Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
This appeal is filed by the ITO-13(3) (1) Mumbai (the ld. AO) for A.Y. 2011-12 against the order of theLd. CIT(A)- 21 Mumbai (the ld. CIT-A)dated 29/03/2019 wherein the appeal filed by the assessee against the assessment order passed u/s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 bythe ld. AO was partly allowed.The ld. AO is aggrieved with the deletion of the addition made u/s. 68 of the Income Tax Act of ₹10 Crores on account of unexplained share capital and premium.
The ld. AO has raised the following grounds of appeal:
2. On the facts and circumstances of the case and in law, the ld.CIT(A) erred in deleting the disallowance made by the AO on account of Unexplained share/capital at premium u/s. 68 of ₹10,00,00,00/- by ignoring the decision of the APEX Court in the case of PCIT vs NRA Iron & Steel Pvt. Ltd. [2019] 103 taxmann.com 48 (SC) wherein it is held that “practice of conversion of unaccounted 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 know of the assessee. The assessee is under legal obligation to prove receipt of share capital/ premium to the satisfaction of the A.O. failure of which would justify addition.
3.The appellant prays that the order of CIT(A) on the above ground be set aside and that of Assessing Officer be restored.”
The reason shows that as per survey u/s. 133A on 27.08.2014 on Shri Dilip Mehtaand his statement recorded u/s. 131 of the Act that he is managing companies and providing accommodation entries to various companies. He has also provided accommodation entries to Mr. Amar Natvarlal Shahof the assessee company in the form of share premium through 8 companies of ₹10 Crores.
In response to notice u/s. 148 of the Act, Assessee filed the original return of income on 30.08.2016. The necessary notices were issued and the assessee was asked to explain the above share capital of ₹10 Crores. AO further issued notices u/s. 133(6) of the Act to all shareholders but all returned un-served. Further, the assessee was directed to provide new address of the shareholders. The assessee company did not give new address, but confirmation of shareholder companies were sent by the post. Further, Show Cause Notice was issued on 16.12.2016. The assessee filed submission on 31.08.2016 along with the list of shareholders, balance-
Assessee aggrieved with the same preferred an appeal before the ld. CIT (A). The ld. CIT(A) deleted the addition holding as under:
“ In the light of the facts of the case and various submissions made by the appellant, the judicial pronouncements relied upon by the appellant, it is concluded as under:- The provisions of section 68 of the IT Act, 1961 before amendment (i.e. prior to A.Y. 2013-14) stated as under:
Perusal of these provisions divulges that there is an obligation on the part of the assessee to prove the identity, genuineness and creditworthiness of the person from where the money is actually received. The above three ingredients have been taken as basic parameters to be satisfied by the appellant.
Further, under what circumstances the invocation of section 68 of the IT Act, 1961 can be restored to (a) When the assessee fails to prove the genuineness of the transaction that has entered into his books of account.
(b) When there is no satisfactory explanation provided on the part of the Assessee to the Assessing Officer with respect to the amount credited into the accounts.
(c) Where there are documentary evidences required to support the validity of the Thus, from the above, it is understood that the provisions of section 68 of the Act place the initial burden of proof upon the assessee.
In the case of appellant, when the Assessing Officer issued notices to the all the investors, the investors themselves in response to notice u/s. 133(6) have produced the details. PAN, details of the respective companies, address total amount received, nature of share premium, copy of income tax return, audited annual report, copy of bank statement of investor companies, account opening from in compliance to the KYC record of the MCA website of Register of companies, details of common identification member, CIN, copy of bank statement of the investor companies reflecting their source of investment into the appellant company; audited annual reports of the respective investing companies justifying their existence and sufficiency of net worth; Proof of source of investment made by the investing companies.
Further, if the Assessing Officer nurtures any doubt on the genuineness of the transaction as held by courts the Assessing Officer should have conducted investigation but the Assessing Officer did not do so.
However, the Assessing Officer has doubted credit worthiness and the genuineness of the transaction stating that all are paper companies operated by Dilip Mehta but did not controvert or disapprove the facts. The appellant has further submitted that in similar facts and circumstances, where the companies managed and controlled By Dilip Mehta in whose cases additions were made, have been deleted by the Honble ITAT the case of M/s Om Percement (P) Ltd Mehta Financial Services Pvt Ltd and MBM Tubes Pvt Ltd. In these cases also some of the investors are common. Thus, the appellant's contention that on similar facts the decisions of the Hon'ble ITAT’s are to be applied to the facts of the appellant, is accepted.
2.8 Thus, it has to be said that the appellant has done everything in its wisdom to prove the 3 ingredients required to prove the satisfactory nature of the said share capital received from 8 companies. In these circumstances, the onus had shifted to the AO, but AO did not proceed further to bring any contrary finding on record.
The appellant submitted that, when the three ingredients are satisfied, the addition cannot be made us/ 68 as held by Hon'ble High Court of Madhaya Pradesh in the case of Chain House International (P) Ltd [2018] 98 taxmann.com 47 The relevant portion of the judgment is as under:-
Issuing the share at a premium was a commercial decision. It is the prerogative of the Board of Directors of a company to decide the premium amount and is the wisdom of shareholder whether they want of subscribe the shares at such a premium or not. This was a mutual decision between both the companies. In day to day market, unless and until, the rates is filed by any Govt. Authority or unless there is any restriction on the amount of share premium under any law, the price of the shares is decided on the mutual understanding of the parties concerned.
53.Once the genuineness creditworthiness and identity are established the revenue should not justifiably claim to put itself in the armchair of a businessman or in the position of the Board of Directors and assume the role of ascertaining how much is a reasonable premium having regard to the circumstances of the case.
The appellant submitted that the above decision is applicableappellant.
The appellant has also relied on the jurisdictional High Court decision in the case of CIT-I v.M/s Gagandeep infrastructure Pvt Ltd (Income Tax Appeal No 1613 of 2014)
In the case of CITv. Lovely Exports (P) Ltd 2008 (2010) 14 SCC 761, the Apex Court held that the share application money is received by the assessee from alleged bogus shareholders whose names are given to the assessing officer, then the department is free to proceed to reopen their individual assessments, in accordance with lave but this allotment of share application money cannot be regarded as undisclosed income under Section 58 of the Act.
Considering all the facts and circumstances of the case the details filed by the investors and the assessee respectfully following the decisions in the cases of Om Procurement MBM Tubes Pvt Ltd & Mehta Financials of Hon'ble ITAT Mumbai referred to herein above as the facts of these cases are similar to the facts of the appellants case and decision in the case of Gagandeep Infrastructure (P) Ltd of Hon'ble High Court Mumbai and the decision of Honble High Court of Madhya Pradesh in the case of Chain House International (P) Ltd and the decision of Hon'ble Supreme Court in the case of Lovely Exports (P) Ltd the addition made by the Assessing Officer of Rs 10 crores as unexplained share application money is unwarranted and therefore addition made by the
Despite notice, none appeared on behalf of the assessee. On several occasions earlier also, notices were issued to the assessee, but assessee chosenot to remain present. Therefore, the appeal of the ld. AO is decided on the merits of the case as per information available on record.
We have carefully considered the contentions of the LDDR and perused the orders of the lower authorities. The facts clearly show that assessee is a company which is engaged in construction and real estate development filed its return of income at Rs Nil. Subsequently, information was received that assessee has received share capital and share premium from 8 different companies aggregating to ₹ 10 crores which is operated by one entry operator Mr.Dilip C Mehta. Mr. Dilip Mehta also referred to the name of the person who is at the helm of affairs of this company, i.e.Mr. Amar Natwar Shah. The assessee on reopening of the assessment merely submitted the documents showing identity, creditworthiness and genuineness of the transaction such as address details, MCA Details, Annual Accounts etc. the ld. AO issued notices u/s 133 (6) of The Act and found that address of The Shareholders are not correct. The learned assessing officer issued notices u/s 133 (6) to the directors of the assessee company as the addresses provided by them to
Accordingly appeal of the ld. AO is allowed.
Order pronounced in the open court on 30.12.2022.