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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI M BALAGANESH & SHRI PAVAN KUMAR GADALE
आदेश / O R D E R
PER PAVAN KUMAR GADALE - JM:
The Revenue has filed an appeal against the order of CIT(A)-9, Mumbai passed u/s 143(3) r.w.s 250 of the Act. The revenue has raised the following grounds of appeal:
Perfect Filaments Ltd., Mumbai. - 2 - “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO delete the addition made u/s 68 of the Act of Rs. 1,60,00,000/- towards unexplained share application / share premium even though Shri Pravin Jain in sworn statement accepted the factum of giving accommodation entries and creditworthiness of the lender as well as genuineness of transaction was not proved.
The appellant craves leave to amend or alter any ground or add new ground which may be necessary”.
2.The brief facts of the case are that the assessee is a limited company engaged in the business of manufacturing of Texturing yarn & PP Mats. The return of income was filed on 30.09.2012 with total income of Rs1,73,79,788/-.Subsequently, the case was selected for scrutiny and notice u/s 143(2) and u/sec142(1) of the Act along with questioner were issued to the assessee. In response to the notice, Ld. AR of the assessee appeared from time to time and submitted the required details. The A.O on perusal of the financial statements found that the assessee during the financial year has issued shares numbering 17,93,820 of Rs.10/- face value at a premium. The total share capital raised including the security/share premium is Rs. 14,01,51,000/-.The Perfect Filaments Ltd., Mumbai. - 3 - A.O found that the assessee has issued shares to seven companies and collected the security premium on issue of shares @ Rs 490/- per share in respect of five entities. Whereas, to examine the genuineness of the transaction, the A.O. has called for the Audited financial statements of the investor companies. Further A.O issued notice u/s 133(6) of the Act on the investor companies. But out of the 7 notices issued, three notices returned un-served by the postal authorities with remarks left and unclaimed. In respect of remaining four investors, no reply was received. Further, A.O has deputed Inspector to locate the where abouts of the parties were notice u/s 133(6) of the Act was issued. The A.O on perusal of the records, found that the information was received from the office of Investigation Wing, Mumbai that the assessee has availed the benefit of accommodation entries of bogus share capital from companies related to Praveen Kumar Jain.The assessee company has submitted the details of three entities in respect of Praveen Kumar Jain Group. The A.O observe that out of the seven investor companies, two entities are related to assessee’s own Perfect Filaments Ltd., Mumbai. - 4 - group. Whereas, in respect of disputed three entities, the A.O has dealt on the financial statements and the information received from the related Companies of Praveen Kumar Jain. The A.O found that the share application money and the share premium does not satisfy the test of genuineness and credit worthiness and also identity was not established and treated the investments of three companies as unexplained cash credit u/s 68 of the Act and assessed the total income of Rs. 3,33,79,790/-and passed order u/s 143(3) dated 29.03.2015. Aggrieved by the order, the assessee has filed an appeal with the CIT(A). The Ld. CIT(A) considered the grounds of appeal and submissions of the assessee and findings of the A.O dealt on the written submissions at para 5.2 of the order and catena of the Hon’ble Tribunal and Hon’ble High Court decisions in respect of the transactions of unexplained cash credits u/s 68 of the Act and observed that the assessee has discharged its burden by submitting the information and the A.O failed to make enquiries and deleted the addition observing at page 32 para 5.3.4 & 5.3.5 of the order as under:
Perfect Filaments Ltd., Mumbai. - 5 - “5.3.4 Thus, it is concluded that the appellant had done everything in its power to prove the 3 ingredients required to prove the satisfactory nature of the said share application transactions, In these circumstances, the onus had shifter to the AO. If the AO was still not satisfied, he had the option of making inquiries from the alleged lenders by summoning them. He has opted not to comment on the replies furnished by the parties who were summoned nor has he relied on the same However, in my opinion this is not right since such credible material was available with him and which was in fact filed at his insistence since he issued the notice seeking relevant information. Further, if the AO was not satisfied with what had been given to him by the appellant, he was duly bound to specify what more material he wanted 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 loans 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 additions, made in the assessment order, has to fail on severe counts – (1) reliance on evidence that is totally inadequate; (2) failure to made available any 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 Perfect Filaments Ltd., Mumbai. - 6 - nature of the explanation / evidence tendered by the appellant to explain identity of said parties, creditworthiness and the genuineness of the share application transactions.
5.3.5 In view of the facts narrated above as well as judicial pronouncements referred by me and the case laws relied upon by the appellant which has been reproduced above addition of Rs. 1,60,00,000/- as unexplained share capital with share premium cannot be upheld. Accordingly, AO is directed to delete the addition of Rs. 1,60,00,000/-
Aggrieved by the order of the Ld. CIT(A),the revenue has filed an appeal with the Tribunal.
The Ld. DR submitted that the CIT(A) had erred in deleting the addition without considering the fact that the assessee has not proved the ingredients of Sec. 68 of the Act i.e. identity, genuineness and credit worthiness of the investors. Further the share premium charged by the assessee is on the higher side in comparison with the others who are allotted at a lesser premium and the share transaction is in the nature of accommodation entries and prayed for allowing the revenue appeal.
Perfect Filaments Ltd., Mumbai. - 7 - 5. Contra, the Ld. AR supported the order of the Ld.CIT(A) and submitted that the assessee has cooperated in submitting the information in the assessment proceeding. Whereas, the A.O has ignored the information of investors financials submitted in respect of Rs.1,60,00,000/- and unilaterally made addition of share capital and share premium in respect of three entities. The Ld. AR substantiated his arguments with written submissions read as under. 11. “The Learned AO added the share application money amounting to Rs. 1,60,00,000/- received from the above Investor companies under section 68 of the Act, 1961 on the alleged ground that it is unexplained cash credit.
At the outset, the Appellant would like to draw Your Honour’s kind attention to the text of Section 68 of the Act that reads as under: “68.Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.” i) From a reading of the above section, it is evident that the assessee should be able to provide satisfactory explanations about the sum found to be credited in the books of the appellant. It is a fairly Perfect Filaments Ltd., Mumbai. - 8 - settled legal position held by various decisions discussed subsequently that if the assessee proves the following things then the addition under section 68 of the Act cannot be made: • Identity of the shareholder; • Genuineness of the transaction; • Credit worthiness of the shareholder ii) The Appellant humbly submit that the Appellant has already submitted all the details required to prove the above requirements. The Appellant humble submissions are as under: I. As regards the Identity of the shareholders: a. The Appellant has filed the following information / documents during the assessment proceedings to the AO vide it’s letters: i. Details of Share Application Money; ii. Copy of Ledger A/c in the books of Investor companies/parties; iii. Name, Address, PAN, Income-tax Jurisdiction, etc. of the Investor companies/parties; iv. Copy of Income Tax Return Acknowledgement; v. Copy of Director Report, Audit Report and Balance Sheet of the Investor’s companies/parties. b. Further, the Investor Companies Master Data downloaded from provides the company name, Company Identification Number (CIN), date of incorporation, registered address, e-mail ID etc. The status as on current date reflects that all the Investor companies are Active &identifiable and ROC compliant as per data showing on. c. The Income-tax Jurisdiction details & financials of the Investor’s companies/parties and Company’s Master Data proved the identity as well as financial capacity i.e. creditworthiness of the Investor’s companies/parties. Hence, the aforesaid documents has proved the identity of all the shareholders. II. As regards the Genuineness of the transactions: a. The Appellant has received the share application money through proper banking channels as the funds were received through account payee cheques only.
Perfect Filaments Ltd., Mumbai. - 9 - b. Please see the bank statements filed with the AO. c. The Appellant submit that the bank statements and other documents submitted before the AO proved the genuineness of the transactions. d. Moreover, all the investor companies/parties equally confirmed vide their direct responses to AO during the assessment proceedings that they have invested with the appellant company, the said investments have been duly recorded by them in their books of accounts, they have the financial strength & capacity to invest and duly submitted relevant financials & bank statements to confirm genuineness of the transactions. III. As regards Creditworthiness of the shareholders: With regard to the capacity and credit worthiness of the Investors, the appellant Company has already placed on record the audited accounts/ financials for the year ended 31-3-2012 of the investee Company/parties. a) The details of the financial strength of the investee companies based on its net worth, as depicted from the Audited Financials of the investee company, which has been placed on record before the A.O. We reproduce the same as under; PERFECT FILAMENTS LIMITED Assessment Year 2011-12 Determination of Creditworthiness of Investee Companies * Total Total Net Worth of the Investee Value of Company as on 31-03-2011 Shares Name of the * Applied in Investee * Share Reserves the * Total Net Company Capital And Assessee Worth Rs. Rs. Surplus Company Rs. Rs. (1) (2) (1)+(2)=(3) (4)
Perfect Filaments Ltd., Mumbai. - 10 - M/s Casper Enterprises Pvt. 1324793 Ltd 4611500 2 17859432 4500000 M/s Sumukh Commercial Pvt. Ltd 4912500 5446594 10359094 8500000 M/s Olive Overseas pvt. 1963700 Ltd 0 8307320 27944320 3000000 Total Rs. 56162846 16000000 Total Networth in % 28.48% b) In view of the aforesaid details, the Appellant submits that the Investor companies have positive net worth and have only invested on an average 28.48% of their net worth in the Appellant. Hence, the creditworthiness of the Investor companies cannot be doubtful. • Further, the Appellant submit that the Company’s Master Data, Income-tax Jurisdiction details and financials of the Investor companies proved the identity as well as financial capacity i.e. creditworthiness of the Investor companies. • The CIT(A) treated only share premium received by the Appellant as unexplained cash credit under section 68 of the Act on the alleged ground that the Appellant has not brought on record to prove the identity, genuineness of the transactions and creditworthiness of the investors without appreciating that the Appellant has submitted the copies of director report, balance sheet, bank statements, share application forms, etc. clearly brought out the nature of the transactions, amount involved and scope of the transaction. • The Appellant submit that the Appellant has discharged its onus of proving the identity of the parties, genuineness of the transactions and the creditworthiness of the shareholder.
Perfect Filaments Ltd., Mumbai. - 11 - Therefore, the Appellant humbly submit that the addition made under section 68 of the Act be deleted. • The details of the financial strength of the investee individual parties based on its tax returns, as depicted from the ITR of the investee parties, which has been placed on record before the A.O., Further, the Appellant submit that the Company’s Master Data, Income-tax Jurisdiction details and financials of the Investor’s companies/parties proved the identity as well as financial capacity i.e. creditworthiness of the Investor’s companies/parties. • The Appellant has also allotted the shares to the Investor’s companies/parties during the relevant previous year and the details are on record. • The AO treated only share application money received by the Appellant as unexplained cash credit under section 68 of the Act on the alleged ground that the Appellant has not brought on record to prove the identity, genuineness of the transactions and creditworthiness of the investors without appreciating that the Appellant has submitted the copies of ITRs, director report, balance sheet, bank statements, share application forms, etc. clearly brought out the nature of the transactions, amount involved and scope of the transaction. • Moreover, all the investor companies/parties equally confirmed vide their direct responses to AO during the reassessment proceedings that they have invested with the appellant company, the said investments have been duly recorded by them in their books of accounts, they have the financial strength & capacity to invest and duly submitted relevant financials & bank statements to confirm their identity, genuineness of the transactions and creditworthiness as shareholders.
Perfect Filaments Ltd., Mumbai. - 12 - • The Appellant submit that the Appellant has discharged its onus of proving the identity of the parties, genuineness of the transactions and creditworthiness of the shareholders. • Therefore, the Appellant humbly submit that the addition made under section 68 of the Act be deleted. • On the perusal of the above submission, the appellant beg to submit that it has adequately demonstrated with documentary evidences, the presence of all three stipulated elements of : • Identity of the Applicant/ Investor • Capacity of the Applicant/Investor • Genuineness of the transaction in question. Therefore, it is submitted that to consider the amount received towards share application money as Unexplained Credit u/s 68 of IT Act is misconceived and illegal.
Further, the A.O has made addition only on the investment companies connected to the Praveen Kumar Jain and its Group involved in the activities of providing accommodation entries. The A.O has only relied on the statement of Praveen Kumar and such statement was never confronted to the assessee nor opportunity of cross-examination was granted to the assessee. The Ld. AR emphasized that the assessee has discharged its obligation by submitting the financial statements of the investors, where the payments are made through the banking channels and genuineness of the transactions, identity and credit worthiness of the share holders have been Perfect Filaments Ltd., Mumbai. - 13 - proved in the assessment proceedings. The Ld. AR referred to the paper book page Nos. 65 to 127 in respect of M/s Casper Enterprises Pvt Ltd, where the audited financial statements and bank statement and details in respect of company’s identity, and creditworthiness were submitted. Similarly, in respect of investor M/s Sumukh Commercial Pvt Ltd, the Ld. AR demonstrated the income tax details with the audited accounts, directors report, memorandum of Association at page 128 to 156 and lastly in respect of M/Olive overseas Pvt ltd ,the financial details at page 179 to 233 of paper book. The contentions of the Ld. AR are that substantial details were submitted with the A.O in the assessment proceedings which includes the name, address, pan and jurisdiction of the investor company, income tax return, application filed for allotment for equity share, annual report, directors report, profit and loss account, balance sheet, bank statement and copy of return of allotment. Whereas, the A.O has disbelieved the fact of identity, credit worthiness and genuineness of the transaction, where the payments are made through Perfect Filaments Ltd., Mumbai. - 14 - the banking channels. Further to substantiate the identity of the investors, the assessee has filed the details of the investor’s master data i.e company identification numbers, incorporation dates with Registrar of Companies. Secondly on the genuineness of the transaction, the assessee has submitted the share application and the bank statements and finally the credit worthiness substantiated with the financial statements with the reserves &Surplus. The Ld. AR submitted that the CIT(A) has considered all the factual aspects and the information submitted by the assessee satisfying the three ingredients of provisions of Sec. 68 of the Act. The assessee has substantiated its stand by submitting the details before the A.O and discharges the burden. Whereas, the A.O relied only on the statement of the group company key person and has not conducted any independent enquiry and made addition. The Ld. AR a relied on the judicial decisions as under; “1. DCIT Vs. M/s Rane Prakashan Pvt Ltd., ITA No. 3745/Mum/2017. 2. ITO Vs. M/s. Agarwal Cloth Agency Pvt Ltd., ITA No. 2969/Mum/2017.
Perfect Filaments Ltd., Mumbai. - 15 - 3. ITO Vs. M/s Vishwa Vyapar Trading Pvt. Ltd., ITA No. 2888/Mum/2017. 4. ITO Vs. M/s. span Venture ITA No. 4447/Mum/2017. 5. Shree Laxmi Estate P. Ltd., Vs. ITO, & 2562/Mum/2017. 6. ACIT Vs. M/s. Abani Sarbeswar Das ITA No. 193/Mum/2018 and 232/Mum/2017. 7. ITO Vs. M/s. Smt. Pratima Ashar ITA No. 105/Mum/2018. 8. ITO vs M/s. Nityanand Industries Pvt Ltd., ITA 4277 & 4278/Mum/2017. 9. ACIT Vs. Shreedham Builders ITA No. 5589/Mum/2017.
The Ld. AR further submitted that the assessee complied with the ingredients required under Sec. 68 of the Act and the A.O. has failed to discharge his duty as the assessee filed the entire details in respect of investors in the assessment proceedings and prayed for dismissal of the revenue appeal.
We heard the rival contentions and perused the material on record and the judicial decisions. The sole disputed issue arises with respect to three investor companies, where the assessee has received share application money along with share premium. The assessee has issued shares to seven entities Perfect Filaments Ltd., Mumbai. - 16 - which includes three entities (i) M/sCasper Enterprises Ltd,(ii)M/s Sumukh Commercial Pvt Limited. And (iii)M/s Olive Overseas Pvt Ltd., belongs to Praveen Kumar Jain Group and due to search u/sec132 of the Act on the group, the statements were recorded by the investigation wing that they are only providing accommodation entries and no business activity is conducted. The A.O based on the statements recorded in the course of the search under 132(4) of the Act of the group has made addition of share capital including premium in the hands of the assessee and over looked the various documentary evidences filed by the assessee in support of investments including the confirmation letters, PAN, income tax acknowledgement, directors report, audit report, balance sheet, bank statement, companies existence, certificate of incorporation and memorandum of Association etc. In spite of assessee filing all the details, prima-facie the A.O has not conducted any investigation or enquiry in respect of the information submitted by the assessee and relied only on the information of a third party whose statement was not cross examined or tested. We find Perfect Filaments Ltd., Mumbai. - 17 - that the CIT(A) has considered the detailed facts and the submissions of the assessee. Whereas, out of the seven investor companies, the A.O has only doubted the three entities belong to Praveen Kumar Jain group and has accepted the investments made by other investor companies including M/S Century Denim Pvt Ltd and M/s Landscape Vincom pvt Ltd were the shares were issued at a premium of Rs 490/- per share. Similarly, in respect of the three entities of Praveen Kumar Jain group, the shares were also allotted at the same amount. The assessee prima-facie has complied with the ingredients required u/s 68 of the Act of genuinity, identity and creditworthiness. The CIT(A) relied on the Catena of judicial decisions in his order and has test checked the creditworthiness and identity of shareholders and came to a reasonable conclusion that the assessee has discharged its burden on submitting the information. Further, the A.O has failed to make further enquiries and relied only on statement of the key person, which was retracted subsequently. We found the order of the CIT(A) is a reasoned and logical order, where the CIT(A) has dealt on the facts, Perfect Filaments Ltd., Mumbai. - 18 - provisions of law and Judicial decisions and applied the Ratio of decisions to the present case and deleted the addition. Further, the Ld.DR could not controvert the findings of the CIT(A) with any new cogent evidence. We considering the facts and submissions of the assessee are of the view that the CIT(A) order is reasoned and conclusive. Accordingly, we do not find any infirmity in the order of the CIT(A) and upheld the same and dismiss the grounds of appeal of the revenue.
In the result appeal filed by the revenue is dismissed.