DCIT -3(3)(1), MUMBAI vs. ROCKWOOD HOTELS & RESORTS LTD., MUMBAI

The revenue challenges the order of Ld. Commissioner of Income Tax (Appeals)-8. Mumbai [CIT(A)] order dated 02/08/2018 for Assessment Year (AY) 2013-14 which has deleted certain additions of Rs.347.69 Lacs as made by Ld. AO u/s 68 while framing an assessment u/s 143(3) on 05/03/2016. 2 Rockwood Hotels & Resorts Ltd. Assessment Year: 2013-14 2. The Ld. AR, at the outset, submitted that the issue is squarely covered in assessee’s favor by the earlier decision of Tribunal in assessee’s own case for AY 2011-12, order dated 05/10/2018. The copy of the same has been placed on record. The Ld. AR submitted that the facts are quite identical. The Ld. DR, though relied on the order of Ld. AO, could not controvert the fact that the issue has already been delved into by the Tribunal in AY 2011-12. 3.1 The material facts are that the assesse being resident corporate assessee stated to be engaged in hospitality business was assessed for the year u/s 143(3) on 05/03/2016. During assessment proceedings, it transpired that the assessee received share application money from 3 entities i.e. (i) Liberty Marble & Granite; (ii) Hilton Finance Ltd.; (iii) Shining Merchants Pvt. Ltd. In support of these transactions, the assessee filed documentary evidences in the shape of Share Application form, PAN details of share applicants, confirmation from share applicants, bank statements evidencing receipt of money through banking channels, Board resolution etc. These documents have already been enumerated in the assessment order. By supplying these documents, the assessee claimed to have discharge the onus of establishing the identity of the lenders, their respective creditworthiness and genuineness of transactions in terms of requirements of Sec.68. The attention of Ld. AO was drawn to the fact that similar additions made in earlier years was deleted by leaned first appellate authority. 3.2 Though Ld. AO noted that similar money received by assessee from entities listed at serial nos. (ii) & (iii) as added in earlier year was 3 Rockwood Hotels & Resorts Ltd. Assessment Year: 2013-14 deleted by Ld. CIT(A) but the revenue was in further appeal before Tribunal and therefore, the assessee’s plea could not be accepted. Accordingly, the amount so received was similarly added in this year as unexplained cash credit u/s 68. 4. The Ld. CIT(A) noted the documentary evidences furnished by the assessee to substantiate the receipt of share application money. It was also observed that part of share application money was refunded in AY 2014-15 which was accepted in scrutiny assessment. Further the assessee had submitted specific details regarding each of the three subscribers and the payments were received through banking channels. All these subscribers had sufficient net worth to advance share application money. A further perusal of bank statement of subscribers would show that no cash was deposited before advancing share application money to the assessee which prove that the transactions were not accommodation entries. The signed confirmations were also placed on record and therefore, the transactions were to be considered as genuine one. The assessee had satisfied all the three tests of identity, creditworthiness and genuineness. As against this, Ld. AO failed to demonstrate that the receipts were mere accommodation entries. Finally, relying upon various decisions including the decision of Hon’ble Bombay High Court in CIT V/s Creative World Telefilms Ltd. (333 ITR 100) as well as CIT V/s Gagandeep Infrastructure Ltd. (ITA No 1613 of 2014 dated 20/03/2017), the impugned additions were deleted. Aggrieved, the revenue is in further appeal before us. 5. As rightly point out by Ld. AR, similar issue arose in assessee’s own case for AY 2011-12 wherein the assessee received share 4 Rockwood Hotels & Resorts Ltd. Assessment Year: 2013-14 application money from various entities including entities listed at serial nos. (ii) & (iii). The Ld. AO added the same u/s 68 which was reversed by learned first appellate authority. The revenue challenged the stand of Ld. CIT(A) before this Tribunal vide order dated 05/10/2018 wherein the revenue’s appeal was dismissed with following findings: - 8. From the record, we found that after considering the remand report CIT(A) has recorded a finding to the effect that assessee has filed PAN card, CIN Master Data (ROC), Certificate of incorporation of the share applicants which established the identity of share applicants. The CIT(A) also observed that assessee had furnished the copies of share application forms, board resolution and confirmation of account and Ledger accounts to prove the genuineness of the transaction. A finding has also been recorded by the CIT(A) to the effect that assessee had filed IT acknowledgement receipts, balance sheets as on 31/03/2011, bank statements and assessment order u/s.143(3) for the A.Y.2012-13 of M/s. Shining Merchants Pvt. Ltd., and for A.Y.2011-12 of M/s. Hotel Padmini Palace Pvt. Ltd., to prove the creditworthiness of the share applicants. The CIT(A) also observed that assessee had filed affidavit for the share applicants confirming the transactions entered with the assessee. It was further observed that the AO in the remand report had not disputed the correctness of the above said documents which reasonably establishes the identity and genuineness of the transaction and which also proves creditworthiness of the share applicants. As per CIT(A), once assessment order u/s.143(3) had been passed in the case of share applicants named M/s. Shinning Merchants Pvt. Ltd and M/s. Hotel Padmini Palace Pvt., then correspondingly the transaction cannot be held as non-genuine in case of the assessee.

After discussing various documentary evidence filed before the AO and in the remand proceedings, the CIT(A) recorded a finding to the effect that assessee had discharged its onus to prove the transaction and that AO has not brought any contrary documentary evidence on record to dispute the transaction and involvement of unaccounted money belonging to the assessee, CIT(A) also recorded a finding to the effect that on perusal of bank statement of share applicants, it is observed that there are no cash deposit corresponding to cheques issued towards share application money. Even in remand report, the AO had not brought any contrary material to disprove the transaction and had not found any fault in the documents furnished by the assessee, accordingly it was held by CIT(A) that assessee had reasonably discharged its onus to prove the identity, creditworthiness and genuineness of transaction. In view of the documentary evidence furnished which included PAN details, registration certificate, share application forms, board resolution of share applicants, affidavit and confirmation of the share applicants, IT returns, balance sheet and bank statements of share applicants and assessment orders u/s 143(3) in respect of two share applicants.

With respect to the credit of M/s. Hotel Padmini Palace Pvt. Ltd., CIT(A) found that assessee had obtained a long term lease from a share applicant named M/s. Hotel Padmini Palace Pvt. Ltd on entering into an agreement on 16/11/2010 on 5 Rockwood Hotels & Resorts Ltd. Assessment Year: 2013-14 debiting the account of capital work in progress and correspondingly crediting the share application account. The assessee had also furnished the confirmation of account, property card and affidavit of such share applicant confirming the transaction with the assessee. Thus, it was found that assessee had not received any money from M/s. Hotel Padmini Palace Pvt. Ltd., and addition u/s.68 cannot be made and at the utmost capital work in progress could be reduced since there is a nexus of share application with capital work in progress.

The CIT(A) has also given due justification for the premium charged on issue of shares by referring to the certificate filed by Nenawati & Associates, CA and valuation report of the property valuer M/s. Kamtech Associates Pvt. Ltd who had valued the Land and Building belonging to the assessee at Rs.362.93 Crores and determining the net worth of the company at Rs.224.11 Crores and ascertaining the Net Asset Value (NAV) per share at Rs.406.63 per share. Accordingly, it was found that share application money received by the assessee @Rs.200/- per share is fair price after referring to the various documents filed before the lower authorities. The CIT(A) concluded that assessee has furnished adequate documents to prove the identity, genuineness and creditworthiness of the share applicants. After justifying the share premium charged by the assessee, the CIT(A) observed that addition u/s.68 cannot be made of share premium money since such is a receipt on capital account and is not of revenue nature. The detailed finding so recorded by CIT(A) are as per material on record. We further found that provisions of Section 56(2)(viib) inserted by Finance Act, 2012 had been made applicable from A.Y.2013-14 and does not apply to the year under consideration i.e., for the A.Y.2012-13. Our this view is supported by the decision of ITAT in the case of M/s Gagandeep Infrastructure Pvt. Ltd and M/s Green Infra Ltd. vs. ITO 38 Taxmann 253 wherein it is held that it is the prerogative of the board of directors of the company to decide the share premium and it is the wisdom of the shareholders whether they want to subscribe to such heavy share premium.

We found that CIT(A) has dealt with the issue threadbare in respect of each share applicant and after applying various judicial pronouncements to the facts of the case and the documents placed on record reached to the conclusion that all the three ingredients of Section 68 i.e., identity, genuineness and credit worthiness of share applicants are duly complied with, accordingly, no addition is warranted. The findings so recorded by CIT(A) are as per material on record which do not require any interference on our part.