JCIT (OSD)- 9(3)(1), MUMBAI vs. DILIP PAJWANI DEVELOPERS, MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

1) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.3,75,00,000/- made u/s 68 of the Act by not appreciating the fact that the assessee has failed to discharge the burden to substantiate the creditworthiness of the share investors and genuineness of the transactions. A.Y.2012-13

2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the addition by relying upon the comments of the assessee in respect of the remand report of the AO overlooking the findings of the AO in the course of remand proceedings. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the JCIT(OSD) 9(3)(1) be restored. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.”

3. The brief facts of the case are that the assessee filed its return of income on 25.09.2012 declaring total income to the tune of Rs.89,39,309/- for the A.Y.2012-13. The return was processed u/s 143(1) of the Act. Thereafter, notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee was engaged in the business of builders and developers. During the year under consideration, the assessee has shown the revenue from operation at Rs.5,03,68,750/- and other income at Rs.3,97,562/- and net profit has been computed at Rs.87,68,154/-. The assessee has received the share application money amounting to Rs.3,75,00,000/- from 12 parties. The discussion of the 12 parties are hereby mentioned below.: - S. No Name of the PAN Address No. of Amount of Face value Premium applicant share application 4A, 2nd Floor, 1 Khushi AAACJ1457F 1100 110000 100 5390000 Industries Bombay Ltd. Hospital Trust Building, 134, Meadows Street, Fort, Mumbai- 400001 2 Hoatzin AACCH7389E D-50, Shop 500 50000 100 2450000 Diamond No.10, Om Pvt. Ltd. Palace, Mira 2 A.Y.2012-13 Road (east) 3 Heena AACCH0454N 555-559 500 50000 100 2450000 Textiles Plumber Ltd. Hosue No.13, JSS Road, Chira Bazar, Kalbadevi Mumbai- 400002 4 Zeme AAACZ4928R 4/A, 2nd 400 40000 100 1960000 Realtech Floor, Birla Pvt. Ltd. mansion, 134, Nagindas Master Road, Fort, Mumbai- 400023 5 Vanquish AAACV2355C A/104, 600 60000 100 2940000 Investments Rajumang, 8, & Leasing Shiv Vallabh Pvt. Ltd. Cross Road 3, Dahisar (E), Mumbai- 400068 6 Golden AACC09127D -DO- 500 50000 100 2450000 Agro Products Pvt. Ltd. 7 Induja AAAC18509D 203, Sidat 500 50000 100 2450000 Traders Pvt. Mansion, Ltd. Building No.17/17A, 2nd Marine Street, Mumbai- 400002 8 Kotson AACCK9104C 23, Shirin 500 50000 100 2450000 Impex Pvt. Mansion, 14, Ltd. Kolsa Cross Lane, Pydhonie, Mumbai 400003 9 Nissim AABCN3760G 203-E, 1000 100000 100 4900000 Traders Pvt. Guruprasad Ltd. Lokhandwala, Andheri (W), Mumbai 10 Dibankar AADCD8268M Off. 500 50000 100 2450000 Steel Pvt. No.14/15, 1st Ltd Floor, Bhar Bazar Naranatha Street, Masjid Bunder, 3 A.Y.2012-13 Mumbai100- 400009100 11 Rishi AAACR8467K G-9800, Shop 600 60000 100 2940000 Automation No.9, Pvt. Td. 7500Janata CHS Ltd, Jesal Park, Bhayander (E), Thane 12 Crown AADCC3551E C-9, Shop 800 80000 100 3920000 Crops Sci. No9 Janata Pvt. Ltd. CHS Ltd, Jesal Park, Bhayander (E), Thane. Total 7500 750000 36750000 Thereafter, the AO issued the notice u/s 133(6) of the Act to all the parties to verify the claim and did not found satisfactry. The AO rejected the claim of the assessee in sum of Rs.3,75,00,000/- and raised the addition in the income of the assessee u/s 68 of the Act. The total income of the assessee was assessed to the tune of Rs.4,64,39,310/- and book profit u/s 115JB of the Act to the tune of Rs.87,68,154/-. 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.

4. All the issues are in connection with the deletion of addition of Rs.3,75,00,000/- raised u/s 68 of the Act. The Ld. Representative of the revenue has argued that the CIT(A) has wrongly allowed the claim of the assessee specifically in the circumstances when the assessee failed to discharge the burden to substantiate the creditworthiness of the share investor and genuineness of the transactions, therefore, the finding of the CIT(A) is not justifiable and is liable to be set aside. It is also argued that the CIT(A) has wrongly relied upon the remand report generated by AO, therefore, the finding of the CIT(A) is not justifiable. However, on the other 4 A.Y.2012-13 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.:-

“7.1.1 Vide this ground, appellant has agitated against the addition of Rs.3,75,00,000/- received from 12 parties as unexplained cash credit u/s 68 of the Act. During the course of assessment proceedings, the AO had called for the details of applicants including the PAN Numbers, Bank statements, Annual Accounts, ROC records. During the course of the assessment proceeding initially the appellant was not able to provide the relevant documents as the records were not readily available apart from the information namely In case of all 12 applicants, sufficient own funds were available in the form of share capital and reserves. In the course of appellate proceedings appellant was asked to state whether the applicants have sold their shares, in response to which appellant has stated that the applicant continue to be the shareholders till date and to substantiate its contention has also filed copies of Annual ROC Returns filed for FY 2014-2015, 2015-16 & 201647 which depict all the 12 applicants are shareholders of the appellant. 7.1.4 A investor - wise analysis of the same is as under: a. Khushi Industries Limited had invested Rs.55,00,0001-. The total investment has been added by the AO u/s 68. Khushi Industries Limited is assessed to tax under PAN:AAACJ1457F and is filing its regular income tax returns. The applicant's RIGS no Vysahi 2087710901 dated 27.03.2012 of Rs. 30,00,000/- and RIGS no Vysah12088714155 dated 28.03.2012 of Rs. 25,00,000/- are reflected in investor's batik statement as well as in the appellant's bank statement. All the investment made are also reflected in the Annual Accounts of the investor. From the Annual Accounts it can be seen that the said investor has its own share capital and reserves of Rs.24,54,13,760/-. Further from the bank statements it can be observed that.there are no cash deposits in the investors bank account before issue of subscription money to the appellant. None of these facts have been disputed by the AO nor it has been found by AO in his enquires that this company. is a fraudulent company. b. Hoatzin Diamonds Pvt Ltd had invested Rs.25,00,000/-. The total investment has been added by the AO u/s 68. Hoatzin Diamonds Pvt Ltd is assessed to tax under PAN: AACCI17389E and is filing its regular income tax returns. The investor's RIGS no l-IDFCI-112088421017 dated 28.03.2012 of Rs.25,00,000/- is reflected in investor's bank statement as 5 A.Y.2012-13 well as in the appellant's bank statement. All the investment made are also reflected in the Annual Accounts of the investor. From the Annual Accounts, it is observed that the said investor has its own share capital and reserves of Rs.26,72,500/-. Fur6ier from the bank statements it can be observed that there are no cash deposits in the investor bank account before issue of subscription money to the appellant. None of these facts have been disputed by the AO nor it as been found by AO in his enquires that this company is a fraudulent company. c. Henna Textiles Limited had invested Rs.25,00,000/-. The total investment has been added by the AO u/s 68. This company is assessed to tax under PAN: AACCI-10454N and is filing its regular income tax returns. The investor's RTGS no VYA5H12084701 1645 dated 24.03.2012 of Rs.25,00,000/- is reflected in investor's bank statement as well as in the appellant's bank statement. All the investment made are also reflected in the Annual Accounts of the investor. From the Annual Accounts, it is observed that the said investor has its own share its land reserves of Rs.12,35,32,559/-. Thus the investor had sufficient funds own to subscribe. Further from the bank statements it can be observed that third are no cash deposits in the investor bank account below issue of subscription money to the appellant. None of these facts have been disputed by the AO nor it has been found by AO in his enquires that this company is a fraudulent company. g. Induja Traders Pvt Ltd had invested Rs.25,00,000/-. The total investment has been added by the AO u/s 68. This company is assessed to tax under PAN:AAAC18509D and is filing its regular income tax returns. The investor's cheque no 228406 dated 31.03.2012 of Rs. 25,00,000/- is reflected in investor's bank statement as well as in the appellant's bank statement. All the investment made are also reflected in the Annual Accounts of the investor. From the Annual Accounts, it is observed that the said investor has its own share capital and reserves of Rs. 4,31,63,573/, Thus the investor had sufficient-funds of its own to subscribe. Further from the bank statements it can be observed that there are no cash deposits in the investor bank account before issue of subscription money to the appellant. None of these facts have been disputed by the AO nor it has been found by AO in his enquires that this company is a fraudulent company. h. kotsons Impex I'vt Ltd had invested Rs.25,00,000/-. The total investment has been added by the AO u/s 68. This company is assessed to tax under PAN: AACCK9104C and is filing its regular income tax returns. The investor's cheque no 717164 dated 31.03.2012 of Rs.25,00,000/- is reflected in investor's bank statement as well as in the 6 A.Y.2012-13 appellant's bank statement. Further from the bank statements it can be observed that there are no cash deposits in the investor's bank account before issue of subscription money to the appellant. None of these facts have been disputed by the AO nor it has been found by AO in his enquires that this company is a fraudulent company. i. Nissim Traders Pvt. Ltd. had invested Rs.50,00,000/-. The total investment has been added by the AO u/s 68. This company is assessed to tax under PAN:AA13CN37600 and is filing its regular income tax returns. The investor's cheque no 078258 dated 31.03.2012 of Rs.25,00,000/- and investor's cheque no 078259 dated 31.03.2012 of Rs.25,00,000/- are reflected in investor's bank statement as well as in the appellant's bank statement. All the investment made are also reflected in the Annual Accounts of Eh( investor. From the Annual Accounts, it is observed that the said investor has its own share capital and reserves of Rs. 1,77,70,478/-. Thus the investor's had sufficient funds of its own to subscribe. Further from the bank statements it can be observed that there are no cash deposits in the investor bank account before issue of subscription money to the appellant. None of these facts have been disputed by the AO nor it has been found by AO in his enquires that this company is a fraudulent company. j. Dipankar Steel Private Limited had invested Rs.25,00,000/-.The total investment has bedn added by the AO u/s 68. This company is assessed to tax under PAN:AADCD8268M and is filing its regular income tax returns. The investor's RTGS dated 27.03.2012 of Rs.25,00,000/- is reflected in investor's bank statement as well as in the appellant's bank statement. All the investment made also reflected in the Annual Accounts of the investor. From the Annual Ahnints, it is observed that the said investor has its own share capital and reserves of Rs.6,00,71,776/-.Thus the investor had sufficient funds of its own to subscribe. Further from the bank statements it can be observed that there are no channels. It was seen that the share application money was received through ' account payee cheques, detail of which had been filed by the assessee by filing the copy of the bank account of the share applicants. Thus where the return of income was filed by the creditors of the assessee and was accepted by the AO and payments were through account payee cheques the genuineness of the transaction cannot be doubted. The revenue could not prove that the money received by the appellant in the form uf shore application has come from its own sources. No evidences regarding this have been brought on record by the AO. b. CIT vs. Divine Leasing & Finance Ltd. 299 ITR 268 7 A.Y.2012-13 Hon’ble Delhi High Court held that burden of proof can seldom be discharged to the hilt by the assessee. If the AO harbours doubts of the legitimacy of any subscription he is empowered, rather duty-bound, to carry out thorough investigations. But if the A.O. fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company. If relevant details of address and identity of the subscribers are furnished to the department along with copies of the shareholders register, share application farms, share transfer register etc. it would constitute acceptable proof or explanation by the assesses. c. In Hindustan Inks & Resins Ltd. vs. Dy. C.I.T. 60 DTR 0018 (2011) the Hon'ble Gujarat High Court has held as under: From the concurrent findings worded by the authorities below, it is apparent that none of the parties have recorded any findings to the effect that the identity of the depositors had not been established by the assesses. The case of the respondent is that the assessee has failed to explain the source of such cash as well as creditworthiness of the deposits. It is not the Case of the revenue that the subscribers are bogus, the case of the revenue is that the source of such cash as well as creditworthiness of the depositors has not been explained. In the circumstances, the. department is free to proceed to reopen the individual assessments of the deposits named by the assessee, however, under no circumstances, can the amount of share capital be regarded as the undisclosed - income of the assessee. d. In C1T vs. X.C. Fibres Ltd. in IT Appeal No.701 01 2009 the Hon’ble Delhi High Court held that in so far as assessing company is concerned, it is not disputed that money was paid to it, towards the aforesaid share application money, by means of cheques. It is not for the as:.2ssing company to probe as to the source from where DI' collected the aforesaid money. It Was for the AC), in these circumstances to inquire into the of airs of DP which is an independent company in as' much as no finding is arrived at by the AO that the two companies are- umbrella companies or have any relationship with each other. e. In CIT vs. STL Extrusion (P) Ltd. 333 ITR 269 the Hon’ble Madhya Pradesh High Court held that though it is the duty of the assessee to establish the genuineness of the credits but in the present case the assesses has duly established the identity and source of credits, The Tribunal has also held that once the identity and source of the subscribers 'of the shards is established no.

8 A.Y.2012-13 7.1.7 Recently the jurisdictional Bombay High Court in the case of CIT vs. Gangadeep Infrastructure Pvt. Ltd. vide its order dated 20.03.2017 has held as under: "The proviso to s.68 (which creates an obligation on the issuing Co. to explain the source of share capital and premium) has been introduced by the Finance Act 2012 with effect front 01.04.2013 and does not have retrospective effect. Prior thereto, as per Lovely Exports 377 ITR 218 (SC), if the AO regards the share premium as bogus, he has to assess the shareholders but cannot assess the smite as the issuing company's unexplained cash credit." 7.1.8 From the details filed, the appellant had not only proved the genuineness of transaction and identity of the shareholders but it has also proved the creditworthiness of shareholders. The learned A.0 had not controverted any of the submission made by appellant. Even during remand proceeding, all the share subscribers have responded to the notice issued u/s 133(6). In view of these facts and respectfully following various judgements of Hon’ble ITAT and Hon’ble Courts as discussed in paras above, appeal of the appellant is allowed and addition of Rs.3,75,00,000/- made by the AO u/s.68 of the Act is deleted.”