M/S SILVERTOSS REALTORS PVT. LTD.,KOLKATA vs. I.T.O.,WARD-9(4), KOLKATA

order

: November 28th, 2022 ORDER

Per Manish Borad, Accountant Member:

1. For that the Ld. CIT(A) erred in confirming the order of the AO in adding back the share capital along with premium of Rs. 3,03,90,000/- raised during the year from 11 subscriber companies as unexplained cash credit u/s. 68 when all the details and evidences were filed to prove the identity and creditworthiness of the party and genuineness of the transactions and the onus that lay on the assessee was discharged.

2. For that the Ld. CIT(A) erred in confirming the addition of Rs. 3,03,90,000/- u/s 68 only on the ground of non-appearance of directors of the shareholder companies in response to notice u/s 131 of the Act which was unjustified and uncalled for particularly when the parties duly confirmed the transactions in response to notice u/s 133(6).

3. For that on the facts and circumstances of the case that the Ld. CIT(A) erred in confirming the order of the AO in adding back Rs. 3,03,90,000/- which was unjustified, not in accordance with law and uncalled for.”

3. Brief facts of the case as culled out from the records are that the assessee is a private limited company engaged in the business of shares and investment. Income of Rs. 1,630/- declared in e- return filed on 26.09.2012 for AY 2012-13. Case selected for scrutiny through CASS for the reason “to examine Large Share Premium received” followed by serving of notices u/s 143(2) & 142(1) of the Act. Ld. AO asked the assessee to explain the share capital of Rs. 3,03,90,000/- and to file documentary evidences and also issued summons u/s 131 of the Act to the Directors of the assessee company. In response, all the documents required by ld. AO were furnished. Though written submissions were filed, Page 2 of 19 I.T.A. No.: 2282/Kol/2019 Assessment Year: 2012-13 M/s. Silvertoss Realtors Pvt. Ltd. however, there was no appearance for personal deposition by the Director. Ld. AO, after going through the details filed by the assessee company, did not point out any specific defect in the said documents but since there was no physical appearance of the Director of the assessee company and the alleged share holders, ld. AO came to a conclusion that the assessee has failed to prove the identity as well as creditworthiness of the share holders and applying the ratio laid down by the Hon’ble Supreme Court of India in the case of CIT vs. Durga Prasad More reported in 82 ITR 540 and in the case of Sumati Dayal vs. CIT reported in 214 ITR 801, added the share capital contribution of Rs. 3,03,90,000/- as income of the assessee invoking the provisions of Section 68 of the Act and assessed the income at Rs. 3,03,91,630/-.

4. Aggrieved, the assessee preferred appeal before ld. CIT(A) but failed to succeed. The assessee filed complete details of documents of each share holder company including the copy of PAN, audited financial statement, bank statement and other details to prove the three ingredients i.e. identity, creditworthiness and genuineness. However, these details could not satisfy ld. CIT(A) as he observed that in the bank accounts of the said share holders, the funds are transferred from one entity to another without there being a real business and it is only circulation of funds. Ld. CIT(A) also observed that most of the share holder companies has meagre source of income and no assets in real terms. Ld. CIT(A) referred to various decisions and judgments in support of the Revenue holding that the onus of establishing the creditworthiness and genuineness of the transaction could not be proved by the assessee and thus, the finding of ld. AO deserves to be confirmed. Page 3 of 19 I.T.A. No.: 2282/Kol/2019 Assessment Year: 2012-13 M/s. Silvertoss Realtors Pvt. Ltd.

5. Aggrieved, the assessee is now in appeal before this Tribunal. Ld. Counsel for the assessee firstly referred to the following written submissions: “1. Share Capital of 3.03 Crores raised from 11 companies at premium of 990 per share. Details are annexed in paper book page 22 & 25. Complete details of identity and creditworthiness of the shareholders and genuineness of the transactions were filed before the AO as annexed in paper book page 27-258 in the case of all parties.

2. All share applicants were issued notices u/s 133(6) and in response, compliances made by all of them vide paper book whereby their financial statements, bank statement, source of "source of funds", ITR, Extract of Board Resolution etc were submitted. However the assessment order is silent and does not narrate the fact on this point. The AO added the same in the assessment made u/s 143(3) only on the ground that the shareholders did not appear personally in response to notice u/s 131 nor assessee could produce the shareholders.

3. Shareholders had substantial "Net worth" in comparison to investment made by way of share subscription in appellant company as depicted in their balance sheet - Gurudev Tradelink Pvt Ltd having networth of more than 33 crores vide paper book page 37, Manya Mercantile Pvt Ltd having networth of more than 48 crores vide paper book page 63, Mehek Commercial Pvt Ltd having networth of more than 1.30 crores vide paper book page 83, Shreya Commodities Pvt Ltd having networth of more than 1.35 crores vide paper book pagel05, Suswani Commercials Pvt Ltd having networth of more than 1.91 crores vide paper book pagel49, U J Exports Pvt Ltd having networth of more than .69 crores vide paper book page 173, Vridhi Raj Trading Co Pvt Ltd having networth of more than 1.79 crores vide paper book page 205, Mehek Merchants Pvt Ltd having networth of more than .04 crores vide paper book page 216 (which invested only 3 lakhs) and Moonnight Traders Pvt Ltd having networth of more than 11 crores vide paper book page 253.

4. All the shareholder companies are 'Active' compliant under MCA records not only at the time of allotment but even till today as per MCA database annexed in paper book.

6. Even otherwise plethora of judgments that non-appearance of directors cannot be ground to make the additions once all documentary evidences w.r.t. genuineness, creditworthiness etc filed on record. Pls refer Calcutta High Court in the case of Crystal Networks, copy enclosed. Kolkata ITAT in the case of Cygnus Developers copy enclosed.”

by the assessee, the common grievance is that ld. CIT(A) erred in confirming the addition made by ld. AO u/s 68 of the Act alleging that the assessee failed to explain the share capital along with share premium totalling to Rs. 3,03,90,000/- raised during the year from 11 subscriber companies.

10. We observe that the assessee is a private limited company and during the year received share capital and share premium totalling to Rs. 3,03,90,000/- from the following companies: Sr. Total Amount Name Of the Applicants No. Received 1 Gurudev Tradelink Pvt. Ltd. Rs. 75,00,000 2 Manya Mercantile Pvt. Ltd. Rs. 25,00,000 3 Mehek Commercial Pvt. Ltd. Rs. 35,00,000 4 Shreya Commodities Pvt. Ltd. Rs. 35,00,000 Ria Jewellers Pvt. Ltd. [Old name- Shreya 5 Rs. 50,00,000 Traders (P) Ltd.] 6 Suswani Commercial Pvt. Ltd. Rs. 11,00,000 7 U. J. Exports Pvt. Ltd Rs. 16,90,000 8 Mehek Merchants Pvt. Ltd. Rs. 3,00,000 I.T.A. No.: 2282/Kol/2019 Assessment Year: 2012-13 M/s. Silvertoss Realtors Pvt. Ltd. 9 Nishtha Merchants Pvt. Ltd. Rs. 3,00,000 10 Moonlight Traders Pvt. Ltd. Rs. 35,00,000 11 Vridhi Raj Trading Co. Pvt. Ltd. Rs. 14,00,000 Total Rs. 3,03,90,000/-

11. Further, we observe that during the year under appeal when the alleged sum was given towards share capital and share premium of Rs. 3,03,00,000/-, the share capital and reserve and surplus appearing in the audited balance sheet of the share holder companies as on 31.03.2012 stood as follows:

Sr. Reserve & Name of the Assessee Share Capital No. Surplus 1 Gurudev Tradelink Pvt. Ltd. 39,36,689 32,63,56,288 2 Manya Mercantile Pvt. Ltd. 1,48,000 47,41,024 3 Mehek Commercial Pvt. Ltd. 2,30,000 1,28,73,124 Shreya Commodities Pvt. 4 2,35,000 1,33,66,018 Ltd. Ria Jewellers Pvt. Ltd. [Old 5 name- Shreya Traders (P) 2,00,000 99,02,109 Ltd.] Suswani Commercials Pvt. 6 4,68,300 18,686 Ltd. 7 U.J. Exports Pvt. Ltd. 1,02,000 68,93,535 8 Mehek Merchants Pvt. Ltd. 1,75,000 2,27,332 9 Nishtha Merchants Pvt. Ltd. 1,75,000 2,26,121 10 Moonlight Traders Pvt. Ltd. 11,11,700 11,15,37,758 Vriddhi Raj Trading Co. Pvt. 11 4,20,500 1,75,43,386 Ltd.

“8.2 As per settled law, the initial onus is on the Assessee to establish by cogent evidence the genuineness of the transaction, and credit- worthiness of the investors under Section 68 of the Act. The assessee is expected to establish to the satisfaction of the Assessing Officer CIT v. Precision Finance (P.) Ltd. [1995] 82 Taxman 31/[1994] 208 ITR 465 (Cal.): Proof of Identity of the creditors; Capacity of creditors to advance money; and Genuineness of transaction This Court in the land mark case of Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1 (SC) and Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) laid down that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness, I.T.A. No.: 2282/Kol/2019 Assessment Year: 2012-13 M/s. Silvertoss Realtors Pvt. Ltd. then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source.” 14.1. Further, in para 9 of the said decision, the hon’ble Supreme Court has observed as under: “9. The Judgments cited hold that the Assessing Officer ought to conduct an independent enquiry to verify the genuineness of the credit entries. In the present case, the Assessing Officer made an independent and detailed enquiry, including survey of the so-called investor companies from Mumbai, Kolkata and Guwahati to verify the credit-worthiness of the parties, the source of funds invested, and the genuineness of the transactions. The field reports revealed that the share-holders were either non-existent, or lacked credit-worthiness.” 14.2. Thereafter the Hon’ble Supreme Court summed up the principles which emerged after deliberating upon various case laws as under: “11. The principles which emerge where sums of money are credited as Share Capital/Premium are: i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit- worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit- worthiness, then the genuineness of the transaction would not be established. Page 13 of 19 I.T.A. No.: 2282/Kol/2019 Assessment Year: 2012-13 M/s. Silvertoss Realtors Pvt. Ltd. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act.”

I.T.A. No.: 2282/Kol/2019 Assessment Year: 2012-13 M/s. Silvertoss Realtors Pvt. Ltd.

“i) CIT vs. Gagandeep Infrastructure (P) Ltd. 80 taxmann.com 272 (Bombay) wherein it was held by High Court that the proviso to section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. ii) PCIT vs. Chain House International (P) Ltd. 98 taxmann.com 47 wherein Madhya Pradesh High Court held that “The question raised by the revenue in regard to issuing the share at a premium is purely a question of fact. It is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of shareholder whether they want to subscribe to shares at such a premium or not and moreover the section 68 does not envisages any law on share premium it only requirement is to identity of the I.T.A. No.: 2282/Kol/2019 Assessment Year: 2012-13 M/s. Silvertoss Realtors Pvt. Ltd. investors, the genuineness of the transaction and the creditworthiness of the share applicants which same has been discharged by the respondent authority and the HIGH COURT OF M.P. BENCH AT INDORE Pg. No.--58-- (ITA No.112/2018 & Other connected matters) same has been accepted by the appellate authorities thus, the same cannot be reconsidered in these appeals as it is a pure question of fact.” SLP preferred by revenue was dismissed by Hon’ble Supreme Court and the same is reported in 103 taxmann.com 435(SC). iii) CIT vs. Kamdhenu Steel & Alloys Limited [ITA No.972 of 2009] dated 23.12.2011 wherein the Delhi High Court in a batch of 11 appeals was required to adjudicate on the very issue of addition made by the A.O u/s 68 in respect of share application monies received by the assessees as alleged unexplained cash credit. In all these cases, the Department had alleged that the share application monies were received from persons who were ‘entry operators’ and the monies received by way of share application was nothing but was routing of unaccounted money of assessee in the form of subscription to share capital. However, in the assessments made the A.Os had not brought on record any material or evidence to substantiate such finding. Accordingly, on appeal the appellate authorities had deleted the additions made u/s 68 of the Act. iv) DCIT vs. Rohini Builders 127 Taxman 523 observed that the assessee had discharged its onus of proving the identity of creditors by giving their complete addresses, permanent accounts number and copies of assessment orders. It was further observed that the assessee had also proved capacity of creditors by showing that amounts were received by account payee cheques. The High Court held that only on the ground that some of the creditors could not be served with notice u/s 131 or they failed to appear before Assessing Officer the loans could not be treated as non-genuine and therefore upheld the order of the Tribunal deleting the addition u/s 68 of the I.T. Act 1961. v) CIT vs. Orissa Corpn (P) Ltd. 159 ITR 78 where the Court held that “In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index number was in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income I.T.A. No.: 2282/Kol/2019 Assessment Year: 2012-13 M/s. Silvertoss Realtors Pvt. Ltd. of the said alleged creditors to find out whether they were credit- worthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises.”

by the assessee.