DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-13, NEW DELHI, JHANDEWALAN, DELHI vs. MINDA TG RUBBER PVT LTD, IMT

3. The revenue has raised following grounds of appeal in A.Y. 2015-16:

1. Whether on the facts and circumstances of the case, the Ld. CIT(A) is correct in deleting the addition made u/s 68 of the I.T. Act, 1961 amounting to Rs.10,00,00,000/- by stating that the assessee has duly discharged the onus that lay upon it u/s 68 of the Act despite the fact that assessee has failed to prove the creditworthiness and genuineness of subscribers who have made investment in the assessee company.

5 II. Whether on the facts and in law, the Ld.CIT (A) is correct in ignoring the facts that the fund which was credited into the bank account of the investor company was debited on the same day in which it was received. III. Whether on the facts and circumstances of the case the Ld.CIT(A) is correct in observing that requisite details and evidences were filed by the assessee to prove the creditworthiness and genuineness of the subscriber, despite the fact that based on their financial statements it was held that the subscriber companies is not doing any real business. IV. Whether on the facts and in law, the Ld. CIT(A) is correct in ignoring the facts that the creditworthiness and genuineness of the share subscribers from whom share capital was received is not proved since they were showing meager returned income with negligible income from operations. V. Whether on the facts and in law, the Ld.CIT(A) is correct in deleting the additions made by the AO, ignoring, the judgement of the Hon'ble Apex Court in DCIT vs NRA Iron and Steel Pvt Ltd in civil appeal No. 29855 of 2018.

6 VI. Whether on the facts and in law, the Ld. CIT(A) is correct in deleting the additions ignoring the judgment of the Hon'ble Delhi High Court in the case of N.R Portfolio Pvt Ltd (ITA No. 1018/2011), wherein it is held that the transaction through bank accounts do not reflect the creditworthiness or even the genuineness of the transaction. VII. Whether on the facts and in law, the Ld. CIT(A) is correct in deleting the additions of Rs.10,00,00,000/- made by the AO on protective basis by ignoring the judgement of Hon'ble Supreme Court in the case of Lalji Haridas Vs ITO 43 ITR 387 (SC), 1961 and Hon'ble Gujarat High Court in the case of CIT, Gujarat II Vs. Surendra Gulab Chand Modi 140 ITR 517(Gui) 1983 wherein, it is held that the 'Protective Assessment'- which in law should be allowed to remain as such- till the matters attain finality by Superior Courts-High Court or Hon'ble Supreme Court. VIII. a) Whether on law and facts of the case the order of the Ld. CIT(A) is erroneous and not tenable in law and on facts.

7 (b) The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.

4. The brief facts of the case are that the assessee company M/s Maa Rukmani Devi Auto Limited filed its return of income for A.Y. 2015- 16 declaring income at Rs. 4,62,580/- on 30-09-2015. The return of income was processed u/s 143(1) of the Act and was taken for scrutiny. Notice u/s 143(2) was issued on 12-04-2016 and subsequently notice u/s 142(1) of the Act with questionnaire were issued and served upon the assessee. During the period under consideration, the Assessee company has raised fresh share at face value of Rs. 100/- each of Rs. 10,00,000/- with no security premium. The assessee company has allotted such share capital to Ziwani Barter Pvt. Ltd during the period of October 2014 to March 2015. The AO vide notice dated 16-08-2017 has asked to substantiate and creditworthiness of the allotee entity and directed to the file the various documents. In the reply of the notice the assessee company has furnished the detail reply before the AO.The AO has made the addition on the protective basis in the hands of the 8 assessee Minda TG Rubber Pvt. Ltd. and substantive in the hands of the M/s. Maa Rukamini Devi Auto Private Limited.

5. The A.O. was not satisfied with the reply submitted by the assessee. The A.O has made the addition of Rs.10,00,00,000/- u/s 68 of the Act on account of unexplained income and on account of commission paid to entry operators Rs. 2,96,292/- total Rs. 10.02.96.292/- and penalty proceedings u/s 271(1) (c) of the Act have also been initiated.

6. Aggrieved by the order of the AO the assessee has filed the appeals before Ld.CIT(A), who vide order dated 19-06-2023 partly allowedthe appeals against which the revenue have filed these appeals before the Tribunal. The Ld. CIT(A) has observed in his order as under: 5.3 I have considered the facts of the case and the submissions of the appellant placed on record. In this case the appellant allotted 1000000 redeemable preference shares at face value and no premium is involved in this case. Out of 10.00.000 preference shares, 3,50,000 preference shares have been redeemed by the appellant company and as such sum of Rs 3,50,00,000/- have been paid to investor company.

9 The company Ziwani Barter Ltd is assessed to Income tax and the assessment of Ziwani Barter Pvt Ltd for A Y 2009-10 and AY 2017-18 was completed u/s 143(3) of the Income Tax Act. In the order passed in the case of Ziwani Barter Pvt Ltd for A Y 2009-10 and AY 2017-18 it has not been held that Ziwani Barter Pvt Ltd is a shell company or source of investment is not genuine.

The AO has not brought out any evidence or material that Share capital received from shareholder is not genuine. There is no allegation or evidence that collateral payment changed hands. As such there is no allegation that in lieu of investment cash have been given by the assessee. There is no allegation or evidence that the assessee has earned unaccounted income so as to pay the cash in lieu of cheque received from investors. It is not the case that onus has not been discharged by the assessee as the documents to prove the identity, creditworthiness and genuineness in respect of share capital have been submitted by assessee during the course of assessment proceeding.

The appellant and investor company submitted replies to various notices and also furnished the documents required in support of identity, creditworthiness and genuineness of share capital. It has 10 been submitted that the test of identity of the shareholders is fully met as Ziwani Barter Pvt Ltd is a Pvt Ltd company and the same require the registration from the ROC with registrar. The company is assessed to Income Tax having PAN No and the return of the income of the shareholder has also been submitted and these documents placed on recon establish the identity of the shareholder without doubt. During the course assessment proceeding notice u/s 133(6) of the Income Tax Act has also be served and these facts have been admitted by the Assessing officer and same establishes the identity of the shareholder. From the assessment record it is fond that the director of Ziwani barter Pvt. Ltd. had submitted an affidavit confirming the investment made out of its own fund. No further enquiry was made by the AO to disapprove the documentary evidences submitted by the appellant and the investor company.

The test of identity of Ziwani Barter Pvt Ltd is fully met as the shareholder is a Pvt Ltd company and the same require the registration from the ROC with registrar. The company is assessed to Income Tax having PAN No and the return of the income of the shareholder has also been submitted and these documents placed on record and establishes the identity of the shareholder without doubt. The net worth of Ziwani Barter Pvt Ltd as on 31/03/2015 is 11 Rs.36,58,68,472/-. Further, all the required details being the copy of bank statement as well as Balance sheet of the company clearly establishes the creditworthiness of the shareholder.

The test of the genuineness of the shareholder has also been established as the share application money was received by the assessee-company by way of account payee cheques, through normal banking channels. It is not the case of the Revenue that the payment of share application money was not made from the bank account of the applicant-company. It is also not the case that the shares were not actually allotted to shareholder. As such the genuineness of the transactions had been duly established by the assessee.

Thus, the reason assigned by the Assessing Officer does not have much credence to dislodge the evidences filed by the investor company, to corroborate the assessee's explanation and the documents submitted by the assessee to prove the nature and source of credit. Regarding various observations and allegations of the Assessing Officer, appellant has given a very detailed reply based on documents on record. From bare perusal of the explanation duly supported by the documents, we find that whatever so called Inquiry which was conducted by AO has not led to any lota of adverse 12 material so as to hold that the transactions are not genuine. Further, we find that nowhere Assessing Officer has made any effort or conducted any investigation to rebut the documentary evidences so filed by the assessee in order to support the genuineness of share capital received from subscribers.Another allegation by the Assessing Officer was that these companies have received funds from other companies before issuance of cheques through the assessee company and also tried to analyze fund trail to assume that assessee company had ploughed back its own money in the books of account in the garb of share application money. The said allegation itself is based on assumption of facts and no adverse finding is there on record.

In so far as the source of the fund and the creditworthiness of the investor company, it is seen from the financial statements so produced by the assessee that it had sufficient own funds to invest in the form of net worth and the finding of the AO that the subscribing company had nominal income is in complete lgnorance of the fact that income is not the sole criterion to make Investment, even the net worth or past savings can be used to make Investments, which have not been appreciated by AQ. Further out of 10.00.000 preference shares, 3.50.000 preference shares have been redeemed by the appellant 13 company and as such sum of Rs 3,50,00,000/- have been paid back to investor companies.

In view of the above, that the appellant has filed all the relevant documents related to the genuineness and creditworthiness of the investment received, while the A.O. has failed to bring any adverse finding/material on record, it is apparently clear that the subscribing company had net worth in the form of investment which were utilised to make investments in the appellant company and as such, the income is not the sole criterion, whereas, a holistic view needs to be taken, as the investee companies can also make investments out of its past savings or its net worth and said fact has not been appreciated / rebutted by AO in the impugned assessment order. There is no finding as how the investment received is an accommodation entry. Neither any enquiry was made from the appellant nor from the investor. The investment so received were received at par and no share premium was received and in the subsequent year FY 2017-18, part of the preference shares have been redeemed by the appellant company and sum of Rs 3,50,00,000/- was refunded back. Thus, the addition made by the AO without any adverse finding, merely on the basis of suspicion not found sustainable, and hence the said addition of 14 10,00,00,000/- u/s 68 of the Income Tax Act made by the AO is deleted. Accordingly, the grounds of appeal taken by the appellant is allowed.

7. Ld. DR has submitted that the assessee has failed to discharge the onus required u/s 68 of the Act. He further submitted that the assessee has failed to prove the genuineness of the transactions and creditworthiness of the company. He also submitted that the notice issued u/s 136(6) of the Act was return back with this remarks that no such company was exist at such address. Shri Jivendra Mishra, director of the company has admitted in his statement that the company was running for the purpose of providing the accommodation entry. The assessee company has the negligible income and funds which has not established the creditworthiness of the company.The Ld. DR has relied upon the following observations in the order of Hon’ble Calcutta High Court in the case of PCIT Vs. Mundhra Construction (P) Ltd.:

6. The next issue which was taken up for consideration is with regard to the correctness of the addition made under section 68 of the Act. The assessee among other things contended that the notices 15 under section 133(6) of the Act was issued only out of 9 out of 30 shareholders and the details having been furnished, the assessee submitted that they have discharged burden cast upon them. Furthermore, the assessee submitted that the profit and loss account and the balance-sheet containing substantial income was before the Assessing Officer and, hence, creditworthiness was proved. Certain decisions were also referred to in support of such contention. The appellate authority, in our considered opinion, rightly noted the legal position that the onus is on the assessee to prove not only the identity of the share applicant but also the creditworthiness of the share applicants and last but not the least the bona fide or genuineness of the share application money credited in the books of account. It was held that merely providing proof of identity and other relevant documents is not sufficient as creditworthiness of the share applicant and the genuineness of the transaction is also important. After noting the decision of the Hon'ble Supreme Court in Pr. CIT v. NRA Iron and Steel (P.) Ltd. [2019] 103 taxmann.com 48/262 Taxman 74/412 ITR 161 (SC), CIT v. Durga Prasad More, [1971] 82 ITR 540 (SC) and Sumati Dayal v. CIT [1995] 80 Taxman 89/214 ITR 801 (SC) the appellate authority proceeded to examine the documents in the case of the share subscriber companies which are 21 in number. The appellate authority has discussed the factual aspect in respect of each 16 such share subscribers. By way of an illustration, if we take up the case of Lucky Prime Financial Consultants Pvt.Ltd., the company was shown to be an existence from June, 2011 with an authorised share capital of Rs.500000/- and paid up capital of Rs.4,59,600/-, the subscriber company has collected share premium of Rs.1.76 crores on the share capital of Rs.4,59,600/- which was found to be abnormal as the subscriber company had no track record of any identity whatsoever or there were any projection of any activity and it had a surplus of only Rs.53,230/-. Furthermore, the subscriber companies had received Rs.5,22,174/- on which profit of Rs.44,330/- was earned. Furthermore, on facts it was found that the funds collected are entirely invested in land and advances of Rs.1.06 crores and there is a bank balance of Rs.88.69 lakhs. Further, the subscribers claimed to have invested Rs.2,50,000/- as share application money and premium in the financial year 2011-12. However, there are no investments shown in the balance-sheet of Lucky Prime Financial Consultants Pvt.Ltd. as on 31.3.2012. Therefore, the appellate authority came to the Conclusion that the creditworthiness of the share subscriber remains unproved and the genuineness of the transactions is also not proved from the documents produced. Similar discussion has been made in respect of all the 21 share subscribers. In paragraph 6.5 of the order passed by the appellate authority the common features of all 17 subscriber companies were noted namely that the registered address of some of the companies are common and the directors of the company were also found to be a group of persons. The accounts of the companies were audited by the same group of auditors. There are no activities apparent from the profit and loss provided except for receipt of interest and all companies have only furniture and computers as assets and there are no vehicles or office premises in the schedule of assets. Thus, noting all the facts the appellate authority held that the assessee has not discharged the onus under section 68 of the Act. More importantly the appellate authority noted that the first two entities are individuals and they are promoters of the assessee company and the shares issued to them are not added as premium. This peculiar aspect was noted and it was pointed out that the promoters do not share the view of the other companies who have subscribed to the shares at premium, about the prospects of the assessee company. Moreover, the assessee has not provided any documentary evidence for the creditworthiness of the promoters, ie., Aditya Mumdhra& Sonali Mundhra. It was found that the remaining 28 companies have contributed Rs. 2.77 crores towards the share capital at par along with share premium and the creditworthiness and the genuineness of the transactions were not proved. Accordingly, the 18 addition of Rs.2,82,00,000/- was confirmed and the addition of Rs. 10,798/-was deleted.

19 “17. It is neither necessary nor desirable to give examples to indicate under what circumstance section 68 of the Act can or cannot be invoked. What is clear, however, is that section 68 clearly permits an Income-tax Officer to make enquiries with regard to the nature and source of any or all the sums credited in the books of account of the company irrespective of the nomenclature or the source indicated by the assessed. In other words, the truthfulness of the assertion of the assessed regarding the nature the Income-tax Officer. In the case of Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi), the Income-tax Officer had accepted the increased subscribed share capital. Section 68 of the Act was not referred to and the observations in the said judgment cannot mean that the Income-tax Officer cannot or should not go into the question as to whether the alleged shareholders actually existed or not. If the shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as a capital receipt and to that extent the observations in the case of Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi), are correct but if, on the other hand, the assessed offers no explanation at all or the explanation offered is not satisfactory then the provision of section 68 may be invoked. In the latter case section 68, being a substantive section, empowers the Income-tax Officer to treat such a sum as income of the assessed which is liable to be taxed in the previous year in which the entry is made in the books of account of the assessed.

20 12. Thus, the addition made by the AO merely on the basis of suspicion and without any adverse findings are not found sustainable, hence the said additions of Rs.16,16,00,000/- u/s. 68 and Rs 16,16,000/- u/s 69 of the Act were rightly deleted by the ld. CIT(A). Hence, we do not find any reason to interfere with the findings of the Ld. CIT(A). The grounds raised by the revenue are dismissed accordingly.