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TMI Blog2025 (2) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before the tribunal and it was finally filed with a delay of 73 days on 02.04.2024. Considering the explanation offered by the assessee for delay in filing the appeal, we are of the view that reasons are genuine and bonafide and therefore, we are inclined to condone the delay in filing the appeal. 03. The only issue raised in the various grounds of appeal is against the confirmation of addition of Rs.3,61,54,000/- by ld. CIT (A) as made by the ld. AO on account of share application / share premium, received during the year as unexplained cash credit u/s 68 of the Act. 04. The facts in brief are that the assessee filed the original return of income on 26.09.2009, showing total loss of Rs.3,642/- which was processed u/s 143(1) of the Act. The case of the assessee was reopened u/s 147 read with section 148 of the Act and accordingly, the assessment was framed u/s 147/143(3) of the Act vide order dated 28.04.2011, assessing the total income at Rs.5,360. Thereafter, the said order was revised by the ld. PCIT u/s 263 of the Act on the ground that the ld. AO has not conducted a requisite and proper enquiries regarding the identity and creditworthiness of the shareholders and mech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irmed the finding of the ld. AO by dismissing the appeal of the assessee. 07. The ld. AR vehemently submitted before us that the assessment framed u/s 147/143(3) of the Act dated 28.04.2011, was invalidly revised by the ld. CIT (A) by giving general observations without specifically dealing with the case of the assessee as to how the order is erroneous and prejudicial to the interest of the revenue. The ld. AR referred to the revisionary order particularly page no.3 passed u/s 263 of the Act, wherein the ld. PCIT has discussed the facts of the case. We note from Para 4 wherein the PCIT stated that the ld. AO has not conducted a proper and requisite enquiries regarding identity and creditworthiness of the investors and mechanically passed the order without any application of mind and thus, the order is erroneous and prejudicial to the interest of the Revenue. In para no.5, the ld. PCIT referred to the objection dated 05.03.2014, wherein the assessee requested for another opportunity to file the final submissions. Thereafter on page no.7 para 2, the ld. PCIT stated that the assessee case was not viewed in isolation and under the similar facts and circumstances, orders u/s 148 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 22.03.2015 was revised by the ld. PCIT u/s 263 of the Act on the ground that the ld. AO has not conducted a requisite and proper enquiry qua the share capital received by the assessee during the instant financial year from its subscribers. We note that the ld. CIT (A) also noted that in similar other cases, similar amounts were taken and the assessment orders were revised. Therefore, to this extent the contentions of the ld. AR is correct that the ld. CIT (A) has in general manner revised the assessment order. Now go to the merit of the case before us. Undoubtedly, the assessee has now filed the evidences qua the subscribers before the ld. AO which were filed before the ld. CIT (A) along with application u/s 46A of the Rules, which were also rejected, stating that the assessee has not given cogent/ proper reasons for having filed these evidences now. We note that the assessee has filed the various documents / evidences of the 8 share subscribers which comprised of share application, ITRs, audited financial statements, PAN Cards, allotments receipts, bank statements of source of funds, assessment orders u/s 147/143(3) of the Act which are available at page no. 74 to 325 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessing officer, wherein it was held that the assessing officer is duty bound to investigate the creditworthiness of the creditors/subscribers, verify the identity of the subscribers and ascertain whether the transaction is genuine or there are bogus increase of name lenders. If the enquiry and investigation reveal that the identity of the creditors to be dubious or doubtful or lack of creditworthiness then the genuineness of the transaction would not be established. As noticed above, the CIT(A) had in mind the broad parameters laid down by the Hon'ble Supreme Court and examined the factual position. There were seven subscribers whose creditworthiness was considered by the CIT(A) and in paragraph 4.3 of the order passed by the CIT(A) dated 2nd September 2020, the net worth of the companies have been set out. In paragraph 4.4 the CIT(A) noted that it is evident from the information furnished by the assessee filed out of the seven subscriber companies were subjected to assessment under Section 143(3) of the Act for the assessment year under consideration and in respect of two other assesses their returns were accepted by the assessing officer without any demur. Not stoppin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions with the assessee company. The evidences which were filed before the ld AO with regard to this issue are as under:- a) Income Tax Return of the shareholders b) Audited financial statements of shareholder companies. c) Share Allotment Letters d) Copy of the bank account of the shareholders e) Transactions with the assessee duly highlighted in the bank statement. f) Evidences of source of source of the shareholders. g) Form of Application for Equity Shares h) Board Resolution for making investment in assessee company i) Memorandum and Articles of Association of the shareholder companies j) Certificate of Incorporation These evidences are enclosed in pages 16 to 395 of the paper book filed before us. 7.1. From the aforesaid details, we find that in case of all the share applicants - a) The share application form and allotment letters are available. b) The share applicants are income tax assessee's and had filed their income tax returns regularly. c) The investment in share application money were made out by account payee cheques. d) The bank accounts of the share applicants reveal that there were no deposits of cash before issue of cheques to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation P Ltd reported in 159 ITR 78 (SC) and Hon'ble Gujarat High Court in the case of DCIT vs Rohini Builders reported in 256 ITR 360 (Guj), wherein it was held that onus of the assessee (in whose books of account, the credit appears) stands fully discharged, if the identity of the creditor is establishd and actual receipt of money from such creditor is proved. In case, the Assessing Officer is dissatisfied about the source of 'cash deposited in the bank accounts of the creditors', the proper course would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor). In arriving at this conclusion, the Hon'ble Court has further stressed the presence of word 'may' in section 68 of the Act. Relevant observations of Hon'ble Gujarat High Court at pages 369 & 370 are as under :- "Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation (1986) 159 ITR 78. In the said decision the Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said decision of Hon'ble Gujarat High Court, the Special Leave Petition (SLP in short) preferred by the revenue was dismissed by the Hon'ble Supreme Court. 7.3. Undisputedly the Share Applicants in this case are the bank account holder in their respective banks in their own name and are sole owner of the credits appearing in their bank account from where they issued cheques to the appellant. For the proposition that a Bank Account holder himself is the 'owner' of 'credits' appearing in his account (with the result that he himself is accountable to explain the source of such credits in whatever way and form, the same have emerged) support can be derived from section 4 of Bankers Book Evidence Act 1891 which reads as under:- "4. Mode of proof of entries in bankers' books Subject to the provisions of this Act, a certified copy of any entry in a bankers' book shall in all legal proceedings be received as prima facie evidence of the existence of such entry, and shall be admitted as evidence of the matters, transactions and accounts therein recorded in every cases where, and to the same extent as, the original entry itself is now by law admissible, but not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edited with any knowledge. In this view, the Hon'ble Court has laid down that section 68 of Income-tax Act, should be read along with section 106 of Evidence Act. The relevant observations at page 260 to 262, 264 and 265 of the report are reproduced herein below:- "While interpreting the meaning and scope of section 68, one has to bear in mind that normally, interpretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation of statutes, when we read carefully the provisions of section 68, we notice nothing in section 68 to show that the scope of the inquiry under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorize the Revenue Department to make inquiry into the source(s) of the credit and/or sub-creditor. The language employed by section 68 cannot be read to impose such limitations on the powers of the Assessing Officer. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been. eventually, received by the assessee. It, therefore, further logically follows that the creditor's creditworthiness has to be Judged vis-a-vis the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub- creditors, for, these aspects may not be within the special knowledge of the assessee. " ********** " ... If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors aforementioned. In fact the fact that the assessee had received the said amounts by way of cheques was not in dispute. Once the assessee had established that he had received the said amounts from the creditors aforementioned by way of cheques, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter the burden had shifted to the Assessing Officer to prove the contrary. On mere failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee, such failure, as a corollary, could not have been and ought not to have been, under the law, treated as the income from the undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. Viewed from this angle, we have no hesitation in holding that in the case at hand, the Assessing Officer had failed to show that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the material evidence showing the creditworthiness and also other documents, viz., confirmatory statements of the persons, of having advanced cash amount as against the supply of bidis. These evidence were duly considered by the Commissioner of Income-tax (Appeals). Therefore, the failure of the person to turn up pursuant to the summons issued to any witness is immaterial when the material documents made available, should have been accepted and indeed in subsequent year the same explanation was accepted by the Income-tax Officer. He further contended that when the Tribunal has relied on the entire judgment of the Commissioner of Income-tax (Appeals), therefore, it was not proper to take up some portion of the judgment of the Commissioner of Income-tax (Appeals) and to ignore the other portion of the same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so 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 Udhavd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity. 12. Taking inspiration from the Supreme Court observations we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Commissioner of Income-tax (Appeals). We also found no single word has been spared to up set the fact finding of the Commissioner of Income-tax (Appeals) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made. 13. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Commissioner of Income-tax (Appeals). The appeal is allowed." 7.7. It is not in dispute that all the share applicant companies in the instant case before us are assessed to income tax. We find that the assessee had duly proved the source of source of source in the instant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in the case of CIT vs Roseberry Mercantile (P) Ltd in ITAT No. 241 of 2010 dated 10.1.2011, while relying on the Hon'ble Supreme Court in the case of Lovely Exports reported in 216 CTR 295 (SC), had held :- "On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT (A) ought to have held that the assessee had not established the genuineness of the transaction. " It appears from the record that in the assessment proceedings it was noticed that the assessee company during the year under consideration had brought Rs. 4, 00, 000/- and Rs. 20,00,000/- towards share capital and share premium respectively amounting to Rs. 24,00, 000/- from four shareholders being private limited companies. The Assessing Officer on his part called for the details from the assessee and also from the share applicants and analyzed the facts and ultimately observed certain abnormal features, which were mentioned in the assessment order. The Assessing Officer, therefore, concluded that nature and source of such money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Tribunal below were justified in holding that after disclosure of the full particulars indicated above, the initial onus of the assessee was shifted and it was the duty of the Assessing Officer to enquire whether those particulars were correct or not and if the Assessing Officer was of the view that the particulars supplied were insufficient to detect the real share applicants, to ask for further particulars. The Assessing Officer has not adopted either of the aforesaid courses but has simply blamed the assessee for not producing those share applicants. In our view, in the case before us so long the Assessing Officer was unable to arrive at a finding that the particulars given by the assessee were false, there was no scope of adding those money under section 68 of the Income- tax Act and the Tribunal below rightly held that the onus was validly discharged. We, thus, find that both the authorities below, on consideration of the materials on record, rightly applied the correct law which are required to be applied in the facts of the present case and, thus, we do not find any reason to interfere with the concurrent findings of fact based on materials on record. The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also proved. By this, the creditworthiness of the share applicants is also proved beyond doubt. Third ingredient is genuineness of the transactions. We find that the five share applicants had paid the monies to the assessee company by account payee cheques out of sufficient bank balances available in their bank accounts, which are quite evident from the bank statements enclosed in the paper book. We agree with the arguments of the ld AR that the source of source of share applicants need not be proved by the assessee herein. We hold that the decision rendered by this tribunal in Subhalakshmi Vanijya relied upon by the ld DR was rendered in the context of validity of revision proceedings u/s 263 of the Act and not on the merits of the case. This tribunal in that case decided the validity of invoking revisionary jurisdiction u/s 263 of the Act by the ld CIT and whether adequate enquiries were made by the ld AO in the facts and circumstances of that case. This tribunal in Subhalakshmi Vanijya case supra never had an occasion to look into the merits of the addition proposed to be made towards share capital in the facts and circumstances of that case and no decision was rendered ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and reserve as noted above. 29. As noted from the judicial precedents cited above, where any sum is found credited in the books of an assessee then there is a duty casted upon the assessee to explain the nature and source of credit found in his books. In the instant case, the credit is in the form of receipt of share capital with premium from share applicants. The nature of receipt towards share capital is seen from the entries passed in the respective balance sheets of the companies as share capital and investments. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e. identity of share applicants, genuineness of transactions and creditworthiness of share applicants. For proving the identity of share applicants, the assessee furnished the name, address, PAN of share applicants together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of share applicants, as we noted supra, these Companies are having capital in several crores of rupees and the investment made in the appellant company is only a small part of their capital. These transactions are also duly reflected in the balance sheets of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wing of the department clearly showed that this was nothing but a sham transaction of accommodation entry. The assessee was asked to explain as to why the said amount of Rs. 1,11,50,000/- may not be added to its income. In response, the assessee has submitted that there is no such credit in the books of the assessee. Rather, the assessee company has received the share application money for allotment of its share. It was stated that the actual amount received was Rs. 55,50,000/- and not Rs. 1,11,50,000/- as mentioned in the notice. The assessee has furnished details of such receipts and the contention of the assessee in respect of the amount is found correct. As such the unexplained amount is to be taken at Rs. 55,50,000/-. The assessee has further tries to explain the source of this amount of Rs. 55,50,000/- by furnishing copies of share application money, balance4 sheet etc. of the parties mentioned above and asserted that the question of addition in the income of the assessee does not arise. This explanation of the assessee has been duly considered and found not acceptable. This entry remains unexplained in the hands of the assessee as has been arrived by the Investigation wing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr.Mahesh Garg that the income sought to be added fell within the description ofS.68 of the Income Tax Act 1961. Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra). The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (supra). Where the assessee adduces evidence in support of the share application monies, it is open to the Assessing Officer to examine it and reject it on tenable grounds. In case he wishes to rely on the report of the investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between the assessee and the alleged hawala operators, such a link was shown to be present in the case of Nova Promoters & Finlease (P) Ltd. (supra) relied upon by the revenue. We are therefore not to be understood to convey that in all cases of share capital added under Section the ratio o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titious. Therefore, the impugned order is set aside. The appeal is allowed accordingly. No order as to costs. In the instant case before us, the share subscribing companies are duly assessed to income tax. It is not in dispute that the share subscribing companies are in existence. It is not in dispute that the share subscribing companies are duly assessed to income tax and their income tax particulars together with the copies of respective income tax returns with their balance sheets are already on record. Hence it could be safely concluded that they are genuine shareholders and not bogus and fictitious. Accordingly, the ratio laid down by the Hon'ble Apex Court in the case of M/s Earthmetal Electricals P Ltd supra would be squarely applicable to the facts of the instant case. 7.13. We would like to add that receipt of share capital for a company is not a prohibited transaction, as that is one of the main source of raising funds for a company to run its intended activities. The ld CITA had categorically given a finding that the ld AO did not bring on record sufficient tangible and cogent material to support his conclusion that the amount credited in the assessee's books in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed by this tribunal in the case of VSP Steel P Ltd supra. No decision whatsoever was rendered by the Hon'ble Jurisdictional High Court in the case of Raj mandir Estates P ltd on merits of the addition and hence does not come to the rescue of the revenue in the facts of the instant case. 7.14. We also find that the Hon'ble Apex Court recently in the case of Principal CIT vs Vaishnodevi Refoils & Solvex reported in (2018) 96 taxmann.com 469 (SC) wherein the SLP of the Revenue has been dismissed by the Hon'ble Apex Court. The brief facts were that the addition u/s 68 of the Act was made by the Assessing Officer in respect of capital contributed by the partner of the firm. The Hon'ble High Court noted that when the concerned partner had confirmed before the Assessing Officer about his fact of making capital contribution in the firm and that the said investment is also reflected in his individual books of accounts, then no addition could be made u/s 68 of the Act. The decision of Hon'ble Gujarat High Court is reported in (2018) 89 taxmann.com 80 (Guj HC). The SLP of the revenue against this judgement was dismissed by the Hon'ble Supreme Court. 7.15. To sum up, section 68 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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