS 10,000,000.00 Premature withdrawal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05-12-2011 RTGS 32,00,000.00 Premature withdrawal of F.D 30-12-2011 RTGS 75,00,000.00 Premature withdrawal of F.D 13-01-2012 RTGS 50,00,000.00 Premature withdrawal of F.D Rs. 24,50,000 20,00,000 from sale of Investment Total amount received 20,68,00,000.00 Refund of share application money by appellant company 22-11-2011 RTGS (40,00,000.00) Refund of Share application money 17-02-2012 RTGS (3,82,00,000.00) Refund of Share application money Balance of Share application money against which 1,64,60,000 shares issued @ Rs. 10. 16,46,00,000.00 8. We have heard rival contentions and perused the material placed before us an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t necessary to go through the relevant finding of the ld. CIT(A):- 4. I have carefully considered the facts narrated by the Assessing Officer in the assessment order as well as the submissions and documents submitted by the appellant company and Investor Company during the course of assessment proceedings. On examination of the above documents, the following facts have emerged: a.During the assessment year 2012-13, the appellant company had allotted 2,30,00,000 shares @ Rs. 10/- each to Bhillai Holdings Private Limited(Investor Company) amounting Rs. 23,00,00,000. Investor Company and Appellant company are sister concern having common Directors, commonShare Holders, and common address which is evident from record of Registrar of Company. b. The aforesaid appellant company had unsecured loan balance of Rs. 6,73,66,237 in the name of the investor company as on 31.03.2011, out of which Rs. 19,66,237 was paid on 18.04.2011 through banking channels as per the chart given in page no 2. The aforesaid appellant company against the balance fund of Rs. 6,54,00,000 had allotted 65,40,000 shares @ Rs. 10/- on 23.02.2012. Thus, the aforesaid sum of Rs. 6,54,00,000 was received du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k page no. 55A to 85A of Volume H). e. Further, it was observed that A.O. had also issued summons u/s. 131 to the investor company which was duly served and director of investor company in compliance of the aforesaid summon appeared before the A.O. along with books of accounts and explained documents submitted by investor company. Further, it is to be noted that the A.R. of the appellant company had submitted the paper book in two volumes. Volume I is compilation of documents submitted by appellant company and volume II is compilation of documents submitted by investor company, which were also filed before the A.O. as well:- VOLUME 1 Paper Book (Compilation of documents submitted by appellant company with AO) ... .. A.O. has made addition of Rs. 27,22,00,000 under section 68 treating the same as undisclosed cash credit giving the reason that the appellant company has entered into sham transactions with the investor company. He has also doubted the genuineness of the share application money. It is seen that as per settled law the initial burden is upon the appellant to explain the nature and source of the share application mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant period from which such investments made by them in subscription of share capital issued by the appellant company are duly reflected and copy of allotment advise received by them from the appellant in respect of shares allotted to them. The return of allotment as well as the annual return for the assessment year 2012-13 filed by the appellant with the registrar of companies, Ministry of Corporate Affairs, categorically proves the fact of allotment of shares to the Investor Company. It is further observed that the net worth of the Investor Company as disclosed in their balance Sheets far exceeded the amount of Investments made by them in the shares of the appellant company. The aforesaid facts underlined by evidence clearly prove the identity of the Investor Company, their capacity and source of funds, as well as the Genuineness of the transaction in relation to the share capital issued by the appellant company, which was subscribed by Investor Company. Thus, it proved that the investor company is actually found to have subscribed to the share capital issued by the appellant company, in the impugned previous year relevant to the assessment year under appeal, as clearly evident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd genuineness of the transactions. Therefore, when all the ingredients contained in Sec. 68 of the Act are fulfilled, there is hardly any scope to invoke that section alleging introduction of unexplained fund by way of share application, more so when no evidence could be brought on record by the A.O. to the contrary. a. In this connection, 1 feel it is pertinent to reproduce the observation of Hon'ble Supreme Court in the case of Principal Commissioner of Income Tax-4 vs. Hi-Tech Residency (P.) Ltd. 120181 96 taxmann.com 403 (SC)/120181 257 Taxman 335 (SC), wherein it was held that :- Since appellant had discharged its onus of establishing identity, genuineness and creditworthiness of both investors as well as lenders, the said addition on account of section 68 was to be deleted. b. Further, in the case of Principal Commissioner of Income Tax vs. Himachal Fibers Ltd. [2018] 98 taxmann.com 173 (SC)/120181 259 Taxman 3 (SC), wherein it was held by Hon'ble Supreme Court that:- identity of share applicant was clearly revealed but Assessing Officer did not conduct any enquiry except resting his conclusions on surmises. Accordingly, addition made by Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and Income Tax Return. In response to notice u/s 131 and 133 (6), the investor company has also duly complied with it. Further, it is seen that the transactions are duly recorded in the audited books of accounts of both the appellant company as well as aforesaid investor company. Therefore, no addition on account of unexplained cash credit is warranted in the case of the appellant company on the given facts and circumstances as discussed above. In view of the above, in my considered opinion, the action of the A.O. is contrary to the established legal pronouncements. Accordingly, addition of Rs. 27,22,00,000 is hereby deleted and ground no.1 to 3 is hereby allowed. 12. The ld. D/R has merely given a general statement that the investor company is a paper/shell company but no concrete evidence is filed on record which could prove the substance in such submissions failing which the issue in hand can be decided only on the basis of documentary evidence available on record and which clearly states that the assessee has explained the nature and source of the alleged sum thereby proving the identity and creditworthiness of the share subscribers and genuineness of the transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und conduct to conduct an independent enquiry to verify the same. However, as noted above, the Assessing Officer in this case has not made any independent enquiry to verify the genuineness of the transactions. The assessee having furnished all the details and documents before the Assessing Officer and the Assessing Officer has not pointed out any discrepancy or insufficiency in the said evidences and details furnished by the assessee before him. As observed above, the assessee having discharged initial burden upon him to furnish the evidences to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction, the burden shifted upon the Assessing Officer to examine the evidences furnished and even made independent inquiries and thereafter to state that on what account he was not satisfied with the details and evidences furnished by the assessee and confronting with the same to the assessee. In view of this, even applying the ratio laid down by the Hon ble Supreme Court in the case of PCIT vs. NRA Iron and Steel Pvt. Ltd. (supra), impugned additions are not warranted in this case. 13. After going through these detailed finding and examining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ores out of which Rs. 4.22 Crore was returned back. Thus, the net fresh share application money received during the year is only Rs. 16.46 Crores and not the figure alleged by the Assessing Officer at Rs. 27.22 Crores. No share premium has been charged for the alleged investor which is undisputedly a group concern having common directors. The above facts about the regular business activity of the assessee company, manufacturing activities carried out with the fixed assets held by it and the increase in sales, shows that the share application money received during the year has been applied for the purpose of business activity and the genuineness of the transactions cannot be doubted. Identity and creditworthiness of Bhillai Holdings Pvt. Ltd. is also not in dispute because the assessee company has received unsecured loan from the assessee company in the past also and in the current year nature and source of share application money has been explained with the necessary evidence including premature withdrawals from FDRs by the share applicant. Thus, the assessee has successfully discharged the primary onus to establish the three ingredients, namely, identity and creditworthiness of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee during the year had raised share capital including share premium amounting to Rs. 7,60,00,000/- from six share subscribers. The Assessing Officer had issued notices u/s 133(6) of the Act to the share applicants and in response, they all confirmed the transactions and furnished details/documents as called for including source of fund in their hands. The ld. CIT(A) has considered the evidences and details on record and found that the assessee has been able to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction. The relevant part of the order, for the purpose of ready reference, is reproduced as under: 5. Conclusion: Ground No.1 2 I have considered the order of the A.O as well as the submission of the appellant. I have also considered the judicial decisions relied upon by the appellant. The facts of the case have already been discussed as above. It is observed that in the year under consideration the appellant company had raised share capital of Rs. 7,60,00,000/-from 6 parties. In the course of the assessment proceedings, to verify the receipt of share capital, the AO issued notices u/s.133(6) to all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or not. When the identity creditworthiness of the shareholders have been clearly established because all of them were scrutinized u/s 143(3) and thus the source of the share capital and the share premium are clearly established and the transactions have all taken place through banking channels, merely for failure of the directors of the assessee and the shareholders to appear before AO in person in response to the summons issued to them u/s.131 of the Act, the addition cannot be in my considered opinion, unjustified. Where the corpus becomes technically explained in the eyes of law, how can, the credits arising out of the same corpus can be viewed as unexplained u/s 68 of the IT Act. In view of the facts circumstances of the case it is held that the addition of Rs. 7,60,00,000/- for the share capital raised by the appellant from 6 share applicants as unexplained cash credit u/s 68 of the Act was not justified and the same is directed to be deleted. The appeal of the assessee company on Grounds No.1 2 are treated as allowed. Ground no. 3 is general in nature, which does not require adjudication. 6. In the result, the appeal of the assessee is treated as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO has not even mentioned the names of the share subscriber companies and even has not mentioned a word as to which of the share subscriber company or the corresponding transaction thereof was not genuine and on what grounds. The AO, in our view, could have taken an adverse inference, only if, he would have pointed out the discrepancies or insufficiency in the evidences and details received in his office and pointed out as to on what account further investigation was needed by way of recording of statement of the directors of the subscriber companies. Even if the directors of the subscriber companies have not come personally in response to the summons issued by the AO, in our view, adverse inference cannot be taken against the assessee solely on this ground as it is not under control of the assessee to compel the personal presence of the directors of the shareholders before the AO. The Ld. Counsel for the assessee has rightly placed reliance upon the decision of the Hon ble Bombay High Court in the case of PCIT, Panji vs. Paradise Inland Shipping Pvt. Ltd. reported in (2017) 84 taxman.com 58 (Bom) wherein the Hon ble High Court has held that once the assessee has produced docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so 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 on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso 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) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P.) Ltd. (supra) in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors and examine their creditworthiness. While drawing the inference, it cannot be assumed in the absence of any material that there have been some illegalities in the assessee s transaction. Held, dismissing the appeal, that the allegations against the assessee were in respect of thirteen transactions. The Assessing Officer issued a show-cause notice only in respect of one of the lenders. The assessee responded to the show-cause notice and submitted the reply. The documents annexed to the reply were classified under three categories namely: to establish the identity of the lender, to prove the genuineness of the transactions and to establish the creditworthiness of the lender. The Assessing Officer had brushed aside these documents and in a very casual manner had stated that merely filing the permanent account number details, and balance sheet did not absolve the assessee from his responsibility of proving the nature of the transaction. There was no discussion by the Assessing Officer on the correctness of the stand taken by the assessee. Thus, going by the records placed by the assessee, it could be safely held that the assessee had discharged his initial burden and the burd ..... X X X X Extracts X X X X X X X X Extracts X X X X
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