DEPUTY COMMISSIONER OF INCOME TAX-4(3)(1), MUMBAI vs. QMAX SYNTHETICS PRIVATE LIMITED, MUMBAI

आदेश / O R D E R

PER AMARJIT SINGH, AM: The present appeal filed by the revenue is directed against the order passed by the CIT(A)-9, Mumbai, which in turn arises from the order passed by the A.O. u/s 143(3) r.w.s 147 of the Income Tax Act, 1961 for A.Y. 2008-09. The revenue has raised the following grounds before us: “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to delete the addition made towards unexplained unsecured loan of Rs.1,64,00,000/- u/s.68 of the I.T. Act.

2 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

Sr. Name of the concern Amount(Rs.) Interest (Rs.) No. 1. Casper Enterprises P. Ltd. 24,00,000 14,597 (Ostwal Trading (I) P. Ltd.) 2. Duke Business P. Ltd. (JPK 20,00,000 28,932 Trading Pvt. Ltd.) 3. Javda Impex Limited 12,00,000 6,707 4. Kush Hindustan Ent. Limited 26,00,000 1,05,567 5. Olive Overseas P. Ltd. (Real 30,00,000 1,94,631 Gold Trading co. P. Ltd.) 6. Traingular Infocom Ltd. (Lexus 22,00,000 2,16,000 Infotech Limited 7. Nakshtra Business P. Ltd. 30,00,000 2,15,672 (Hema Trading Co. P. Ltd.) Total 1,64,00,000 7,81,106

As per information provided by the DGIT(Inv.), Mumbai, the assessee had obtained accommodation entries in the form of unsecured loan to the amount of Rs.1,64,00,000/- from the parties as listed above. The A.O stated that assessee had obtained loan to the amount of

3 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

Rs.1,64,00,000/- from these parties and also shown interest expenses to the amount of Rs.7,82,106/-. The A.O has also referred the statement of Shri Pravin Kumar Jain stating that he was indulged in giving accommodation entries. The relevant part of the statement mentioned in the order of the assessment order at para 4.6 is reproduced as under:

“Sir, I am basically in business of giving accommodation entries which are routed through the companies under my control. All the companies either owned by me or directly/indirectly under may control are paper companies with no real business transactions. In most of the cases various brokers who operate in the field of providing accommodation entry like bogus unsecured loan, bogus LTCG, etc……..”

The A.O has concluded that Shri Pravin Kumar Jain through his associates was engaged in the business of providing accommodation entries only and not into any real business and further stated that notice u/s 133(6) of the Act issued to the said parties for verification were returned back unserved. The assessee submitted before the A.O that Shri Pravin Kumar Jain had retracted his statement and claimed the loan transactions as genuine transactions. However, the A.O has not agreed with the submission of the assessee stating that retraction was filed with CBDT and not concerned DDIT who was handling the case. The A.O was of the view that even though assessee had provided the detail of identity of the person from whom the said transactions were done but assessee had failed to prove the genuineness of the transaction. Therefore, the A.O had treated the amount of Rs.1,64,00,000/- as unexplained cash credit u/s 68 of the Act and same was added to the total income of the assessee. Further, interest expenses claimed by the assessee to the amount of Rs.7,82,106/- was also treated as unexplained expenditure u/s 69C of the Act.

4 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

“5.3.1 I have considered the facts of the case, stand of the AO as well as submission of the appellant. It has been observed by the A.O that during the course of search in the case of Shri Pravin by the Investigation Wing, it was stated by Shri Pravin Kumar Jain that he was indulging in providing accommodation entry to various parties through various concerns. Further observation of the AO has already been discussed in earlier paragraphs.

The above being the basic thrust of the case against the appellant, the impugned assessment order needs to be examined to figure out the quality of appellant-specific evidence, if any available. Before proceeding further it will be pertinent to examine the following questions which may be helpful in deciding the issue. a. What is the nature of evidence that has been brought on record to show that the lender parties, who advanced the impugned share capital/share application to the appellant, were benamis of Shri Pravin Jain? b. Is there any material that has been brought out by the AO to show that the share application money in question are paper entries purchased against payment of unaccounted cash? c. Has the Assessing Officer brought any material on record to show that commission was paid to Shri Pravin Jain? 5.3.2. First of all, it would be worthwhile to examine the impugned assessment order with regard to material that shows that the hawala racket was run through benami entities of Shri Pravin Jain. In this regard, it may be mentioned that: a. In the assessment order, the AO has relied upon the general statement given by Shri Pravin Jain. b. According to the AO, these concerns were dummy concerns used by Shri Pravin Jain in the running his hawala racket. However, no details of the evidence, if any collected from these persons regarding their role in the alleged hawala racket, has been mentioned.

c. When it comes to detailing the adverse material, if any, the AO, merely refers to statements made Shri Pravin Jain. However, AO not mentioned anywhere in the assessment order whether these concerns/ parties from whom the appellant has taken the share application money, are treated as non- genuine borrowings by the AO.

5.3.3. It has been observed by the A.O that during the course of search in the case of Shri Pravin by the Investigation Wing, it was stated by Shri Pravin

5 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

Kumar Jain that he was indulging in providing accommodation entry to various parties through various concerns. Further observations of the AO has already been discussed in earlier paragraphs.

The above being the basic thrust of the case against the appellant, the impugned assessment order needs to be examined to figure out the quality of appellant-specific evidence, if any available:. Before proceeding further it will be pertinent to examine the following questions which may be helpful in deciding the issue. a. What is the nature of evidence that has been brought on record to show that the lender parties, who advanced the impugned share capital/share application to the appellant, were benamis of Shri Pravin Jain? b. Is there any material that has been brought out by the AO to show that the share application money in question are paper entries purchased against payment of unaccounted cash? c. Has the Assessing Officer brought any material on record to show that commission was paid to Shri Pravin Jain? 5.3.4. First of all, it would be worthwhile to examine the impugned assessment order with regard to material that shows that the hawala racket was run through, benami entities of Shri Pravin Jain. In this regard, it may be mentioned that: a. In the assessment order, the AO has relied upon the general statement given by Shri Pravin Jain. b. According to the AO, these concerns were dummy concerns used by Shri Pravin Jain in the running his hawala racket. However, no details of the evidence, if any collected from these persons regarding their role in the alleged hawala racket, has been mentioned. c. When it comes to detailing the adverse, material, if any, the AO, merely refers to statements made Shri Pravin Jain. However, the AO mentioned anywhere in the assessment order whether these concerns/ parties from whom the appellant has taken the share application money, are treated as non- genuine borrowings by the AO. 5.3.5. Certain conclusions are obvious, One, the AO himself is not so clear about facts and has referred to mostly the material facts which are not relevant to the case. Two, the AO has not referred to any adverse material in the cases of share applicants that are being dubbed by rum to be benamis of Shri Pravin Jain. 5.3.6. Hence, it is to "be inferred that the quality of evidence, specific to the appellant is but poor and not fully relief upon. This flaw is further magnified as the adverse material if any (report of the Investigation Wing and alleged confessional statements of Shri Pravin Jain and others) have never been brought on record by making them available to the appellant. From the impugned assessment order, it is seen that though the AO appears to have taken the view that the impugned share applicants are mere entry providers and that the impugned share application money entries have been obtained by the appellant against payments made to the said entry providers in cash, who specific material has been brought on record to show that creditors, from whom the impugned share money were taken are entry providers and that entries for

6 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

the share application money in question have actually been obtained against payments made by the appellant in cash outside regular books of account. There is no evidence brought on record for payment of any commission or fee having been made by the appellant that AO has passed the order on the basis of mere conjectures and surmises, without bothering to bring any concrete material on record.

5.3.7. The appellant, had furnished various details regarding the lenders - their names, PAN, constitution, names of Proprietor/Partner/Director before the AO. Further, the appellant provided copies of acknowledgement of respective income tax returns, balance sheets and relevant bank statements of all the share applicants. Obviously, other than a general statement of Shri Pravin Jain that had reportedly been retracted subsequently, no specific material to suggest the loans are hawala entries. There was nothing to show that there was any actual exchange of case between the appellant and the alleged hawala givers before the impugned loans were incorporated in the books of account of the appellant. Also, there was no material to show that any commission for arranging the hawala had been paid by the appellant to the said Shri Pravin Jain. The situation remained unaltered in the course of assessment proceedings, and the AO did not in any manner improved upon what had been done by the Investigation Wing. 5.3.8. Non-observance of Principle of Natural Justice: Not making available material used against the appellant and denying opportunity to cross examine witnesses:

It has been submitted that the AO did not observe the principles of natural justice and the material relied upon is not made available to the appellant and denying the opportunity of cross examination of witnesses or did not make available to the appellant any adverse material, if at all there was any in the possession of the AO.

5.3.9. On the above facts, it is obvious that the AO while supposedly acting on a report of the Investigation Wing and some alleged third party statement, never made the said report and evidence available to the appellant. Thus, the appellant was denied a chance to rebut the evidence by cross examining those, who had allegedly given statements that could incriminate the appellant. All this is a clear violation of the principles of natural justice, a fundamental point to the validity of the proceedings, before the AO.

5.3.10. The facts of the appellant's case are identical to those of in the case of H.R.Mehta decided by the Bombay High Court through an order dated 30/06/2016 in IT A No.58 of 2001. In that case, the assessee had adduced evidence by way of bank record to show that loan had been received from a creditor through banking channels. The creditor was not physically traceable, as much time had elapsed and his address had changed. The assessment had been reopened on the basis of third party evidence collected in a search action in the case of a charitable trust. Despite specific request in this regard, the AO concerned did not provide to H R Mehta a copy of the appraisal report and third party statement etc. and proceeded to treat the loan as unexplained. The

7 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

Hon'ble High Court struck down the order of reassessment by observing that revenue was justified in making the addition without having first given the assessee an opportunity to cross examine the deponents on the statements relied upon by the ACIT. The relevant discussion, contained in paragraphs 16 & 17 of the High Court's is reproduced below:

"16. In the instant case although the appellant assessee has called upon us to drawn inference that the burden shifted to the revenue in the present case once it was established that the payments were made and repaid by cheque we need not hasten and adopt that view after having given our thought to various issued raised and the decisions cited by Mr. Tralshawalla and finding that on a very fundamental aspect, the revenue was not justified in making addition at the time of reassessment without having first given the assessee an opportunity to cross examine the deponent on the statements relied upon by the ACIT. Quite apart from denial of an opportunity of cross examination, the revenue did not even provide the material on the basis of which the department sought to conclude that the loan was a bogus transaction.

5.3.11. Opportunity of cross examination of witnesses is an essential ingredient of the principle of natural justice. This has been affirmed by the Hon'ble Supreme Court in the case of Andaman Timber Industries [Civil Appeal No.4228 of 2006, Date of Pronouncement -September 02, 2015]. In that case, the Hon'ble Supreme Court held that not allowing assessee the opportunity to cross- examine witnesses, whose statements were made the basis of a demand, is a serious flaw which makes order a nullity, as it amounts to violation of principles of natural justice.

5.3.12. In the case of Kishinchand Chellaram Vs. Bombay City II [1980] 125 ITR 713 (SC), it has been held by the Apex Court that in income tax proceedings when an evidence is to be used against the assessee and if it is not shown to the assessee and if no opportunity to controvert is given to the assessee, that evidence is not admissible. It further held the department ought to have called upon the manager to produce the documents and papers on the basis of which

8 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

he made the statements and confronted the assessee with those documents and papers. Before the income tax authorities could rely upon the evidence, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross examine the manager of the bank with reference to the statements made by him.

5.3.13. On principles of Natural Justice, it has been held by the Apex Court in the case of Swadesh Cotton Mills vs Union of India in 1981 AIR 818 that phrase "Natural justice" is not capable of a static and precise definition." "Two fundamental maxims of natural justice have now become deeply and indelibly ingrained in the common consciousness of mankind as preeminently* necessary to ensure that law is applied impartially objectively and fairly. These twin principles are (i) audi alterm partem and (ii) nemojudex in re sua. Audi alterm partem is a highly effective rule devised by the Courts to ensure that a statutory authority arrives at a just decision and it is calculated to act as a healthy check on the abuse or misuse of power." "The maxim audi alterm partem has many facets. Two of there are (a) notice of case to be met and (b) opportunity to explain. "In facts and circumstances of a particular case when non-compliance with the implied requirements of the audi alterm partem, rule of natural justice at the pre decisional stage, the impugned order can be struck down as invalid on that score alone. 5.3.14. It has been also held by the Apex Court in the case of Delhi Transport Corporation vs DTC Mazdoor Congress, in 1991 AIR 101 that the audi alterm partem, rule which is essence enforces the equality clause of Article 14 of the Constitution and is applicable not only to quasi-judicial orders but to administrative orders affecting prejudicially the party in question.

5.3.15. A similar matter came up before the Hon’ble Supreme Court in the case of M/s. Gira Enterprises & Another (Civil Appeal Nos. 433-434 of 2006) Dated 21/08/2014. In that case, it was alleged that prices declared for import purposes had been suppressed. The case was based on evidence contained in a computer printout, reportedly prepared on the basis of import data, allegedly collected from Mumbai Port. This print out showed import prices, higher than those declared by the assessee. This printout was not made available to the assessee in the course of adjudication proceedings. After hearing the matter, the Hon'ble Supreme Court went on to set aside the order with below extracted observations:

"22. ...the respondent (revenue) did not supply the information (alleged computer printout) which formed the basis of the conclusion that the appellants herein under- valued the goods imported. In such a situation, the appellants obviously cannot and did not have any opportunity of establishing that the claim of the revenue is unsustainable in law. If the information, which formed the basis for the revenue to reject the appellant's valuation is supplied to the appellants, the appellants perhaps will have the opportunity to dispute the comparability of the import transactions allegedly contained in the computer printout on various counts may not be possible to catalogue.

9 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

23……..In the absence of any material produced by the revenue in proof of the alleged comparable imports at a higher value, the impugned order which eventually confirmed the original order of assessment ..... cannot be sustained for two reasons - (1) the mere existence of an alleged computer printout is not proof of the existence of comparable imports; (2) assuming such a printout exists and the contents thereof are true, the question still remains whether the transaction of the appellant. The appellant will have to be given reasonable opportunity to establish (if he can) that the transactions are not comparable."

5.3.16. Going by the discussion contained above, it is obvious that the inference drawn by the AO against the appellant is not sustainable for the simple reason that the principles of natural justice have not been followed. First and foremost, the appellant has not been given any access to the material (reports, intimations, statements etc.) used against it. Secondly, by withholding the said material, the AO has denied of the appellant an opportunity to rebut the evidence by cross examining the witnesses, statements, if any made by whom, incriminated the appellant. On both counts the impugned assessment order fails squarely.

5.3.17. Absence of material to show that the share application money are unexplained:

From the forgoing, it is obvious that there is no scope for arriving at a conclusion that the appellant had taken hawala entries to incorporate the impugned loans in its books of account. Hence/ the only issue that remains to be seen is whether on the basis of facts brought on record the impugned loans could be treated as unexplained with the fore corners of section 68 of the Act. At the outset, it will necessary to look at some legal precedents with regard to the intent and application of section 68. It needs no elaboration that through a catena of decisions the Courts have laid down the following 3 fundamental tests which have to be established to discharge the burden u/s.68 of the Act;  Identity of the creditors/share applicants  Creditworthiness of the creditors/share applicants, and  Genuineness of the transactions i.e, whether the transaction was through banking channel.

5.3.18. The Hon'ble Supreme Court in the case of CIT vs. P Mohankala [2007] 291 ITR 278/ 161 Taxman 169 held that the expression 'assessee offers no explanation' means where the assessee offers no proper, reasonable and acceptable explanation as regards the sum found credited in the books maintained by the assessee.' It further held that the opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the AO is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.

10 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

5.3.19. The law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him and where the nature and source of a receipt; whether it be of money or other property cannot be satisfactorily explained by the assessee, it is open to the revenue to held that it is the income of the assessee and no further burden lies on the revenue to show that the income is from any particular source [Roshan Di Haiti vs. CIT [1997] 107 ITR 938 (SC)]. 5.3.20. Further references are made and reliance are placed to the various recent judicial pronouncements of Jurisdictional ITAT of Mumbai as well as Jurisdictional High Court of Bombay where similar issue were decided in favour of assessee. (i)In the case of Superline Construction P. Ltd. v/s.ITO 1Q(2)(4), Mumbai ITA No.3645/Mum/2014/ A. Y 2007-08 order dtd.30.11.2015, the Hon'ble IT AT observed and held as under:

2.1 Assessee is in the business of builder and developer. Assessment was completed under section 143(3) r.w.s. 147 of the Income Tax Act. During the year, the assessee-company received share application money to the tune of Rs.85 lakhs from eight companies out of which Rs.40 lakhs was received from three companies viz. Mihir Agencies Pvt. Ltd,, Alpha Cehmie Trade Agencies Pvt. Ltd. and Talent Infoway Ltd. The stand of the assessee has been that the reasons recorded did not whisper about any tangible material which triggered reopening u/s 147. The reassessment proceedings were initiated on the basis of information received from Directorate of Income-tax (Investigation) without recording Assessing Officer's own satisfaction and the information was accepted in a mechanical manner. In support of this, the assessee relied upon the recent ITAT decision in the case of India Terminal Connector System Ltd. However, the Assessing Officer did not agree with the above contention of the assessee and after completing the assessment u/s 143(3), the Assessing Officer received detailed report from the investigation wing alongwith copies of statement recorded from both Shri Mukesh C. Choksi and Shri Jayesh Sampat. Thus, a tangible material in the form of statement recorded from the above individuals were available before the Assessing Officer after the assessment was completed. After receiving the report and the statements, the Assessing Officer had gone

11 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

through the contents and then he formed an independent opinion and after satisfying himself had recorded the reasons for reopening.

2.2 After reopening of assessment u/s 147 of the Income-tax Act, the Assessing Officer made addition of Rs.40 lakhs received by the assessee from various corporate entities. Addition was made by the Assessing Officer on account of bogus share application money under the provisions of Section 68 of the Act, which was deleted by CIT(A) by following various judicial pronouncements in similar facts and circumstances. Same has been opposed on behalf of the Revenue inter alia submitted that the CIT(A) erred in deleting the addition made by the Assessing Officer in respect of share application money without appreciating the fact that addition was made based on specific information provided by Investigation Wing of Income Tax Department. That investor companies have issued cheques towards alleged share application money in return of cash. Assessee failed to discharge the onus cast upon it to prove the credit entries of share application money as required under statute.

Accordingly, the order of CIT(A) be set aside and that of Assessing Officer be restored. Before us the stand of the Id. Authorized Representative for the assessee has been that the facts of this case are similar to the following decided cases and pleaded that the ratio decided in those cases may be applied to this as well as the matter is covered the following decisions of IT AT.

i) ITO (10(2)(3) vs. JJ. Multitrade Pvt Ltd, in ITA No.2158/Mum/2014 : AY 2007-08, J-Bench & ITA No.2159/Mum/2014 : AY 2008-09, J-Bench The relevant paragraph Nos. 8 & 9 are reproduced herein below:

"Applying to the facts of instant case to the proposition laid down by the co-ordinate bench, as discussed above, we do not find any merit in the addition so made by treating the sale proceeds of shares as undisclosed income of the assessee. Accordingly, the Assessing Officer is directed to delete the same. In the result, appeal of the assessee is allowed in part, in terms indicated hereinabove. ii) ITAT E Bench in M/s- SDB Estate Pvt Ltd vs. ITO-(5)(3)(2) in ITA No. 584/Mum/2015: AY 2008-09 has decided similar issue by observing as under:-

'In view of the above stated legal position and in the light of reliable evidences brought on record by assessee to substantiate identity, genuineness and creditworthiness of shareholders, which have not been controverted by the Revenue, the additions made solely on the basis of general of Shri Mukesh Chokshi cannot be held to be justified and the same are accordingly ordered to be deleted. In the result, the appeal of the assessee is partly allowed."

iii) It was further pointed out that ITAT-"D" Bench has decided the following cases in favour of the assessee on similar issue, a) ITO - 10(2)(1) vs. M/s. Deep Darshan Properties Pvt Ltd in ITA No. 2117/Mum/2014 : AY 2006-07 and ITA No.2118/Mum/2014 ; AY 2007-08 b) ITO -10(2)(3) vs. Aajivan Computers Pvt Ltd in ITA No.2160/Mum/2014 :AY 2006-07 c) ITO -10(2)(3) vs. Dignity Securities Trading Pvt Ltd in ITA No.2157/Mum/2014 :AY 2006-07 d) ITO - 10(2)(1) vs. M/s. Blue Hill Properties Pvt Ltd in ITA No.2119/Mum/20l4 :AY 2006-07.

12 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

2.3 It was also pointed out in the case of CIT vs. M/s. Lovely Exports (Pvt) Ltd, reported in [2008] 216 CTR195 (SC), it was held as under:- "If the share application money is received by the assessee company from alleged bogus share holders who's name are given to the AO then the department is free to proceed to reopen their individual assessments in accordance with law but it cannot be regarded as undisclosed income of assessee company."

2.4 In this background, it was submitted on behalf of the assessee that the Assessing Officer failed to appreciate that there is no documentary evidence against the assessee company to support such impugned additions. It was further submitted by the assessee that the Assessing Officer failed to appreciate that the statements of any person recorded u/ s 143(3) r.w.s. 147, the assessee-company has fully discharged the burden of proof, onus of proof and explained the source of share capital and advances received by established the identity, reditworthiness and genuineness of transaction by banking instruments with documentary evidences. The further stand of the assessee has been that the assesseecompany substantiated the details with the documentary evidences as extracted from the website of Ministry of Corporate Affairs, Government of India before the Assessing Officer, These facts have not been rebutted on behalf of the Revenue.

2.5 In view of the facts and circumstances of the present case as well as considering the decisions as discussed above on the similar issue, we are not inclined to interfere with the findings of the CIT(A) who has rightly deleted the entire impugned additions of Rs.40 lakhs made by the Assessing Officer u/s 68 of the Act on account of share capital subscription received by the assessee company.

2.6 Accordingly, the appeal filed by the revenue is dismissed.

ii) The Hon'ble ITAT Mumbai Bench in the case of M/s.5itara Properties P Ltd, vs. ITO 10(2)(4), Mumbai ITA No.3644/Mum/2014/2006-07 in order dated 30.11.2015 on similar issue observed and decided as under:

"In this case, i.e. ITO vs. M/s. Sitara Properties Pvt. Ltd., the Assessing Officer made total addition of Rs.1,15,47469/- under section 68 of the Act, out of this amount Rs. 85 lakhs was made in respect of share application money and remaining amount of Rs.30,47,169/-was made on account of unsecured loan. Both the aforesaid additions amounting to Rs.1,15,47,169/- was deleted by CIT(A). 3.1 The first issue in this appeal regarding the addition in respect of share application money of Rs.85 lakhs is similar to the issue we decided above in case of M/s. Super Construction Pvt. Ltd. in ITA No. 3645/Mum/2014 for A.Y. 2007-08 vide para 2.1 to 2.5 of this order. Therefore, facts and issues being similar, so following same reasoning we are not inclined to interfere with the findings of CIT(A) who has rightly deleted the addition of Rs.85 lakhs made by the Assessing Officer on account of share application money. The same is upheld.

13 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

3.2 The next issue in this appeal is with regard to addition of Rs.30,47,169/- made by the Assessing Officer on account of unsecured loan which was deleted by the CIT(A). The Assessing Officer made this addition on account of unsecured loan as the assessee was not explained the source of cash credit. The Assessing Officer came to this conclusion mainly on the ground that the assessee company failed to prove that the statement recorded from Shri Mukesh C. Choksi and Shri Jayesh Sampat by the Investigation Wing was incorrect. According to the Assessing Officer, the genuineness of the transaction could not be proved. In appeal, the CIT(A), having considered the submission of assessee company, has rightly deleted the addition on both accounts (i.e. Rs.85 lakhs on account of share application money and Rs.30,47,169/- on account of unsecured loan) by holding that the assessee-company had duly discharged the initial burden in respect of identity, creditworthiness and genuineness of all transactions by relying on various judicial pronouncements. Moreover, similar issue was adjudicated by him in the case of M/s. Superline Constructions Pvt. Ltd for AY 2007-08 vide appeal No.CIT(A)-22/IT-10(2)-4/IT -63/2013-14 wherein having considered all ingredient of Sec. 68 of IT Act, granted relief to assessee which has been approved by us in paragraph 3 of this order. Thus, this addition is not justified under the provisions of Section 68 of the Act. Therefore, we do not see any reason to interfere with the findings of the CIT(A) who has rightly deleted the amount of Rs.30,47,169/- on account of unsecured loan which was made by the Assessing Officer u/s 68 of the Act.

3.3 Accordingly, this appeal filed by the Revenue is dismissed."

iii) Similarly, the Hon'ble ITAT Mumbai in the case of Samsung Builders & Developers P Ltd, vs. ITO, ITA No.3646/Mum/2014/2006-07 in its judgement dated 30.11.2015, observed and decided as under:

"In this case, i.e., ITO vs. M/s. Samsung Builders & Developers P. Ltd., the Assessing Officer made addition of Rs.25,23,426/- under section 68 of the Act in respect of share application money of Rs.10 lakhs and on account of unsecured loan of Rs.25,23,426/- which was deleted by CIT(A). The issue in this appeal is similar to the issue we decided above in case of M/s. Super Construction Pvt. Ltd. in ITA No. 3645/Mum/2014 for A.Y. 2007-08 and in the case of M/s. Sitara http://www.itatonline.org 13 ITA No. 3645/Mum/2014 + 6 others M/s. Superline Construction P. Ltd & Others Properties Pvt. Ltd in ITA No. 3644/Mum/2014 (supra) in this order itself. Facts and issues being similar, so following same reasoning we are not inclined to interfere with the order of the CIT(A) who has rightly deleted the additions on both account i.e. Rs.10 lakhs (share application money) and Rs.25,23,426/- (unsecured loan) under the provisions of Section 68. This view is fortified by our decision in M/s. Sitara Properties Pvt. Ltd (supra) vide para 3.1 to 3.3 of this order. The same is upheld.

5.3.21. As regards issue involving addition of share premium amount alongwith share application money/share capital money, the jurisdictional ITAT, Mumbai has decided in my cases that it cannot be added. Further, the Hon’ble High court has also decided the issue that the addition of share

14 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

premium amount cannot be made in earlier years prior to amendment in the relevant provisions in the I.T. Act, 1961.1n this regard, reference is made and reliance is placed to the various Judicial Pronouncements on the issue related to additions for share premium amount included in the share application money/share capital money. These are as under:

(i) In the case of M/s. Vodafone India services Pvt. Ltd vs. Addl. CIT reported in 368 ITR 001, Hon'ble Bombay High Court decided that:-

"The amounts received on issue of share capital including the premium are undoubtedly on capital account. Share premium have been made taxable by a legal fiction under Section 56(2) (viib) of

the Act and the same is enumerated as Income in Section 2(24)(xvi) of the Act, However, what is bought into the ambit of income is the premium received from a resident in excess of the fair market value of the shares. In this case what is being sought to be taxed is capital not received from a nonresident i.e. premium allegedly not received on application of ALP. Therefore, absent express legislation, no amount received, accrued or arising on capital account transaction can be subjected to tax as Income. Court finds considerable substance in the Petitioners case that neither the capital receipts received by the Petitioner on issue of equity shares to its holding company, a non-resident entity, nor the alleged short-fall between the so called fair market price of its equity shares and the issue price of the equity shares can be considered as income within the meaning of the expression as defined under the Act."

(ii) The CBDT vide instructions No - 02/2015 dated 29/1/2015 directed the revenue not to file the SLP before Hon'ble to Supreme Court and directed Ld AOs to accept the High Court order. The relevant instructions is as under :-

"In reference to the above cited subject, I am directed to draw your attention to the decision of the High Court of Bombay in the case of Vodafone India Services Pvt. Ltd for A.Y.2009-10 (WP No.871/2014) = 2014-TII-19-HC-MUM-TP, wherein in the Court has held, inter-aha, that the premium on share issue was on account of a capital account transaction and does not give rise to income and, hence, not liable to transfer pricing adjustment, .. It is hereby informed that the Board has accepted the decision of the High Court of Bombay in the above mentioned Writ Petition. In view of the acceptance of the above judgement, it is directed that the ratio decided of the judgement must be adhered to by the field officers in all cases where this issue is involved. This may also be brought to the notice of the IT AT, DRPs and CsIT (Appeals)."

(iii) In the case of ACIT vs. Gagandeep Infrastructure Pvt. Ltd bearing ITA No. 5784/Mum/2011 dated 23/4/2014, Hon'ble Mumbai ITAT decided that:

We have carefully perused the orders of the lower authorities. In our considered view, the issue of shares at premium is always a commercial decision which does not require any justification. Further the premium is a capital receipt which has to

15 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

be dealt with in accordance with Sec.78 of the Companies Act, 1956. Further the company is not required to prove the genuineness, purpose or justification for charging premium of share premium by its very nature in a capital receipt and is not income for its ordinary sense....... The entire dispute revolves around the fact that the assessee has charged a premium of Rs.190/- per share. No doubt a non- est company or a zero balance sheet company asking for Rs.190/- per share defies all commercial prudence but at the same time we cannot ignore the fact that it is a prerogative of the Board of Directors of the company to decide the premium amount and it is the wisdom of the share holders whether they want to subscribe to such a heavy premium. The Revenue authorities cannot question the charging of such huge premium without any bar from any legislated law of the land. The amendment has been brought in the Income Tax Act under the head "Income from other sources" by inserting Clause (viib) to Sec.56 of the Act wherein it has been provided that any consideration for issue of shares, that exceeds the fair value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be treated as the income of the assessee but the legislature in its wisdom has made this provision applicable w.e.f. 1.4.2013 i.e. on and from A.Y.2023-14. In so far as the year under consideration is consideration is concerned, the transaction has to be considered in the light of the provision of Sec.68 of the Act. There is no dispute that the assessee has given details of names and addresses of the share holders, their PAN Nos. the bank details and the confirmatory letters... Considering all these undisputed facts, it can be safely concluded that the initial burden of proof as rested upon the assessee has been successfully discharged by the assessee. Even if it is held that excess premium has been charged, it does not become income as it is a capital receipt. The receipt is not in the revenue field. What is to be probed by the AO is whether the identity of the assessee is proved or not. In the case of share capital, if the identity is proved, no addition can be made u/s.68 of the Act. We draw support from the decision of the Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd. 317 ITR 218. We, therefore do not find any error or infirmity in the findings of the Ld. CIT(A). Ground No.1 is accordingly dismissed."

(iv) In the case of Green Infra Ltd vs. ITO reported in 38 taxmann.com 253 (Mum-ITAT) dated 23/8/2013, Hon'ble Mumbai IT AT decided that:

"During previous year ending on 31-3-2009, it had collected share premium on allotment of shares of face value of Rs. 10 each at a premium of Rs. 490 per share - It had credited said amount in balance-sheet under head share premium account. It claimed that share premium was a capital receipt not exigible to tax Assessing Officer had taxed share premium under section 56(1) as assessee’s income from other sources – Whether since expenditure and receipt directly relating to share capital of a company are of capital in nature , share premium collected by assessee could not betaxed under section 56(1) as income from other sources - Held, yes - Whether since entire transaction , relating to allotment of shares had been done through banking channel and assessee had invested share premium in its three subsidiary companies, provisions of section 68 as suggested by revenue had also not applicable to instant case - Held, yes.... No doubt a non-est company or a zero balance company asking for a share premium of Rs.490 per share defies all commercial prudence, but at the same

16 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

time one cannot ignore the fact that it is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe to such a very premium. The revenue authorities cannot question the charging of such of huge premium without any bar from any legislated law of the land."

(v) In the case of CIT vs. Goa Sponge and Power Ltd reported in Appeal No. 16 of 2012, Hon'ble Bombay High Court decided that:

"Once the authorities have got all the details, including the name and addresses of the shareholders, their PAN/GIR number, so also the name of the Bank from which the alleged investors received money as share application, then, it cannot be termed as "bogus". The controversy is covered by the judgements rendered b y the Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd, vs. CIT, (2008) 216 CTR (SC) 195, as also by this Court in CIT vs. Creative World Telefilms Ltd, (2011) 333 ITR 100 (Bom). In such circumstances, we are of the view that the Tribunal's finding that there is no justification in the addition made under Section 68 of the Income Tax Act, 1961 neither suffers from any perversity nor gives rise to any substantial question of law."

(vi) In the case of CIT vs. Creative World Telefilms Ltd reported in 333 ITR 100. Hon'ble Bombay High Court decided that:

"...the Tribunal was pleased to follow the judgment of the apex Court in the case of CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195 : (2008) 6 DTR (SC) 308 : (2009) 319 ITR 5 (St.) wherein the apex Court observed that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department can always proceed against them and if necessary reopen their individual assessments. In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number name, of the bank. It was expected on the part of the AO to make proper investigation and reach the shareholders. The AO did nothing except issuing summons which were ultimately returned back with an endorsement "not traceable". In our considered view, the AO ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the AO, In the above circumstances, the view taken by the Tribunal cannot be faulted."

(vii) In the case of CIT vs. Lovely Exports (F) Ltd reported in 216 CTR195, Hon'ble Apex court decided that:

"If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company."

17 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

(viii) In the case of CIT vs. Steller Investment Ltd reported in 251ITR 263, Hon'ble Apex court decided that:

"That the increase in subscribed capital of the respondent-company could not be a device of converting black money into white with the help of formation of an investment company, on the round that, even if it be assumed that the subscribers to the increased capital were not genuine, under no circumstances could the amount of share capital be regarded as undisclosed income, an appeal was taken by the Department to the Supreme Court. The Supreme Court dismissed the appeal holding that the Tribunal had come to a conclusion on facts and no interference was called for."

(ix) In the case of CIT vs. Expo Globe India Ltd reported in 361 ITR 147, Hon'ble Delhi High Court decided that:

"It has been held by Hon'ble Supreme Court and various High Courts that no addition can be made on account of share application money once the names of the share applicants are given. In the instant case, identity of these persons are not or doubt and assessment particulars of all the persons are on record and there is no material to hold that creditworthiness of these persons are not established. The judgement of Hon'ble Supreme Court in the case of Lovely Export 216 CTR 195 and also the judgement of Hon'ble Delhi High Court in the case of CIT vs. Value Capital Services Pvt. Ltd 307 ITR 334 are relevant on this issue. It was held by Hon'ble Madras High Court in the case of CIT vs. Electro Polychem Ltd. 294 ITR 661 and Hon'ble Allahabad High Court in the case of Jaya Securities Ltd 166 Taxman 7 that no addition can be made on account of share application money even if subscriber to capital are not genuine. The above said judgements were challenged by the Department by way of SLP before Supreme Court of India and SLP has been dismissed by Supreme Court in both the cases. In view of above said facts of case and position of law, I hereby direct the AO to delete the addition of Rs.69,75,000/-. "

(x) In the case of CIT v. Vacmet Packaging (India) Pvt Ltd reported in 88 CCH 065, Hon'ble Allahabad High Court decided that:

"Held, assessee had filed documentary evidence to prove genuineness of share application money consisting of (i) share application forms; (ii) copies of bank accounts of share applicants; (Hi) copies of income tax returns of share allottees; (iv)balance sheets; and (v) copies of share allotment certificates and of Board's resolution of the share applicants - Identity of applicants was established by production of copies of PAN cards and registration certificate with the Registrar of Companies Financial capacity was also proved by filing of copies of the bank accounts from where the share application money was transferred through banking channels to the assessee- Assessee had discharged onus placed upon him by 68- Concurrent finding of facts also rendered by CIT(A) and tribunal in this regard - No substantial question of law arises- Revenue's appeal Dismissed"

18 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

(xi) In the case of Jaya Securities Ltd vs. CIT reported in 166 Taxman 7 (SLP filed by department dismissed), Hon'ble Allahabad High Court decided that:

''Whether any addition under section 68 can be made in respect of investment made by different persons in share capital of assessee company, limited by shares, whether public or private - Held, no."

5.3.22. Thus, it may be noted that even for sake of argument, it is assumed that the appellant had accepted the share premium in excess of the fair value, still such share premium cannot be taxed u/s 56(2)(viib) nor u/s 68 nor u/s 2(24) such amount received as Share premium is a Capital in nature and is required to be held as Capital receipt. The provision of Sec 56(2)(viib) had been inserted into Statue w.ef. 01.04.2013 which applies from Asst year 2013-14 onwards and cannot be applied retrospectively for the impugned year (ACIT vs. Gangadeep Infrastructure Pvt Ltd).

Further, in recent Judicial decision delivered in the case of Vodafone India Services Pvt. Ltd. vs. Addl. CIT(2014) 368 ITR 001 (Bom), Hon'ble Jurisdictional Bombay High Court decided that Share premium is not of a revenue field but is a Capital receipt. Thereafter, Hon'ble CBDT vide instructions no. 02/2015 dated 29/01/2015 decided not to file an appeal before Hon'ble Supreme court and also directed the assessing officers to treat the Share premium as a Capital account. In fact, after the decision of the Hon'ble Bombay High Court in the case of CIT vs. M/s. Green Infra Limited ITA No.1162 of 2014, the issue of addition with regard to premium on shares has got settled in the territorial jurisdiction within Maharashtra, until the same is modified by the Hon'ble Supreme Court. In this case, the Hon'ble Bombay High Court has observed as under: "Mr. Chhotaray the learned counsel for the Revenue states that the impugned order itself holds that share premium of Rs.490/- per share defies all commercial prudence. Therefore it has to be considered to be cash credit. We find that the Tribunal has examined the case of the Revenue on the parameters of Section 68 of the Act and found on facts that it is not so hit. Therefore, Section 68 of the Act cannot be invoked. The Revenue has not been able to show in any manner the factual finding recorded by the Tribunal is perverse in any manner. Thus, question no(ii) as formulated does not give rise to any substantial question of law and thus not entertained."

Thus the judicial decision on the issue of addition of share premium is in favour of the appellant/assessee in so far as jurisdiction of Maharashtra is concerned. On the other hand, it is to be inferred that in a case where the assessee has supplied all possible information to the AO to explain the share application money transaction, he has satisfactorily discharged the burden cast on him, still the AO without bringing any adverse material, except general statement of Pravin Jain, proceeded to make addition. From the assessment order it is seen that at no point of time the AO has brought any material to prove that the party

19 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

was not genuine or not having own funds to invest in share capital or the transactions were not routed through banking channel.

As stated earlier, it has been explained by the Ld.AR that the companies who has invested share application money with the appellant company are existing company and they are verifiable on the website of Registrar of Company and they are having their own CIN Number, PAN Number and regularly filing returns.

5.3.23. In the case before me, the record also shows that to prove the genuineness of the impugned share application money from the said parties, the appellant has furnished to the AO the various details which has been also produced during the course of appellate proceedings and may be seen from the appellant's submissions reproduced above and therefore, for the sake of brevity not being repeated here. In fact the AO has not made any addition of original share application/share capital amount and has merely added only share premium amount part. Thus, the AO is not disputing the genuinity of the person as well as the nature of the transaction through banking channel. In so far as addition of share premium is concerned, in the present situation, the issue is covered by the decision of Hon'ble Bombay High court in the case of Green Infra Ltd (supra).

5.3.24. Thus, it has to be said that the appellant had done everything in its power to prove the 3 ingredients required to prove the satisfactory nature of the loan transactions. In these circumstances, the onus had shifted to the AO. If the AO was still not satisfied, he had the option of making inquiries from the alleged share applicants by summoning them. However, as seen from the assessment order, he did not any such thing. Further, if the AO was not satisfied with what had been given to him by the appellant, he was duty bound to specify what more material he wanted the appellant to furnish. The AO never asked for any further material, though time and again the appellant asked in their submissions. This leads to the inescapable conclusion that the AO could not think of any further material to ask for and proceeded to reject the appellant's claims, relying upon the information/material, which he never even brought to the notice of the appellant for any rebuttal. The unequivocal conclusion is that all the 3 ingredients having been satisfied, the impugned share application money have to be treated as explained satisfactorily and the AO was not justified in having disregarded overwhelmingly supportive evidence. No cogent material was adduced by him to show that loans were unexplained. Therefore, the impugned addition of under the heading share application money as made in the assessment order, fails on several counts -(1) reliance on evidence that is totally inadequate; (2) failure to make available incriminating material (reports, statements etc.) forming basis for action by the AO; (3) failure to give due opportunity to the appellant to cross examine witnesses, whose statement might have been relief upon; and (4) failure to recognize the satisfactory nature of the explanation /evidence tendered by the appellant to explain identity of creditors, creditworthiness of the creditors and the genuineness of the loan transactions. Hence the impugned addition cannot be sustained.

20 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

5.3.25 After considering the entire facts and circumstances of the case as well as the Judicial Pronouncements referred and relied above, I hold that AO is not justified in making the addition u/s 68 of share application/capital including premium money received by appellant. The share premium received by appellant is of capital nature and does not constitute a revenue receipt. The provision of Sec.56(2)(viib) has been inserted w.e.f. 1/4/2013, accordingly would not apply for the impugned year. The appellant had filed documents to establish the identity and creditworthiness of shareholders and genuineness of transaction. The shareholders, being also directors of appellant company, had confirmed the transaction and AO had not found any fault in such documents. The AO has not brought any contrary material to disprove the transaction and has not established that appellant had introduced its unaccounted money in garb of share premium. The Judicial decisions relied by Ld. AR of Jurisdictional High Court and ITATs applies to the facts of the case and support the case of the appellant.

5.3.26 Hence, it is to be inferred that in a case where the assessee has supplied all possible Information to the AO to explain the share application money transaction, he has satisfactorily discharged the burden cast on him, still the AO without bringing any adverse material, except general statement of Pravm jain, proceeded to make addition. From the assessment order it is seen that at no point of time, the A.O has brought any material to prove that the party was not genuine or not having own funds to invest in share capital or the transactions were not routed through banking channel. As stated earlier, it has been explained by the Ld.AR that the companies who has invested share application money with the appellant company are existing company and they are verifiable on the website of Registrar of Company and they are having their own CIN Number, PAN Number and regularly filing returns. As regards genuineness of transactions of share application money through banking channel and credit worthiness of the party having sufficient own funds in .their books/balance sheet; this may be seen from the charts given in subsequent paragraphs.

In the case before me, the record also shows that to prove the genuineness of the impugned share application money from the said parties, the appellant has furnished to the AO the various details which has been also produced during the course of appellate proceedings and may be seen from the appellant's submissions reproduced above and therefore, for the sake of brevity not being repeated here. The various facts and figures related to these issues can be seen from the various charts as narrated below:

CHART SHOWING THE GENUINITY OF THE Share Applicant's/Share Holders/Loan Creditors of Qmax Synthetics Fvt. Ltd. FOR AY-2008-2009

SI. Name of Party PAN Details , CIN No. Whether exiting company No. (Company Incorporation No) with ROC/Latest annual return filed 1 Casper AAACO7955M U51900MH2005PTC1 58499 YES Enterprises Pvt. Ltd. (Ostwal

21 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

Trading (I) Pvt. Ltd.)

2 Duke Business AABCJ6245N U00500MH2005PTC158500 YES Pvt. Ltd. JPK Trading Pvt. Ltd.)

3 Javda lndia lmpex AAACA7065L U67120MH1995PLC088743 YES Ltd.

4 Kush Hindustan AACCK3597M U92111MH2003PLC143690 YES Entertainment Ltd.

5 Olive Overseas AACCR4512K U51909MH2003PTC139464 YES Pvt. Ltd. (Real Gold Trading Co. Pvt. Ltd.)

6 Triangular AACCL4646G U74999MH1998PLC116845 YES Infocom Ltd. (Lexus Infotech Ltd.)

7 Nakshatra AABCH4279C U51909MH2004PTC145254 YES Business Pvt. Ltd. (Hema Trading Co. Pvt. Ltd.)

CHART SHOWING THE BANKING TRANSACTION FOR A.Y. 2008 -2009

SI. No Name of the Details of Bank Cheque/DD Date Amount In Remarks share share Details /Online Lakhs holders/loan application/loa creditors n creditors

01 Nakshatra Loan Creditors Canara 356821 08.06.2007 20.00 No Cash Business Pvt. Bank deposited Ltd. (Hema by Hema Trading Co, Pvt. Trading Co. Ltd.) Fvt. Ltd.,

02 Nakshatra Loan Creditors Canara 356900 29.01.2008 10.00 No Cash Business Pvt. Bank deposited Ltd. (Hema by Hema Trading Co. Pvt. Trading Co. Ltd.) Pvt. Ltd.,

03 Nakshatra shares Canara 356837 21.08.2007 9.00 No Cash Business Pvt. Application Bank deposited Ltd. (Hema by Hema Trading Co. Pvt. Trading Co. Ltd.) Pvt. Ltd.,

04 Javdalndialmpex Loan Creditors Axis 090116 14.03.2008 12.00 No Cash Ltd Bank deposited by Hema Trading Co. Pvt. Ltd.,

22 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

05 Kush Loan Creditors Canara 356969 14.07.2007 8.00 No Cash Hindustan Bank deposited Entertainment by Hema Ltd. Trading Co. Pvt. Ltd.,

06 Kush Loan Creditors Canara 382305 19.11.2007 5.00 No Cash Hindustan Bank deposited Entertainment by Hema Ltd.. Trading Co. Pvt. Ltd.,

07 Kush Loan Creditors Canara 382341 13.02.2008 5.00 No Cash Hindustan Bank deposited Entertainment . by Hema Ltd.. Trading Co. Pvt, Ltd,,

08 Kush Loan Creditors Canara 382 28.02.2008 5.00 No Cash Hindustan Bank deposited Entertainment by Hema Ltd.. Trading Co. Pvt. Ltd.,

09 Kush Loan Creditors Canara 382353 10.03.2008 3.00 No Cash Hindustan Bank deposited Entertainment by Hema Ltd.. Trading Co. Pvt. Ltd.,

10 Kush shares Axis 089909 22.08.2007 9.00 No Cash Hindustan Application Bank deposited Entertainment by Hema Ltd.. Trading Co. Pvt. Ltd.,

11 Kush shares Canara 065218 22.08.2007 9.00 No Cash Hindustan Application Bank deposited Entertainment by Hema Ltd.. Trading Co. Pvt. Ltd.,

12 Triangular Loan Creditors Canara 07.07.2007 10.00 No Cash Infocom Ltd. Bank deposited (Lexus by Hema Infotech Ltd.) Trading Co. Pvt. Ltd.,

Triangular Loan Creditors Canara 492002 11.03.2008 12.00 No Cash 13 Infocom Ltd. Bank deposited (Lexus by Hema Infotech Ltd.) Trading Co. Pvt. Ltd.,

14 Olive Overseas Loan Creditors Canara 820613 07.07.2007 10.00 No Cash Pvt Ltd. (Real Bank deposited Gold Trading by Hema Co, Pvt. Ltd.) Trading Co. Pvt. Ltd.

15 Olive Overseas Loan Creditors Canara 820614 12.07.2007 10.00 No Cash Pvt. Ltd. (Real Bank deposited Gold Trading by Hema Co. Pvt. Ltd.) Trading Co. Pvt. Ltd.,

23 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

16 Olive Overseas Loan Creditors Canara 820682 30.01.2008 10.00 No Cash Pvt. Ltd. Bank deposited (Real Gold by Hema Trading Co. Pvt. Trading Co. Ltd.) Pvt. Ltd.,

17 Olive Overseas Share Canara 820626 21.08.2007 9.00 No Cash Pvt. Ltd. application Bank deposited (Real Gold by Hema Trading Co. Pvt. Trading Co. Ltd.) Pvt. Ltd.,

18 Duke Business Loan Creditors Canara 411044 16.02.2008 20.00 No Cash Pvt. Ltd. Bank deposited (JPK Trading Pvt by Hema Ltd.) Trading Co. Pvt. Ltd.,

19 Casper Loan Creditors Canara 414907 12.03.2008 12.00 No Cash Enterprises Pvt. Bank deposited Ltd (Ostwal by Hema Tradig (i) Pvt. Trading Co. Ltd. ) Pvt. Ltd.,

20 Casper Loan Creditors Canara 414908 13.03.2008 12.00 No Cash Enterprises Pvt. Bank deposited Ltd (Ostwal by Hema Tradig (i) Pvt. Trading Co. Ltd. ) Pvt. Ltd.,

CHART SHOWING THE SOURCES OF FUNDS FOR A.Y.2008 -2009

SI No. Details of Name of the party Contributors Nature of Amount of Remarks share/ loan from whom loans capital amount of fund loan/share application taken as Preceding f. in B. Sheet of application Yr prior to the creditor contributed by which this party to Contribution appellant in made lakhs

01 Loan Nakshatra 2,33,26,3737- Loans & 30.00 Creditors Business Pvt. Ltd. Advances (Hema Trading Co. Pvt. Ltd.)

02 Share Nakshatra 2,33,26,373/- Investment 9.00 application Business Pvt. Ltd. (Hema Trading Co. Pvt. Ltd.)

03 Loan Javda India 4,78,74,058/- Loans 12.00 Creditors Impex Ltd & Advances

04 Loan Kush 3,58,30,148/- Loans & 26.00 Creditors Hindustan Advances Entertainment Ltd.

24 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

05 Share Kush 3,58,30,148/- 18.00 application Hindustan Entertainment Ltd.

06 Loan Triangular 3,03,85,264/- Loans & 22.00 Creditors Infocom Ltd. Advances (Lexus Infotech Ltd)

07 Loan Olive Overseas Loans & 30.00 Creditors Pvt. Ltd.) (Real 2,26,22,502/- Advances Gold Trading Co. Pvt. Ltd.)

08 Share Olive Overseas 2,26,22,502/- 9.00 application Pvt. Ltd.) (Real Gold Trading Co. Pvt. Ltd.)

09 Loan Duke Business 1,61,49,979/- Loan & Advances 20,00 Creditors Pvt. Ltd. (JPK Trading Pvt. Ltd.)

The above chart has been culled out from various details filed by the appellant and will show that the relevant parties/companies were in existence since they were having PAN number and regularly filing IT returns and also having CIN number and were in existence in the records of Registrar of companies. The AO has not brought any adverse material against this.

As regards sufficiency of funds, it may be seen from the above chart that the respective parties had sufficient funds to advance loan or invest in share capital in any other entity including the appellant and the AO has not brought any material on record to prove that any undisclosed taxable income of the appellant company had gone to the above stated concerns of Pravin Jain in any specific manner and the same has come back in the form of share capital/share application money to the appellant.

As regards transaction, the AO has no where been able to bring on record that any undisclosed cash amount of the appellant company was deposited in the bank account/any account of the share applicants and the same amount was utilized in issuing the cheque or RTGs or D.D by the share applicants to invest in the appellant's company. On the contrary, it has been submitted by the Ld.AR that the bank account show that no cash has been deposited before issuing the cheque/RTGs/D.D for the appellant.

25 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

5.3.27. As regards addition of loan, it may once again be stated that an analysis of the judicial precedents on this issue yields the following propositions of law in the context of s. 68 of the IT Act. The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely/ whether it has been transmitted through banking or other indisputed channels; channels; (3) the creditworthiness or financial strength of the creditor/subscriber, (4) if relevant details of confirmation, bank statement, copy of return of income filed, PAN card, Audited statement of accounts along with copies of share application forms, etc., it would constitute acceptable proof or acceptable explanation by the assessee; It has been judicial position that where assessee brought evidence on record establishing that share applicants were not fictitious persons and, moreover, they paid money by cheques, no addition could be made to assessee's income in respect of loan money.

The AO in this case has primarily placed reliance on the search conducted by the DDIT(Inv)-III(2) Mumbai in the case of Shri Pravin Kumar Jain. Ld AO has made the addition u/s 68 towards loan taken by the appellant from the parties referred above on the basis of this information received from Investigation wing from search conducted in the case of third party. However AO has not made any further enquiry to corroborate his findings.

A perusal of the documentary evidences brought on record by the Appellant show that the onus of proving the genuineness of transaction, identity and capacity of the lenders has been discharged by the Appellant. The same is evident from the list of documents submitted by the Appellant with respect to the lenders of the unsecured loans. Appellant has produced of the evidences adduced before the AO, such as copies of Annual audited reports, Directors report, PAN, bank statements showing payments received and repayment of loan made by the Appellant , loan confirmations etc. From the details submitted it can be seen that the parties i.e. lenders have made payments from their bank accounts through account payee cheques, therefore these transactions cannot be treated as bogus. The AO has not been able bring on record any valid material or evidence to discredit the evidences and explanation given by the appellant other than merely relying on a bald statement by alleged Shri Pravin Kumar Jain as recorded by Investigation Department without himself making any efforts to bring on record any valid or corroborative evidence against the parties. The AO has been unable to demonstrate any relationship between PKJ and the lenders.

The AO has been unable to refute the clear cut and cogent evidence submitted by the appellant and available on the AO's record testifying to the genuineness of the loans. The source of the said loans thus stands proven. As has been held in several decisions of superior judicial authorities [Murlidhar Lahorimal V. CIT [280 ITR 512 (guj)], Labhchand Bohra v ITO [219 ITR 571 (Raj)] and CIT v Dwarkadhish Investment Private Limited [299 ITR 268 (Del)], the assessee cannot be called upon to prove the source of the source of his loans.

Thus, after careful considerations of the entire material on record, which may also be evident from the fact narrated in earlier paragraphs, it is found that the appellant has indeed proven the genuineness of the loans taken from all the

26 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

parties referred above. Accordingly the addition made by the AO under section 68 of the Act with regard to loan as cash credit cannot be sustained.

As reiterated, the assessee also had also produced the evidence as well as copy of income-tax returns of the loan creditor, ROC filings, Board Resolutions of investor companies, bank statement of investors from where loan money was received by appellant company etc.

Revenue has all the power and ability to trace the person. AO ought to have issued notice u/s 133(6) or summons u/s.131 to share applicant companies to substantiate his findings in respect of bank account discrepancy at third and fourth level before drawing conclusions. Merely because the appellant has not fulfilled his duty to show how the companies are bogus or their relationship with Shri Pravin Kumar Jain, addition u/s 68 cannot be justified in hands of the appellant.

In view of the above and based on the facts in the case on hand, I find that the appellant has indeed proven the genuineness of the loan creditors. Accordingly, the addition made by the AO under section 68 of the Act in respect of the said loan cannot be sustained.

5.3.28. Thus, it has to be said that the appellant had done everything in its power to prove the 3 ingredients required to prove the satisfactory nature of the loan transactions. In these circumstances, the onus had shifted to the AO. If the AO was still not satisfied, he had the option of making inquiries from the alleged share applicants by summoning them. However, as seen from the assessment order, he did not any such thing. Further, if the AO was not satisfied with what had been given to him by the appellant, he was duty bound to specify what more material he wanted the appellant to furnish. The AO never asked for any further material, though time and again the appellant asked in their submissions. This leads to the inescapable conclusion that the A.O could not think of any further material to ask for and proceeded to reject the appellant's claims, relying upon the information/material, which he never even brought to the notice of the appellant for any rebuttal. The unequivocal conclusion is that all the 3 ingredients having been satisfied, the impugned share application Money have to be treated as explained satisfactorily and the AO was not justified in having disregarded overwhelmingly supportive evidence. No cogent material was adduced by him to show that loans were unexplained. Therefore/ the impugned addition of under the heading share application money as made in the assessment order, fails on several counts (1) reliance on evidence that is totally inadequate; (2) failure to make available incriminating material (reports, statements etc.) forming basis for action by the AO; (3) failure to give due opportunity to the appellant to cross examine witnesses, whose statement might have been relief upon; and (4) failure to recognize the satisfactory nature of the explanation /evidence tendered by the appellant to explain identity of creditors, creditworthiness of the creditors and the genuineness of the loan transactions. Hence the impugned addition of said loan amount cannot be sustained.

27 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

5.3.29 (i) In view of the facts and circumstances of the case as well as judicial pronouncements referred and relied above by me and also certain judicial pronouncements relied upon by the appellant in its written submission which has been referred above, addition made by the AO under the heading share capital / share application money as well as loans / advances, cannot be sustained and therefore the AO is directed to delete the amount of Rs.1,64,00,000/-. 5.3.29(ii) As regards disallowance of Rs.7,82,106/- under the heading interest expenses by the AO u/s.69C of the I.T Act, 1961, the A.O. has discussed the issue in para 4.13.1. The AO has not given any reason for the same. In this regard, the Id. AR has submitted that the basis on which addition has been made, i.e. the statement of Shri Pravin Kumar Jain recorded by the investigation wing, was never provided for rebuttal. It has further been argued by the Id. AR that the AO has not considered any of the evidences submitted by the appellant to prove the genuineness of the loan. However, keeping in view of the entire facts and circumstances of the case, it is to be concluded that this amount has been disallowed/added by the AO as consequential effect of addition of loans as referred above. Since the addition of said loans has been deleted, the disallowance of interest being consequential in nature, also needs to be deleted. Accordingly the A.O is directed to delete the amount of Rs.7,82,106/-.”

On the other hand, the ld. Counsel has referred page No. 52 & 53 of the paper book pertaining to the copy of reasons for reopening dated 13.08.2015 as per which the A.O stated that assessee has entered into bogus purchases/ sales with the entities managed by Shri Pravin Kumar Jain. Thereafter the ld. Counsel referred page 55 of the paper book pointing out change of the reason recorded by the A.O on 20.08.2015 wherein it is stated that there was clerical mistake in recording the

28 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

reason earlier, therefore, the reason was recorded stating that assessee has obtained unsecured loan/share premium. The ld. Counsel has also referred pages 56 to 58 pertaining to the objection raised vide letter dated 12.10.2015 on reopening of the case of the assessee stating that assessee has not taken loan from any of the concerns of Shri Pravin Kumar Jain and in none of the companies mentioned by the AO, Shri Pravin Kumar Jain was the director or a shareholder. It is also stated that statement given by Shri Pravin Kumar Jain was retracted by him. It is also submitted that copy of statement of Shri Pravin Kumar Jain was never given to the assessee. He has also submitted that all the parties have responded to the notices issued u/s 133(6) and A.O has not made any inquiry to disprove the claim of the assessee that loan transactions were genuine transaction. The ld. Counsel has also submitted that loan received was also returned back. Further the ld. Counsel has placed reliance on the decision of CIT(A).

29 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

the supporting evidences furnished by the assessee. During the course of assessment proceedings the assessee has submitted the relevant supporting detail comprising confirmation of the parties, PAN numbers, full postal address, bank statement highlighting the transactions and copies of returned filed. The assessee has also submitted copies of balance sheet along with auditors report of the companies with whom the assessee was having loan transaction. The assessee has also submitted that all the transactions were by account payee cheques and copies of bank statement of the lenders were also filed. The A.O has not supplied any copy of statement of Shri Pravin Kumar Jain recorded by the investigation wing during the course of assessment proceedings in spite of repeated request made by assessee. The ld. CIT(A) has discussed in detail in his finding stating that as per the documentary evidences brought on record the assessee has discharged the onus of proving the genuineness of transactions, identity and capacity of the lenders. The assessee has produced evidences such as copies of annual amount repots, Directors report, latest postal address of the parties, PAN numbers and copies of Income Tax return of the parties, loan confirmations etc. The assessee has also provided copies of bank statement of the parties demonstrating that all the transaction were made through banking channel by account payee cheques. However, the A.O has not made any further investigation to disprove the supporting material furnished by the assessee. The ld. CIT(A) also stated that the A.O has not brought any material or evidence to disprove the evidences and explanation given by the assessee other than merely relying on the retracted statement of Shri Pravin Kumar Jain. After taking into consideration the material on record and the detail finding of the ld. CIT(A) as reproduced supra in the order, we don’t find any reason to

30 ITA No.4378/Mum/2017 A.Y.2008-09 ACIT-4(3)(1) Vs. M/s Qmax Synthetics pvt. Ltd.

interfere in the finding of ld. CIT(A), therefore, this ground of appeal of the revenue is dismissed.

Order pronounced in the open court on 27.04.2022

Sd/- Sd/- (SANDEEP SINGH KARHAIL) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 27.04.2022 PS: Rohit आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��थ� / The Respondent. 2. संबंिधत आयकर आयु� / The CIT(A) 3. आयकर आयु�(अपील) / Concerned CIT 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Mumbai 5. गाड� फाईल / Guard file. 6.

आदेशानुसार/BY ORDER, स�ािपत �ित //True Copy//

(Asst. Registrar) ITAT, Mumbai