M/S BHIKSHU AGENCY PVT. LTD.,HOWRAH vs. ITO, WD-5(3), KOLKATA, KOLKATA

This appeal filed by the assessee pertaining to the Assessment Year (in short ‘AY’) 2008-09 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the ‘Act’) by ld. Commissioner of Income Tax (Appeal)-6, Kolkata [in short ‘ld. CIT(A)’] evenly dated 23.02.2016 arising out of the I.T.A. No.: 551/KOL/2016 Assessment Years: 2008-09 M/s. Bhikshu Agency Pvt. Ltd. assessment order framed u/s 143(3)/263/147 of the Act dated 24.03.2014.

Brief facts of the case as culled out from the records are that the assessee is a private limited company engaged in the business of share dealing and investment. Income of Rs. 187/- declared in the return for AY 2008-09 filed on 16.05.2008. Initially return was processed u/s 143(1) of the Act, thereafter, reassessment proceedings were carried out by issuance of notice u/s 148 of the Act and assessment u/s 147 r.w.s. 143(3) of the Act was framed on 08.04.2010 determining total income at Rs. 17,400/-. Thereafter ld. Pr. CIT called for the reassessment proceedings records and issued notice u/s 263 of the Act for carrying out the revisionary proceedings and finally framed the order u/s 263 of the Act on 28.03.2013 setting aside the assessment order dated 08.04.2010 directing ld. AO to carry out the assessment proceedings in light of the direction given in the order u/s 263 of the Act and the crux of the said directions read as follows: i) Examine the genuineness and source of share capital, not on a test check basis, but in respect of each and every shareholder by conducting independent enquiry not through the assessee. The bank account for the entire period should be examined in the course of verification to find out the money trail of the share capital. ii) Further the A.O. should examine the directors as well as examine the circumstances which necessitated the change in directorship if applicable. He should examine them on oath to verify their credentials as director and reach a logical conclusion regarding the controlling interest. iii) The A.O. is directed examine the source of realization from the liquidation of assets shown in the balance sheet after the change of Directors, if any after conducting the inquiries & verification as directed above, the A.O. should pass a speaking order, proving adequate opportunity of being heard to the assessee.”

Ld. Counsel for the assessee submitted that the assessee had discharged its primary onus of proving the identity, capacity and genuineness of the shareholders by filing all the details of the share applicants necessary to prove so. Further, it is submitted that all the share applicants have responded to the notice u/s 133(6) of the Act and also filed the details directly to ld. AO. So far as the personal appearance of the share applicants before ld. AO, it was submitted that the assessee approached to the share applicants I.T.A. No.: 551/KOL/2016 Assessment Years: 2008-09 M/s. Bhikshu Agency Pvt. Ltd. requesting them to appear before ld. AO but it was stated by the managing directors of the shareholder companies that they have directly provided all the requisite documents to ld. AO to prove their identity, genuineness of the transaction and also submitted the financial statements to prove their creditworthiness.

MCA Master Data of Tulsi tracom Pvt. Ltd., Namaskar Vyapaar Pvt. Ltd. (Converted into LLP namely Namskar Vyapaar LLP), Panchmukhi Tracom Pvt. Ltd., Daanvir commodities Pvt. Ltd., Araballi Commotrade Pvt. Ltd., Ghanshyam Dealcom Pvt. Ltd. and Anjaniputra Dealcom Pvt. Ltd.”

Judgement of Calcutta High Court in the case of Crystal Networks Pvt Ltd (Share capital allowed even when the notice for summon u/s 131 was unserved) 3. Judgement of Kolkata ITAT in the case of M/s Aastha Vincom Pvt Ltd vs ITO, Ward- 1(4) vide ITA No: 2269/KOL/2019 pronounced on 26.08.2022 (Share Capital allowed post revision by CIT u/s 263 since assessee was not required to prove the purpose for charging premium, non- compliance of notice cannot be taken as ground to make addition when the same was duly served and source of investment need not be out of taxable income.)

Judgement of Kolkata ITAT in the case of ITO vs Cygnus Developers(l) Pvt Ltd vide ITA No: 282/KOL/20212 pronounced on 02.03.2016 (Share Capital allowed when addition was made only for mere non- compliance of director of subscriber company in response to summons u/s 131) 5. Judgement of Kolkata ITAT in the case of M/s Lucky Agencies Pvt Ltd vs ITO, Ward- 1(4) vide ITA No: 2501/KOL/2019 pronounced on 23.02.2023. (Share Capital allowed on the ground that assessee had filed all documents to prove identity and creditworthiness of investors and genuineness of transactions only mere non- compliance of director of assessee company and subscriber company in response to summons u/s 131) 6. Judgement of Kolkata ITAT in the case of M/s One Point Commercial Pvt Ltd vs ITO, Ward- 6(3) vide ITA No: 473/KOL/2019 (Share Capital allowed on the ground that assessee had filed all documents to prove identity and creditworthiness of investors and genuineness of transactions only mere non- compliance of director of assessee company and subscriber company in response to summons u/s 131 Even addition cannot be made u/s 68 since the amended provisions to prove source of source were applicable from 01.04.2013) 7. Judgement of Kolkata ITAT in the case of M/s Inspa Interior & Exterior Products Pvt Ltd vs ITO vide ITA No: 529/Kol/2020 pronounced on 23.02.2023 (Share Capital allowed on the ground that assessee had filed all documents to prove identity and creditworthiness of investors and genuineness of transactions. Merc non- compliance of director of assessee company and subscriber company in response to summons u/s 131 cannot be a ground to make addition Even addition cannot be made u/s 68 since the amended provisions to prove source of source were applicable from 01.04.2013) 8. Judgement of Kolkata ITAT in the case of M/s Ajit Vanijya Pvt Ltd vs ITO vide ITA No: 2448/Kol/2017 pronounced on 23.02.2023 Share Capital allowed on the ground that assessee had filed all documents to prove identity and creditworthiness of investors and genuineness of transactions. Even addition cannot be made u/s 68 Page 8 of 25 I.T.A. No.: 551/KOL/2016 Assessment Years: 2008-09 M/s. Bhikshu Agency Pvt. Ltd. since the amended provisions to prove source of source were applicable from 01.04.2013 9. Judgement of Kolkata ITAT in the case of M/s Mahacol Tie Up (P) Ltd vs ITO vide ITA No: 2269/Kol/2019 pronounced on 12.10.2022 Share Capital allowed on the ground that assessee had filed all documents to prove identity and creditworthiness of investors and genuineness of transactions. Even double addition cannot be made since the addition has already been made in the hands of subscriber company u/s 68.

We, further, notice that in the assessment proceedings carried out in compliance to the revisionary proceedings u/s 263 of the Act, the assessee has again filed all the relevant documents as needed to prove the identity of the share applicants, genuineness of the transaction and creditworthiness of the share applicants thereby discharging its primary onus casted upon it under the provisions of Section 68 of the Act. However, ld. AO was not satisfied and he issued notice u/s 133(6) of the Act and summon u/s 131 of the Act to the share applicant companies as well as the directors respectively. Except for not appearing personally before ld. AO, all the notices u/s 133(6) of the Act were complied and even with regard to summons u/s 131 of the Act replies were filed along with the documents but showing the inability to appear in person.

We, further, notice that the documents filed by the assessee to explain the alleged receipt of share application money and share premium has not been doubted by any of the lower authorities. It is not the case of the Revenue that the share applicant companies were not having sufficient funds to apply in the equity shares capital of the assessee company. Even ld. CIT(A) in the impugned order has stated that sufficient details have been submitted by share applicants/subscribers in response to the notices u/s 133(6) of the Act which proved that the transactions were genuine. Ld. CIT(A) has, thus, confirmed that the transactions were genuine but still observed mere furnishing of copies of income tax return, details of payment through banking channels etc. would not establish the genuineness of the share capital.

We are surprised to note that when the assessee has discharged its onus by filing all necessary details and has explained the nature and source and even when the share applicant companies have independently replied to ld. AO, but still if the ld. AO is not satisfied then he has to mention the reason. Just because the directors of the share applicant companies have not appeared in person cannot be a ground to treat the alleged share application money as unexplained. When all the share applicant companies are duly registered with the Registrar of Companies which is further proved by the master data filed by the assessee what stops the Revenue authorities to use the powers provided under the Income Tax Act to call for the persons to appear personally before them and to record the statement. Such duty cannot be solely casted upon the assessee considering the fact that the alleged sum was received during the financial year 2007-08 and the proceedings in compliance to 263 order were carried out after six years. There are plethora of decisions where it has been held that merely for not appearing in person before ld. AO cannot be a ground to treat the receipts of share application money as unexplained.

We drew support from the decision of this Tribunal in the case of M/s. Kemex Engineering (P) Ltd. (supra) wherein similar issue was under consideration, however, the facts of the present assessee are on much better footing since in the instant case the share subscribers have furnished the requisite information directly to ld. AO. Relevant finding of the Tribunal is reproduced below: “7. We have heard the rival contentions and perused the material available on record and have given our thoughtful consideration to the Page 13 of 25 I.T.A. No.: 551/KOL/2016 Assessment Years: 2008-09 M/s. Bhikshu Agency Pvt. Ltd. elaborate observations and findings given by the Ld. CIT(A) while giving relief to the assessee. At the outset, we note that notices u/s. 133(6) of the Act were issued by the Ld. AO to all the five subscribers, who had replied giving all the details and documents required by the Ld. AO along with confirming the transaction of they making investment in the share capital of the assessee. We also take note of the fact that the share subscribers had furnished copies of their ITR acknowledgments which showed that each of them were regular income tax assessees, testifying their identity. 7.1. From the perusal of the paper book and the documents placed therein, it is seen that all the share applicants are (i) income tax assessees, (ii) they are filing their income tax returns, (iii) share application form and allotment letter is available on record, (iv) share application money was made by account payee cheques, (v) details of the bank accounts belonging to share applicants and their bank statements, (vi) in none of the transactions there are any deposit of cash before issuing cheques to the assessee, (vii) all the share applicants are having substantial creditworthiness represented by their capital and reserves. 7.2. We also take note of the elaborate and well reasoned findings and decisions arrived at by the Ld. CIT(A) by taking into consideration all the details and documents placed on record. The relevant findings and decisions from the following paras are extracted as under: “4.5. To sum up the foregoing, it is observed that all the notices u/s. 133(6) were served at the respective addresses of ach of the five shareholders by registered post. The share subscribers had furnished copies of income-tax Acknowledgments which showed that each of them were regular income-tax assessees who were assessed in their own rights with reference to their audited financial results. These facts established the identity of the share applicants. It is further noted that each of the share subscriber had furnished copies of the audited accounts for the FY 2011-12. Examination of these accounts revealed that each share subscribing company was having substantial own funds in the form of capital & reserves which were several times more than the share subscription amount paid to the appellant. In find that only a fraction of the net owned funds of the respective subscribing companies was invested in assessee’s equity shares. The investments made by each of the share subscribers were paid by way of account payee cheques and/or RTGS and there was no prior cash deposit in their bank accounts. In view of the aforesaid facts it can be safely inferred that the assessee had discharged its Page 14 of 25 I.T.A. No.: 551/KOL/2016 Assessment Years: 2008-09 M/s. Bhikshu Agency Pvt. Ltd. onus of substantiating the creditworthiness of the shareholders. The shareholders had also furnished copies of their share allotment advices. They had also explained the nature of their respective source of funds. All these facts considered cumulatively substantiate the genuineness of the transactions involving subscription of share capital. 4.6. It is noted that in the impugned order much emphasis was placed on the act that the shareholders did not respond to the notices u/s.

I however, find that although the share subscribing companies did not appear before the AO yet the material documents requisitioned by the AO in his notice u/s. 131 had already been furnished before the AO by the shareholders. From the perusal of the assessment order, I find that save & except making an assertion that the Directors of the share applicant companies failed to appear beore him, the AO did not bring on record any substantive material to disprove the documentary evidences which the appellant as well as the share subscribers had placed on AO’s record in support of the share subscription transactions. The material available on record shows that the AO had also made independent enquiries from the shareholders u/d. 133(6) of the Act. The facts and circumstances furnished by the shareholders in response thereto, supported the AR’s contention that the identity of all the five share subscribing companies stood established. Referring to the copies of the bank statements, the AR established that payment of subscription amounts were recorded in the bank statements of the respective companies. The entries in the bank statement proved that the share subscription amount was transferred through banking channel. Besides the entries in the bank statements also substantiated that before payment of share subscription mounts, no cash was deposited in the bank accounts of the subscribing companies. The AR further pointed out that appellant had furnished explanations before the AO with regard to immediate sources from which share subscription amounts were paid. On these facts therefore, I find that in terms of section 106 of the Evidence Act, the creditworthiness of the share subscribers and the genuineness of the transactions could not have been doubted by the AO merely on the ground that Directors of the share subscribers did not appear before the AO for verification. Gainful reference in this regard may be made to following observations made the Hon’ble Bombay High Court in the case of CIT Vs. Orchid Industries Limited (397 ITR 136). “6. The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank Page 15 of 25 I.T.A. No.: 551/KOL/2016 Assessment Years: 2008-09 M/s. Bhikshu Agency Pvt. Ltd. statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons disclosed that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the assessee. The judgment in case of Gagandeep Infrastructure (P) Ltd. (supra) would be applicable in the facts and circumstances of the present case.” 4.8. There is per se no quarrel with the proposition put forth by the AO that m tax proceedings the AO is not required to accept apparent as real. The AO has both duty as well as obligation to bring out the truth and present the real facts. For that purpose the AO is permitted to undertake investigation and enquiries so as to unearth the actual and real facts. The AO has been given power by the Legislature to prove that apparent is not real and thereafter make the assessment with reference to actual state of affairs. There is also no denial that the AO while assessing the income is permitted to take into consideration the human probabilities and if he proves that the conduct of the parties is not in conformity with the actions of prudent person then he may overlook the form of the transaction and find out the substance of the transaction and determine the tax consequences based on the real facts. In the impugned order the AO has doubted the genuineness of the entire transaction on the ground that it was against the human probability that the companies would invest in shares of the appellant company. The AO has also alleged that the unaccounted monies belonging to the assessee and ploughed back in the form of share capital by adopting the modus operandi where the unaccounted cash was rotated in four-five layers and thereafter the money was brought into the assessee’s bank account in the form of share capital. I however find that before these conclusions were recorded the AO himself did not bring on record sufficient tangible and cogent material to support his conclusion that the amount credited in the assessee’s books in the form of share capital and premium actually represented assessee’s undisclosed income. 4.15. Applying the judicial principles laid down in the above decisions to the appellant’s case. I find that the AO had made addition u/s. 68 without proper application of mine and incorrect appreciation of the relevant provisions of the Act. In the above judicial decisions, it has Page 16 of 25 I.T.A. No.: 551/KOL/2016 Assessment Years: 2008-09 M/s. Bhikshu Agency Pvt. Ltd. been held that before an addition u/s. 68 is made, it is necessary for the AO to bring on record irrefutable material or evidence which would prove that there was no valid issuance of the shares and for that reason the assessee had failed to prove identity & creditworthiness of the shareholders and also failed to substantiate genuineness. If these touchstones are applied to the appellant’s case then I find that the copies income tax acknowledgments and service of notices at their addresses established the identity of all the share subscribers. In the balance sheets of the respective share subscribers, the investments in assessee’s share were recorded and each subscriber in its balance sheet had disclosed sufficiently large investible funds. The assessee had also filed copies of the bank statements of the respective share subscribing companies which established that the share subscription amounts were received through banking channel. The sources of making payment were also furnished and the entries in bank statements indicated that there was no deposit of cash prior to clearance of the cheques in assessee’s favour. All these facts and documents considered cumulatively establish that the assessee had discharged the onus of proving creditworthiness of the share sub subscribers and the genuineness of the transactions. I therefore hold that the AO was not justified in making the impugned addition of Rs.,1,82,50,000/- u/s. 68 of the Act which is accordingly deleted. These grounds are therefore allowed.” 7.3. Before arriving at our finding, we refer to the following judicial precedents to buttress our observations and conclusions: i) The decision of Hon’ble Jurisdictional High Court of Calcutta in the case of CIT v. Dataware Pvt. Ltd. in ITAT No. 263 of 2011 dated 21.09.2011 wherein Hon’ble jurisdictional High Court held that “After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness" of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence.” ii) Decision of Hon’ble Madras High Court in the case of CIT v. Creative World Telefilms P. Ltd. (2011) 333 ITR 100 (Mad) wherein it was held as under:

We notice that all the details were very much placed before the Assessing Officer but while framing the assessment, no efforts have been made by the Assessing Officer to examine the correctness of various proof, filed by the assessee by carrying out any investigation. Merely for non-appearance of the directors, the ld. Assessing Officer disregarded all these documents which have been placed before various statutory authorities including Registrar Of Companies, Income Tax Department and Schedule Banks. The assessee by way of filing all these documents necessary to prove identity, creditworthiness and genuineness of the alleged transaction, has discharged the initial burden casted upon it under the provisions of section 68 of the Act. Unless and until, the assessing authority finds any lacuna or adversity or defect in the said documents, the burden to prove remains on the Revenue authorities. In the instant case, ld. Assessing Officer failed to discharge the burden and summarily disregarded the documents filed by the assessee by merely referring to some decisions and not going into the facts of the case except referring to the price per share.

We further observe that provision for examining the source of source under the provisions of section 68 of the Act has been brought in by Finance Act 2012 w.e.f. 01.04.2013 as per which “where an assessee is a company (not being a company in which public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by Page 19 of 25 I.T.A. No.: 551/KOL/2016 Assessment Years: 2008-09 M/s. Bhikshu Agency Pvt. Ltd. whatever name called, any explanation offered by such assessee company shall be deemed to be not satisfactory unless: a) the person being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited and b) such explanation in the opinion of the Assessing Officer has been found to be satisfactory.” Since the instant appeal pertains to assessment year 2012-13, and the said amendment brought in by Finance Act 2012 is effective from 01.04.2013, it is not applicable on the case before us. Even otherwise, it is not in dispute that the assessee has filed all the relevant documents of the share subscriber companies and further, in order to prove the source of source, copies of bank statements, audited balance sheets of all the nine subscriber companies are placed on record.

As far as the decision of Coordinate bench of ITAT, Kolkata in the case of Bishakha Sales Pvt. Ltd. (supra) referred by the Assessing Officer in making the addition, in our view, it does not support the addition as the said decision is delivered in the context of proceedings u/s 263 of the Act on the issue of enquiry regarding huge premium received on share application.

Further, in respect of ground nos. 3, 4 and 5, reference to the judgment of Hon’ble Supreme Court in the case of NRA Iron & Steel Pvt. Ltd. (412 ITR 161) is found to be distinguishable on facts in as much as in the said decision, Ld. AO has made extensive enquiries and some of investors were found to be non-existent. Upon going through the facts involved in that judgment, it is noted that, in the decided case the AO had made extensive enquiries and from that he had found that some of the investor companies were non-existent, which is certainly not the case before the undersigned. In the decided case, certain investor companies also failed to produce their bank statements proving the source for making investments in assessee company. In the facts o f the present case however not only have the shareholders furnished their bank statements and investment schedules to establish the source of funds but they have also furnished their respective sources of funds in response to notices issued by the AO u/s. 133(6) of the Act.

We, therefore, respectfully following the judgment referred hereinabove by the Hon’ble Courts and also considering the facts and circumstances of the case, are of considered view that since the assessee has sufficiently explained the identity and creditworthiness of the share subscriber companies and the genuineness of the Page 20 of 25 I.T.A. No.: 551/KOL/2016 Assessment Years: 2008-09 M/s. Bhikshu Agency Pvt. Ltd. transaction of applying for the equity shares of the assessee company and since nothing contrary to the evidence filed by the assessee has been placed on record by the Revenue, except the reason that the directors failed to appear to the summons issued u/s. 131 of the Act, we find no reason to interfere with the meritorious finding of the Ld. CIT(A). We accordingly dismiss the grounds raised

For all the above reasons, we find that no question of law much less, substantial question of law arises for consideration in this appeal.

We, therefore, under the given facts and circumstances of the case and after examining the same in light of the ratio laid down in the judgements and decisions referred herein above, are inclined to hold that since the assessee has sufficiently discharged its primary onus casted upon it under the provisions of Section 68 of the Act by way of filing all the necessary documents sufficient to explain the nature and source of the alleged share application money and also sufficient enough to prove the identity of the share applicants, genuineness of the transaction and also creditworthiness of the share applicants and also observing that a thorough independent enquiry has been conducted by ld. AO by way of issuing notices u/s 133(6) & 131 of the Act and except for not appearing personally before ld. AO all the other information as called for by ld. AO has been supplied and also considering the fact Page 24 of 25