Income Tax Appellate Tribunal – Chandigarh
Acit, Ludhiana vs A.P. Refinery Pvt. Ltd.
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND Ms. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No. 186/CHD/2016
Assessment Year: 2012-13
The ACIT, Vs M/s A.P.Refinery Pvt. Ltd.,
Circle-4, Village - Saraud,
Appellant by : Shri Ravi Srangal,CIT-DR
Respondent by : Shri Ashwani Kumar
Date of Hearing : 02.01.2017
Date of Pronouncement : 10.02.2017
O R D E R
PER BHAVNESH SAINI,JM This appeal by revenue has been directed against the order of ld. CIT(Appeals)-2 Ludhiana dated 18.12.2015 for assessment year 2012-13 on the following grounds :
1) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right in deleting addition of Rs. 1,75,00,000/- made by the Assessing Officer u/s 68 of the IT Act on the issue of alleged receipt of share capital/premium by the assessee.
2) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right in deleting addition of Rs. 1,59,00,000/- made by the Assessing Officer u/s 68 of the I.T.Act on the issue of peak credit in respect of unsecured loan received by the assessee.
3) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right in deleting disallowance of interest of Rs. 6,52,000/- on a loan from a party held to be not genuine by the assessing officer.
4) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right in granting relief to the assessee without appreciating that the assessee has not proved the creditworthiness of M/s Anu Buildwell Pvt. Ltd., which had allegedly subscribed share capital/premium and advanced loan to the assessee.
3. Brief facts in this case are that assessee company filed its return of income of 'nil' and paid tax under section 115JB of Income Tax Act. During the course of assessment proceedings, disallowance of Rs. 3.34 Cr was made by the Assessing Officer under section 68 of the Act received by the assessee company as share capital/share premium and book credit of unsecured loans and Rs. 6,52,500/- on account of interest expenses. The authorities below have discussed the facts and legal circumstances after discussion with the counsel for assessee in the impugned order. It is noted in the impugned orders that assessee company has issued 350000 shares to one company namely 'Anu Buildwell Pvt. Ltd. Delhi with face value of Rs. 10/- each for Rs. 50/- per share and received the following amounts :
i) 350000 shares @ Rs. 10/- per share = Rs. 35 lacs
ii) 350000 shares @ Rs. 40/- per share Rs. 1,40,00,000/- as premium
Total : Rs. 1,75,00,000/-
4. The assessee filed confirmation alongwith bank account of M/s Anu Buildwell Pvt. Ltd. from where the above investment of Rs. 1.75 Cr was made. The assessee company also furnished names and complete addresses of Managing Director/Directors of M/s Anu Buildwell Pvt. Ltd. Delhi namely Shri Kapil Garg and Shri Bhav Kansal. In order to verify the genuineness of the above subscription of share capital/share premium in assessee company, notice under section 133(6) of the Act was issued to the investor company asking several informations like mode of payment for purchase of shares, nature of business, documents on the basis of which investments were made, copy of account of the assessee in their books, attested copy of the bank account to show transactions. Information was also called for from Manager, Punjab National Bank, Moga under section 133(6) of the Act where M/s Anu Buildwell Pvt. Ltd. is maintaining its bank account and the Assessing Officer sought from the bank attested copy of the bank account maintained by investor for three years alongwith copy of all the documents relating to opening of this bank account with ID proof, name and address of the person who opened the account and details of credit entries. The Manager, Punjab National Bank, Moga furnished copy of the bank statement of subscriber company alongwith details called for. The copy of the bank statement furnished by the bank is reproduced in the impugned order. The subscriber company also filed confirmation before Assessing Officer providing all the information called for by the Assessing Officer and confirmed therein the investment made in share capital/share premium. Copy of return of income, copy of account of assessee and copy of bank statement was also filed.
4(i) The Assessing Officer also noted that apart from investment in share capital/share premium, the subscriber company has also advanced loan, peak credit of the same is Rs. 1.59 Crores. The Assessing Officer discussed the evidence brought on record and also recorded statement of Shri Kapil Garg, Managing Director of the subscriber company M/s Anu Buildwell Pvt. Ltd. Delhi and reproduced his statement in the impugned order. The Assessing Officer in his statement asked for the source of investment in assessee company which have been duly replied. The Assessing Officer asked for the modus-operandi of their business activities. The Managing Director of M/s Anu Buildwell Pvt. Ltd. Shri Kapil Garg in his statement confirmed making of investment in share capital/share premium in assessee company and the source was from M/s K.M. Investment Pvt. Ltd. Delhi, details of the same were also furnished. He has also confirmed in his statement that loans have been given to the assessee company.
He did not agree to the suggestion of the Assessing Officer that his company M/s Anu Buildwell Pvt. Ltd. is only a paper company. He has explained in his statement that M/s Anu Buildwell Pvt. Ltd. Is a genuine company and assessment for assessment year 2012-13 have been completed under section 143(3) of the Act.
4(ii) As regards peak credit of Rs. 1.59 Cr, the Managing Director of the subscriber company has also explained the source of these loans from various companies/shareholders. The Assessing Officer discussed all the evidences before him at assessment stage in the light of statement of Shri Kapil Garg, Managing Director of subscriber company in the light of the decision of Hon'ble Supreme Court in the case of CIT Vs Durga Parsad More 82 ITR 540 and Sumati Dayal 217 ITR 801 but did not accept contention of the assessee that assessee company received genuine share capital/premium and unsecured loans. The explanation of the assessee was called for. The assessee in response to the show cause notice made detailed submission before Assessing Officer explaining that the subscriber company is assessed to tax. The assessee produced sufficient evidence to prove identity of the subscriber company/lender, their credit worthiness and genuineness of the transaction by filing confirmations, copies of the Income Tax Returns, PAN number and certificate of incorporation of M/s Anu Buildwell Pvt. Ltd. The personal attendance of the subscriber company/lender through Managing Director was also completed by producing Shri Kapil Garg, whose statement was recorded by the Assessing Officer. The assessee, therefore, proved identity of the subscriber company, their credit worthiness and genuineness of the transaction. It was, therefore, submitted that the decisions of the Hon'ble Supreme Court in the cases of Durga Parsad More and Sumati Dayal (supra) are not applicable. The assessee relied upon decision of the Delhi High Court in the case of CIT Vs Steller Investments Ltd.192 ITR 287, decision of the Supreme Court in the case of CIT Vs Lovely Exports Pvt. Ltd. 216 CTR 195 and many other decisions in support of the contention that assessee received genuine share capital/premium and credits. The assessee further relied upon decision of Hon'ble Supreme Court in the case of Orissa Corporation Pvt.Ltd. 159 ITR 78 and decision of the Gujrat High Court in the case of CIT Vs Rohini Builders 256 ITR 360 to prove that assessee need not be asked to prove source of the source. The assessee also relied upon provisions of Companies Act, 1956 to show that capital receipt should not be added against the assessee. The Assessing Officer discussed the submissions of the assessee in the impugned order but did not accept explanation of the assessee and noted that even if assessment was completed by Assessing Officer in the case of M/s Anu Buildwell Pvt. Ltd. under section 143(3) of the Act vide order dated 30.01.2015 but it has not reached the finality and remedial action could be taken under section 148 or under section 263 of the Act.
5. The Assessing Officer considering test of human probability and relying upon certain decisions held that since credit worthiness and genuineness of the transactions were not established at all, therefore there was no question of shifting burden under section 68 of the Act on the revenue. The Assessing Officer, therefore, held that the money amounting to Rs. 3.34 Cr received by the assessee as share capital/share premium and unsecured loan during assessment year under appeal is in the nature of unexplained cash credit and hence taxable under section 68 of the Act and accordingly made addition of Rs. 3.34 Cr under section 68 of the Act. Further, the assessee has claimed interest expenses amounting to Rs. 6,52,500/- being interest paid/credited to M/s Anu Buildwell Pvt. Ltd. Delhi, since unsecured loan was held not to be genuine, therefore, such interest expenses were also disallowed and addition was accordingly made.
6. The assessee challenged the additions before ld. CIT(Appeals) and filed written submission which is reproduced in the impugned order. The same reads as under :
That the assessment order is against law and facts on the f//e in as much as the Ld Addl. CIT was not justified to arbitrarily compute the total income at Rs. 2,48,23,7907- as against returned loss of Rs. 92,28,7137-
The above ground is adjunct to the substantive grounds being discussed at serial Nos. 2. 3 and 4 hereinafter and the adjudication of the same would be a corollary to any decision on the said grounds."
"That the Ld Assessing Officer was not justified to add back a sum of Rs. 3,34,00,0007- by resort to provisions of Section 68 on account of amounts received from M/s Anu Buildwell Pvt Ltd ... Rs. 1,75,00,000/- as share capital/share premium and Rs. 1,59,00,000/- as a peak credit in respect of Unsecured Loan.
That the Ld Assessing Officer gravely erred in marshalling irrelevant facts and ignoring the import of detailed submissions and irrefutable evidence while making the impugned addition.
In this connection the following submissions are made for and on behalf of the Appellant Company:-
(1) The Appellant Company is a Private Limited Company engaged in the business of extraction of rice bran oil and had filed its original return of income for Assessment Year 2012-13 on 31.08.2012 declaring therein income at Rs. Nil. During the course of the assessment proceedings a revised computation of income was filed, taking into account brought forward losses, vide which loss for the year was computed at Rs. 92,28,713/-.
(2) During the year under consideration the Appellant Company had issued 3,50,000 shares of M/s Anu Buildwell Pvt Ltd with face value of Rs. 10/- each for Rs. 50/- per share(including premium of Rs. 40/- per share) against which it received amounts aggregating to Rs. 1,75,00,000/- on various dates.
(3) During the course of the assessment proceedings the Ld Assessing Officer asked the Appellant Company to file confirmations alongwith account of Anu Buildwell Pvt Ltd from where above said investment of Rs. 1,75,00,000/- was made. In response thereto the requisite details were filed and exhaustive submissions made during the course of the assessment proceedings.
(4) In order to verify the genuineness of the transactions, information u/s 133(6) dated 05.01.2015 was also called for from the subscriber company viz. M/s Anu Buildwell Pvt Ltd and from the Manager, Punjab National Bank, Moga u/s 133(6) of the Act where M/s Anu Buildwell Pvt Ltd was maintaining its account which were duly replied to vide letters dated 20-01-2015 and 10-03-2015 respectively enclosing/giving therein the requisite information/clarifications/documents.
(5) On the basis of the above replies the Ld Assessing Officer, we may submit with utmost respect, rather unfairly and unjustly observed as under:-
Both the Directors of Anu Buildwell Pvt Ltd are resident of Distt Ludhiana and opened bank account of the company in Moga, whereas Anu Buildwell Pvt Ltd was registered in Delhi at 18, Chander Lok Enclave, Pitampura, Delhi The perusal of the letter of confirmation shows that it was not signed by any of the Directors. Moreover, the Investor Company has no employee of its own as discussed in
the later part of this order. It was not clear from the signatures who signed this letter as "Authorised Signatory".
The perusal of bank account of Anu Buildwell Pvt Ltd shows that it was not carrying out any genuine activity as there were huge transactions of deposits and withdrawals without any corresponding activities or business as reflected in its income tax return for the A.Y. 2012-13 Anu Buildwell Pvt Ltd issued 80,000 shares of Rs. 10/- each to another 10 companies of Delhi at Rs. 300/- per share including premium of Rs. 290/- per share.
Income Tax Return for the A. Y. 2012-13 was filed declaring nominal income of Rs. 1,80,720/-.
(6) The Ld Assessing Officer also issued summons u/s 131 of the Act on Shri Kapil Garg, Managing Director of M/s Anu Buildwell Pvt Ltd and recorded his statements on the basis of which the following observations were made by him:-
"The facts emerging from the statement of Shri Kapil Garg, M.D of Anu Buildwell Pvt Ltd., Delhi are that the Investor company namely Anu Buildwell Pvt Ltd Delhi is not doing any business and simply a paper company. It is highly improbable that share price of worthless company can fetch Rs. 300/- per share (with face value of Rs. 10/- per share and share premium of Rs. 290/- per share). Since Kapil Garg, is employee of A.P. Refinery Pvt Ltd the so called company namely Anu Buildwell Pvt Ltd is created to work as conduit for providing only accommodation entry to the real beneficiary i.e. A.P. Refinery Pvt Ltd., Malerkotla."
(7) Subsequently a final show cause notice dated 10-03-2015 was issued to the Appellant Company, in response to which a detailed reply was filed on behalf of the Appellant Company on 23-03-2015 which, however, was not found acceptable by the Ld. Assessing Officer who for the reasons as laid out in paras 14 to 18 of the assessment order has proceeded to make the impugned addition.
(8) The Ld Assessing Officer has relied upon the following arguments while making the aforesaid addition:-
The whereabouts of the other Director of Anu Buildwell (P) Ltd namely, Shri Bhav Kansal who has contributed Rs. 10,000/- only are not known to Sh Kapil Garg, MD of Anu Buildwell (P) Ltd.
It is quite evident that the said company had no salary expenses, no telephone expenses, no rental expenses and no office maintenance expenses. It is clear from these facts that this company intact never existed and was only a paper company and it was floated for the sole purpose of providing accommodation entries to assessee company namely A.P. Refinery Pvt Ltd.
This action of the Investor company i.e. Anu Buildwell Pvt Ltd is against the theory of preponderance of human probability as pronounced by Hon'ble Apex Court in the case of CIT vs. Durga Prasad More [(1971) 82 ITR 540];
The above decisions acknowledged that what is apparent may not be real and test of human probability has to applied to understand if the apparent is real and if the transaction fails to withstand the test of human probability, it has to be taken as an in genuine transaction even if documentary evidences suggest otherwise Sh Kapil Garg, M.D of Anu Buildwell Pvt Ltd does not know the names of directors of the 10 companies from whom share capital/share premium amounting to Rs. 2,40,00,000/- was received by Anu Buildwell Pvt Ltd; Shri Kapil Garg, M.D admitted in his statement recorded on 27.02.2015 that he has no knowledge whether he advertised/published any advertisement or balance sheet to invite investment in his company i.e. Anu Buildwell Pvt Ltd @ Rs. 300/- per share with face value of Rs. 10/- and share premium of Rs. 290/-. He further admitted that one Sh Dhillon of Chandigarh who acted as an agent arranged all these funds. He further admitted that he does not know full name of Sh Dhillon nor he knows his address or contact number/mobile number. Sh Kapil Garg, M.D further admitted that Sh Dhillon did not charge anything for arranging all these funds;
While giving answer to a specific question No. 14 that what was the basis of receiving such a huge share premium of Rs. 290/- per share from the above said 10 companies of Delhi, Shri Kapil Garg answer that all these 10 companies wanted to invest in real estate as there was boom in real estate business. When asked to explain that after receipt of share capital/share premium from above said companies whether you invested in real estate, Shri Kapil Garg replied that no investment in real estate was made as there was slump in the real estate business. The statement of Sh Kapil Garg is self contradictory and confusing and simply a bundle of lies. Tax avoidance is an accepted principle. Any person is entitled to adjust its affairs in such manner as to minimize tax liability.
However, the methodology and acts done in such case of capital formation is not tax avoidance. It is more in the nature of tax evasion by money laundering.
The plea of the Assessee that Anu Buildwell Pvt Ltd Delhi is an independent entity and the transactions between the two companies were carried out on an arms' length basis and motivated genuine business considerations is not tenable. The fact that the company which subscribed to the shares of the assessee company were borne on the file of the ROC is a neutral fact. Every company incorporated under the Companies Act, 1956 has to comply with statutory formalities. Further this company namely Anu Buildwell Pvt Ltd Delhi was complying with such formalities does not add any credibility or evidentiary value. In any case, it does not ipso facto prove that the transactions are genuine.
As such this please of the assessee has no legs to stand and accordingly the same is rejected.It has been seen that assessment in this case was completed u/s 143(3) of the IT Act, 1961 on 30.01.2015. There is nothing in the assessment order which suggest that investment amounting to Rs. 1,75,00,000/- and unsecured loan, the peak of which is Rs. 1.59 crore is properly explained.
Moreover the assessment completed by the A.O. on 30.01.2015 does not get finality as this assessment order is subject to review, inspection and audit. The remedial action u/s 148 or u/s 263 of the I.T Act, 1961 cannot be ruled out. The assessee's case could have been on sound footing had these amounts been added in the case of Anu Buildwell Pvt Ltd, Delhi. Then assessee could have said that these amounts cannot be assessed in the hands of assessee company being taxed twice. In a way, the assessee company itself has admitted that no tax was paid by any entity on these amounts which found its way back to the assessee company in the form of "accommodation entries" and "unsecured loans". Hence this plea of the assessee is rejected.
The Company- Anu Buildwell Pvt Ltd is a paper company having no funds, no assets, doing no business and is stage managed by A.P. Refinery Pvt Ltd and the real purpose for creation of this company was to work as conduit for providing only accommodation entries to the real beneficiary i.e. A.P Refinery Pvt Ltd., Malerkotla. As such the plea of the assessee that book value of the shares of the assessee company as on 31.03.2011 was Rs. 33.35 is not relevant, hence rejected.
The facts of the case are that assessee company created a paper company and received accommodation entries from the said paper company. The statement given by Sh Kapil Garg, Managing Director of Anu Buildwell Pvt Ltd., Delhi who happens to be employee of assessee company and nephew of Managing Director of assessee company - Shri Ravi Goya/ clearly established the modus operand/ adopted by the assessee company for turning cash to cheques.
In this regard, it may be mentioned here that assessee company is closely held company. The Assessee Company issued its unlisted shares on a premium to Anu Buildwell Pvt Ltd, Delhi. As already held in the preceding paragraphs of this order that Anu Buildwell Pvt Ltd., Delhi is a paper company having no assets, doing no business and is stage managed by Assessee Company. As such, creditworthiness and genuineness of transactions were not established at all. The real purpose for creation of this company was to work as conduit for providing only accommodation entries to the real beneficiary i.e. the assessee company.
Decision in the case of the CIT vs. Stellar Investments Ltd 192 ITR 287 (Delhi) also in present scenario has now somewhat lost its controversial status in case of closely held companies as proviso has been inserted by Finance Act, 2012 (w.e.f. April 1, 2013) stipulating that assessee's explanation shall deemed to be unsatisfactory unless the person in whose name the share application money is credited also offers a satisfactory explanation. Assessment in the case of assessee company for the A.Y. 2009-10 was reopened on the basis of information received from the Investigation wing of the Income Tax Department at Delhi that Assessee Company received 'accommodation entries' as share application money/share capital/share premium during F.Y. 2008-09 from 'Paper Companies' of Delhi. The extensive and conclusive enquiry done by the Department unearthed the network for turning cash into cheques by the assessee company through layering of money and finally the money amounting to Rs. 3,74,00,000/- received by the assessee company from paper companies of Delhi as share application money/share capital/share premium was added to the income of the assessee u/s 68 of the I.T Act, 1961 for the A.Y. 2009-10." The Ld CIT (A)-ll, Ludhiana confirmed this order of the Assessing Officer in appeal No. 496/IT/CIT(A)-ll/LDH/2013-14 vide his office order dated 27-03- 2015.
(a) The ld. A.O. has relied upon following judicial pronouncements :
CIT Vs. Nova Promoters and Finlease (P) Ltd [(2012) 18 taxmann. Com 217 (Delhi)];
Commissioner of Income -tax vs. Sofia Finance Ltd [(1994) 205 ITR 98 (Delhi) (Full Bench)];
Commissioner of Income -tax vs Divine Leasing and Finance Ltd [(2008) 299 ITR 268 (Delhi)];
Commissioner of Income-tax Delhi -V vs M/s N.R. Portfolio Pvt Ltd [(2013) 60 taxmann.com Me Dowell & Co Ltd vs Commercial Tax Officer [(1985) 154 ITR 148 (SC)]; Som Nath Maini vs Commissioner of Income -tax [(2008) 306 ITR 414 (P &H)]; Assistant Commissioner of Income –tax vs Som Nath Maini [(2006) 100 TTJ 917 (Chd)];
Smt Harjit Kaur vs Assistant Commissioner of Income -tax, Sirsa [(2014) 45 taxmann.com 186 (P & H)];
Assistant Commissioner of Income-tax vs Smt Harjit Kumar in ITA No. 949/Chd/2011 of lTAT, Chandigarh;
CIT vs. Nipun Builders & Developers Pvt Ltd [(2013) 350 ITR 407 (Del)]; M/s Bisakha Sales Pvt Ltd vs Commissioner of Income -tax , (Kol-ll) [(2014) 52 taxmann.com 305 (Kolkata-Trib)];
CIT vs. Hindon forge (P) Ltd [(2012) 25 taxmann.com 239 (All)];
(10) Before proceeding further in the matter reference may be to the provisions of Section 68 of the Act which read as follows:-
S 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.
(11) The above Section casts on onus upon an assessee, the duty to adequately, satisfactorily and substantively explain the source of any cash credit in his books of accounts and no further. To put it differently an assessee's burden of proof would stand discharged if he is able to prove the nature and source of the cash credit and the identity of the investor. As long as the same is established, no further onus of proof can enjoined on it. In the instant case no case can be made out to doubt the gentleness, existence or identity of the investors and as such no cause exists for the invocation of S. 68 of the Act.
(12) Section 68 of the Act is an anti-tax evasion provision and was incorporated into Act to obviate the possibility of introduction of unaccounted / undisclosed money in the books of account in the names of relations or third parties The object behind insertion of Section 68 is to assess such income when it surfaces and assess it in the hands of the person in whose book it surfaces.
(13) Section 68 casts an onus upon an assessee to prove the identity and creditworthiness of the Depositors and the genuineness of the transactions. In this respect the following conclusions with respect to the onus cast on an assessee can be drawn:-
(a) An assessee has to prove the identity of the creditor as well as the genuineness of the transaction
(b) The genuineness of the transaction shall, prima facie, stand established where the amount has been transmitted through banking or other indisputable channels.
(c) The onus cast upon the assessee stands discharged if relevant details such as addresses, PAN are furnished along with confirmation of the investee/payer companies.
(14) in the light of the above, the various limbs of Section 68 of the Act and the extent to which they stand satisfied in the instant case are being discussed hereinafter:-
A. IDENTITY In order to prove the identity of the Depositor an Assessee is required to prove, on the basis of a concrete documentary evidence, that the depositor exists and is uniquely identifiable on the basis of certain characteristic/distinct features. In common parlance, identity of a person/entity refers to a quality that makes someone or something what they are and how they are different/unique from other people/entities.
(ii) In the instant case, the Depositor viz M/s Anu Buildwell (P) Ltd is a company duly incorporated under the provisions of Companies Act, 1956 (as in force at the relevant point of time) having a separate legal entity and the status of an "Artificial Legal Person" as opposed to a natural person. The existence and identity of the said Company stands corroborated by the certificate of incorporation granted by the jurisdictional Registrar of Companies, a statutory body entrusted with the tasks of over-seeing the implementation and compliance with the provisions of the Companies Act, 1956. In addition the existence and the identity of the said Companies also stood further supplemented by the following documents which were duly filed with the Ld Assessing Officer:-
(d) Copies of
- Income Tax Returns
- Certificate of Incorporation
- Memorandum and Articles of Association
(c) Personal deposition of the Investor Co confirming the investment made/amounts deposited.
(iii) Copies of the above documents alongwith copy of the Balance Sheet of M/s Anu Buildwell Pvt Ltd and assessment order passed u/s 143 of the Act in the case of the said company by its jurisdictional Assessing Officer are being enclosed herewith.
(iv) The Company has been incorporated by a due and rigorous process of law as laid down in the Companies Act, 1956 duly administered by the quasi- legal/administrative authorities, as laid out in the Companies Act, 1956 of which the jurisdictional Registrar of Companies acts as the fulcrum. In fact, in terms of the procedures laid down in the Companies Act, 1956, a rigorous process of verification and compliance has to be followed. Moreover, the entire functioning of companies incorporated under the Companies Act, is duly administered and regulated by the Companies Act, 1956 and the authorities created thereunder involving statutory/regulatory compliances such as regular and periodical filing of statutory documents as prescribed coupled with other powers such as investigation and inspection of the affairs of the Company.
(v) Since M/s Anu Buildwell Pvt Ltd is incorporated under the provisions of the Companies Act, 1956 no doubt can exist or even arise with respect to their identity. In this connection particular reference may be made to the provisions of S.34 of the Companies Act, 1956 which read as follows:-
S.34. Effect of registration - (1) On the registration of the memorandum of a company, the Registrar shall certify under his hand that the company is incorporated and, in the case of a limited company, that the company is limited.
(2) From the date of incorporation mentioned in the certificate of incorporation such of the subscribers of the memorandum and other persons, as may from time to time be members of the company, shall be a body corporate by the name contained in the memorandum, capable forthwith of exercising all the functions of an incorporated company and having perpetual succession and a common seal, but with such liability on the part of the members to contribute to the assets of the company in the event of its being wound up as is mentioned in this Act.
(vi) The above section makes it clear that legally by definition and constitution a Limited Company is an incorporated body of persons whereby it is constituted into a distinct and * independent person in law and is endowed with special rights and privileges. To this end it is distinguishable from a partnership firm or a family which is the mere aggregate of its members whereas a company is in point of law a person distinct from its members. Accordingly an incorporated body is an artificial person created by law, possessing a separate legal entity which is brought into existence by a due process of law and which can only be brought to an end by a due process of law and not in any other manner. In the instant case the statutory records available with the jurisdictional Registrar of Companies clearly point to the company being in existence and the same having not been extinguished by any process of law. As such any doubt as to the identity of the said company stand dispelled and comprehensively negated.
(i) In common, as well as financial parlance, credit worthiness of a depositor refers to an assessment of his ability to lend money based on an analysis of his/their financial ' other parameters. The said meaning when extrapolated in the context of the Act would refer to the ability of the depositor to deposit money and justification of his source. In this connection it is submitted that the transactions in all cases were consummated through regular banking channels in the ordinary course of business.
(ii) The Ld Assessing Officer has while determining the credit worthiness of the depositors laid stress on the fact that there was no credit balance in the account of the subscriber and only cheques were credited before issue of cheques to the assessee and accordingly laid stress on the "source of the deposit". In this connection, it is respectfully submitted that the provisions of Section 68 of the Act, as applicable to the year under appeal, did not put the onus on assessee to prove the source of source in order to prove the credit worthiness of the depositor. In other words the provisions of Section 68 of the Act, as in operation for the year under review, only mandate the source to be proved which onus had clearly been discharged by the Appellant Company. Moreover, no cash transactions had taken place in any of the bank accounts in such cases which would further prove the credit worthiness of the various amounts deposited. The amounts in question had been deposited out of funds received by the depositor company in the ordinary course of their activities.
(iii) The question of the manner in which the onus u/s 68 has to be discharged is to be looked at with different perspectives and varying parameters in each different circumstance and no standards/guidelines can be laid out in this regard. However, in a case where the money has flown through normal banking channels, has been duly disclosed in the books of accounts and the transaction has been confirmed by the parties thereto and not been repudiated in any manner the question of credit worthiness itself gets answered in the affirmative.
(iv) In the instant case there is no material on record to prove or even remotely suggest that the share application money received actually emanated for the Appellant Company. In fact it may be reiterated that the share application money was received from independent, legally incorporated companies through normal and regular banking channels which fact stands duly corroborated and confirmed by the confirmations and Income Tax Returns of the share applicants duly placed on record. There is no evidence, direct or indirect or even circumstantial, exists to doubt in any manner the identity and credit worthiness of the parties and genuineness of the transactions entered into.
C. GENUINENESS OF THE TRANSACTION
(i) The third limb of Section 68 viz. onus to prove the genuineness of the transactions seeks "to ensure that the sub-stratum/pivot of the transaction stands on a firm edifice and is not a camouflage in any manner." Moreover, the question of genuineness of a transaction recedes into relative oblivion when the identity and credit worthiness of the depositors are duly established. In the instant case, in the face of the authoritative documentary evidence filed/available with the Ld Assessing Officer and the arguments cited above, it is clear that there is no ground of any nature or dimension whatsoever to doubt the genuineness of the transactions especially considering the following facts:-
The cash creditors are companies incorporated under the provisions of the Companies Act, 1956 or individuals whose identity has not been questioned in any manner. The creditors have duly confirmed the fact of their having deposited money in the Appellant Company and duly supplemented their confirmations with either/or Income Tax Returns, Annual Accounts, etc. (15) Section 68 of the Act stipulates that the nature and the source of the transaction should be explained to the satisfaction of the Assessing Officer. In the instant case the nature of the transaction is share capital/application money received and the source of the transaction is the name of the party having an income-tax permanent account number and also a legal entity and an artificial legal person under a special enactment namely, the Companies Act, 1956 or an identifiable specific individual. Therefore both the nature of the transaction has been established and the source of the transaction been proved and accordingly no cause exists for resort to the provisions of Section 68 of the Act. (16) The Appellant Company has discharged its onus by satisfactorily dealing with all the issues in respect of which onus has been cast on it u/s 68 of the Act as would be clear from the following discussion:-
(iii) With respect to the "identity" of the depositors/creditors the names, addresses and PANs of the Appellant Company has been duly furnished and provided to the Ld Assessing Officer during the course of the assessment proceedings and no discrepancy or short coming has either been determined or pointed out there in since all the share applicants are duly identified with duly allotted PANs which are subsisting in the record of the Income Tax Department. Moreover all the share applicants are companies duly incorporated after following the procedure laid out in the Companies Act, 1956. Thus, no doubt exists or even arises with respect to the identity of the creditors.
(iv) With respect to the capacity/credit worthiness of the share applicants to advance money and the genuineness of the transactions it needs to be understood, reiterated and re- emphasized that the entire transaction was consummated through account payee cheques through regular banking channels which fact has not been disputed or denied in any manner. As such given the entire factual situation of the case no doubt arises and remains as to the capacity and credit worthiness of the parties and genuineness of the transactions.
(v) The various arguments whether factual and legal put forward by the Ld Assessing Officer can individually and collectively countered as follows:-
(a) The Ld Assessing Officer has rather generically proceeded to designate the Investor company i.e. M/s Anu Buildwell Pvt Ltd as a "Paper Company." floated for the sole purpose of providing accommodation entries to the Appellant Company. While it should be noted that there is no legal or even quasi-legal definition of "Paper Company" it fails even any nascent/elementary degree of common-sense and realm of cognitive and rational thinking as to how the identity of a legally created entity, established and operating within defined statutory framework(s) can even be questioned let alone denied.
(b) Moreover the fact of the said company giving accommodation entries has only been "suggested" and not proved even conjecturally. No positive/affirmative evidence has been brought on record to even suggest that the funds received from M/s Anu Buildwell (P) Ltd represented unaccounted funds of the Appellant Company other than mere expressions/bland statements indicating such a suspicion.
(c) The Ld Assessing Officer has a/so sought to rely on the fact that Sh Kapil Garg, Director of M/s Anu Buildwell Pvt Ltd did not know the names of Directors of the Investor Companies in the said company and that it had not published any advertisement to invite investment in M/s Anu Buildwell (P) Ltd. It is humbly submitted that the said facts do not carry even an iota of importance since the Directors of a Pvt Ltd Company can change from time to time since their existence is independent from that of a company and in a deal between two corporate bodies on principal to principal basis the identity of the underlying persons involved not only looses significance but does not matter. In this connection the fact that a Company has an independent legal status separate from it Directors is also again re-emphasized. Moreover, a Private Limited Company is forbade by statute to issue an advertisement to invite investment in the company and accordingly the money was raised through private placement only.
(d) The assertion by the Ld Assessing Officer as to complying with statutory formalities not adding any credibility or evidentiary value strikes at the very root of the legislative mandate and statutory functioning by disregarding the very existence of a Parliament enacted statute and its operation. The incorporation of a company under the provisions of the Companies Act, 1956 is a comprehensive affirmation of its existence which no executive body can ignore at any cost.
(e) The Ld Assessing Officer has also sought to make light of the assessment order passed u/s 143(3) of the Act by a colleague in the case of M/s Anu Buildwell (P) Ltd by simply relying on the bare contents of the assessment order and ignoring the process on the basis of which it is finalized/framed. It should be noted that not all details filed, clarification furnished and issues discussed are made a part of the body of the assessment order but an order passed u/s 143(3) of the Act is meant to convey that all relevant provisions of the Act have been examined as to their compliance and action taken only in respect of items which have been found to be contravened. This being the case, the fact of the assessment having been framed u/s 143(3) of the Act cannot be ignored any manner. The assessment proceedings as on date are not only deemed to be but also final and it would be naive to take refuge from under the pretext of any "possible future remedial action that may be resorted to" since present situations and an analysis thereof cannot be based on future projections the possibility and consequentially the outcomes whereof are only speculative.
(f) The Ld Assessing has also sought to rely on the assessment proceedings for F/Y 2008-09 based on the findings of the Investigation Wing for that year. While the said action is itself being disputed and the appellate proceedings have not yet attained any semblance of finality, it should be noted that each year is an independent unit of assessment and the findings of a particular year cannot be applied unilaterally for any other year. This being the case and in the absence of any concrete findings/evidence for the year under appeal, the findings for F. Y 2008-09 can neither be extrapolated to or applied unilaterally for any subsequent assessment year. It may also be submitted that the alleged findings of the Investigation Wing did not determine anything adverse for F/Y 2011-12 i.e. A/Y 2012-13 and as such cannot be relied upon or even alluded to in passing for the assessment year under consideration. Thus there being no evidence to suggest re- cycling of unaccounted funds of the Appellant company no adverse inference can be drawn.
(iv) The Ld Assessing Officer has rather strongly but, we may submit with respect, rather unilaterally and out of context relied upon the theory of preponderance of human probability and the apparent not being real and referred to the decisions of the Hon'ble Supreme Court in the cases of CIT vs. Durga Prasad More [(1971) 82 ITR 540 (SC)] and Sumati Dayal vs. CIT [(1995) 217 ITR 801 (SC)].
(v) In this connection, it is humbly submitted that the theories of preponderance of human probability, the apparent not being real and piercing of the corporate veil, though very, much a part of legal jurisprudence have to be applied in a nuanced, subtle and calibrated manner and not on a blanket basis. In order to establish these related theories, there have to be substantial and definitive facts which lead to a concrete conclusion that the apparent is not real. The doctrines being so far reaching in their approach have to be applied in a selective and an extremely cautious manner. In the instant case, the action of the Ld Assessing Officer in disputing the apparent is itself not only contradictory but also somewhat paradoxical in as much as he seeks to dispute a transaction which has been consummated and brought to fruition by perfectly, legal and conclusively acceptable legal banking channels and which has been emphatically confirmed by the parties thereto.
(vi) Moreover, the said doctrine can also not be applied' to the issue of shares at a premium since the same was a commercial decision based on future forecasts and outlook as well as the investors' perception on the strength/quality/competence of the Management. The said decision being based on commercial considerations cannot be a ground to dispute the factum/pivot of the transaction, even if at a subsequent date the parameters/considerations on which the decision was based have been proved to be incorrect. As such given the facts of the case no ground can be made to either to apply the test of human probability or that the apparent is not real in the instant case.
(vii) It may also be submitted, reiterated and emphasized that, the manner of discharging the onus with respect to proving the identity, creditworthiness and genuineness of the transactions has to be looked at by adopting a holistic /global view and needs to be suitably adjusted in different situations. In this connection, in particular, the action of the Ld Assessing Officer in trying to negate the corporate existence of the investors by saying that complying with formalities prescribed with the Companies Act, 1956 does not add any credibility or evidentiary value disregards the existence/ structure/edifice created thereunder and demeans the functioning of a statute duly enacted under the supreme authority of the Parliament.
(viii) As such the various arguments both legal and factual advanced by the Ld Assessing Officer fail to prove the allegation that the money used amounted to accommodation entries from paper companies based as it is on misplaced logic and an unsustainable interpretation of law.
(ix) The Learned Assessing Officer has placed reliance 'on the decision of the Hon'ble High Court of Delhi in the case of Commissioner of Income Tax v. Nova Promoters and Finlease (P) Ltd [(2012) 342 ITR 169 (Delhi)]. In this connection it is humbly submitted that the facts in the case of Nova Promoters are completely at variance with the facts of the Appellant Company's case in as much as in the case of Nova Promoters (supra) the confession of the two entry operators, viz. Sh Rajan Jassal and Sh Mukesh Gupta, provided a live link between the amounts received by the assessee and the modus operand! adopted by the entry provider. The statement of the entry operators were held to be substantial material to discredit and impeach the particulars furnished by the assessee. It was specifically noted by the Court that in the statement given by the two entry operators they had specifically mentioned the names of various companies used for giving accommodation entries and the assessee was also found to have received money from those companies. In the aforesaid circumstances and on these crucial factual aspects (as observed by the Court on page 199) the facts in the case of the Nova Promoters (supra) were held to be distinguishable from the case of Lovely Exports (infra). It was further submitted that in order to allege that the applicant received accommodation entry, the Department must bring on record documentary evidence to establish live link/nexus between the material/evidence available with the department and the amount received by the applicant(s) which is non-existent in the present case.
(x) The facts in the above case are distinguishable from the facts of the Appellant Company's case in as much as in 'the instant case there was no denial at any stage of the assessment proceedings by any of the subscribers to the share capital of their having invested money by way of share application money in the Appellant Company. Moreover there is no shred of evidence, direct, indirect or even peripheral of the share application money having emanated from the coffers of the Appellant Company whereas in the case of Nova Promoters (cited above) there were statements by certain individuals confirming the fact that share application monies received were actually accommodation entries. Since the facts of the Appellant Company's case are completely distinguishable from those prevalent in the case of Nova Promoters no reliance can be made thereon.
(xi) The Ld Assessing Officer has also sought to emphasize the fact that there have been large credits immediately before the issue of cheques to the Appellant Company which observation clearly amounts to putting the onus on the Appellant Company to prove the "sources of source of funds" which clearly was not mandate of law in the year under appeal. In this connection reliance is placed on the following judgments wherein it has clearly been held that no addition under section 68 based on an attempt to look into the source of the source of deposit can be sustained:-
Commissioner of Income -Tax vs. Orissa Corporation (P) Ltd 159 ITR 78 (SC)];
Deputy Commissioner of Income Tax v. Rohini Builders [(2002) 256 ITR 360 (Guj)];
Nemi Chand Kothari v Commissioner of Income-tax and Another [(2003) 264 ITR 254 (Gauhati)]
(xii) The provisions of Section 68 of the Act as applicable for the year under appeal did not cast on onus upon an assesses to prove the source of source of the deposit. The corresponding amendment to Section 68 is applicable w.e.f. 01-04-2013 i.e. a/Y 2013-14 and onwards as specifically mandated by law. In the absence of any specific legislative intent, clearly expressed, the same cannot be held or even interpreted to be Active in nature.
(xiii) In particular, Your Honour's kind attention is invited to the decision of the Delhi High Court in the case of MOD Creations Pvt Ltd vs. Income Tax Officer [(2013) 354 ITR 282(Delhi)] wherein the following observations, which are equally relevant to the case of the Appellant Company have been made:-
"Section 68 of the Income-tax Act, 1961, only sets up a presumption against the assessee whenever unexplained credits are found in the books of account of the assessee. The presumption is rebuttable. In refuting the presumption missed, the initial burden is on the assessee. This burden, which is placed on the assessee, shifts as soon as the assessee establishes the authenticity of transactions as executed between the assessee and its creditors. It is no part of the assessee's burden to prove either the genuineness of the transactions executed between the creditors and the sub-creditors nor is it the burden of the assessee to prove the creditworthiness of the sub-creditors."
(xiv) The Ld Assessing Officer has also sought to rely on the judgement of the Hon'ble Supreme Court in the case of Mcdowell & Co Ltd (154 ITR 148). However, it should be noted that the said comments have been subsequently duly clarified, amplified and subsequently diluted by the Hon'ble Supreme Court itself in subsequent judgements wherein it has been held that the act of questioning the very basis of a transaction and to brand it as illegitimate or camouflage, has to be based on substantial, concrete and cogent evidence wherein the proof of wrong-doing has to be clear and succinct. In this connection reference may be made to the observations of their Lordships of the Hon'ble Supreme Court in the case of Union of India vs Azadi Bachao Andolan [(2003) 132 Taxmann 373 (SC)] wherein their Lordship of the Hon'ble Supreme Court while further expounding of their earlier judgement in the case of McDowell & Co have made the following pertinent opical observations:-
(i) We may in this connection usefully refer to the judgement of the Madras High Court in M.V Valliappan v. CIT (1988) 170 ITR 238 which has rightly concluded that the decision in McDowell & Co Ltd's case (supra) cannot be read as laying down that every attempt at tax planning is illegitimate and must be ignored, or that every transaction or arrangement which is perfectly permissible under law, which has the effect of reducing the tax burden of the Appellant, must be looked upon with disfavour. Though the Madras High Court had occasion to refer to the judgement of the Privy Council in IRC v Challenge Corpn. Ltd (1987) 2 WLR 24, and did not have the benefit of the House of Lords pronouncement in Craven's case (supra), the view taken by the Madras High Court appears to be correct and we are inclined to agree with it.
(ii) If the Court finds that notwithstanding a series of legal steps taken by an Appellant, the intended legal result has not been achieved, the court might be justified in overlooking the intermediate steps, but it would not be permissible for the court to treat the intervening legal steps as non-est based upon some hypothetical assessment of the 'real motive' of the Appellant. In our view, the court must deal with what is tangible in an objective manner and cannot afford to lase a will-o'-the wisp. (in) We are unable to agree with the submission that an act which is otherwise valid in law can be treated as non-est merely on the basis of some underlying motive supposedly resulting in some economic determent or prejudice to the national interest, as perceived by the respondents.
(xvi) The above view has also been subsequently endorsed by the Hon'ble Supreme Court in the case of Vodafone International Holding B.V. v Union of India [(2012) 204 Taxman 408 (SC)]. However, it should be noted that the transaction in the instant case which has been sought to brought under the scanner is a normal/routine business transaction involving receipt of funds by way of Share Capital/Unsecured Loans in the ordinary course of business and does not smack of even tax planning what to task of tax- avoidance. The expression tax-avoidance or tax planning can only come into play when analyzing transactions where there is "irrefutable" to suggest any degree of divergence between "form" and "substance" and where an anti-avoidance provision can be expressly applied which clearly is not the situation in the given case and accordingly any reliance on the said principles ceases to be of relevance.
(17) With regard to the judicial pronouncements in respect of various issues raised by the Ld Assessing Officer Your Honour's attention is invited to the decision of the Hon'ble Delhi High Court in the case of Commissioner of Income-Tax vs. Steller Investments Limited [(1991) 192ITR 287(Delhi)] wherein it has been clearly held that any increased capital is not assessable in the hands of the company. The relevant observations of the Learned Judges are as follows: -
"It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself."
(18) Subsequent to the above an appeal filed by the Department against the judgement/observations of the Supreme Court was also dismissed and the Hon'ble Supreme Court did not find any reason to interfere with the order of the High Court [(2001) 251 ITR 263 (SC)]. As such the observations of the Hon'ble Delhi High Court have obtained the approval of their Lordship of the Supreme Court and accordingly attained judicial finality and stamp of approval.
(19) In addition, Your Honor's kind attention is also invited to the following judgement of the Delhi High Court in the case of Commissioner of Income Tax v Lovely Exports Pvt Ltd [(2008) 299 ITR 268 (Delhi)] wherein it has been held as follows:-
"In the case of a company the following are the propositions of law under section 68. The assessee has to prima facie prove (1) the identity of the creditor/ subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor I subscriber; (4) if relevant of the address or PAN identity of the creditor / subscriber are furnished to department alongwith copies of the shareholders' register, share application share transfer register, etc, it would constitute acceptable proof or acceptable explanation by the assessee; (5) the Department would not be justified in drawing an adverse inference only because the creditor/ subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor / subscriber denies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee; and (7) the Assessing Officer is duty bound to investigate the creditworthiness of the creditor/ subscriber the genuineness of the transaction and the veracity of the repudiation. In the case of a public issue, the company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. A delicate balance must be maintained while walking the tightrope of sections 68 and 69 of the Income -Tax Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the Assessing Officer harbours doubts of the legitimacy of any subscription, he is empowered, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company".
(20) Further Your Honor's kind attention is also invited to the decision of their Lordships of the Hon'ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd [(2008) 216 CTR 195 (SC)] wherein the Special Leave Petition filed by the Department against the order of the Delhi High Court has been dismissed with the following remarks:-
"We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the Assessee Company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgement".
(21) The above decision of the Honble Supreme Court follows the earlier decision of the Hon'ble Supreme Court in the case of Steller Investment Ltd, cited supra and further reinforces the arguments being put forward for and on behalf of the Appellant Company hereinafter.
(22) In particular with regard to the issue of establishing the creditworthiness of the parties, Your Honour's attention is invited to the following judgements wherein it has been conclusively held, relying on the decisions in the case of M/s Lovely Exports Pvt Ltd cited above, that as long as the identity of the share applicant was proved, the burden of proving the creditworthiness was not on the Appellant Company:-
Commissioner of Income-tax, Udaipur v. Bhaval Synthetics [(2013) 35 Taxmann.com 83 (Rajasthan)];
Shree Barkha Synthetics Ltd v. Assistant Commissioner of Income-tax [(2006) 155 Taxman 289 (Raj)]; Commissioner of Income-tax, Bhopal (M.P) v. Peoples General Hospital Ltd [(2013) 35 taxmann.com 444(Madhya Pradesh);
Commissioner of Income-tax, Meerut v. Kamna Medical Centre (P) Ltd [(2013) 35 taxmann.com 470(Allahabad)];
Commissioner of Income-tax, Faridabad v. GP International Ltd [(2010) 186 Taxman 229 (Pun &Har)];
CIT v Dwarkadhish Investment Pvt Ltd and Dwarkadhish Capital Pvt Ltd [(2011)330 ITR 298 (Delhi)];
CIT v. Winstral Petrochemicals Pvt Ltd [(2011) 330 ITR 603 (Delhi)]; Commissioner of Income Tax v. Gangour Investment Ltd [(2011) 335 ITR 359 (Delhi)];
CIT vs Arunananda Textiles Pvt Ltd [(2011) 15 Taxmann.com 226 (Kar)];
Commissioner of Income-tax vs Jai Kumar Bakliwal [(2014) 45 taxmann.com 203 (Rajasthan)];
Commissioner of Income -tax (Central) vs Vacmet Packaging (India) (P) Ltd [(2014) 45 taxmann.com 204 (Allahabad)].
(23) In this connection reliance is placed on the following judgements wherein it has been held that where the share application money was received through normal banking channels share were actually allotted to the share applicant and full particulars of the investor duly provided, no addition could be made u/s 68 of the Act-
Commissioner of Income-tax v. Apex Therm Packaging Pvt Ltd [(2014) 42 taxmann.com 473 (Gujarat)];
Commissioner of Income-tax Victor Electrodes Ltd [(2010) 329 ITR 271 (Delhi)] Commissioner of Income-tax Jaipur -II v. Morani Automotives (P) Ltd 224 Taxmann 177 (Rajasthan)(Mag)] (24) In the instant case Your Honour's attention is invited to the decision of the High Court in the case of CIT vs Kamdhenu Steel & Alloys Limited and Others [(2012)206 Taxman 254(Delhi)] pronounced subsequent to the decision of the case of Nova Promoters so vehemently relied upon by the Ld Assessing Officer wherein the following has been held:
"38. Even in that instant case, it is projected by the Revenue that the Directorate of Income Tax (Investigation) had purportedly found such a racket of floating bogus companies with sole purpose of landing entries. But, it is unfortunate that all this exercise is going in vain as few more steps which should have been taken by the Revenue in order to find out causal connection between the cash deposited in the bank accounts of the applicant banks and the assessee were not taken. It is necessary to link the assessee with the source when that link is missing, it is difficult to fasten the assessee with such a liability.
39. We may repeat what is often said, that a delicate balance has to be maintained while walking on the tight rope of sections 68 and 69 of the Act On the one hand, no doubt, such kind of dubious practices are rampant, on the other hand, merely because there is an acknowledgement of such practices would not mean that in any of such cases coming before the Court, the Court has to presume that the assessee in questions as indulged in that practice. To make the assessee responsible, there has to be proper evidence. It is equally important that an innocent person cannot be fastened with liability without cogent evidence. One has to see the matter from the point of view of such companies (like the assessee herein) who invite the share application money from different sources or even public at large. It would be asking for a moon if such companies are asked to find out from each and every share applicant/subscribers to first satisfy the assessee companies about the source of their funds before investing. It is for this reason the balance is struck by catena of judgements in laying down that the Department is not remediless and is free to proceed to reopen the individual assessment of such alleged bogus shareholders in accordance with the law. That was precisely the observation of the Supreme Court in Lovely Export (supra) which holds the fields and is binding.
40. In conclusion, we are of the opinion that once adequate evidence/material is given, as stated by us above, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it has 'created" evidence, the Revenue is supposed to make thorough probe of the nature indicated above before it could nail the assessee and fasten the assessee with such a liability under Sections 68 and 69 of the Act.
(25) It would also be pertinent, topical and relevant to mention here that the Special Leave Petition field before the Hon'ble Supreme Court by the Revenue against the above decision of the Hon'ble Delhi High Court has been subsequently dismissed by their Lordships of the Supreme Court and as such the decision of the Delhi High Court of CIT vs Kamdhenu Steel & Alloys Limited and Others (supra) has attained conclusive judicial finality. The said views have also been echoed, reiterated and affirmed subsequently in the following cases:
Commissioner of Income-tax v. Gangeshwari Metal (P) Ltd [(2013) 30 taxmann.com 328(Delhi)];
Commissioner of Income Tax v Jay Dee Securities & Finance Ltd [(2013) 32 taxmann.com 91 (Allahabad);
(26) In the instant case there was no denial at any stage of the assessment proceedings by any of the subscribers to the share capital of their having deposited money in the Appellant Company and no evidence suggests the introduction of cash in any manner. Moreover there is no shred of evidence, direct, indirect or even peripheral of the said amount having emanated from the coffers of the Appellant Company. In view of the above, no doubt remains as to the identity of the investors, their credit worthiness and the genuineness of the transactions and correspondingly no adverse inference is called for. In the case of the Appellant Company given the emphatic affirmation of the transaction by the depositor company no recourse can be had to the provisions of Section 68 on any ground.
(27) In the instant case there is, if at all, a suspicion that the amounts received are allegedly unexplained. It is respectfully submitted that it is a settled law that suspicion, howsoever strong, cannot take place of proof and there can be no addition on the basis of mere suspicion. Reference, in this regard, may be made to the following decisions:-
Lalchand Bhagat Ambica Ram v CIT [(1959) 37ITR 288 (SC)]; CIT v. Paras Cotton Co [(2007) 288 ITR 211 (Raj.)]; Faqir Chand Chaman Lai v. ACIT [(2004) 1 SOT 914 (Asr.)] [Appeal dismissed by P&H High Court in 262 ITR 295 and SLP dismissed by SC in 268 ITR 215 (St)]; Assam Tea Co. v. ITO [(2005) 92ITD 85 (Asr.) (SB)];
Jhantala Investments Limited v ACIT [(2000) 73 ITD 123 (Mum.)] (28) It is further submitted that in order to allege that the amounts received by the Appellant Company are unexplained or in the nature of accommodation entries, it is all the more necessary for the Revenue to establish, based on corroborative and substantive evidence, that cash actually moved out of/emanated from the coffers of the Appellant Company, which subsequently found its way back to the Appellant Company in the form of accommodation entries. Reference, in this regard, may be made to the decisions of the Delhi High Court in the case of CIT v. Oasis Hospitalities P. Ltd [(2011) 333 ITR 119 (Delhi)] wherein it has been observed as under:-
"The genuineness of the transaction is to be demonstrated by showing that the Assessee had, in fact, received money from the said shareholder and it came from the coffers of that very shareholder.The Division bench held that when the money is received by cheque and is transmitted through banking or other indisputable channels, the genuineness of transaction would be proved. Other documents showing the genuineness of transaction could be copies of the shareholders register, share application forms, share transfer register, etc."
(29) In coming to the aforesaid conclusion the Delhi High Court relied upon its earlier decision in the case of CIT v. Value Capital Services (P) Ltd [(2008) 307 ITR 334 (Del.)]. The same view has been held in the case of Uttamchand P. Jain v ITO [(2006) 103 ITD 1 (Mum.) (TM)] [affirmed by Mumbai HC in 320 ITR 554]. In view of the aforesaid, it is emphatically submitted that action of the Learned Assessing Officer to tax the amounts received as unexplained credit under section 68 of the Act is neither proper nor legally unsustainable.
(30) In this connection reliance is also placed on the decision of the jurisdictional High Court of Punjab and Haryana in the case of Commissioner of Income-tax, Faridabad v. GP International Ltd [(2010) 186 Taxman 229 (Pun &Har)] wherein it has been held that any addition on account of unexplained share capital could not be made merely because some persons did not respond to the notices issued u/s 133(6) of the Act, whereby it could not be said that the transaction was ingenuine especially when the Assessing Officer had not doubted the identity of the persons from whom share capital/application money had been received. In this connection, the following comments in the said judgement are relevant-
"Regarding the addition of Rs. 15,00,0007- on account of unexplained share capital, it has been held that at the time of the original assessment, the assessee had supplied the list of the persons along with their addresses to whom the shares were sold. The said list contained information, such as name, address and number of shares allotted. The Assessing Officer had issued enquiry letter under section 133(6) of the Act at random basis to 25 persons, out of whom some of the persons confirmed the genuineness of the transaction. However, some persons did not respond. In view of this fact, out of the total share capital of Rs. 54,28,500, the Assessing Officer made an addition of Rs. 15,00,000 by treating the sources of share capital of those persons as unexplained. In our opinion, the CIT(A) as well as the ITAT have rightly deleted the aforesaid addition, because in the instant case, the Assessing Officer is not doubting the identity of the persons from whom the assessee has shown receipt of application money. Merely because some of the persons did not respond to the notice issued by the Assessing Officer under section 133(6) of the Act, it cannot be taken that the said transaction was ingenuine. It has been held by the Hon'ble Supreme Court in CIT v. Lovely Exports (P.) Ltd. [S.L A. No. 11993 of 2007, dated 11-1-2008] that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments in accordance with law. But the said amount cannot be taken as unexplained income in the hands of the assessee.
(31) On the basis of the above discussions the various arguments advanced on behalf of the Appellant Company can be summarized as follows:-
The entire amount had been received from incorporated bodies through normal banking channels which transaction has not been disputed in any manner. The Appellant Company had positively affirmed/confirmed the fact of their having deposited money in the Appellant Company. There is no shred/iota of evidence to prove that the funds received actually emanated from the coffers of the Appellant Company. Any conclusion of such monumental propositions can only be arrived at and sustained, if backed by concrete irrefutable evidence.
(32) Accordingly, it is clear that, no recourse can be made to the provisions of S 68 of the Act. In the instant case and the action of the Ld Assessing Officer in making the said addition deserves to be negated. The exhaustive arguments, both legal and factual, made out on behalf of the Appellant Company, as discussed above, would apply with equal force to the addition of Rs. 1,59,00,000/- with the added remarks that the whole body of the assessment order does not discuss in any manner the basis whether legal or factual of the said addition, its genesis the basis on which it has been calculated and as such the said addition is, ipso -facto, devoid of any merit whatsoever."
"That he was further not justified to arbitrarily disallow a sum of Rs. 6,25,500/- out of interest account being interest paid to M/s Anu Buildwell Pvt Ltd In this connection the following submissions are being made on behalf of the Appellant Company:
(1) During the year under consideration the Appellant Company claimed interest expenses amounting to Rs. 6,52,500/- being interest paid/credited to M/s Anu Buildwell Pvt Ltd.
(2) While framing the assessment the Ld Assessing Officer has disallowed the said t by observing as under:-
"Since the Unsecured Loans in the name of M/s Anu Buildwell Pvt Ltd is held to be not genuine as such interest claimed as expenses amounting to Rs. 6,52,500/- are disallowed and added back to the returned income of the assessee."
(3) Reliance is placed on the discussion with respect to Ground Nos 2 & 3 above wherein the decision of the Ld Assessing Officer to hold the amount of Unsecured Loans as ungenuine is itself disputed. As such since the very basis of the Ld Assessing Officer's decision is based on a largely shaky and creaking edifice, the concomitant additions based thereon also deserves to be deleted.
(4) With regard to the particular issue of disallowance of interest, it is submitted that, the fact that the funds have been used for the purpose of the business of the Appellant Company remains and is undisputed. In fact the said fact is apparent not only from the Annual Accounts of the Appellant Company but also from the contents of the assessment order wherein the entire discussion has revolved upon the funds having been introduced into the business. This being the undisputed and unchallenged situation, the Appellant Company fulfils all the conditions for the allowance of interest paid on money borrowed for the purpose of use in the business/profession as laid out in Section 36(1)(iii) of the Act and accordingly there is no ground for the disallowance thereof. It is requested that the appeal may kindly be decision in the light of the averments made above."
7. The ld. CIT(Appeals), considering the facts of the case in the light of material on record and submissions of the assessee, deleted all the additions and allowed appeal of the assessee. His findings in para 4.3 to 5 of the impugned order are reproduced as under :
4.3 I have carefully considered the rival submissions. I have also perused various evidences filed by the appellant during assessment proceedings and the appellate proceedings. I have also gone through the case laws relied upon by the appellant. During the appellate proceedings, the appellant specifically submitted that the following documents were submitted during the assessment proceedings to explain the source of share capital received by the appellant company during the year under consideration:-
b) Copy of ledger account.
c) Copy of I.T.Returns.
d) Copy of bank statement.
e) Copy of assessment order u/s 143(3) in case of M/s Anu Buildwell (P) Ltd.
4.4 In fact the A.O. had acknowledged the receipt of these documents in the assessment order, however, he had noticed that in the bank account of the persons from whom share capital was received, there are cash deposits. These cash deposits were made before making applications for allotment of shares. The above facts clearly reveals that the persons from whom share capital was received are assessed/to tax as their Permanent Account Numbers and copies of I. T. Returns were furnished during the assessment proceedings. In addition to this, copy of bank account from where these share capital was received was also furnished. In my considered view, these documents clearly established the identity, genuineness of transactions and creditworthiness of the creditor. This way the appellant has discharged the onus cast upon him by the provisions of Section 68 of the I.T. Act.
4.5 It is a matter of record that the appellant has received share capital of from M/s Anu Buildwell Pvt. Ltd. Rs. 1,75,00,000/- as share premium. During the year under consideration out of this receipt, the A.O. had made an addition of Rs.1,75,00,000/- as share capital share premium and Rs. 1,59,00,0007- as a peak credit in respect of unsecured loan. The Id. AO has made addition of Rs. 3,34,00,000/- u/s section 68 of the Act and disallowance of Rs. 6,52,500/- out of interest account being paid to M/s Anu Buildwell Pvt. Ltd. It is clearly held by the Hon'ble Supreme Court in the case of Lovely Export Pvt. Ltd. 260 ITR 195 that in the case of share application money, to discharge onus of section 68 of the Act, the appellant has to establish the identity of the persons from whom share capital was received. In such cases, the appellant need not to prove the genuineness of the transaction and creditworthiness of the creditor. The PANs clearly established the identity of the persons who had contributed share capital as these persons are assessed to tax. The A.O. had nowhere challenged the identity of these persons and accordingly, I hold that addition of Rs. 3,34,00,000/- u/s section 68 of the Act and disallowance of Rs. 6,52,500/- out of interest account being paid to M/s Anu Buildwell Pvt. Ltd., made by the A.O. u/s 68 of the Act is untenable. In my considered view, addition in the hands of the appellant company cannot be made for cash deposits in the bank accounts of share applicant M/s Anu Buildwell Pvt. Ltd. who is assessed to tax. Even the case of M/s Anu Buildwell Pvt. Ltd. has been completed by jurisdictional AO. without any adverse finding and without any addition in the returned income. This important factor has been ignored by Id. AO. The view of AO in having mere contemplation, that the assessment in the case of M/s Anu Buildwell Pvt. Ltd. has not got finality as it can be reviewed in future, is not correct.
4.6 In some recent decisions different courts have delved upon this issue in detail.i. Hon'ble ITAT DELHI [ 2015 ] 61 taxmann.com 132 (Delhi - Trib.), in the case of Income-tax Officer v. Neelkanth Finbuild Ltd., in its decision dated APRIL 1,2015, has held:
"During relevant year, assessee-company had increased its share capital by issuing fresh equity share- Assessing Officer treated share application money received from 2 parties, namely 'P' company and one V as unexplained cash credit in terms of section 68 and made addition – Addition in respect of 'P' company was made on basis of statement given by director of 'P' company before Investigation Wing and addition in respect of 'V was made as said payment was received in cash and was not supported by any immediate source - First Appellate Authority deleted addition on basis of documentary evidence filed by assessee - Whether since Assessing Officer was not able to bring anything on record that it was assessee's own money which was routed in form of share application money, order of first Appellate Authority was to be upheld - Held, yes [Para 6] [In favour of assessee]"
ii. [ 2015 ] 62 taxmann.com 192 (Delhi) HIGH COURT OF DELHI Commissioner of Income-tax (Central)-lll v. Anshika Consultants (P.) Ltd. In its decision dated APRIL 16,2015 has considered this issue :
Assessee-company issued shares at premium to applicants - During assessment proceedings, assessee provided various details of share applicants, however, Assessing Officer made addition under section 68 - It was observed that when assessment was completed, investigation report which was specifically called from concerned department was available but was not discussed by Assessing Officer -Had he cared to do so, identity of investors, genuineness of transactions and creditworthiness of share applicants would have been apparent - Further, share applicants particulars were also available with Assessing Officer in form of balance sheets, income-tax returns, PAN details etc. - While arriving at conclusion, Assessing Officer did not consider it worthwhile to make any further enquiry, and based his order on high nature of premium and certain features which appeared to be suspect, to determine that amount had been routed from assessee's account to share applicants account - Whether order passed by AO was to be set aside - Held, yes [Paras 6 and 7] [In favour of assessee].
iii.  196 TAXMAN 441(Delhi)HIGH COURT OF DELHI Commissioner of Income-tax VS.Siri Ram Syal Hydro Power (P.) Ltd IT APPEAL NO. 1360 OF 2010 DATED SEPTEMBER 6, 2010 had HELD In course of assessment, Assessing Officer made an addition to assessee's income on account of unexplained share application money - Commissioner (Appeals) as well as Tribunal deleted addition on ground that identity of share applicant was not in doubt and he was an income-tax assessee holding a valid permanent account number (PAN) - Whether in view of concurrent findings of fact arrived at by two authorities below, share application money could not be regarded as undisclosed income of assessee under section 68 - Held, yes iv.  9 taxmann.com 170 (RAJ.)
HIGH COURT OF RAJASTHAN, JAIPUR BENCH Commissioner of Income-tax v. Chandra Prakash Rana in decision dated AUGUST 18, 2010 has considered as follows:
During assessment proceedings, Assessing Officer found entry of certain amount recorded in assessee's books of account and called upon assessee to prove source thereof - Assessee explained that it represented a genuine share transaction and filed documentary evidence in support of same - Assessing Officer did not accept assessee's explanation and made addition of that amount under section 68 - On appeal, Commissioner (Appeals) and Tribunal, after considering all documents accepted assessee's explanation and deleted addition made by Assessing Officer
-Whether on facts any substantial question of law did arise from Tribunal's order -Held, no. v. Similarly Hon'ble HIGH COURT OF ALLAHABAD Commissioner of Income-tax (Central) v. Som Tobacco India Ltd.* [ 2014 ] 42 taxmann.com 310 (Allahabad) OCTOBER 11,2012 has held :
In course of assessment, Assessing Officer made addition to assessee's income in respect of share application money received from various persons - Tribunal finding that names, addresses and PAN of depositors were provided to Assessing Officer, which were sufficient to prove their identity and creditworthiness, set aside impugned addition - Whether, on facts, impugned order passed by Tribunal did not require any interference - Held, yes [Para 9] [In favour of assessee]".
vi. In a very recent and landmark decision Honable CALCUTTA HIGH COURT (2014) 101 DTR 413 has decided in the case of CIT Vs M/s Nishan Indo Commerce Ltd has considered, Whether in case an addition u/s 68 is resorted to, it is incumbent on the assessee company to prove and establish the identity of the subscribers, their creditworthiness and the genuineness of the transaction – Whether such an addition can be made even if the assessee has reasonably proved genuineness of the shareholders from whom it has received the amount. - Revenue's appeal dismissed 4.7 The identity and creditworthiness of the shareholder and genuineness of the deposit has been in the present case more than established. Applicability of Section 68 to the share capital is very limited, as per law, the duty of the assessee is to prove only the identity of the shareholder as held in following cases:
Sofia Finance Ltd (205 ITR 98) (Del) (FB), CIT vs Steller Investment Ltd (192 ITR 287) (Del), CIT vs Steller Investment Ltd (251 ITR 263) (SC), Achal Investment Ltd vs CIT (268 ITR 211) (Del), DCIT vs Esteem Towers (P) Ltd. (99 TTJ 472) (Del), CIT vs Dolphin Canpack Ltd (204 CTR 50) (Del), CIT vs Glocom Impex (P) Ltd. (205 CTR 571) (Del), CIT vs Gangaur Investment Ltd. (335 ITR 359) (Del), CIT vs Dwarkadhish Investment (P)Ltd. (330 ITR 298)(Del). Regarding credit worthiness, it is observed that the appellant was not required to prove the source of the source as has been held by the Supreme Court in the case of CIT vs Daulat Ram Rawat Mull (87 ITR 349)(SC).
4.8 ITA No.5198/Del./2011 & 1354/Del./2012. In the case ofSarogi Credit Corporation vs CIT (103 ITR 344), hon'ble Patna High Court have held that once the identity is established and the creditor pledged with oath that they have advanced the amount in question to the assessee, the burden shifts to the Department to show as to why it must be held that entry, though purporting to be in the name of 03rd party, still represented the income of the assessee from suppressed sources. Hon'ble Gujrat High Court in the case of CIT vs Divine Leasing & Finance Ltd. (299 ITR 268), General Exports & Credit Ltd. and Lovely Exports (P) Ltd. have after considering the various judgement deleted the addition made by the AO u/s 68 of the Act holding that the assessee had discharged its onus of proving the identity of the share subscribers. Had any suspicion still remained in the mind of the AO, he could have initiated coercive process but this course of action had not been adopted. Similar are the facts of the present case. The appellant, had discharged the onus laid upon it. This judgement have been upheld by the Hon'ble Supreme Court in the case of CIT vs Lovely Exports (P) Ltd. (216 CTR 195), (319 ITR ST 5). Thereafter, the judgement of the hon'ble Delhi High Court in the case of CIT vs Oasis Hospitalities (P) Ltd. (333/119), wherein it is held that where the assessee had filed copies of PAN, acknowledgement of filing ITRs of the companies, there bank account statements for the relevant period but had not produced the Directors of the Co., the addition made by the AO could not be sustained as the primary onus had been discharged by the assessee. The AO had not investigated whether the modus operand! by the entry operator discussed by the Investigation Wing existed in the present case or not. Again, in the case of CIT vs Expo Globe India Ltd. (ITA NO. 1257 of 2011 decided on 20.07.2012), Hon'ble Delhi High Court had again deleted the additions on similar facts holding that the assessee had produced considerable material including ITRs, Balance Sheets, ROC particulars, bank statements etc. and on consideration of the same, CIT(A) had deleted the additions. Even ITAT had confirmed the order of CIT(A) and thus Hon'ble High Court dismissed the appeal filed by the Revenue. In a recent judgment delivered in the case of CIT vs. Fair Finvest Ltd. in ITA No.232/2012, Hon'ble High Court has considered the judgment of Nova Promoters & Finlease (P) Ltd. also and made following observations:-
"This Court has considered the submissions of the parties. In this case the discussion by the CIT (Appeals) would reveal that the assessee has filed documents including certified copies issued by the Registrar of Companies in relation to the share application, affidavits of the Directors, Form 2 filed with the ROC by such applicants confirmations by the applicant for ITA No.5198/Del./2011 & 1354/Del./2012 company's shares, certificates by auditors etc. Unfortunately, the assessing officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the assessing officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed 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 of Section 68.
Having regard to the entirely 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 68, the ratio of Lovely Exports (supra) is attracted, irrespective of the facts, evidence and material."
4.9 In the case of Kamdehenu Steel Ltd., Hon'ble Delhi High Court in ITA No.5198/Del./2011 & 1354/Del./2012 has made the following observations:-
What does follow from the aforesaid? It is not in doubt that the assessee had given the particulars of registration of the investing/applicant companies; confirmation from the share applicants; bank accounts details; shown payment through account payee cheques, etc. As stated by us in the beginning, with these documents, it can be said that the assessee has discharged its initial onus.
With the registration of the companies, its identity stands established, the applicant companies were having bank accounts, it had made the payment through account payee cheques.
4.10 In view of the above detail facts and decisions relied upon by the appellant, I m inclined to agree with the contention of appellant. I do not agree with the interpretation of facts and law by Id. AO in this case. Each case has its own facts and the finding. It depends upon the appreciation of evidence available on record and facts of the case. Going through the documentary evidence in addition to judicial pronouncements relied upon by the appellant as well by the AO, it appears that the assessing officer has not disputed the documentary evidence filed by the appellant before the assessing officer during the course of assessment proceedings. In the present case the assessee company had received money through allotment of shares from M/s_Anu Buildwell Private Urnjted amounting to Rs. 1,75,00,000/-, as share capital share premium and Rs. 1,59,00,000/- as of the credit in respect of unsecured loan. During the year under consideration, the appellant company had issued 3,50,000 shares of M/s Anu Buildwell Private Limited face value of Rs. 10/-each for Rs. 50/- per share (including premium of Rs. 40 per share) against which it received amount of Rs. 1,75,00,000/- on various dates. In order to prove the genuineness of the transaction confirmation of subscriber company i.e. M/s Anu Buildwell Private Limited and the bank of M/s Anu Buildwell Private Limited namely Punjab National Bank, Moga were filed by the appellant company during the course of assessment proceedings.
4.11 In my considered view, the appellant company has furnished the requisite detail and has the onus casted upon it successfully by way of furnishing requisite detail during the course of assessment proceedings which have not been rebutted by the assessing officer. The assessing officer has not brought any positive material evidence to indicate that the shareholder company was in benamidar or fictitious company on that any part of the share capital deceived by the appellant is its own income from undisclosed sources. The appellant on the other hand has been able to prove by way of furnishing documentary evidence on record that M/s Anu Buildwell Private Limited was an existing and it has made investment in the appellant company, the appellant has received genuine share application money from M/s Anu Buildwell Private Limited. The appellant has is fully established the identity of the children company and genuineness of the transaction. The appellant has also filed requisite documentary evidence to prove the creditworthiness of the shareholder company. Apart from the above facts for fact relied upon by the appellant that M/s Anu Buildwell Private Limited is a regular assessee filing regular returns at New Delhi. It is seen that the assessment of that M/s Anu Buildwell Private Limited for assessment year 2012-13 has been made by ITO Ward 2(4), New Delhi on 30/01/2015 without taking any cognizance of the facts relied upon by assessing officer in the case of appellant. Therefore, the basic requirement of the addition under section 68 in the case of appellant has not been fulfilled as assessing officer in the case of that M/s Anu Buildwell Private Limited has not cognizance of any of the fact wrt genuineness credibility of M/s Anu Buildwell Private Limited. There is no addition of no adverse finding the case of that M/s Anu Buildwell Private Limited. Therefore, no adverse view can be taken in the case appellant company with regard to addition section 68 rejecting the documentary evidences filed by the appellant during the course of assessment proceedings.
4.12 In my considered view the appellant has been able to prove the identity of the creditor which is not in dispute, creditworthiness of the shareholder company and genuineness of the transaction.
The appellant company has successfully proved all the limbs of requirement under section 68 i.e. identity, genuineness and creditworthiness. The fact the assessment order passed u/s 143(3) in the case of M/s Anu Buildwell Private Limited, assessing officer after considering all the facts can not be ignored while taking cognizance of all the issues raised by the assessing officer while rejecting contention of the appellant at the time of assessment proceedings. After considering the totality of all the facts and circumstances and the latest judicial pronouncements made by the jurisdictional Delhi High Court and Hon'ble Supreme Court, it can be concluded that the appellant company has undoubtedly proved and established the identity of the share applicant. Once the identity of this share appllicant is proved, no addition can be made in the hand of the appellant company even if the share applicants have been found persons of no means until and unless otherwise it is proved by the revenue. The AO could not prove that the money received by the appellant in the form of share application has come from its own sources. No evidences regarding this have been brought on record by the AO.
4.13 In view of above facts, I do not have any hesitation in deleting the disallowance of Rs. 3,34,00,000/- u/s section 68 of the Act and disallowance of Rs6,52,500/-- out of interest account being paid to M/s Anu Buildwell Pvt. Ltd. Accordingly, these grounds of appeal are allowed.
5. In the result, the appeal of the appellant is allowed.
8. The ld. DR relied upon order of the Assessing Officer. The ld. DR submitted that rule of preponderance of probability apply in the case of the assessee and the totality of the statement of Shri Kapil Garg, M.D. of M/s Anu Buildwell Pvt. Ltd., when considered, it will make out a case that assessee failed to prove credit worthiness of the subscriber/le3nder and the genuineness of the transaction in the matter.
The ld. DR referred to various questions from the statement of Shri Kapil Garg reproduced in the impugned order. The ld. DR submitted that merely the subscribe company is assessed under section 143(3) of the Act, is no ground to accept genuineness of the transaction and credit worthiness of the creditor. The ld. DR, therefore, submitted that order of the ld. CIT(Appeals) may be reversed.
8(i) On the other hand, ld. counsel for the assessee relied upon submissions made before authorities below and submitted that assessee furnished adequate evidences before the authorities below to prove identity of the subscriber company/lender alongwith their credit worthiness and genuineness of the transaction in the matter. He has referred to copy of the assessment order of M/s Anu Buildwell Pvt. Ltd. for assessment year 2012-13 dated 30.01.2015, copy of which is filed at page 46 of the Paper Book and submitted that Assessing Officer has determined its income after scrutiny assessment therefore, identity and credit worthiness of subscribed company have been proved.
He has submitted that ITAT Chandigarh Bench in the case of the same assessee in preceding assessment year 2009-10 in ITA 572/CHD/2015 vide order dated 05.11.2015 considered identical issue though in respect of some other share applicants who have invested in share capital/share premium in the company and entire addition of Rs. 3.74 Cr have been deleted. Copy of the order of the Tribunal is placed on record. He has also relied upon decision of Hon'ble Punjab & Haryana High Court in the case of CIT Vs K.C.Pipes Pvt. Ltd. 386 ITR 532.
9. We have considered rival submissions. It is not in dispute that M/s Anu Buildwell Pvt. Ltd. Made investment in assessee company in share capital/share premium as well as given unsecured loans. The assessee filed confirmation of M/s Anu Buildwell Pvt. Ltd. before Assessing Officer alongwith its PAN number and copy of the bank statement. The copy of the registration certificate under Companies Act was also filed before the Assessing Officer. The names, addresses of the Managing Director/Directors of M/s Anu Buildwell Pvt. Ltd. were also filed before the authorities below. The Assessing Officer sought several informations from M/s Anu Buildwell Pvt. Ltd. under section 133(6) of the Act which have been duly replied by M/s Anu Buildwell Pvt. Ltd. in their reply directly filed before the Assessing Officer under section 133(6) of the Act. The company M/s Anu Buildwell Pvt. Ltd. has confirmed to the Assessing Officer in making investments in assessee company in share capital/share premium and unsecured loans. They have furnished copy of their bank account, IT return with audited accounts, payment proof of purchase of shares and copy of the account of the assessee company in their books of account which were received by the Assessing Officer. The Assessing Officer also called information from the Manager, Punjab National Bank, Moga under section 133(6) of the Act. The bank has furnished copy of the bank statement of M/s Anu Buildwell Pvt. Ltd. which is reproduced in the impugned order and they have also furnished reuisite information as called for by the Assessing Officer alongwith the bank accounts of the other years and details of the entries recorded in the bank account of the subscriber company. In the bank statement reproduced in the impugned order, there is no cash deposited in the account of M/s Anu Buildwell Pvt. Ltd. Also shows that there was a sufficient bank balance available in the bank account of M/s Anu Buildwell Pvt. Ltd. to make investments in assessee company in share capital/share premium and unsecured loans. The assessee was also directed to produce Managing Director of M/s Anu Buildwell Pvt. Ltd. for examination before Assessing Officer. Shri Kapil Garg, MD of M/s Anu Buildwell Pvt. Ltd. appeared before Assessing Officer and his statement has been recorded in which the Assessing Officer asked for several explanations. The Assessing Officer asked for the relations between both the companies and the source of investment in assessee company which have been duly replied by Shri Kapil Garg in his statement.
Shri Kapil Garg in his statement also confirmed making investment in assessee company in share capital/share premium as well as giving unsecured loans. The source of the same was also explained through banking channel. He has also explained in his statement that his company is assessed to tax under section 143(3) of the Act and is a genuine company. He has denied the suggestion of the Assessing Officer that M/s Anu Buildwell Pvt. Ltd. was only a paper company. The assessee has, therefore, been able to prove identity of M/s Anu Buildwell Pvt. Ltd., their credit worthiness and genuineness of the transaction in the matter. The source of investment was also explained in the statement of Shri Kapil Garg who has confirmed the genuine transactions with the assessee company in his statement.
9(i) In the case of Rohini Builders reported in 256 ITR 360 (supra) Hon'ble Gujrat High Court held that "No source of the source could be asked f or". It also proved on record that M/s Anu Buildwell Pvt. Ltd. Was assessed to tax by ITO, Ward-2(4) New Delhi under section 143(3) dated 30.01.2015, copy of the order is filed in the Paper Book at page 46 in which the Assessing Officer has made observation regarding investment amounting to Rs. 1.75 Cr in equity shares as on 31.03.2012. The Assessing Officer did not doubt the genuiness of subscriber company in the assessment order and its source to make investment in assessee company. The Assessing Officer in the present case has doubted the assessment order of subscriber company under section 143(3) of the Act because it is not ruled out that department will take remedial action under section147 or 263 of the Act but nothing has been brought on record if department has taken any remedial action against M/s Anu Buildwell Pvt. Ltd. either under section 147 or 263 of the Act. Therefore, it stands proved on record that M/s Anu Buildwell Pvt. Ltd. company is genuine company incorporated under C o m p a n i e s A c t and have been conducting its activities genuinely. The Assessing Officer in their case has considered the issue of investment amounting to Rs. 1.75 Cr in assessment order under section 143(3) of the Act.
Therefore, department cannot take an adverse view against subscriber company without bringing any adequate material on record against M/s Anu Buildwell Pvt. Ltd. The Assessing Officer merely going through certain answers to the questions asked for in the statement of Shri Kapil Garg, M.D. of M/s Anu Buildwell Pvt. Ltd. observed that assessee failed to prove credit worthiness and genuineness of the transaction in the matter. However, the totality of the statement of Shri Kapil Grg clearly revealed that he has confirmed his company making investment and giving loan to the assessee company genuinely having the source of the same.
10. Hon'ble Punjab & Haryana High Court in the case of CIT Vs K.C.Pipes 386 ITR 532 held as under :
The Assessing Officer was of the view that the share application money was received by the assessee from the shareholders whose sources of income were doubtful.
However, it was a finding of fact by the Tribunal and the Commissioner (Appeals) that the money received by the company was credited in the account and that the shares were issued.
On appeal :
Held, dismissing the appeal, that if the shareholders had acquired the money illegally, the assessee could not be held liable. There was nothing on record to show that the money belonged to the assessee itself and the Department could only proceed against the shareholders. No question of law arose.
10(i) Hon'ble Supreme Court in the case of CIT Vs Orissa Corporation Pvt. Ltd. 159 ITR 78 held as under:
"Held, that in this case the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessee. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under Section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source source of income of the said alleged creditors to find out whether they were creditworthy.
There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a case."
10(ii) Hon'ble Delhi High Court in the case of CIT Vs Kamdhenu Steel & Alloys Ltd. 361 ITR 220 held as under :
A delicate balance has to be maintained while applying sections 68 and 69 of the Income-tax Act, 1961. On the one hand, no doubt, such kinds of dubious practices are rampant ; on the other hand, merely because there is an acknowledgment of such practices that would not mean that in any of such cases, the court has to presume that the assessee in question has indulged in that practice. To make the assessee responsible, there has to be proper evidence. It is equally important that an innocent person is not fastened with liability without cogent evidence. The Department is not remediless and is free to proceed to reopen the individual assessment of such alleged bogus shareholders in accordance with law.
The initial burden lies on the assessee to explain the nature and source of the share application money received by the assessee. The assessee has to satisfactorily establish the identity of the shareholders, the genuineness of the transaction and the creditworthiness of the shareholders. Once adequate evidence/material is given, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence "is to be discarded or it is proved that it has "created" evidence, the Revenue has to make a thorough probe before it can fasten the liability on the assessee under sections 68 and 69.
Held, that in all appeals but one, Section 68 was not applicable. In one appeal, the matter was rightly remanded".
10(iii) Hon'ble Delhi High Court in the case of CIT Vs Value Capital Services P.Ltd. 307 ITR 334 held as under:
In respect of amounts shown as received by the assessee towards share application money from 33 persons, the Assessing Officer required the assessee to produce all these persons. While accepting the explanation and the statements given by three persons the Assessing Officer found that the response from the others was either not available or was inadequate and added an amount of Rs. 46 lakhs pertaining to 30 persons to the income of the assessee. The Commissioner (Appeals) upheld the decision of the Assessing Officer. On appeal, the Tribunal set aside the order of the Commissioner (Appeals) and deleted the additions. On further appeal:
Held, dismissing the appeal, that the additional burden was on the Department to show that even if the share applicants did not have the means to make the investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. No substantial question of law arose.
10(iv) Hon'ble Supreme Court in the case of CIT Vs Lovely Exports (P) Ltd. 216 CTR 195 held as under :
Income-- Cash credit-- Share application money-- If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company.
10(v) Hon'ble Delhi High Court in the case of CIT Vs Divine Leasing & Finance Ltd. 299 ITR 268 held as under :
Assessee-company having received subscriptions to the public/rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under s. 68 in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or' that any part of the share capital represented company's own income from undisclosed sources.
10(vi) Hon'ble Madhya Pradesh High Court in the case of CIT Vs People's General Hospital Ltd. 356 ITR 65 held as under :
" If identity of person providing share application money is established then burden was not on assessee to prove creditworthiness of said person and no addition can be made under section 68. "
11. It may also be noted here that in assessment year 2009-10, identical issue came up for consideration before ITAT Chandigarh in the case of the assessee in the matter of M/s A.P.Refineries Pvt. Ltd. V Addl. CIT ITA 572/2015 which was decided vide order dated 05.11.2015 in which though the investor companies are different but it was explained that these companies have confirmed giving share application money to the assessee in their replies directly submitted to the Assessing Officer.
Transactions were conducted through banking channel. The assessee also explained that all the companies have confirmed their transactions with the assessee and are existing companies and registered with ROC. The assessee company has filed confirmations from these companies supported by proof of return filed, bank account, PAN and companies master details. The confirmations have been made by the parties directly to the Assessing Officer under section 133(6) of the Act. In the background of these facts, the re-opening of the assessment under section 147 of the Act was held to be on mere change of opinion and without justification.
The addition on merit was also deleted by following decision of ITAT Chandigarh Bench in the case of M/s Lotus Integrated Taxpark. Copy of the order dated 05.11.2016 is placed on record. Mere alleged answer to certain question in the statement of Shri Kapil Garg is not enough to fasten liability upon assessee to disbelieve investment in shares and unsecured loan and on this reason alone, the same could not be treated as non genuine transaction. Therefore, in the same circumstances when addition have been deleted by the Tribunal in the case of the assessee, we are of the view ld. CIT(Appeals) on proper appreciation of facts and material on record correctly deleted the addition. It may also be added here that in A.Y. 2009-10 initially A.O. accepted claim of assessee on identical facts.
11(i) It may also be noted here that the assessee has to initially establish the identity of the shareholder/lender, genuineness of the transaction and credit worthiness of the shareholder/lender.
The assessee produced adequate evidences before the authorities below which would discharge burden on the assessee in proving identity of the shareholder/lender, genuineness of the transaction and credit worthiness of the shareholder. Therefore, if the Assessing Officer wanted to disbelieve these evidences and material on record, Assessing Officer should have brought some adverse material against the assessee on record which Assessing Officer has failed to do in this case. It is well settled law that additional burden was on the revenue to show that even if the share applicants did not have the means to make investment, the investment made by them actually emanated from the coffers of the assessee company so as to enable it to be treated as undisclosed income of the assessee. A.O. however, failed to do so.
12. Considering the facts and circumstances and material on record in the light of above discussion, we are of the view ld. CIT(Appeals), on proper appreciation of facts and material on record rightly deleted the addition of Rs. 3.34 Cr on account of investment in share capital/premium and peak credit of unsecured loans received by the assessee. The disallowance of interest was also correctly deleted by ld. CIT(Appeals).
In the result, departmental appeal fails and is accordingly dismissed.
13. In the result, departmental appeal is dismissed.
Order pronounced in the Open Court.
( ANNAPURNA GUPTA) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 10th February, 2017.
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT,DR