MONEY MATTERS PROPERTIES PRIVATE LIMITED,MUMBAI vs. INCOME TAX OFFICER-1(2)(3), MUMBAI

Assessee by: Shri Jitendra Jain (AR) Revenue by: Ms. Jothi lakshmi Nayak (DR)/ Ms. Bharati Singh Date of Hearing: 06/03/2020 Date of Pronouncement: 20/03/2020 O R D E R

PER AMARJIT SINGH, JM:

1. Whether on facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of the Rs.6,90,00,000/- made u/s 68 of the IT Act by the assessing officer for the failure of the assessee to prove the genuineness of share application money and security premium satisfactory.

2. The applicant craves leave to add to, amend or withdraw the aforesaid ground of appeal.”

4. The brief facts of the case are that the assessee filed its return of income on 25.09.2008 declaring total income to the tune of Rs.7,40,474/- for the A.Y. 2008-09. The return was processed u/s 143(1) of the I.T. Act, 1961 accepting the income returned. Thereafter, the case of the assessee was reopened by issuance of notice u/s 147/148 of the Act. The reasons for reopening the assessment is hereby mentioned below.: - “2.1 In the case of above mentioned assessee, the case was initially reopened for A.y.2009-10 u/s 147 for the reason that the assessee was in receipt of huge share premium amount to Rs.1,12,40,000/- during the F.Y.2008-09. During the course of reassessment proceedings, it is & 5116/M/2017 A.Y.2008-09 learned from the balance sheet and details submitted, that the assessee has received share premium amounting to Rs.8,91,00,000/- in the Financial Year 2007- 08 which is relevant to A.Y.2008-09. The nature of the share application received (the intrinsic value of share as per NAV method does not command and share premium of Rs.90/- per share for the face value of Rs.0/-. Therefore, the nature of share capital received on premium is not substantiated. In these circumstances, the reassessment proceedings for the AY. 2009-10 were approved and case for A.Y.2008-09 was reopened. 2.2 In addition to the above, information was received from the Dy. DIT- (Inv.) Unit 3(1) & 3(2) Mumbai vide his letter dated 14.02.2015, wherein it was stated that a Survey was conducted on the Capri Group (Earlier known as Money Matter Group) on 09.10.2014. During the survey it was noticed that m/s-. Money Matter Properties Pvt. Ltd. AAECM9600 has received share premium of Rs. 4.90 Crore. The share capital were received by the assessee company from the companies arc mere entry provider and allotted share at high premium to them. The same were brought back by the Group, Companies of the assessee very low price. 2.3 The Dy. Director of Income Tax (Inv.) Unit-3(l) & 3(2), Mumbai has also informed that a survey u/s. 133A was conducted on Microsec Capital at 8, Shanti Niketan, Carnax Street, Shakespeare Sarani, Kolkata- 700017 on 02.15.2015. During the course of survey, statement of Shri Manoj Sarma, Akash Chatterjee, Pritam Ghosh and Mantosh Yadav was recorded. During the statement they have accepted that the transactions Capri Group are merely entries. They also accepted that all the companies where these- four are directors are dummy companies providing accommodation entries. In statement of Mantosh Kumar Yadav has accepted the accommodation entry amounting to Rs.3,25,00,000/- has been provided in the form of share application money to the assessee company by M/s. Prism Impex Pvt. Ltd. during the F.Y.2007-08. 2.4. In view of the above reasons, the income represented as share application money shown to be credited in the books of accounts of the assessee amounting Rs.8,91,00,000/- and the nature of source of such credits are found to have remained unexplained. The assessment for A.Y. 2008-09 has accordingly been re-opened by issuing of notice u/s. 148 of the 1.T. Act. 1961.” & 5116/M/2017 A.Y.2008-09

5. The assessee company engaged in the business of Real Estate and Investment. In response to the notice u/s 148 of the Act, the assessee filed the objection which was disposed of vide letter dated 16.10.2015 & 18.01.2016. The assessee requested to treat the return already filed in response to the notice u/s 148 of the Act. The AO conducting the inquiry in connection with the bogus entry with the assessee and found that an amount of Rs.6,90,00,000/- has been introduced by assessee as accommodation entry which was unexplained cash credit u/s 68 of the I. T. Act, 1961, therefore, the same was added to the income of the assessee and the total income of the assessee was assessed to the tune of Rs.6,97,40,470/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who allowed the claim of the assessee, therefore, the revenue has filed the present appeal before us. ISSUE NO. 1

6. We have heard arguments advanced by the Ld. Representative of the parties and perused the record. The Ld. Representative of revenue has argued that the CIT(A) has wrongly deleted the addition, therefore, the finding of the CIT(A) is not justifiable, hence, is liable to be set aside. However, on the other hand, the Ld. Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.: - & 5116/M/2017 A.Y.2008-09 “4.5. 1 have perused carefully the Assessment Order of the AO, detailed submissions of the Appellants, various supporting evidences filed by the Appellants in its Compilation. On perusal of the Assessment Order, the AO is of the opinion that the share capital and share premium amount received by the appellant is taxable u/s 68 of the I.T. Act. On the other hand, the AR of the Appellant argued that the share capital and share premium amount received by the company is capital in nature and cannot be brought to tax. The Appellant also submitted, in the light of documents, filed during the course of assessment proceedings, the identity and creditworthiness of the investors as well as genuineness of the transactions are proved beyond doubt; therefore, the action of the AO in taxing the share capital and she premium u/s 68 of the I.T. Act, is not justifiable one. The Appellant, in support of its claim relied upon the following judicial pronouncements: - Green infra Ltd vs ITO [159 TTJ (Mum) 728] - Gagandeep Infrastructure Pvt. Ltd [2014-TIOL-656-ITAT-Mum] - CIT vs Lovely export (P) Ltd 1319 ITR 5 SC) - ACT vs Anjara India Ltd [135 TTJ 430 Del] - CIT vs Winstral Petrochemicals P. Ltd 1330 ITR 603 Del] - CIT vs Dwarkadhish Investment Pvt. Ltd [330 ITR 298 Del] - CIT vs GP International Ltd [325 ITR 25 P H) - ACT vs Ruchi Credit Corporation Ltd 12010-TIOL-738-ITAT-Mum] - CIT vs Stellar Investment Ltd [251ITR 263 SC] - CIT vs Electro Polychem Ltd [294 ITR 661Mad] - Prana Studios Pvt. Ltd vs DCIT [2010-TIOL-244-ITAT-Mum] - ITO vs Ashirwad Metals Pvt. Ltd [2009-TIOL-810-ITAT-Mum] In order to decide the issue in appeal, section 68of the I.T. Act has been perused. On perusal thereof it is evident that whenever an assessee is in receipts of funds either by way of loans and advances or by way of share capital, section 68 of the I.T. Act caste an obligation on the assessee to prove the identity and credit worthiness of the parties from whom the funds has been received and the genuineness of the transaction. If the & 5116/M/2017 A.Y.2008-09 assessee failed to prove the identity and credit worthiness of the parties from whom the funds has been received and the genuineness of the transaction or if the AO is not satisfied with the explanation filed by the assessee then, the AO can make addition u/s 68 of the I.T. Act. Bearing the above legal position in mind, I have gone through all the documents filed by the appellant in order to determine the identity and credit worthiness of the investors and genuineness of the transaction. The Appellant, in order to prove the identity of the investors filed {wherever applicable} (iii) Acknowledgement of Income Tax return filed by the investors (iv) Bank statement of investors, etc. The AO has neither record. any valid reason nor brought on record any evidence as to why the above documents are not sufficient enough to prove the identity of the investors seems that the AO has ignored the above documentary evidences filed by the Appellant. In view of the above facts, I'm of the opinion that the Appellant has proved of the investors beyond any doubt. As far as genuineness of the transaction is concerned the Share capital and share premium has been received through the Banking channels. Appellant filed its-own bank statement as well as Bank statement of the investors which duly shows the investments made by the investors in the Appellant Company. The said investments are duly supported by the share application form filled by the investors and Form 2 filed by the Appellant wit? the Registrar of the Company. The AO has not given any justifiable why the genuineness of the transaction, in view of the above documents, is no proved. In the light of the above supporting documents, the genuineness of the transaction cannot be doubted and hence section 68 of the Act not be invoked. With respect to the creditworthiness of the investors, I am of the opinion that the that the assessee is under obligation to prove the source of the investors. In the case of the appellant, it has duly prove the source of the share premium received by it by way of filing the audited financial statement of investor companies. In many cases, the Appellant has also filed the source of funds investors companies for making investment in appellant companies. Therefore, I am of the considered view that the Appellant had duly proved the creditworthiness of the investors. In view of the above discussion and fact: stated hereinabove I'm of the view that the Appellant has beyond discharged its onus to prove the identity and creditworthiness of and genuineness of the transactions. Therefore, the addition made by the AO unjustified. & 5116/M/2017 A.Y.2008-09 Apart from the above submissions and facts and record, I have also gone the judicial decisions relied by the Appellant company as under: In the case of Green Infra Ltd vs ITO [159 TTJ 728 Mum], wherein it bats been held that: "Income of every kind which is not to be excluded from the total income is chargeable to tax under s. 56(1)- Emphasis is on "Income of every kind'- Thus, to tax any amount under this section, it must have some characters of income - Receipts directly relating to share capital of company are capital receipts and therefore cannot be taxed under s 56(1)- As regards the contention of the Revenue that the impugned transactions falls within the parameters of s. 68, confirmations of the payments have been received by the AO in response to notices issued s. 133(6)and thus, the identity of the subscribers has been established beyond all reasonable doubt- Revenue authorities have not questioned the identity of the share-holders - Genuineness of the transaction can also be safely concluded as the entire transaction has been carried out through banking channel and the same is duly recorded in the books of accounts and reflected in the financial statement of the assessee - Capacity of the shareholders cannot be doubted as 98% percent of the shares are held by IDFCPE Fund II and the contributors to this funds are public sector undertakings - Thus, s 68 is not attracted. I have also gone through the judicial citation in the case of CIT vs Lovely Exports P. Ltd (216 CTR 195] where in it is held that: "If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AD, 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" Further, I have gone through the judgment of Vodafone India Services Pvt Ltd vs Union of India & Ors (368 ITR 1) wherein Hon'ble Bombay High Court held that the receipt of share capital is capital in nature; hence, the same cannot be brought to tax. I have also gone through the decision of ITAT Mumbai, in the case of Infrastructure Pvt. Ltd(2014-TIOL-656-ITAT-Mum) it was held as under:- '...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 & 5116/M/2017 A.Y.2008-09 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 228. We, therefore do not find any error or infirmity in the findings of the Ld. CIT(A). Ground No. I is accordingly dismissed. Further, recently in the above case of Gagandeep infrastructures, the Bombay High Court in ITA 1613 of 2014 dt. 20.03.2017 has dismissed the Revenue appeal by holding as under: '...It was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in CIT v/s. Lovely Exports (P)Ltd. 317 JTR 218 in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assesses income as unexplained cash credit. So after considering the fact on record and respectfully following the jurisdictional Bombay High Court's decision in the case of Vodafone India Services Pvt. Ltd. Vs Union of India & Others (2014) 368 ITR 01 (Bom HC) and jurisdictional ITAT "G" Bench decision order in the case of Green Infra Ltd.ITANo.7762/ Mum/ 2012 dated23.08.2013 and also considering the Board's Instruction, I am of the considered opinion that the addition of Rs.6,90,00,000/- made by the AO is not justified and fair. I therefore, direct the AO to delete the above addition.”

7. On appraisal of the above mentioned finding, we noticed that the case of the assessee was reopened on the basis of the information received to the effect that the assessee has received accommodation entries of share premium amounting to Rs.6,90,00,000/- from 12 parties. During the course of inquiry, the AO found that the share ITA. Nos. 5262/M/2017 & 5116/M/2017 A.Y.2008-09 application money received by the assessee is not genuine and therefore, the AO added the same i.e amounting to Rs.6,90,00,000/- to the income of the assessee. The CIT(A) examined the matter in the light of identity , credit worthiness and genuineness of the transactions. The assessee filed PAN Cards, Certificates of Registrations from RBI, Acknowledgments of Income Tax return, invoices, Bank-statements of investor which were not considered by AO without giving sufficient and cogent reasons. Accordingly, identities is nowhere seems doubtful. So far as the genuineness of the claim is concerned, the assessee filed its own bank-statements as well as bank-statements of the investors which shows that the investments made by investors in the appellant company genuinely. The investments were duly shown by share applicants / investors in their respective balance sheets and also correspondingly by the assessee and also in form -2 filed by assessee with the registrar of the company. The AO nowhere discussed all these documents. Hence, in the said situation, the genuineness nowhere seems doubtful. So far as the creditworthiness is concerned the financial statements of the investors have been placed on record and explained. In the said circumstances, the identity, genuineness and creditworthiness of the transactions is not required to be doubted. The CIT(A) has relied upon the decision of Hon‟ble ITAT Mumbai Bench in the case of Green Infra Ltd. Vs. ITO (159 TTJ 728, CIT Vs. Lovely Exports P. Ltd. (216 CTR 195, Vodafone India Services Pvt. Ltd. Vs. Union of & 5116/M/2017 A.Y.2008-09 India & Ors (368 ITR 1). Further, the CIT(A) has also considered the said receipt of share capital as capital in nature, hence, cannot be taxed . Accordingly the CIT(A) deleted the addition made by the AO. We nowhere found any illegality and infirmity in the finding of the CIT(A)‟s order and therefore, we affirm the finding of the CIT(A) and decide this issue in favour of the assessee against the revenue.

8. The assessee has filed the present appeal against the order dated 07.04.2017 passed by the Commissioner of Income Tax (Appeals)-2, Mumbai (hereinafter referred to as the “CIT(A)”) relevant to the assessment year 2008-09.

10. The facts of the present case are quite similar to the facts of the case narrated above while deciding in ITA. No.5262/Mum/2017, therefore, there is no need to repeat the same. In this appeal, the assessee has challenged the reopening u/s 147/148 of the Act on the ground of this fact that the notice was not served upon the assessee.

ISSUE No.1

“3.4 (a) Notice not served to the appellant The Appellant had contended that the notice u/s 148 of the Act was not served to the appellant and therefore the entire re-assessment proceeding is invalid. The Appellant submitted that the claim of the AO that the impugned notice u/s 148 of the I.T. Act was served at the address of the Appellant on a person named 'Sona" is not correct. The Appellant had also tiled an affidavit of the Director stating the fact that there was no person named "Sona" employed by the Appellant or working at the premises mentioned by the AO. Further, there was no stamp of the Appellant company on the acknowledgment copy on record. In view of the same, the Appellant contented that notice u/s 148 of the I.T. Act has never been served upon the Appellant prior to 23.11.2015. Further, it is submitted that the AO has simply brushed aside the contentions raised by the Appellant in this regard and passed the Order u/s 143(3) rws 147 of the I.T. Act. On the other hand, the AO in the assessment order vide para 3 of the page 2 categorically mentioned that vide letters dated 16.10.2015 and 18.01.2016, he has rebutted all the objections raised by the appellant and passed an order u/s 143(3) rws 147 of the I.T. Act. The AO has further stated that the reasons for reopening was also provided to the appellant company on 23/11/2015. Therefore, I am of the opinion that the objections raised by the appellant company is not found to be in order Hence, the contention of the appellant is rejected.” & 5116/M/2017 A.Y.2008-09 12. We observed that the assessee filed an affidavit that the „Sona‟ was not his employee and also furnished the list of employee but it is not sufficient to prove this fact that the service was not effected upon the assessee. It is not a case that the revenue has forged and fabricated the signature of the „Sona‟. Stamping the acknowledgment depends upon the staff. No legal action was initiated. Initially, the notice u/s 148 of the Act was issued on 18.03.2015 which was served on 25.03.2015. Presumption of truth with regard to the service of notice lies with the department unless rebutted. Full record of employees with designation is not on record. The Address was correct. There is no plea of the assessee that the Address of the Assessee was wrong. In subsequent notices, the assessee raised the objection vide letter dated 21.07.2015, 06.11.2015 & 29.12.2015 which was disposed of vide letter dated 18.01.2016. However, CIT (A) decided the issue on the basis of the finding of AO. The finding of the AO is herby reproduced as under for ready reference:- To The Principal Officer, MIS. Money Matters Properties Pvt. Ltd. 1-B, 1stFloor, Court Chambers, 35, Sir V.T Marg, New Marine Lines, Mumbai —400020 PAN:AAECM9600P Sub: Reassessment Proceedings u/s.147 in your case for A.Y. 2008-09 - regarding. - reg. & 5116/M/2017 A.Y.2008-09 Ret: (i) Notice u/s.148 dated 18.03.2015 served on 25.032015. (ii) Your Letter dated 29.12.2015 raising objection against notice u/s.148 dated 1803.2015. Please refer to your letter dated 29.12.2015 received in this office on 30.12.2015, which was filed in response to this office letter of even number dated 23.11.2013,whereby objections raised by you against service of notice u/s.148 have already been disposed off by this office. 2 In your letter dated 29122015 you have raised certain allegations, as given below: 1) There is no reason to believe' and the reasons were recorded on the basis of 'reasons to suspect' 2) The reassessment proceeding were resorted to on the basis of 'borrowed satisfaction'. 3) All material facts were disclosed fully and truly while filing return Since full and true disclose was made reopening of assessment beyond the period of four years is not valid. 4) Assessment was reopened merely to make roving enquiries' or 'phishing enquiries. 5) The A0 acted on the third party evidence without having any adverse evidence.

6. The reopening of the assessment is bad in law and the notice u/s.148 should bethe material received and formation of belief.

7. There is no live link or direct nexus between the material received and the formation of belief. 8) Relied on decisions rendered by judicial authorities in various case laws.