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Income Tax Appellate Tribunal, INDORE BENCHE, INDORE
Before: SHRI KUL BHARAT & SHRI MANISH BORAD
आदेश / O R D E R
PER KUL BHARAT, J.M: This appeal by the Revenue is directed against the order of Ld. Commissioner of Income Tax(Appeals)-II, Indore, (in short ‘CIT(A)’), dated 31.03.2016 for the A.Y. 2010-11. The revenue has raised following grounds of appeal: “1. Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.81,52,912/- made by the AO on account of unexplained share application u/s 68 of I.T. Act 1961 being alleged routing of own money and then carrying out
Sita Homes Pvt. Ltd.
a circular transaction wherein share applicants were used as a conduit to increase appellant company’s capital. 2. Whether in the facts and circumstances of the case the Ld. CIT(A) was right in deleting the addition of Rs.81,52,912/- made on account of unexplained share application money received without appreciating that the assessee failed to establish the identity, creditworthiness and genuineness during the assessment stage.”
Briefly stated the facts are that the case of the assessee was taken for scrutiny assessment and assessment u/s 143(3) of the Income Tax Act, 1961( hereinafter refer to as the ‘Act’) was framed vide order dated 26.03.2013. The assessee is engaged in the business of civil construction during the course of assessment. The Assessing Officer observed that the assessee had introduced the share application money of Rs.90,00,000/- from 11 different persons on 11.01.2010. The Assessing Officer was of the view that the assessee has routed its own money through circular transaction. The AO therefore, made addition of the amount received by the assessee against this the assessee had preferred an appeal before the Ld. CIT(A) who after considering the submissions allowed the appeal of the assessee.
Now, the revenue is in further appeal, only effective ground against in deleting the addition made by the AO. At the very outset, Ld. DR supported the assessment order and stated that he has nothing more to submit than to support to assessment order. On the contrary, Ld. Authorized Representative (‘AR’ in short ) of the assessee supported the order of Ld. CIT(A).
Sita Homes Pvt. Ltd.
We have heard the rival contentions perused the material available on record. The Assessing Officer made addition by observing as under: “PARA 3. Assessee has introduced the share application money of Rs.90,00,000/- during the previous year 2009-10 from 11 different persons on 11.01.2010. A bank account of syndicate bank numbered 78001250001145 has been submitted for month of January from 01.01.2010 to 31.01.2010. Assessee has clearly routed its own money and then carried out a circular transaction wherein the share applicants were used as a conduit to increase its capital. The exact modus operandi with the use of these 11 persons who have contributed the share capital are written as below: 3.1 Shri Omprakash Vijaywargiya-Rs.11,30,000/- The Bank account of assessee clearly indicate that amount of Rs.4,32,457/- was transferred from the syndicate bank to the account of Shri Omprakash Vijaywargiya numbered 78002200042524 on 04.01.2010. And thereafter amount of Rs.4,30,000/- has been received as share application money on the 01.01.2010 from the same account number. It is a clearly as instance of circular transaction wherein company has transferred its own money to the account of share application which has been directly received back. 3.2 Shri Sachin Saxena- Rs. 8,75,000/- The bank account of assessee clearly indicated that amount of Rs.7,81,419/- was transferred from the syndicate bank to the account of Shri Sachin Saxena numbered 78002200034433 on 04.01.2010. and thereafter amount of Rs.7,80,000/- & Rs. 95,000/- has been received as Share Application Money on the same day from the same account number. It is a clearly an instance of circular transaction wherein company has transferred its own money to the account of share applicant which has been directly received back. 3.3 Ms. Sakshi Vijayvargiya-Rs.1,25,000/- The bank account of assessee clearly indicate that amount of Rs.1,25,000/- was transferred from the syndicate bank by cheque number 13705 to the account of Shri Pallav
Sita Homes Pvt. Ltd.
Vijaywargiya of Cosmos Cooperative Bank numbered on 08.01.2010. And thereafter amount of Rs.1,25,000/- has been received as Share Application Money on the 09.01.2010 from the same account number. It is a clearly as instance of circular transaction wherein company has transferred its own money to the account of share applicant which has been directly received back. 3.4. Shri Pallav Vijayvargiya-Rs.10,70,000/- The bank account of assessee clearly indicate that amount of Rs.10,22,875/- was transferred from the syndicate bank by cheque number 13707 to the account of Shri Pallav Vijaywargiya of Cosmos Cooperative Bank numbered on 04.01.2010. And thereafter amount of Rs.10,70,000/- has been received as Share Application Money on the 05.01.2010 from the same account number. It is a clearly an instance of circular transaction wherein company has transferred its own money to the account of share applicant which has been directly received back. 3.5 Shri Santosh Vijaywargiya-Rs.17,00,000/- The Bank account of assessee clearly indicate that amount of Rs.16,96,611/- was transferred from the syndicate bank to the account of Shri Santosh Vijaywargiya numbered 78002200034448 on 04.01.2010. And thereafter amount of Rs.15,10,000/- has been received as Share Application Money & Rs. 1,90,000/- was received from the same account number. It is a clearly an instance of circular transaction wherein company has transferred its own money to the account of share applicant which has been directly received back. 3.6. Shri Shivnarayan Jankilal HUF- Rs.7,25,000/- The bank account of assessee clearly indicate that amount of Rs.7,27,464/- was transferred from the syndicate bank by chque number 13710 to the account of Shri Shivnarayan Jankilal HUF of Cosmos Cooperative Bank numbered 031204301210121 on 05.01.2010. And thereafter amount of Rs.7,25,000/- has been received as Share Application Money on the 06.01.2010 from the same account number. It is a clearly an instance of circular transaction wherein company has transferred its own money to the account of share applicant which has been directly received back 4
Sita Homes Pvt. Ltd.
3.7. Shri Yugal Kishore Anandilal- Rs.5,60,000/- The bank account of assessee clearly indicate that amount of Rs.5,61,640/- was transferred from the syndicate bank by chque number 13711 to the account of Shri Yugal Kishore Anandilal of Cosmos Cooperative Bank numbered 031204301210106 on 05.01.2010. And thereafter amount of Rs.5,60,000/- has been received as Share Application Money on the 06.01.2010 from the same account number. It is a clearly an instance of circular transaction wherein company has transferred its own money to the account of share applicant which has been directly received back. 3.8. Smt. Anjana Saxena - Rs.5,70,000/- The bank account of assessee clearly indicate that amount of Rs.5,70,760/- was transferred from the syndicate bank to the account of Smt. Anjana Saxena numbered 78002200042505 on 04.01.2010. And thereafter amount of Rs.5,70,000/- has been received as Share Application Money on the 05.01.2010 from the same account number. It is a clearly an instance of circular transaction wherein company has transferred its own money to the account of share applicant which has been directly received back 3.9. Smt. Poonam Vijaywargiya - Rs.5,55,000/- The bank account of assessee clearly indicate that amount of Rs.5,53,426/- was transferred from the syndicate bank to the account of Smt. Poonam Vijaywargiya numbered 78002200034467 on 04.01.2010. And thereafter amount of Rs.5,55,000/- has been received as Share Application Money on the 07.01.2010 from the same account number. It is a clearly an instance of circular transaction wherein company has transferred its own money to the account of share applicant which has been directly received back. 3.10. Smt. Sangeeta Vijaywargiya - Rs.1,85,000/- The bank account of assessee clearly indicate that amount of Rs.1,85,000/- was transferred from the syndicate bank of Smt. Sangeeta Vijaywargiya to the account of Sita Homes Private Limited on 04.01.2010. And thereafter amount of Rs.1,87,325/- has been reversed back into account of Smt. Sangeeta Vijaywargiya on the next day 05.01.2010 from the same account number. It is a clearly an instance of circular 5
Sita Homes Pvt. Ltd.
transaction wherein company has first received the share application money from the account of share applicant which has then been directly transferred out to the bank account of share applicant. 3.11. Smt. Sita Devi Vijaywargiya-Rs. 15,05,000/- The bank account of assessee clearly indicate that amount of Rs.15,07,397/- was transferred from the syndicate bank by cheque number 13716 to the account of Smt. Sita Devi Vijaywargiya of Cosmos Cooperative Bank on 04.01.2010. And thereafter amount of Rs.15,05,000/- has been received as Share Application Money on the 05.01.2010 from the same account number. It is a clearly an instance of circular transaction wherein company has transferred its own money to the account of share applicant which has been directly received back.
However, Ld. CIT(A) deleted the addition by giving finding on facts as under: “3.1 I have gone through the assessment order and also seen the reasons brought out by the AO in making addition on account of shares subscription by above mentioned 11 persons. It is uniformly stated by the AO that the appellant had transferred the particular amount by cheques from it’s bank account maintained with the Syndicate Bank to the account of the depositors/subscribers. The above persons subsequently have transferred the amount to the account of company by cheque for subscribing for the shares. But the AO has simply reasoned that the said transfer of funds from one account to another was circular transaction and owned funds were routed through various accounts. The appellant on the other hand has filed the detailed written submissions wherein it has clearly been brought out that all the 11 persons mentioned above were shareholders/relatives or friends of the directors of the company who were the unsecured creditors of the appellant. During the relevant assessment year, the appellant had repaid the amounts of loan to the above persons and who in turn had invested in the shares of the company by cheque. Therefore, it
Sita Homes Pvt. Ltd.
was stated that the AO was not justified in treating the amount of shares subscription from unexplained source of appellant when the identity, genuineness of transaction and creditworthiness of the creditors/share subscribers were proved beyond doubt. The submissions of the appellant alongwith the relevant documents were forwarded to the AO for this further clarification as how the addition was warranted in view of the explanation and submission of the appellant. The AO has filed his reply vide letter dated 26.02.2016 which is reproduced hereunder: “ In the above context, it is submitted that the assessee company had taken unsecured loan from 12 persons who were shareholders/relatives or friends of the directors of the company. The company has returned the unsecured loan to those persons in F.Y. 09-10. Those loan creditors have subscribed to the share capital of the assessee company in F.Y. 2009-10 from the amount of loans repaid by the company. Therefore, the source of funds for share application money stands explainable. However, the appeal of the assessee company may be decided on merits.” 3.2 I have gone through the contents of written submission, the copies of ROI of the creditors/share subscribers and ledger accounts of the subscribers while as creditors. I have also gone through the brief remand report furnished by the AO. After taking into account the totality of the facts and circumstances and specific report of AO, I am of the opinion that the AO was not justified in making addition of Rs.81,52,912/- on account of subscription of shares by 11 persons because the AO has not disputed the identity, genuineness of transaction and creditworthiness of subscribers. Therefore, the addition is directed to be deleted. However, ongoing through the ledger accounts of the erstwhile creditors, it has been observed that in case of some of the parties major part of loan has been raised by the appellant company during the relevant assessment year, the genuineness of which has neither been discussed by the AO during the course of assessment nor during the course of remand proceedings. Therefore, AO shall be at liberty to examine the source of investment of the subscribers in their hands after taking into account relevant source of income etc. 7
Sita Homes Pvt. Ltd.
Meanwhile, in the hands of the appellant company, the AO is directed to delete the addition for the detailed reason brought out above and specific report of the AO accepting the source of funds by the subscribers. All the grounds of appeal are allowed.
The above findings on fact is not controverted by the Revenue as the source of fund is admitted by the subscriber and the Ld. CIT(A) has given liberty to the Assessing Officer to examine the source of investment by the subscriber in their hands, we therefore do not see any reason to interfere into the finding of Ld. CIT(A), same is hereby affirmed. The grounds raised in the appeal are dismissed.
In the result, the appeal of the Revenue is dismissed.
Order was pronounced in the open court on 12.12.2017.
Sd/- Sd/- (MANISH BORAD) (KUL BHARAT) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य / JUDICIALMEMBER Indore; �दनांक Dated : 12/ 12/2017 ctàxÄ? P.S/.�न.स.
Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order Private Secretary/DDO, Indore