INCOME TAX APPELLATE TRIBUNAL-DELHI
ACIT, NEW DELHI VS NRA IRON STEEL PVT. LTD., NEW DELHI
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND
SHRI L.P. SAHU, ACCOUNTANT MEMBER
ITA.No.3611/Del./2014
Assessment Year 2009-2010
The ACIT, Central Circle-13Room No.332, ARA Centre, Jhandewalan
Extn., New Delhi. (Appellant)
vs.
NRA Iron & Steel Pvt. Ltd., 310, 3rd Floor, E-Block,
International Trade Tower, Nehru Place, New Delhi. PAN AACCN7222Q
(Respondent)
C.O.No.263/Del./2015
Arising out of
ITA.No.3611/Del./2015 - Assessment Year 2009-2010
NRA Iron & Steel Pvt. Ltd., 310, 3rd Floor, E-Block,
International Trade Tower, Nehru Place, New Delhi. PAN AACCN7222Q
(Cross-Objector)
vs.
The ACIT, Central Circle-13Room No.332, ARA Centre, Jhandewalan
Extn., New Delhi. (Respondent)
For Revenue : Ms. Renu Amitabh, CIT-DR
For Assessee : Shri Ashwani Kumar, Advocate
And
Shri Aditya Kumar, C.A.
Date of Hearing : 28.09.2017
Date of Pronouncement : 16.10.2017
ITA.No.3611/Del./2014 & CO.No.263/Del./2015
NRA Iron & Steel Private Limited, New Delhi.
ORDER
PER BHAVNESH SAINI, J.M.
The Departmental appeal as well as cross-objection by the assessee
are directed against the order of the Ld. CIT(A)-1, New Delhi, dated 11th
April, 2014 for the A.Y. 2009-2010.
1.1. The Revenue in the departmental appeal challenged the order
of the Ld. CIT(A) in deleting the addition of Rs.17.60 crores on account of
unexplained share capital/share premium. The assessee in the cross-objection
challenged the reopening of the assessment under section 148 of the I.T. Act,
1961.
2. Briefly the facts of the case are that A.O. issued notice under
section 148 of the I.T. Act after recording the reasons for reopening. The
assessee submitted before A.O. that return already filed may be treated as
return having been filed in response to notice under section 148 of the I.T.
Act. The A.O. issued detailed questionnaire on the above issue of share capital
and the assessee filed necessary details and clarifications before A.O. time to
time. The assessee filed objections to the reopening of the assessment under
section 148 of the I.T. Act, which was rejected on 13th August, 2012.
The assessee submitted before A.O. that it has raised money
aggregating to Rs.17.60 crores through share capital/share premium during the
assessment year under appeal from various parties which are Mumbai based
companies, Kolkata based companies and Gauhati based companies. The details of
which are noted at pages 2 and 3 of the assessment order. It was submitted that
assessee has already filed copies of the confirmations, income tax return acknowledgments
and bank accounts in respect of these companies, duly establishing the
identity, genuineness and source of transaction regarding share capital and
share premium. The entire share capital/ application money has been received by
the assessee-company through normal banking channels by account payee
cheques/demand drafts. Furthermore, the said confirmations also clearly reveal
the source of funds, particulars of bank accounts through which payment have
been received and income tax particulars which go to establish their identity
and creditworthiness. It was therefore, submitted that there were no cause
exists to make a recourse to the provisions of Section 68 of the I.T. Act,
1961. In the instant case, there is no material on record to prove or even remotely
suggest that the share application money received actually emanate from the
assessee-company. The share application money was received from independent
legally incorporated Companies through banking channels. The initial onus upon
assessee has thus been discharged. The assessee relied upon the decision of the
Delhi High Court in the case of CIT vs. Steller Investment Ltd., (1991) 192 ITR
287 (Del.) in which it was held that any increased capital is not assessable in
the hands of the assessee which has been confirmed by the Hon'ble Supreme Court
in the case of CIT vs. Steller Investment Ltd., (2001) 251 ITR 263 (SC). The
assessee also relied upon the decision of the Hon'ble Supreme Court in the case
of CIT vs. Lovely Exports Pvt. Ltd., 216 CTR 195 in which it was held that
"if the share application money is received by the assessee-company from
alleged bogus share holders whose names are given to the A.O, then the
Department is free to proceed to reopen their individual assessments in
accordance with law". The assessee relied upon several decisions in
support of the contention. The A.O. however, did not accept the contention of
the assessee on the basis of the enquiries conducted by him. It was found that
existence of investment companies and genuineness of the transactions has not
been proved. The A.O. noted that as regards Mumbai based Companies, some
notices were served and some could not be served and no reply have been
received from them. In respect of Kolkata based Companies, they have filed
their reply through Dak counter confirming the transaction with the assessee,
but copy of the bank account has not been enclosed. In respect of Guwahati
based company, it was noted that this company do not exist at the address.
Therefore, it was held that assessee failed to prove the genuineness of the
transaction and accordingly, addition of Rs.17.60 crores was made in the hands
of the assessee.
3. The assessee challenged the reopening of the assessment as well
as addition on merits before Ld. CIT(A). The detailed contention of the
assessee as regards reopening of the assessment has been noted in the impugned
order. However, the Ld. CIT(A), confirmed the reopening of the assessment and
dismissed this ground of appeal of assessee, particularly, when he has allowed
the relief to the assessee on merit. Therefore, no detailed reasoning have been
given because it was found that the issue is left with academic discussion
only.
4. The assessee as regards the addition, on merit, reiterated the
same submissions before Ld. CIT(A) and it was submitted that A.O. made the
addition arbitrarily and unjustifiably. The assessee produced all the relevant
documents before A.O. which have not been doubted. The assessee filed
confirmations of all the share applicants, copy of their income tax returns,
bank accounts and copy of annual accounts. Therefore, no adverse inference has
been drawn against the assessee. The Ld. CIT(A) on going through the documents
and material on record, deleted the entire addition of Rs.17.60 crores and allowed
the appeal of assessee. His findings in paras 3.3 to 3.5 of the impugned order
are reproduced as under:
"3.3. I have considered the rival claims. The fact that
appellant filed the requisite documents before the AO is undisputed. Thus, the
appellant had discharged its primary onus of establishing the identity of the
share holders / applicant ire source of the money. The only reason for the
revenue to cause further verification was the report relating to survey
conducted at the premises of the appellant which forms part of the satisfaction
recorded for reopening the assessment proceedings. From the said report it
transpires that the business premises of the appellant actually belonged to M/s
Bhushan Steel Ltd. and several other companies were having their registered
offices in the same premises. This led to the suspicion that these companies
were paper companies. During further verification of the identity of the
shareholders in Mumbai, some summons were served but parties did not respond.
In Guwahati, both parties were not found at the given address. In Kolkata, all
11 parties responded by post but no one appeared.
3.4. There is no law that more than one company cannot have its
registered office at one address. There is no law that companies cannot change
their registered office. Several companies can have the same registered office.
Businesses raise capital and such capital is rotated in economy increasing
production and trade and for making more efficient use of capital. Companies
change hands, sometimes in quick succession. This is the normal formation of
capital in any open economy and the process of capital formation cannot be
taken to be representing only unaccounted funds or impeded. All the companies
having registered office at that premises undisputedly belonged to Bhushan
Group. The sources of capital introduced in these companies were established
during the respective assessment proceedings, including in the case of this
appellant company. No evidence was found during the search to indicate introduction
of unaccounted cash / funds in the form of share capital in these companies.
Therefore, the conclusion based on the facts relied upon by the revenue that
the share capital introduced in the companies belonging to Bhushan Group,
including the appellant company, are unexplained, is at best premature. 3.5. In
the above facts and circumstances of the matter, and in view of the case laws
relied upon by the Ld. AR, the addition made cannot be legally sustained and is
deleted. This ground of appeal is allowed."
5. The Ld. D.R. relied upon the orders of the A.O. and submitted
that some parties did not file reply before A.O. and many parties filed reply
at the Dak counter. No reasons have been given for the higher premium paid.
Copy of the bank statements were not filed before A.O. The income declared by
assessee and the share applicant companies were very small. Therefore, addition
was correctly made by the A.O. The Ld. D.R. relied upon the following
decisions.
i. CIT vs. Precision Finance (P) Ltd., (1994) 208 ITR 465 (Cal.)
ii. CIT vs. United Commercial & Industries Co. (P) Ltd., (1991) 187 ITR
596 (Cal.) iii. CIT vs. Nipun Builders & Developers (P) Ltd.,
(2013) 350 ITR 407 (Del.) iv. CIT vs. Nova Promoters & Finlease (P)
Ltd., (2012) 342 ITR 169 (Del.).
v. Mukesh Shah vs. ITO (2012) 246 CTR 82 (Jharkhand) vi. CIT vs.
N.R. Portfolio (P) Ltd., (2013) 263 CTR 456 (Del.) vii. CIT vs. Empire
Buildtech (P) Ltd., (2014) 366 ITR 110 (Del.) viii. CIT vs. Focus Exports (P)
Ltd., (2014) 51 taxmann.com 46 (Del.).
6. On the other hand, Learned Counsel for the Assessee, reiterated
the submissions made before the authorities below and relied upon the order of
the ITAT, Delhi Bench in the case of ACIT vs. M/s. Adamine Construction Pvt.
Ltd., New Delhi ITA.No.6175/Del./ 2013 and C.O.No.259/Del./2015 dated 18th
August, 2017, in which, on identical issue, the Departmental appeal and
cross-objection of the assessee have been dismissed. He has submitted that most
of the parties are similar in this case as have been considered in the case of
the assessee on identical facts. It is the case of sister concern of the
assessee. He has submitted that all the documents were filed before A.O. which
proved the identity of the share applicants, their creditworthiness and
genuineness of the transaction. All companies are registered with Registrar of
Companies and filed their bank statements. No cash have been deposited in bank
accounts of the share applicants. They were having sufficient funds with them
to make investment in the assessee-company. He has submitted that the issue is
covered in favour of the assessee by the order of the ITAT, Delhi Bench, in the
case of M/s. Adamine Construction Pvt. Ltd.,(supra).
7. We have considered the rival contentions and perused the
material available on record. It is not in dispute that assessee company filed
copies of the confirmations, income tax return acknowledgments and bank
accounts of the share applicant companies before A.O. All the investors are
registered with Registrar of Companies and have filed their PAN also. The
assessee filed list of share applicants in the paper book supported by all the
above documents and evidences. In all their confirmations, they have certified
in making investment in assessee-company through banking channel and their PAN
as well. The copies of the bank statements also show that share applicants were
having sufficient bank balance to make investment in assessee-company. The
assessee received the share capital/premium through banking channel from the
following companies situated at Mumbai, Kolkata and Guwahati as under :
S Name of the shareholder
Amount
(A) Mumbai Based Companies
1. Clifton Securities Pvt. Ltd.,
95,00,000
2. Lexus Infotech Ltd.,
95,00,000
3. Nicco Securities Pvt. Ltd.,
95,00,000
4. Real Gold Trading Company Pvt.
Ltd.,
90,00,000
5. Hema Trading Company Pvt. Ltd.,
95,00,000
6. Eternity Multi-trade Pvt. Ltd.,
90,00,000
(B) Kolkata Based Companies
1. Neha Cassettes Pvt. Ltd.,
90,00,000
2. Warner Multimedia Ltd.,
95,00,000
3. Gopikar Supply Pvt. Ltd.,
90,00,000
4. Ganga Builders Ltd.,
90,00,000
5. Gromore Fund Management Co. Ltd.,
95,00,000
6. Bayanwala Brothers Pvt. Ltd.,
95,00,000
7. Super Finance Ltd.,
90,00,000
8. Shivalaxmi Export Ltd.,
95,00,000
9. Natraj Vinimay Pvt. Ltd.,
95,00,000
10. Neelkanth Commodities Pvt. Ltd.,
95,00,000
11. Prominent Vyapaar Pvt. Ltd.,
95,00,000
(C) Guwahati based companies
1. Ispat Sheets Ltd.,
90,00,000
2. Novelty Traders Ltd.,
90,00,000
Total Amount
17,60,00,000
8. The Learned Counsel for the Assessee relied upon the order of
the ITAT, Delhi Bench in the case of ACIT, Central Circle-13, New Delhi vs.
M/s. Adamine Construction Pvt. Ltd., (supra), in which the departmental appeal,
on the identical question have been dismissed. The findings of the Tribunal in
paras 10 to 18 of the Tribunal are reproduced as under :
10. The Revenue has questioned first appellate order on the
following grounds :-
" 1. The order of Ld. CIT (Appeals) is not correct in law and
facts;
2. On the facts and circumstances of the case the ld. CIT
(Appeals) has erred in deleting the addition of Rs.4,65,00,000/- being
unexplained share capital including share premium and Rs.50,00,000/- being
unexplained share application money made by Assessing Officer without
appreciating the fact that the identity and the creditworthiness of the
investors were not established as all the investors were showing a nominal
income."
11. It is relating to deletion of addition of Rs.4,65,00,000/- on
account of unexplained share capital and share premium and a sum of
Rs.50,00,000/- on account of unexplained share application money received by
the Appellant Company from various companies made by the Assessing Officer on
the ground that :-
(i) the creditworthiness of the investor companies was not
established as all the investors were showing a nominal income;
(ii) neither the investors companies nor the Appellant Company had
produced any proof to substantiate the credit worthiness of the Investors; and
(iii) the genuineness of the transactions was also in doubt.
12. The relevant facts are that the appellant company had filed
its original return of income declaring a total income of Rs.715/- on
25.09.2008 vide receipt No.39312931250908. The return was processed under
section 143(1) of the Income Tax Act, 1961 at the returned income.
Subsequently, a search, seizure and survey operation under section 132 and 133A
respectively of the Income Tax Act, 1961 was carried out in the Bhushan Group
of cases on 3.03.2010. The appellant company was also covered in the said survey
operation and its jurisdiction was subsequently transferred to the Office of
the ACIT, Central Circle - 13, New Delhi.
13. The case of the appellant company for the assessment year
2008-09 was reopened under section 147 of the Income Tax Act, 1961 and notice
under section 148 was issued on 19.09.2011. In response to the said notice the
appellant company filed a reply dated 26.09.2011 stating that original return
of income filed earlier by it on 25.09.2008 vide receipt No. 39312931250908 may
be treated as return filed in response thereto.
14. The assessment was completed vide order dated 28.03.2013 at an
income of Rs.5,15,00,715/- wherein the ld. Assessing Officer has proceeded to
add back a sum of Rs.5,15,00,000/- on account of alleged unexplained share
capital received by the appellant company from various companies situated at
Mumbai and Kolkata. The ld. CIT (Appeals) has, however, deleted the addition
being convinced with the submissions of the assessee.
15. In support of the ground, the ld. Sr. DR has basically placed
reliance on the assessment order with this contention that assessee has
thoroughly failed to establish creditworthiness of the investor companies as
well as genuineness of the transaction. Some of the parties were not found on
the given address and some of them did not respond to the notices issued by the
Assessing Officer to them nor the assessee has been able to produce them for
verification before the Assessing Officer. In absence of compliance of these
requirements the Assessing Officer was very much justified in making the
addition of Rs.5,15,00,000/- under section 68 of the Act on account of
unexplained share capital and share premium received by the assessee company
from various companies. Ignoring these material aspects the ld. CIT (Appeals)
has erred in deleting the addition.
16. The ld. AR, on the other hand, placed reliance on the first
appellate order and reiterated following submissions made before the ld. CIT
(Appeals) :-
(1) By way of a brief introduction, it is submitted that the
Appellant Company had raised money amounting to Rs.5,15,00,000/- through share
capital/application money during the financial year.2007-08 from various
parties situated at Mumbai and Kolkata. The details of the parties from whom
Share Capital and Share Premium had been received are as under :-
S No. Name of the Investor
Address Amount(Share Company Capital/Application money/
Premium) (in Rs.)
1. Vanguard Jewels Ltd
G-3, Silver Anket
Yari Road, Versova, Mumbai -400061
95,00,000
2. Ganga Builders Ltd Stephen House, Room No. 102, 6th
Floor, 4BBD Bagh (East), Kolkata -700001
95,00,000/-
3. Shivlaxmi Exports Ltd 102, Stephen House, 4BBD BAG(E)
Kolkata -700001
90,00,000/-
4. Lexus Infotech Ltd CS-1, Silver Anket, Yari Road,
Versova, Andheri (W), Mumbai 400061
90,00,000/-
5. Hema Trading Co Pvt 303-B Minal Park, C.S Road, Dahisar
Ltd (East) Mumbai 400068
95,00,000/-
6.Realgold Trading Pvt BIG Tree Bldg Chamber No. 6, 1st Ltd
Floor, Marine Street, Mumbai 400002
50,00,000/-
Total
5,15,00,000/-
(2) The Assessing Officer in the course of assessment proceedings
had desired the Appellant Company to furnish the details of the amount received
and evidence in support of identity and creditworthiness of the parties and
also the genuineness of the transaction of all the parties from whom the share
capital and share premium had been received. In response, the Appellant Company
vide letter dated 13.08.2012 filed with the Assessing Officer copies of bank
accounts, confirmation and Income Tax Return acknowledgements from all the
parties to establish the identity, genuineness and sources of transaction
regarding share capital and share premium.
The entire amount had been received by the Appellant Company
through normal banking channels by account cheques / demand drafts.
Furthermore, the said confirmations also clearly reveal the source of funds,
particulars of the bank account through which payment has been received and the
Income-Tax particulars which go on to establish the identity and
creditworthiness of the respective share applicants authoritatively and
conclusively. (2) On the basis of the documents/details submitted, the Learned
Assessing Officer, has summarized as follows :-
| S.No | Name of the Share Holder | Returned Assessment Income |
Year |
| 1 | Vanguard Jewels Ltd. | Rs. 3,42,600/- |
2008-09 |
| 2 | Ganga Builders Ltd. | (Rs. 2,910/-) |
2008-09 |
| 3 | Shivlaxmi Exports Ltd. | Nil |
2008-09 |
| 4 | Lexus Infotech Ltd. | 15,64,590/- | 2008-09 |
| 5 | Hema Trading Co Pvt Ltd. | 17,16,207/- | 2008-09 |
(4) In order to further verify the genuineness of all the
parties commissions u/s 131 were sent by the Learned Assessing Officer to the
respective Investigation agencies in Mumbai and Kolkata response to which
reports were received from the office of Addl. CIT, Range-10(2),Mumbai and
Assistant Director of Income Tax (Inv) Unit-III(3), Kolkata. The Addl
Commissioner of Income Tax, Range 10(2), Mumbai and AssistantDirector of Income
Tax (Inv), Unit-III(3), Kolkata also deputed Inspectors of Income Tax to serve
the summons and conduct field enquiries. The results of the said enquiries are
as follows:-
Report from Mumbai S No. Name of the Shareholder Report as
received in response to commission from Mumbai
1. Vanguard Jewels Ltd Party has responded to the summons and the
details are annexed. Details annexed as Exhibit-C
2. Lexus Infotech Ltd Party has responded to the summons and the
details are annexed. Details annexed as Exhibit-D.
3. Hema Trading Co Pvt Ltd The address is residential address of D
V Jain, as per report of Inspector dated 30.11.2011, no such person has ever
resided in such premises. Report of Shri Ajay Kumar Inspector is enclosed as
annexure. (Annexure -20)
4. Realgold Trading Company The address is office address of N
Chandulal Pvt Ltd & Co.CA. As per report of Inspector dated 30.11.2011
no such person has ever resided in such premises. Report of Shri Ajay Kumar
Inspector is enclosed as Annexure (Annexure - 20) Report from Kolkata S No.
Name of the Shareholder Report as received in response to commission from
Kolkata
1. Ganga Builders Ltd Assessee made a submission through dak and
submitted that the company has applied for share of M/s Adamine Construction
Pvt Ltd in F.Y 2007-08. The assessee has not specified for how many shares and
at what premium.
The assessee has enclosed bank statement showing payment was made
by cheque no.875638 dated 07.02.2008 for Rs. 55,00,000/- and cheque no. 875656
dated 07.02.2008 for Rs. 40,00,000/- drawn on Deutsche Bank.
The assesee has not enclosed the bank statement showing the source
of fund for share application money. The company has shown Nil income for A.Y.
2008-09.
2. Shivlaxmi Exports Ltd Assessee made a submission through dak
and submitted that the company has applied for 90000 equity share of Rs. 10/-
of M/s Adamine Construction Pvt Ltd each at a premium of Rs. 90/- and allotted
the same.
The assessee has not given the reason for paying such a high
premium. The assessee has enclosed bank statement showing payment was made by
cheque no. 611654 dated 08.02.2008 for Rs. 50,00,000/- and cheque no. 611515
dated 08.02.2008 for Rs 40,00,000/- drawn on Deutsche Bank. The assessee has
not enclosed the bank statement showing the source of fund for share
application money. The company has shown Nil income for A.Y. 2008-09.
(5) On the basis of the said exercise, the Learned Assessing
Officer has observed and concluded as follows:- The identity and the
creditworthiness of the investors are not established as all the investors are
showing a nominal income. Neither the investor company and nor the assessee
company has produced any proof to substantiate the credit worthiness of the
investors (for example balance sheet of the investor company); The genuineness
of the transactions is also in doubt as the investors have not enclosed the
bank statement showing the source of fund for share application money.
(6) The Learned Assessing Officer has accordingly held that the
creditworthiness of the investors and the genuineness of the transactions is in
doubt and has accordingly treated share capital/application money and share
premium amounting to Rs.5,15,00,000/- as unexplained and added this same to the
taxable income of the Appellant Company u/s 68 of the Income Tax Act,
1961.
(7) The Assessing Officer in the course of assessment proceedings
had desired the Appellant Company to furnish the details of the amount received
and evidence in support of identity and creditworthiness of the applicants and
also the genuineness of the transaction of all the parties situated at Mumbai
and Kolkata from whom the share capital and share premium had been received. In
response, the Appellant Company filed copies of confirmations, Income Tax
Return acknowledgements and bank accounts from all the parties establishing the
identity, genuineness and sources of transaction regarding share capital and
share premium with the Assessing Officer. The entire share application money
had been received by the Appellant Company through normal banking channels by
account payee cheques/demand drafts.
Furthermore, the said confirmations also clearly reveal the source
of funds, particulars of the bank account through which payment has been
received and the Income-Tax particulars which go on to establish the identity
and creditworthiness of the various parties authoritatively and conclusively.
(8) As a result of the above documents being filed before the
Learned Assessing Officer in respect of all the parties in respect of which no
cause exists as to recourse to the provisions of Section 68 of the Income-tax
Act, 1961 in as much as the onus cast on the Appellant Company vis-Ã -vis the
genuineness of the transaction and credit worthiness of the parties has been
effectively and completely discharged. The action of the Learned Assessing
Officer is not only against the spirit but also letter of the provisions relating
to establishing the identity of cash creditors as embodied in the Income -tax
Act, 1961. Independent investigations from parties over which an Appellant
Company does not have any control cannot be used to form any conclusion,
adverse of otherwise in respect of the Appellant Company. As such the said
addition is neither warranted nor justified or sustainable on the facts of the
case.
(9) The above factual statements and arguments can be further
buttressed and reinforced by an analysis of the relevant legal provisions and
legal pronouncements on the issue. Before proceeding further with the matter it
would be worthwhile to reproduce the provisions of S.68 of the Income tax Act,
1961 which reads 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.
(10) The above Section enjoins upon an Appellant Company, 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
Appellant Company's burden of proof would stand discharged if he is able to
prove the nature and source of the cash credit received and thus his onus of
proof cannot extend to failure to prove the source of the proof with a view to
arrive at the ultimate source of funds. As long as the nature, source and
identity of the investor is established, no further onus of proof can be
enjoined on it.
In the instant case no case can be made out to doubt the
genuineness, existence or identity of the investors and as such no cause exists
for the invocation of S. 68.
(11) An analysis of the provisions of Section 68 of the Income-
tax Act, 1961 would make it clear that in order to discharge the onus, the
Assessee must prove the following:-
(i) identity of the creditor;
(ii) capacity of the creditor to advance money; and
(iii) genuineness of the transaction.
(12) 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
lead out in this regard.
(13) 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 bank statements and Income Tax
Returns of the share applicants duly placed on record. In fact, no evidence,
direct or indirect, conclusive, or even circumstantial, exists to doubt in any
manner the identity and credit worthiness of the parties and genuineness of the
transactions entered into.
(14) 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 Income- tax Act, 1961 as would be clear
from the following discussion:-
(i) With respect to the identity of the creditors the names,
addresses and PANs of the Assessee has been duly furnished and provided to the
Ld Assessing Officer during the course of the assessment proceedings and no
error or short coming has either been determined or pointed out therein 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.
(ii) 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.
(15) In this connection Your Honour's attention is also invited to
the decision of the Hon'ble Delhi High Court in the case of Commissioner of
Income-Tax vs. Steller Investments Limited [(1991) 192 ITR 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."
(16) 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 in the case of CIT vs Steller Investment Ltd [(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. (17) 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)] has 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 / subscriber;
(4) if relevant details of the address or PAN identity of the creditor /
subscriber are furnished to the Department along with copies of the
shareholders' register, share application forms, 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
(17) 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 subscribes. 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".
(18) Further Your Honor's kind attention is also invited to the
decision of their Lordship 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".
(19) The above decision of the Hon'ble 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 put forward for and on
behalf of the Appellant Company.
(20) In particular, with regard to the issue of establishing the
creditworthiness of the parties, Your Honour's attention is invited to the
following recent 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 Assessee:-
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)];
MOD Creations Pvt Ltd vs. Income Tax Officer [(2012) 354 ITR 282
(Delhi)].
(21) It should be specifically noted in the instant case there was
no denial at any stage of the investigation or 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. In
fact, the investor companies, in their replies filed before the Department (in
response to summons u/s 131 of the Act), have duly confirmed, the factum of
their having made the investment and have further buttressed the same with the
following documents :-
(a) Confirmations;
(b) Acknowledgement for filing of Income Tax Returns;
(c) Bank statements reflecting the transactions with the Appellant
Company;
(d) Copies of Annual Accounts.
(22) 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.
(23) In fact, in the instant case, reliance is placed on the
decision of the Delhi High Court in the case of CIT vs Kamdhenu Steel &
Alloys Limited and Others [(2012)206 Taxman 254(Delhi)] 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. (24)
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 Lordship of the Supreme Courts and as such the
decision of the Delhi High Court in the case of CIT vs Kamdhenu Steel &
Alloys Limited and Others (supra) has attained conclusive judicial finality.
(25) To conclude it may be said that on the basis of the facts discussed supra
and the ratio of the above judgements makes it clear that if the share
applicants are identified and it is established that they have deposited money
in the Company, no recourse can be made to the provisions of S 68. The
Appellant Company had provided all the requisite particulars to establish the
identity of the share applicants in the confirmations, ITRs and bank statements
already filed before the Assessing Officer. The various arguments advanced by
the Learned Assessing Officer are frivolous and irrelevant and the onus enjoined
upon the Appellant Company by the provisions of section 68 stands not only
adequately but also completed satisfied. (26) Accordingly since it is clear
that if the shareholders / share applicants are identified and it is
established that they have invested money in the purchase of shares, no
recourse can be made to the provisions of S 68. In the instant case the
Appellant Company had provided all the requisite particulars to establish the
identity of the share applicants in the confirmations already filed before the
Assessing Officer.
The ld. AR also placed reliance on the following decisions :-
(i) CIT Vs. Gangeshwari Metal Pvt. Ltd. ITA. No. 597/2012
[judgement dated 21.01.2013 (Delhi High Court);
(ii) Pr. CIT Vs. N. C. Cables Ltd. (2017) 391 ITR 11 (Del.);
(iii) Pr. CIT Vs. Softline Creations P. Ltd. (2016) 387 ITR 636
(Del.);
(iv) CIT Vs. Real Time Marketing P. Ltd. (2008) 306 ITR 35 (Del.);
(v) CIT Vs. Value Capital Sergvices P. Ltd. (2008) 307 ITR 334
(Del.);
(vi) CIT Vs. Orbital Communication (P) Ltd. (2010) 327 ITR
560 (Del.);
(vii) CIT Vs. Winstral Petrochemicals P. Ltd. (2011) 330 ITR 603
(Del.);
(viii) CIT Vs. Kamdhenu Steel and Alloys Ltd. (2014) 361 ITR
220 (Del.).
17. Having gone through the above cited decisions, we find that
the ratio laid down therein is that the primary onus lies upon the assessee to
establish identity and creditworthiness of the creditors/ investors as well as
genuineness of the transaction and after discharging of the same, onus shifts
upon the Revenue to prove the documents filed by the assessee while discharging
its primary onus, as false to attract addition under section 68 of the Act. In
its recent decision dated 11.01.2017 in the case of Pr. CIT Vs. N.C. Cables
Ltd. (supra) the Hon'ble jurisdictional High Court of Delhi has been pleased to
hold that no addition can be made under section 68 of the I.T. Act where
assessee in the case of share application money had furnished documents to
evidence genuineness of transactions and identity and creditworthiness of parties,
but there was failure on the part of the Assessing Officer to conduct adequate
and proper enquiry into materials while invoking section 68 of the Act.
Again in the case of Pr. CIT Vs. Softline Creations P. Ltd.
(supra), the assessee in support of receipt of share application money had
furnished PANs, bank details of share applicants and affidavits of Directors of
those share applicant companies. The Hon'ble High Court of Delhi has been
pleased to hold that share application money cannot be considered as
unexplained cash credits in the hands of the assessee. In the case of CIT Vs.
Value Capital Services P. Ltd. (supra) the Hon'ble jurisdictional High Court of
Delhi while dismissing the appeal of the Revenue has been pleased to hold 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, 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. In the case of CIT Vs.
Orbital Communication P. Ltd. (supra) the Hon'ble jurisdictional High Court of
Delhi in the case of the claimed share application money has been pleased to
hold that where substantial evidence has been produced by the assessee to prove
creditworthiness of the creditors and genuineness of share applications,
failure to produce creditor is not material. In the case of CIT Vs. Winstral
Petro Chemical P. Ltd. (supra) in the case of cash credits/share application
money, the Hon'ble jurisdictional High Court of Delhi on the issue of burden of
proof, has been pleased to hold that initial burden is on assessee to prove
identity of creditors, the burden then shifts to Revenue to prove that credits
were not genuine. In that case while dismissing the appeal of the Revenue, the
Hon'ble High Court was pleased to hold that it had not been disputed that the
share application money was received by the assessee company by way of account
payee cheques through normal banking channels. Admittedly, copies of
application for allotment of shares were also provided to the Assessing
Officer. Since the applicant companies were duly incorporated, were issued PAN
Cards and had bank accounts from which money was transferred to the assessee by
way of account payee cheques, they could not be said to be non-existent, even
if they, after submitting the share applications, had changed their addresses
or had stop functioning, held the Hon'ble High Court.
18. When we examine the facts of the present case in view of the
above cited ratio laid down by the Hon'ble jurisdictional High Court of Delhi,
we find that facts are almost similar. In the present case there were 6
investor companies claimed to have invested Rs.5,15,00,000/- in total in the
assessee company. In support of their identity and creditworthiness as well as
genuineness of the transactions, as discussed above, the assessee had filed
before the Assessing Officer, their (investor companies) confirmations, Income
Tax return acknowledgements, bank accounts with this submission that entire
amount had been received by the assessee company through normal banking
channels by account payee cheques/ demand drafts. The confirmations filed
revealed the source of funds, particulars of the bank account through which
payments were received and the Income Tax particulars establishing the identity
and creditworthiness of the respective share applicants. We thus find that the
assessee had discharged its primary onus to establish identity and
creditworthiness of the investor companies as well as genuineness of the
transactions, as per the ratio laid down in the above cited decisions of the
Hon'ble High Court. The Assessing Officer, on the other hand, had doubted the
genuineness of the claimed receipt on the basis that some of the investor
companies could not be found at the given address and that some of the investor
companies responded to the summons by post, but had not caused appearance
before him. The Assessing Officer also held that income of many of the investor
companies was too low or meager to enable them to make such large investments
in the share capital of the assessee company. The Assessing Officer also
observed that there appeared no justification for large components of share
premium paid to the assessee along with the share capital. The Assessing
Officer also remained suspicious about the claimed investor companies on the
basis of reasons recorded for initiation of reopening of assessment proceedings
based on the report relating to conducted at the premises of the assessee that
the business premises of the assessee actually belong to Bhushan Steel Ltd. and
several other companies were having their Registered offices in the same
premises. The submission of the assessee in this regard remained that there is
no law that more than one company cannot have its Registered office at one
address and that there is no law that companies cannot change their Registered
offices. It was submitted that business raise capital and such capital is
rotated in economy for increasing production and trade and for making more
efficient use of capital. Companies change and, sometimes in quick succession.
This is the normal formation of capital in any open economy and the process of
capital formation cannot be taken to be representing only unaccounted funds or
impeded. It was submitted that all the companies having Registered office at
the premises undisputedly belonged to Bhushan Group. The sources of capital
introduced in these companies were established during the respective assessment
proceedings. It was further contended that no evidence was found during search
to indicate introduction of cash in the form of share capital. It is also
pertinent to mention over here that out of total 6 investor companies, notices
could not be served in case of 2 companies as they were not available on the
given addresses and in case of 1 company notice could not be served as the
premises was found locked on various days. The remaining 4 companies had
responded and had filed their submissions. However, there is no dispute that in
case of all the 6 investor companies, the assessee had filed primary documents
and had accordingly discharged its initial onus to establish identity and
creditworthiness of the investor companies and genuineness of the transaction as
there is no dispute that all the transactions have been done through banking
channels i.e. through account payee cheques and demand drafts. We thus find
that the Assessing Officer has failed to discharge its onus to prove that the
documents filed by the assessee, as discussed above, were false or fabricated
as the Assessing Officer has not made any efforts to verify those documents
especially when there is no dispute that all the investor companies were filing
their returns of income and were being assessed by the Department. The
Assessing Officer on the contrary remained suspicious on the claimed receipt
from the investor companies on some other factors like some of them were not
found on their given addresses, some of them had furnished their submissions
through posts and some of them were not having sufficient income etc. as
discussed above. Under these circumstances, we are of the view that the ld. CIT
(Appeals) was justified in deleting the addition of Rs.5,15,00,000./- made
under section 68 of the Act on account of unexplained share capital and share
premium. Since the first appellate order is based upon the ratio laid down in
the above cited decisions of the Hon'ble jurisdictional High Court of Delhi, we
do not find reason to interfere therewith. The same is upheld. The ground is
accordingly rejected."
9. It may be noted here that in this case five parties from Mumbai
and Kolkata are same as have been considered in the present Departmental
appeal. Even if Mumbai based companies have not responded to the letter issued
by the A.O, however, three of them have already been found existing and genuine
Companies and two of the Companies from Kolkata based are also found existing
and genuine in the case of ACIT, Central Circle-13, New Delhi vs. M/s. Adamine
Construction Pvt. Ltd., (supra). All Kolkata parties confirmed genuineness of
transactions in their reply before A.O.
Therefore, the issue is covered in favour of the assessee by the
above said judgments. The Hon'ble Rajasthan High Court in the case of CIT vs.
ARL Infratech Ltd., 394 ITR 383 considered the identical issue of share
application money in which the assessee filed PAN and other details of the
investor companies. No direct relation was also found between assessee and the
investor companies. Therefore, additions deleted, were found fully justified.
10. The Hon'ble Supreme Court in the case of CIT vs. Lovely
Exports Pvt. Ltd., (2008) 216 CTR 195 held as under :
(i) "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."
11. The Hon'ble Delhi High Court in the case of CIT vs. Kamdhenu
Steel & Alloys Ltd., & Ors. 361 ITR 220 (Del.) held as under :
"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 is supposed to make thorough probe
before it could nail the assessee and fasten the assessee with such a liability
unders. 6 8 ; A O failed to carry his suspicion to logical conclusion by
further investigation and therefore addition under s.68 was not
sustainable."
12. The Hon'ble Delhi High Court in the case of CIT vs. Vrindavan
Farms P. Ltd. Etc. in ITA.No.71/2015 dated 12.08.2015 in which the sole basis
for the Revenue to doubt their creditworthiness was the low income as reflected
in their return of income. It was observed by the ITAT that the AO had not
undertaken any investigation of the veracity of the documents submitted by the
assessee, the departmental appeal was dismissed by the Hon'ble High Court.
13. The Hon'ble Delhi High Court in the case of CIT vs. Laxman
Industrial Resources Pvt. Ltd., in ITA.No.169 of 2017 dated 14.03.2017 in which
the CIT(A) took note of the material filed by the assessee and provided
opportunity to the AO in Remand proceedings. The AO merely objected to the
material furnished but did not undertake any verification. The CIT(A) deleted
the addition by relying upon the decision of the Hon'ble Apex Court in the case
of Lovely Exports Pvt.Ltd. (supra) and judgement of Delhi High Court in the
case of CIT vs Divine Leasing & Finance Ltd. [2008] 299 ITR 268. The
ITAT confirmed the opinion of the Ld.CIT(A). Hon'ble High Court in view of the
above findings noted that the assessee had provided several documents that
could have showed light into whether truly the transactions were genuine. The
assessee provided details of share applicants i.e. copy of the PAN, Assessment
particulars, mode of amount invested through banking channel, copy of
resolution and copies of the balance sheet. The AO failed to conduct any
scrutiny of the document, the departmental appeal was accordingly dismissed.
14. The Hon'ble Supreme Court in the case of Earthmetal
Electrical Pvt. Ltd., vs. CIT dated 30th July, 2010 in SLP. No.21073/99 in
which Hon'ble Apex Court held "we have examined the position, we find that
the shareholders are genuine parties.
They are not bogus and fictitious therefore, the impugned order is
set aside." In this case, the Hon'ble Bombay High Court and the ITAT,
Mumbai Bench, which was the subject matter in SLP before Hon'ble Supreme Court
observed that assessee failed to produce any evidence regarding confirmation of
the amount supposed to have been received as share capital from third party.
The case of the assessee is therefore, on better footing as against the
decision of the Hon'ble Supreme Court in the case of Earthmetal Electrical Pvt.
Ltd., vs. CIT (supra). The decision of the Hon'ble Delhi High Court in the case
of Pr. CIT vs. Laxman Industrial Resources Pvt. Ltd., (supra), clearly
apply to the facts of the case of the assessee that the assessee received
genuine share application money from the investor Companies. The assessee on
the basis of the documentary evidences have been able to establish that the
share holders are genuine parties and they are not bogus and fictitious. The
Hon'ble Delhi High Court in the case of CIT vs. Divine Leasing & Fin.
Ltd., 299 ITR 268 held that "no adverse inference should be drawn if
shareholders failed to respond to the notice by AO."
15. The Hon'ble M.P. High Court in the case of CIT vs. Peoples
General Hospital Ltd., (2013) 356 ITR 65 held that "dismissing the
appeals, that if the assessee had received subscriptions to the public or
rights issue through banking channels and furnished complete details of the
shareholders, no addition could be made under section 68 of the Income-tax Act,
1961, 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 the company's own income from undisclosed sources. It
was nobody's case that the non-resident Indian company was a bogus or
non-existent company or that the amount subscribed by the company by way of
share subscription was in fact the money of the assessee. The assessee had
established the identity of the investor who had provided the share
subscription and that the transaction was genuine. Though the assessee's
contention was that the creditworthiness of the creditor was also established,
in this case, the establishment of the identity of the investor alone was to be
seen. Thus, the addition was rightly deleted.
16. The Hon'ble Delhi High Court in the case of CIT vs.
Dwarkadhish Investment P. Ltd., (ITA.No.911 of 2010) and Dwarkadhish Capital P.
Ltd., (2011) 330 ITR 298 (Del.) held "In any matter, the onus of proof is
not a static one. Though in section 68 of the Income Tax Act, 1961, the initial
burden of proof lies on the assesses yet once he proves the identity of the
creditors/share applicants by either furnishing their PAN number or income-tax
assessment number and shows the genuineness of transaction by showing money in
his books either by account payee cheque or by draft or by any other mode, then
the onus of proof would shift to the Revenue. Just because the creditors/share
applicants could not be found at the address given, it would not give the
Revenue the right to invoke section 68. One must not lose sight of the fact
that it is the Revenue which has all the power and wherewithal to trace any
person. Moreover, it is settled law that the assessee need not to prove the
"source of source". The assessee-company was engaged in the business
of financing and trading of shares. For the assessment year 2001-02 on scrutiny
of accounts, the Assessing Officer found an addition of Rs.71,75,000 in the
share capital of the assessee. The Assessing Officer sought an explanation of
the assessee about this addition in the share capital. The assessee offered a
detailed explanation.
However, according to the Assessing Officer, the assessee failed
to explain the addition of share application money from five of its
subscribers. Accordingly, the Assessing Officer made an addition of
Rs.35,50,000/- with the aid of section 68 of the Act, 1961 on account of
unexplained cash credits appearing in the books of the assessee. However, in
appeal, the Commissioner of Income-tax (Appeals) deleted the addition on the
ground that the assessee had proved the existence of the shareholders and the
genuineness of the transaction. The Income-tax Appellate Tribunal confirmed the
order of the Commissioner of Income-tax (Appeals) as it was also of the opinion
that the assessee had been able to prove the identity of the share applicants
and the share application money had been received by way of account payee
cheques. On appeal to the High Court: Held, dismissing the appeals, that the
deletion of addition was justified."
17. The Hon'ble Delhi High Court in the case of CIT vs. Winstral
Petrochemicals P. Ltd., 330 ITR 603 (Del.) held that "dismissing the
appeal, that it had not been disputed that the share application money was
received by the assessee-company by way of account payee cheques, through
normal banking channels. Admittedly, copies of application for allotment of
shares were also provided to the Assessing Officer. Since the applicant
companies were duly incorporated, were issued PAN cards and had bank accounts
from which money was transferred to the assessee by way of account payee
cheques, they could not be said to be non-existent, even if they, after
submitting the share applications had changed their addresses or had stopped
functioning. Therefore, the Commissioner (Appeals) and the Tribunal were
justified in holding that the genuineness of the transactions had been duly
established by the assessee."
18. The Hon'ble Delhi High Court in the case of CIT vs. Value
Capital Services P. Ltd., (2008) 307 ITR 334 (Del.) in which it was held that
"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."
19. It may be noted here that investor companies have confirmed
making investments in assessee-company who were having sufficient net worth to
make investment in assessee-company. Assessee filed I.T. returns, PAN, Bank
Statements of investor Company to prove they are existing assessees of
Department and are genuine parties. No efforts are made by A.O. for production
of investors at assessment stage. Therefore, the assessee has been able to
prove identity of the share applicants, their creditworthiness and genuineness
of the transactions in the matter. The Ld. CIT(A), on examination of the
material on record, further found that the only reason for the Revenue to goes
for further verification was the report relating to survey conducted at the
premises of the assessee- company which forms part of satisfaction recorded for
reopening of the assessment proceedings. From the said report, Ld. CIT(A) found
that the business premises of the assessee actually belong to M/s. Bhushan
Steel Ltd., and several other Companies having their Registered Offices at the
same address. This created a suspicion in the mind of the Revenue. The Ld.
CIT(A) therefore, rightly noted that there is no law that more than one Company
cannot have its Registered Office at one address. The Companies could have
change their address later on. It is also an admitted fact that source of the
capital investment companies were established during their respective
assessment proceedings including in the case of the present assessee-company as
per the findings of the Ld. CIT(A). Ld. CIT(A) also found that no evidence was
found during the course of survey to indicate introduction of unaccounted
cash/funds in the form of share capital in these companies. These findings of
fact recorded by the Ld. CIT(A) have not been rebutted through any evidence or
material on record. No evidence has been brought on record that money so
invested in assessee-company came from coffers of assessee-company. All
objections of A.O. have been considered by Ld. CIT(A) and various case
law referred to above support the findings of Ld. CIT(A) that addition has been
correctly deleted.
20. The Ld. D.R. relied upon the decision of various Hon'ble High
Courts and Delhi High Court referred to above. In these cases, the gist of the
findings are that the assessee failed either to prove the identity or capacity
of the subscriber companies or that the amount was received as accommodation
entries. However, the assessee- company, in the present case, has been able to
prove the identity of the investors, creditworthiness and genuineness of the
transaction in the matter. Therefore, Ld. CIT(A) on proper appreciation of
evidence and material on record, correctly deleted the addition of Rs.17.60
crores. The Departmental appeal fails and is accordingly, dismissed.
21. In the result, appeal of the Revenue is dismissed.
22. The assessee in the cross-objection has challenged the
reopening of the assessment. Learned Counsel for the Assessee however, fairly
conceded that in the case of M/s. Adamine Construction Pvt. Ltd., (supra), the
Tribunal has confirmed the reopening of the assessment on same set of facts.
He has submitted that since the issue is covered on merit in
favour of the assessee- company by the aforecited decision of the Tribunal,
therefore, the issue of reopening of the assessment is covered against the
assessee- company by the same judgment. We may also note here that Ld. CIT(A)
on deleting the addition on merit noted that since relief is already allowed to
the assessee-company on merit, therefore, this ground is left for academic
discussion only. In view of the above, we do not find any reason to interfere
with the reopening of the assessment in the matter.
We, accordingly, confirm the reopening of the assessment and
dismiss the cross objection of the assessee.
23. In the result, cross objection of the assessee is dismissed.
24. To sum-up, appeal of the Revenue as well as cross objection of
the assessee are dismissed.
Order pronounced in the open Court.
Sd/-
Sd/-
(L.P. SAHU)
(BHAVNESH SAINI)
ACCOUNTANT MEMBER
JUDICIAL MEMBER
Delhi, Dated 16th October, 2017
VBP/-
Copy to
1. The
appellant
2. The
respondent
3. CIT(A)
concerned
4. CIT
concerned
5. D.R.
ITAT 'E' Bench, Delhi
6. Guard
File.
// BY Order //
Asst. Registrar : ITAT Delhi Benches :
Delhi.
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