ITO, WARD-5(1), KOLKATA vs. M/S EUROLINK EXPORS PVT. LTD.T, KOLKATA

ORDER

Per Sonjoy Sarma, JM:

1. That on the facts and in the circumstances of the case, Ld, CIT(A) was justified in the deleting the addition of Rs. 2,41.50,000/- made by the Assessing Officer on account of share capital and premium in the course assessment in absence of identity of the creditors, genuineness and creditworthiness of the entire transactions.

2. That on the facts and in the circumstances of the case, Ld, CIT(A) was justified in the deleting the addition of Rs. 2,41,50,000/- made by the Assessing Officer where no personal attendance was made by any director of the share allottee companies during the course of assessment proceedings and as such identity & creditworthiness of the creditors and genuineness of transactions could not be verified.

3. That on the facts, the principles which has been laid down by the Hon'ble Supreme Court in the case of Pr. CIT(Central)-1, Kolkata vs NRA Iron & Steel Pvt. Ltd (412 ITR 161) suggests that "the assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the A.O., failure of which,

M/s. Eurolink Exports Pvt. Ltd. would justify addition of the said amount to the income of the assessee". In the facts and under the circumstances of the case, the assessee company has failed to do so other than submission of mere statements of various kinds. Thus, the decision of the Ld. CIT(A) is erroneous in holding that the raised share capital was not the assessee's own income.

4. That on the facts, the principle which has been laid down by the Hon'ble Supreme Court in the case of Pr. CIT(Central)-1, Kolkata vs NRA iron 8& Steel Pvt. Ltd. (412 TR 161) also suggests that the Assessing Officer is duty bound to investigate the creditworthiness of the creditor /subscriber, verify the identity of the subscribes, and ascertain whether the transaction is genuine, or these are bogus entries of name lenders,. In the facts of the case, in spite of best efforts made by the assessing officer, he could not verify the same as there was no response from the companies to whom share were allotted on private placement basis. Thus, the decision of the Ld. CIT(A) is erroneous in holding that the raised share capital was not the assessee's own income.

5. That on the facts, the principles which has been laid down by the Hon'ble Supreme Court in the case of Pr. CT(Central)-1, Kolkata vs NRA Iron & Steel Pvt. Ltd. (412 ITR 161) also suggests that if the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack of credit-worthiness. Then the genuineness of the transactions would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section of the act, in the facts of the case, the Ld. CIT(A) completely ignored this aspect, thus he has erred in giving relief to the assessee.

7. That on the facts, in absence of verification, Ld. CiT(A) should have remanded the matter to A.0. for fresh verification. Thus, he has violated the provisions of Rule 46A of the I. T. Rules.

M/s. Eurolink Exports Pvt. Ltd.

8. That on the facts, the appellant craves to add, alter, amend, delete or substitute any of the grounds and/or take additional grounds before or at any time of hearing of this appeal.

9. That on the facts, further the Assessing Officer made disallowance of Rs. 90,575/- as u/s. 14A r.w. Rule 8D which has been deleted by the CIT(A)-7, Kolkata. The CIT(A) was not justified denying the findings of the Assessing Officer.”

2. Though the Registry has pointed out that the appeal is time barred, however, in view of the decision of the Hon’ble Supreme Court in the case of Miscellaneous Application No. 665 of 2021 in SMW(C) No. 3 of 2020, the period of filing appeal during the COVID- 19 pandemic is to be excluded for the purpose of counting the limitation period. In view of this, the appeal is treated as filed within the limitation period.

3. Going through the grounds of appeal, we find that the factual issue raised by the revenue is against the deletion of addition of Rs. 2,41,50,000/- by the ld. CIT(A) is made by the ld. AO in respect of share capital and share premium being unexplained cash credit during the year.

the ld. AO finally added the entire amount of Rs. 2,41,50,000/- in respect of share capital and share premium during the year under consideration in the hands of assessee. Further, the ld. AO disallowed of Rs. 90,575/- u/s 14A of the I.T. Act and added some income in the hands of assessee.

5. Dissatisfied with the above order, assessee preferred an appeal before the ld. CIT(A) where the ld. CIT(A) allowed the appeal of the assessee. After taking into consideration, the written submission of the assessee which is extracted below:

4.1. At the appellate stage, the A.R of the appellant discussed the issue and filed counter written submission to the effect that Section 68 of the Act could not have been attracted in the instant case. The written submission in this regard is reproduced as follows: Ground No. 1 to 3. All these grounds are directed against issue viz. the addition of Rs. 2,41,50,000/- towards receipt of share capital as unexplained cash credit u/s 68 of Income Tax Act, 1961 and the relevant arbitrary findings. The addition is not sustainable in law for reasons explained below: 1. During the year under consideration the appellant company was engaged in trading of shares as well providing financial accommodation carrying interest income. The gross receipts from above activities of business aggregated to Rs. 7,03,873/- as against such receipt of the immediate preceding year amounting to Rs. 15,34,294/-.

4. There is no controversy that in course of scrutiny proceeding the There is no controversy that in course of scrutiny proceeding the There is no controversy that in course of scrutiny proceeding the appellant furnished details and documents relating to appellant furnished details and documents relating to receipt of share capital with receipt of share capital with premium from shareholders as well as allotment thereof. This is evident from premium from shareholders as well as allotment thereof. This is evident from premium from shareholders as well as allotment thereof. This is evident from A.O.'s observations at page 1 & 2 of assessment order. A.O. on the basis of such A.O.'s observations at page 1 & 2 of assessment order. A.O. on the basis of such A.O.'s observations at page 1 & 2 of assessment order. A.O. on the basis of such details issued summons u/s 131 to the directors of shareholder compa details issued summons u/s 131 to the directors of shareholder compa details issued summons u/s 131 to the directors of shareholder companies as admitted on record.

6) We draw your kind attention to the chart herein above to plead that in respect kind attention to the chart herein above to plead that in respect kind attention to the chart herein above to plead that in respect of most of the parties no fresh sum of money was credited during the relevant year of most of the parties no fresh sum of money was credited during the relevant year of most of the parties no fresh sum of money was credited during the relevant year under consideration as the balances of their account represented opening under consideration as the balances of their account represented opening under consideration as the balances of their account represented opening balances. We refer to the ledger a balances. We refer to the ledger accounts of such share applicants filed in the ccounts of such share applicants filed in the paper book in support of our contentions. As far as applicability of section 68 of paper book in support of our contentions. As far as applicability of section 68 of paper book in support of our contentions. As far as applicability of section 68 of the Act is concerned it is submitted that there being no credit entry into the books the Act is concerned it is submitted that there being no credit entry into the books the Act is concerned it is submitted that there being no credit entry into the books of accounts during the year, addition cann of accounts during the year, addition cannot be validly made as per provisions of ot be validly made as per provisions of section 68 as they are only applicable in a case where any unexplained credit is section 68 as they are only applicable in a case where any unexplained credit is section 68 as they are only applicable in a case where any unexplained credit is found in the books of accounts in that particular previous year. We place reliance found in the books of accounts in that particular previous year. We place reliance found in the books of accounts in that particular previous year. We place reliance upon following decisions : upon following decisions :- a) CIT vs Usha Stud Agr CIT vs Usha Stud Agricultural Farms Ltd reported in 301ITR 384 Delhi icultural Farms Ltd reported in 301ITR 384 Delhi High Court held that “ since it is a finding of fact recorded by the CIT(A) that this High Court held that “ since it is a finding of fact recorded by the CIT(A) that this High Court held that “ since it is a finding of fact recorded by the CIT(A) that this credit balance appearing in the accounts of the assessee does not pertain to the credit balance appearing in the accounts of the assessee does not pertain to the credit balance appearing in the accounts of the assessee does not pertain to the year under ; consideration, under these year under ; consideration, under these circumstances, the assessing officer was circumstances, the assessing officer was not justified in making the impugned addition u/s 68 of the Act and as such no not justified in making the impugned addition u/s 68 of the Act and as such no not justified in making the impugned addition u/s 68 of the Act and as such no fault can be found with the order of the Tribunal which has endorsed the decision fault can be found with the order of the Tribunal which has endorsed the decision fault can be found with the order of the Tribunal which has endorsed the decision of the CIT(A). b) DCIT vs Amod Petrochem Private Limi DCIT vs Amod Petrochem Private Limited reported in 307 ITR 265 ted reported in 307 ITR 265 Gujarat High Court held that “in other words, what came in the books of Gujarat High Court held that “in other words, what came in the books of Gujarat High Court held that “in other words, what came in the books of accounts of the assessee company for the previous year relevant year to the accounts of the assessee company for the previous year relevant year to the accounts of the assessee company for the previous year relevant year to the assessment year in question, The tribunal was, therefore, justified, in holding assessment year in question, The tribunal was, therefore, justified, in holding assessment year in question, The tribunal was, therefore, justified, in holding that the assessee's liabilities to pay tax in respect of unexplained deposits of Rs. the assessee's liabilities to pay tax in respect of unexplained deposits of Rs. the assessee's liabilities to pay tax in respect of unexplained deposits of Rs. 1,61,895/- did not arise. did not arise. c) Shri Vardhman Overseas Ltd reported in 24 SOT 393 Delhi ITAT held Shri Vardhman Overseas Ltd reported in 24 SOT 393 Delhi ITAT held Shri Vardhman Overseas Ltd reported in 24 SOT 393 Delhi ITAT held that “since the amounts in question were brought forward balances, they co that “since the amounts in question were brought forward balances, they co that “since the amounts in question were brought forward balances, they could not be added to income of the assessee for the year under consideration, as the not be added to income of the assessee for the year under consideration, as the not be added to income of the assessee for the year under consideration, as the question of genuineness thereof could be examined only in the year in which they question of genuineness thereof could be examined only in the year in which they question of genuineness thereof could be examined only in the year in which they were credited to the account of the assessee". were credited to the account of the assessee". 7) Without prejudice to above to establish 7) Without prejudice to above to establish identity, creditworthiness of share identity, creditworthiness of share applicants - X and genuineness of transactions the appellant also furnished X and genuineness of transactions the appellant also furnished X and genuineness of transactions the appellant also furnished various documents as specified below; various documents as specified below;- AY: 2012-13 M/s. Eurolink Exports M/s. Eurolink Exports Pvt. Ltd.

M/s. Eurolink Exports Pvt. Ltd.

8) It is abundantly clear from the above facts that the appellant had furnished the full details of shareholders with name, address, PAN, etc to whom 120750 shares of Rs. 10/- each with premium of Rs. 190/- per share were allotted during the year after adjustment of share application money of Rs. 1,91,00,000/- received in earlier year and balance of Rs. 50,50,000/- received in the current assessment year. The various documents furnished in respect of the subscriber as furnished on record forms part of paper book accompanying this written submission. 9) In the instant case, the shareholders are mostly individuals, HUFs except four shareholders who are corporate entities and duly incorporated under the Companies Act, 1956. The share applicant companies as well as other shareholders who are individuals & HUFs are also independently assessed to tax. Therefore the identities of all the 45 shareholders are verifiable from Departments own record and website. So far as genuineness of the transactions it is stated that share subscriptions received during the relevant previous year amounting to Rs.50,50,000/- were received by account payee cheques through banking channel which' is traceable from the origin to the destination of such payment. The transactions are verifiable from the bank statements of the appellant company and the outgoings from the Bank statements of all the 18 shares subscriber companies as furnished on record. Therefore, the genuineness of the transactions should not be called into question. As far as creditworthiness of the share applicants is concerned it is stated that the entire gamut of transactions was undertaken through banking channel and there was sufficient balance available of enable to invest the necessary fund. In respect of all the share applicants, there were more than enough funds to subscribe to the shares of the appellant as the following facts will unequivocally testify and prove. As regards 41 sharesholders who are individual s and HUFs it is submitted that all such non-corporate individuals & HUFs in their letters addressed to the AO confirmed their application for shares including mode and source of payment which were dispatched by post as well as by delivery through messenger in the office of AO copies of all such replies are filed in paper book. 10) We place reliance to the decision of Jurisdictional High Court in the case of Exoimp Resources (India) Ltd. -VS- C.I.T. (2005) 276ITR 87 (Cal) wherein it was opined that if the assessee furnishes an explanation in respect of cash credit U/s. 68, it is incumbent upon the Assessing Authority to examine the explanation and arrive at a conclusion as to whether the explanation was satisfactory. In case the explanation of the assessee is considered as not satisfactory, Assessing authority has to communicate his view point in arriving such conclusion. If thereupon the assessee submits any comments or furnishes further information, in that event, the Assessing Authority has to examine the same and arrive at his own conclusion. The inbuilt safeguard provided in section 68 cannot be ignored by the Assessing Authority at his sweet will. The documents furnished on record to establish identity and creditworthiness of the shares subscribers as- well as genuineness of transactions have not been proved to be false by causing any enquiry by A.O. In M/s. Eurolink Exports Pvt. Ltd. the absence of any attempt to find fault in these documents, it has to be presumed that the appellant discharged the burden which is cast. U/s; 68-of the Income Tax Act. Hence, the scope of holding that shares capital is unexplained is rare and remote. 11) The provisions of section 68 stipulate that any sum found credited in the assessee’s books of account of the relevant year and in respect of which the assessee failed to explain the nature and source of such credit shall be assessed as unexplained credit. The facts of the present case as explained at para 5, 6 and 7 of this submission will reveal that both the nature and source of share application money was fully explained by the appellant. The appellant has conclusively proved the identity and creditworthiness of the share applicants as well as genuineness of transactions.-The PAN details, Bank statement, Audited Accounts and I. T. Return acknowledgement of all the share application were placed on A.O. records. 12) As per requirement of law, the initial burden lies on the tax payer to explain the nature and source of share application money received by the assessee. It is also clear that the tax payer has to establish satisfactorily the identity and creditworthiness of the shareholders as well as genuineness of transactions to discharge its primary burden as per mandate of section 68 of the Act. The initial burden has been duly discharged by providing the identity, creditworthiness and genuineness by furnishing copies of return along with Audit report and financial statement as well as copies of Bank ' statements of the shareholders as well as the appellant company. These are verifiable from relevant documents which forms part of paper book. None of these documents submitted on record have been proved to be false or bogus by Ld. A.O. by causing enquiry. Ld. A.O. has drawn adverse inference against the appellant merely on the plea that none of the directors of shareholders companies as well as individuals or karta of HUFs attended personally in terms of summons u/s 131. 13) Therefore, the onus to disprove the assessee's explanation stands gifted on the revenue. A.O. has failed to find any fault either on such explanations and or various documentary evidences establishing identity, creditworthiness and genuineness of transactions. The impugned order does not show any adverse inference relating to identity by mismatch of PAN and/or non-availability of share applicant at the given address. The order also does not say that capital and reserves of shareholders fall short of their investment with the appellant company. Nor there is any attempt that there was no adequate balance in the share holders bank A/c prior to issue of cheque for investment with the appellant. Therefore the onus which shifted on the revenue cannot be said as reverted back on the taxpayer. Consequently, all the documentary evidences available on records establishing identity, creditworthiness and genuineness have to be acted upon as a valid and genuine one in the absence of any challenge from the Revenue. In the circumstances, it is pointed out that Ld. A.O. has framed assessment in most perfunctory manner and without any objective application of mind to the facts, materials and evidences placed on records.

M/s. Eurolink Exports Pvt. Ltd.

14) We have earlier explained that while allotting 120750 shares of Rs. 10/- each at a premium of Rs. 190/- each the appellant adjusted share application money of Rs. 1,91,00,000/- received in earlier years. Hence only a balance amount of Rs. 50,50,000/- i.e. (2,41,50,000 - 1,91,00,000) may be said as cash credit u/s 68 of the Act in the present year. It is settled law that share application money received in earlier year cannot be considered - as unexplained cash credit u/s 68 in the present year merely on the ground that shares were allotted in A. Y 2012-13. Further the remaining sum of Rs. 50,50,000/- was mostly received from same brought forward shareholders and some new shareholders who have furnished all the requisite evidences in support of genuineness of claim. 15) It is evident from assessment order that the only reason for which so-called cash credit has been considered as unexplained is that directors of shareholders companies failed to .appear in person in response to summons u/s 131. We invite attention to the decision of Bombay High Court in the case of CIT - Vs - U.M. Shah, Proprietor, Shrenik Trading Co. 90ITR 396 wherein it was held – “If the parties had received the summons but did not appear, the assessee could not be blamed.” 16) The other allegation of Ld. A.O. shows that the assessee company was confronted with the non-compliance of summons u/s 131 by directors of Shareholder Companies and was directed to produce the shareholder companies for examination which was not acted upon. It is humbly submitted that Companies Act has not given any power to direct the shareholders companies and/or to enforce attendance before A.O. 17) Case laws relied by A.O. i.) The allegation of A.O. that the assessee failed to prove all the criteria within the meaning of section 68 of the Act by relying upon the decision in the case of CIT - Vs-Precision Finance Pvt. Ltd. 208 ITR 463 (Kol) is not sustainable in law. It is evident from the relevant part of observations from the said judgement that Kolkata High Court gave their opinion in the context of facts that – “The enquiry of ITO revealed that either the assessee was not traceable or there was no such file and accordingly the first ingredient i.e. the identity of the creditors had not been established." The facts of the present case do not suggest that any enquiry was caused by A. O. to conclude that any of the 45 shareholders are either not traceable or they have no I.T. file. Therefore the decision relied upon being distinguishable on facts cannot have any applicability. ii.) The decision in the case of CIT - Vs - Nipun Builders & Developers Pvt. Ltd. as relied upon by A.O. can have hardly any application in the present case. Since facts are completely distinguishable and 41 share allottees were individuals &

M/s. Eurolink Exports Pvt. Ltd.

HUFs. No summons u/s 131 was issued in their name and as such the ratio of this case law is not applicable in the appellant’s case. iii.) The decisions CIT - Vs - Devi Prasad Vishwanath Prasad 72 ITR 194 (SC) and CIT -Vs - Independent Media Pvt. Ltd. (Delhi HC) appears to be extraneous since there was no failure to prove identity, creditworthiness and genuineness of transactions in respect of 45 shareholders including four shareholders who are corporate bodies, Such documents have not been proved to be false or bogus. There is no adverse inference on this point. iv.) The decision of IT AT Kolkata Bench in the cases of Star Griha Pvt. Ltd. - Vs - CIT and Bisakha Sales Pvt. Ltd. - Vs - CIT refer to revisionary proceeding u/s 263 of Income Tax Act, 1961. Such decisions cannot be imported for the purpose of assessment proceeding u/s 143(3) but should be confined to power of CIT in applying jurisdiction.”

We after hearing the rival parties and perusing the material 6. available on record including the impugned order. It is an undisputed fact that during the year under consideration, the assessee allotted equity shares amounting to Rs. 2,41,50,000/- was received in earlier assessment year. The details of the aforesaid money receipt in the earlier years are given in the tables in the order has extracted hereinabove and in this regard, ld. CIT(A) has also given a finding of fact to this effect in the appellate order. We note that the assessee has issued shares to 49 parties amounting to Rs. 2,41,50,000/- comprising of share capital of Rs. 12,07,500/- and share premium of Rs. 2,29,42,500/-.

M/s. Eurolink Exports Pvt. Ltd.

Rs. 11 lacs has been received from different parties for the first time during the year to which the assessee has allotted the equity shares.

We further note that the assessee filed all the evidences 10. before the ld. CIT(A) in respect of money receipt in earlier years comprising names, address, bank statement etc. which confirmed disinvestment in assessee’s company. The case of the assessee finds support from the decisions which are discussed as under: a) CIT vs Usha Stud Agricultural Farms Ltd reported in 301 ITR 384 Delhi High Court held that “ since it is a finding of fact recorded by M/s. Eurolink Exports Pvt. Ltd. the CIT(A) that this credit balance appearing in the accounts of the assess. Does not pertain to the year under consideration, under these circumstances, the assessing officer was not justified in making the impugned addition u/s 68of the Act and as such no fault can be found with the order of the Tribunal which has endorsed the decision of the CIT(A). b) DCIT vs Amod Petrochem Private Limited reported in 307 ITR 265 Gujrat High Court held that “in other words, what came in the books of accounts of the assessee company for the previous year relevant year to the assessment year in question, The tribunal was, therefore, justified, in holding that the assessees liabilities to pay tax in respect of unexplained deposits of Rs. 1,61,895/- did not arise. c) Shri Vardhman Overseas Ltd reported in 24 SOT 393 Delhi ITAT held that “since the amounts in question were brought forward balances, they could not be added to income of the assessee for the year under consideration, as the question of genuineness thereof could be examined only in the year in which they were credited to the account of the assessee”. d) The Hon'ble Apex Court in the case of Orissa Corporation Pvt. Ltd. reported in 159 ITR 78 and Hon’ble Gujarat High Court in the case of DCIT Vs. Rohini Builders reported in 256 ITR 360 wherein it was held "Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee from those creditors as non-genuine in view of the principles laid down by the 'Supreme Court in the case of Orissa Corporation [1986] 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the -alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw and adverse inference against the assessee. in the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those

M/s. Eurolink Exports Pvt. Ltd. creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69”. e) The Hon’ble Jurisdictional High Court in case of Crystal Networks (P)Ltd vs CIT reported in 353 ITR 171 (Cal) had held that when the basic evidences are on record, the mere failure of the creditor to appear before the Assessing Officer cannot be the basis to make addition.

satisfied that the said sum cannot be subjected to the provisions of section 68 of the Act and the ld. CIT(A) has rightly deleted the said addition. No interference is, therefore, called in the findings of ld. CIT(A). Accordingly we uphold the order of ld. CIT(A) by dismissing the appeal of the revenue.