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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
ORDER Per Anikesh Banerjee, J.M.:
The instant appeal and cross appeal of the Revenue and the assessee respectively was filed against the order of ld. Commissioner of Income Tax (Appeals), Amritsar [in brevity CIT(A)] bearing appeal no. 127/13-14, date of order 12.08.2014, order passed u/s. 250(6) of the Income Tax Act, 1961 (in brevity the Act) for assessment year 2010-11. Impugned order was emanated from the order of ld. Dy. Commissioner of Income Tax, Circle-3, Amritsar (in brevity the AO) order passed u/s. 143(3) dated of order 28.03.2013.
The Revenue has taken the following grounds of appeal:
“1. On the facts and circumstances of the case and in law the ld. CIT(A) erred in deleting the addition of Rs.2.30.00,000/- made on account of share application money u/s. 68 of the Income Tax Act, 1961.
2. On the facts and circumstances of the case, the ld. CIT(A) erred in relying upon merely the record/documents produced by the assessee to establish the identity of the share holder companies and ignoring the fact that notice u/s. 133(6) of the I.T. Act, 1961 could not be delivered by the Postal Authorities.
3. On the facts and circumstances of the case, the ld. CIT(A) erred by not relying upon the report of the Inspector wherein it is clear that neither there was any business activity nor any books of accounts were being maintained at the given address.
4. On the facts and circumstances of the case, the ld. CIT(A) erred by not relying upon the report of the DDIT(Inv.)-II, Ludhiana wherein the shareholder companies were apparently found to be merely provided of accommodation entries to the assessee company.
5. On the facts and circumstances of the case, the ld. CIT(A) erred by not taking into consideration the financial condition of the shareholder companies to attract the investments from the investor companies.
3 1ITA No. 627 & CO No. 58/Asr/2014 Dy. CIT v. Kochar Overseas P. Ltd.
6. On the facts and circumstances of the case, the ld. CIT(A) erred by not taking into consideration the fact that neither the share holding companies received any dividend on the investment made by them in the assessee company nor these companies declared by dividends on the investment received by them.
7. On the facts and circumstances of the case, the ld. CIT(A) erred by relying upon the judgements of Hon’ble Supreme Court in the case of CIT vs. Lovely Exporters (P) Ltd. 216 CTR 195 (SC) which was pronounced in the case of a public company whereas in the present case the assessee company is a private limited company.
8. Whether ratio of decision of Hon’ble Delhi High Court in case of CIT vs. Globus Securities & Finance Ltd. and CIT vs. N. R. Portfolio Pvt Ltd. ITA No. 1018/2011 and 1019/2011 applies or not on the facts and circumstances of the case.
The appellant craves leave to amend or add any or more ground(s) of Appeal.”
The assessee has taken the following grounds in cross appeal:
“1. That on the facts and circumstances of the case and in law, the learned CIT(A) was correct in deleting the addition of Rs.2,30,00,000/- made on account of share application money u/s. 68 of the IT Act, 1961.
2. That the Ld. CIT(A) was correct in facts and in law in deleting the addition and the department has got no basis, reasons and justification for coming in appeal before the Learned bench.
That the AO has made addition of Rs. 2,30,00,000/- which has not at all called for and the worthy CIT(A) after considering all the facts and material and after going through all the necessary facts has deleted the addition and the department has got no basis, reasons and justification for coming in appeal before the Learned bench.
4. Any other ground of cross objections which may be raised at the time of hearing of the appeal.
4 1ITA No. 627 & CO No. 58/Asr/2014 Dy. CIT v. Kochar Overseas P. Ltd.
The brief fact of the case is that assessee had received the share premium amount with a 3. premium of Rs.90/- for impugned financial year from four parties & number of shares was allotted 2,30,000 @ 100/- (Rs.90/- + Rs. 10/-) total amount works out to Rs.2,30,00,000/-. The share application taken through Banking channel from Private Limited companies. The companies invested in shares of the assessee’s company with a value of Rs. 100/- each. Accordingly, the shares were allotted to the parties. The details of amount received through share capital is as follows: - Name of Investment Companies Value (Rs.) 1. A & A Associates (P)Ltd. 70,00,000/- 2. Ess Pee Leasing and Marketing Pvt. Ltd. 50,00,000/- 3. Shree Barah Investment Ltd. 70,00,000/- 4. Regal Enterprises Ltd. 40,00,000/- 2,30,00,000/- 3.1. The investigationwas conducted by the ld. AO on the investors in assessment proceeding. The notices were issued u/s. 133(6) of the Act to the parties. After the verification of the parties, the ld. AO concluded that there is a lack of creditworthiness,conclusively and satisfactorily absence of the identity&genuineness of the shareholders. Finally, the addition was confirmed on total amount of Rs. 2.3 crore u/s. 68 of the Act. Aggrieved assessee filed an appeal before the ld. CIT(A). After considering the submissions of assessee, the ld. CIT(A) concluded that the entire transactions are covered all three criteria like genuineness, credit worthiness and identity. So, the entire addition was deleted by the ld. CIT(A). Being aggrieved on the order
5 1ITA No. 627 & CO No. 58/Asr/2014 Dy. CIT v. Kochar Overseas P. Ltd. of the ld. CIT (A), the revenue has filed appeal before us and assessee has filed cross appeal against the appeal of the revenue before the Bench.
The case was called for hearing, but none was present on behalf of the assessee. Where assessee was duly served the notice and is also provided sufficient opportunities to appear before bench. however, none appeared on behalf of assessee & no adjournment petition was filed before the bench. In view of the above and considering the nature of dispute, we proceed to dispose the appeal ex-parte qua the assessee after hearing the learned DR and on the basis of material available on the record.
The ld. Sr. DR first argued that the entire addition was confirmed by the ld. AO depending on the report of DDIT (Inv) and the investigation made by the AO himself. Ld. Sr. DR invited our attention in the observations of the Appellate Authority in page no. 21 of appeal order which is extracted as below:-
“Thus it can be seen from the above that the assessee has discharged his onus of proving identity, credit worthiness and genuineness of the transaction as required in test laid-down by Hon’ble Supreme Court in the judgement of CIT vs. Daulat Ram Rawat Mal 87 ITR 349. AO is having mere suspicion regarding assessee’s own fund have been invested in the grab of shareholding companies but there is no positive evidence or any evidence with the AO to held so, whereas, in the case of Nipun Builders (P) Ltd. And CITvs. Nova Promoters and Finlease Pvt. Ltd., 342ITR 169 (Delhi), theAO was having positive evidence at hand in the form of investigation wing report of direct admission by entery provider of share subscription money so introduced
6 1ITA No. 627 & CO No. 58/Asr/2014 Dy. CIT v. Kochar Overseas P. Ltd. in assessing companies. The AO was having merely suspicion and these suspicion have not been furtherstrengthened by way of any positive evidence or even showing any nexus of these funds with the assessee. Nexus could have been demonstrated by investigating/ Showing viz: these shareholding companies were actually owned by the directors or relatives of the assessee company, their bank accounts were having cash deposits entries before issue of cheque to the assessee company, these companies were incorporated or their bank accounts were reopened with a short period of advancing funds of the assessee company or their bank accounts were introduced by assessee company directors and their relatives or similar any nexus to prove close link between assessee company and shareholding companies. In view of the above and facts and circumstances of this case, the addition made by the AO in this regard is deleted.”
The entire addition was made by the ld. AO on basis of the proper verification including the issuance of notice u/s. 133(6) of the Act to the parties. The ld. Sr-DR invited our attention in page no. 49 of the assessment order which is extract as below: - “Assessee Submission: 9.2.5 It is further submitted that return on form no. 2 prescribed undercompanies Act’ 1956 has duly been filed by the assessee company with Registrar of |Companies, Delhi & Haryana, New Delhi towards allotment of shares to respective shareholders. Please enclosed herewith the same for your kind reference.
Reply: 9.2.6 The assessee’s submission is considered and the evidence placed by the assessee in this regard is perused. However, attention is again drawn to the point no.6 derived from the statement of the directorsshare holding companies and assessee’s submission during the assessment proceedings. Sh. Rakesh Khera Director, M/s. Regal Enterprises does not even know the nature of business of M/s. Kochar Overseas Pvt. Limited even after investigating a shopping Rs.40 lac in these company. Similarly Sh. Rajesh Sharma has made a hug investment of Rs.1.90 crore in M/s. Kochar Overseas Pvt. Ltd. Without knowing the director of 7 1ITA No. 627 & CO No. 58/Asr/2014 Dy. CIT v. Kochar Overseas P. Ltd.
M/s. Kochar Overseas Pvt. Ltd and without ever meeting anybody in the management of M/s.Kochar Overseas Pvt Ltd. The investment was made in F.Y. 2009-10 and so far no dividend or return has yet been received on this investment of Rs.2.30 crores. Moreover, these companies have so far not made any efforts to recover the capital or earn any return on the investment made even after three years. From these facts, it is evident that just a little bit scratching of the surface is sufficient to establish the shamness of the transaction.”
The ld. Sr-DR further placed the relevant paragraph of the assessment order in page no.66 para 10.1 which is extracted as below: - “10.1. In the light of the above detailed discussions, it is held that the assessee has failed to prove, conclusively and satisfactorily, the identity, genuineness and credit worthiness of the four share holding companies. Hence, Rs.2.30 crore received as share application and share premium money is hereby treated as cash credit u/s. 68 of the I.T Act, 1961 and is added back to the income of the assessee.”
We heard the submission of the revenue, considered the documents available on the record and the orders of the both the Revenue Authorities. The entire addition was based on the verification made by the AO to the shareholder who had invested their amount in assessee- company. The assessee in hearing submitted the relevant documents related to the transaction to prove creditworthiness, genuineness of transaction and identity of the investors. The ld. AO in his order confronted the creditworthiness of the parties who made the investment in share of assessee. The ld. Sr-DR has mentioned the page 54-55 of the assessment order which is reproduced as below:- “Reply: - 9.3.4. The assessee's reply is considered in the light of the data already compiled to verify the true nature of these share holding companies.
8 1ITA No. 627 & CO No. 58/Asr/2014 Dy. CIT v. Kochar Overseas P. Ltd.
M/S A & A Associates. 48-New Kitchlu Naqar. Ludhiana Financial Year Profit Dividend Dividend Fixed Assets Declared Received 2004-05 1270111 2005-06 1270111 -16699 2006-07 -29454 1270111 2007-08 -9655 0 1270111 2008-09 - 2452 NIL 2009-10 -443626 NIL 2010-11 -14471 NIL 2011-12 -6623 NIL
M/S Ess Pee Leasing and Marketing Pvt. Ltd. 48-New Kitchtu Nagar. Ludhiana
Financial Year Profit Dividend Dividend Fixed Assets Received Declared
2005-06 0 0 2006-07 -66847 0 0 43828 (Accumulated) 2007-08 -3000 0 0 43828 2008-09 2328 0 0 2009-10 -14333 0 0 0 2010-11 -5453 0 0 0 2011-12 -7944 0 0 0
9 1ITA No. 627 & CO No. 58/Asr/2014 Dy. CIT v. Kochar Overseas P. Ltd.
M/s Regal Enterprises, Vikas Nagar, Near Clock Tower Ludhiana
Financial Year profit Dividend Dividend Fixed Assets Declared Received 2004-05 0 0 0 672000 2005-06 0 0 0 608000 2006-07 -83554 0 0 544000 2007-08 3329 0 0 479874 2008-09 -376863 0 0 304616 2009-10 52680 0 0 229094 2010-11 -12861 0 0 180240 2011-12 -90089 0 0 131384
M/s Barah Investment Limited, Plot no-8, Harkishan Building, Bank Road, Civil Line, Ludhiana Financial Year profit Dividend Dividend Fixed Assets Declared Received 2004-05 0 0 0 0 2005-06 0 0 0 0 2006-07 0 0 0 0 2007-08 -952 0 0 0 2008-09 0 0 -2642 0 2009-10 2352 0 0 0 2010-11 -5269 0 0 0 2011-12 -12366 0 0 0
9.3.4.1 The assessee contention here that the share holding companies are very old and incorporated more than 20 years ago is correct. However, these datum raises the valid question in our mind as to what had these companies done in all these years. In spite of being seemingly flushed with funds, why they have not earned anything and what is the end to which they exist? The answer lies in the fact that the funds in the balance sheet are, but an illusion created by routing unaccounted money and these companies are nothing, but professional accommodation entry providers as proved by the DDIT-II(Inv), Ld. AO in his detailed investigation report which proves the hollowness of the assesseejs claim in this regard.”
We respectfully relied on the order of Hon’ble Supreme Court of India in the case of Principal Commissioner of Income-tax (Central)-1v.NRAIron& Steel (P.) Ltd, [2019] 103 taxmann.com 48 (SC).Relevant paragraphs are extracted as follows: - “13. The lower appellate authorities appear to have ignored the detailed findings of the AO from the field enquiry and investigations carried out by his office. The authorities below have erroneously held that merely because the Respondent Company – Assessee had filed all the primary evidence, the onus on the Assessee stood discharged. The lower appellate authorities failed to appreciate that the investor companies which had filed income tax returns with a meagre or nil income had to explain how they had invested such huge sums of money in the Assessee Company -Respondent. Clearly the onus to establish the credit worthiness of the investor companies was not discharged. The entire transaction seemed bogus, and lacked credibility. The Court/Authorities below did not even advert to the field enquiry conducted by the AO which revealed that in several cases the investor companies were found to be non- existent, and the onus to establish the identity of the investor companies, was not discharged by the assessee.
The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee.
On the facts of the present case, clearly the Assessee Company - Respondent failed to discharge the onus required under Section 68 of the Act, the Assessing Officer was justified in adding back the amounts to the Assessee's income.
The Appeal filed by the Appellant – Revenue is allowed. In the aforesaid facts and circumstances, and the law laid down above, the judgment of the High Court, the ITAT, and the CIT are hereby set-aside. The Order passed by the AO is restored.”
Both the Assessing and appellate authority has never discussed about observations of the Hon’ble Apex Court in their order. We find that there is factual difference in the grounds of appeal filed by the revenue before the ITAT& the observation of the ld. CIT(A). As per the grounds filed before the ITAT that the revenue has denied that there is no notice u/s. 133(6) was delivered by the postal authority to the shareholders, Ground No.1 of revenue. But the ld. CIT (A) concluded that the said notices served to the parties in page-16, para 7 of the order of the ld. CIT(A):
7. In ground no.2 to 10 the assessee has agitated about establishment of the identity of all shareholders in the case. In this regard, assessee submitted that AO herself has confirmed in the assessment order that the addresses of the premises of the shareholders have been confirmed by the inspector of Income tax Department deputed for the same purposes. It was further submitted that notices u/. 133(6) were duly served at the given address of shareholders by Income Tax Inspectors. Summons were also served at the known addresses of the share holders companies and in response to said summons concerned directors of the shareholders companies appeared before the investigating officer and got recorded their statement on oath on 07.03.2013, which itself is a sufficient evidence to prove the identity and existence of all the shareholders.”
8.1. In our considered view, there is no ambiguity to prove the genuineness of transaction & identity of the investors by the assessee. But the assessee has failed to establish the creditworthiness of the investors for investing such amount to the assessee-company. The ld. AO is justified to make addition Rs. Rs.2.30.00,000/- u/s 68 of the Act. We respectfully relied on the observation of the Hon’ble Apex Court,supra. We are setting aside the order of the ld. CIT(A)& upheld the order of the ld. AO. CO 58/Asr/2014 9. As we have allowed the appeal filed by the Revenue, the cross-objection filed by the assessee becomes infructuous and is accordingly dismissed.
In the result the appeal of the revenue CO 58/Asr/2014 is dismissed.
Order pronounced in the open court on 17.02.2023