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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: HON’BLE SHRI MAHAVIR SINGH, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
1 M/s. Adhunik Transport Organisation Ltd. Assessment Year :2012-13 आयकर अपीलीय अिधकरण “ए” "ायपीठ मुंबई म"। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI माननीय "ी महावीर िसंह, "ाियक सद" एवं माननीय "ी मनोज कुमार अ"वाल ,लेखा सद" के सम"। BEFORE HON’BLE SHRI MAHAVIR SINGH, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपील सं./ (िनधा"रण वष" / Assessment Year:2012-13) DCIT-12(1)(1) M/s. Adhunik Transport Organisation Ltd. Room No.223, 2nd Floor, बनाम/ 115, Udyog Bhavan Sonawat Road, Goregaon (E) Aaykar Bhavan, M.K. Road Vs. Mumbai-400 063. Mumbai-400 020. "थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACA-4457-G (अपीलाथ"/Appellant) (""थ" / Respondent) : Revenue by : Ms. R. Kavitha-Ld. DR Assessee by : Shri D.V. Lakhani-Ld. AR सुनवाई की तारीख/ : 01/08/2019 Date of Hearing घोषणा की तारीख / : 22/08/2019 Date of Pronouncement आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member): - 1. As per the provisions of Section 68 of the Income Tax Act, 1961 where any sum is found credited in the assessee’s books and assessee offers no explanation about the nature and source thereof or the explanation furnished is found to be unsatisfactory, the sum so credited may be charged to Income-Tax as the income of the assessee of that previous year. A proviso has been inserted to the said section by Finance Act, 2012 w.e.f. 01/04/2013 to provide that where the assessee 2 M/s. Adhunik Transport Organisation Ltd. Assessment Year :2012-13 is a company and the sum so credited consists of share application money, share capital, share premium etc., the explanation furnished by the assessee shall be deemed to be not satisfactory unless the person in whose name such credit is recorded also offers an explanation about and nature and source of sum so credited and such explanation is found to be satisfactory. However, this proviso is applicable only from AY 2013- 14 and the same is not retrospective in nature as held by Hon’ble Bombay High Court in the case of CIT Vs. Gagandeep Infrastructure Private Limited [80 Taxmann.com 272].
It is settled position of law that to avoid the rigors of Section 68, the assessee must prove the identity, creditworthiness of the lenders / investors to advance such monies and genuineness of the transactions. Once these three ingredients are fulfilled by the assessee, the primary onus casted upon him, in this regard, could be said to have been discharged and accordingly, the onus would shift upon revenue to dislodge the assessee’s claim by bringing on record material evidences and unless this onus is discharged by the revenue, no addition could be sustained u/s 68. The Hon’ble Supreme Court in the case of Lovely Exports P. Ltd. [319 ITR 5], dismissing revenue’s appeal, observed as under: - 2. Can the amount of share money be regarded as undisclosed income under section 68 of IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment.
3. Subject to the above, Special Leave Petition is dismissed.
3 M/s. Adhunik Transport Organisation Ltd. Assessment Year :2012-13 The ratio of said decision has subsequently been followed by various judicial authorities in catena of judicial pronouncements. The said decision has been followed by Hon’ble Bombay High Court in the case of CIT Vs. Gagandeep Infrastructure Private Limited [80 Taxmann.com 272] & subsequently in CIT Vs. Orchid Industries Private Limited [88 Taxmann.com 502]. The Hon’ble Delhi High Court followed the said decision in Pr.CIT V/s Adamine Construction Pvt. Ltd. [107 Taxmann.com 84] against which revenue’s Special Leave petition was dismissed by Hon’ble Supreme Court reported at 107 Taxmann.com 85. Similar is the position of decision of Hon’ble Delhi High Court rendered in Pr. CIT V/s Himachal Fibers Ltd. [98 Taxmann.com 72] against which revenue’s Special Leave Petition was dismissed by Hon’ble Supreme Court reported at 98 Taxmann.com 173. Similar is the decision of Hon’ble High Court of Madhya Pradesh in Pr. CIT V/s Chain House International Pvt. Ltd. [98 Taxmann.com 47] against which revenue’s Special Leave Petition has recently been dismissed by Hon’ble Supreme Court on 18/02/2019 reported at 103 Taxmann.com 435.
Further, as a principle of natural justice, it is obligatory on the part of revenue authorities to confront the adverse material used against the assessee and provide an opportunity to rebut the same. The failure to do so would render the assessment proceedings nullity in the eyes of law. The additions made merely on the basis of third-party statements and the denial to provide an opportunity to cross-examine the concerned parties would lead to violation of principle of natural justice rendering the assessment proceedings nullity as held by Hon’ble Apex Court in 4 M/s. Adhunik Transport Organisation Ltd. Assessment Year :2012-13 Andaman Timber Industries [Civil Appeal No.4228 of 2006 02/09/2015].
Keeping in view the above legal position in mind, we find that revenue is under appeal before us for AY 2012-13 against the order of Ld. Commissioner of Income-Tax (Appeals)-20, Mumbai [in short referred to as ‘CIT(A)’], Appeal No. CIT(A)-20/DCIT-12(1)(1)/IT-95/2015- 16 dated 03/02/2017 qua deletion of addition u/s 68. The grounds raised
by the revenue read as under: -
1. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition u/s. 68 of share premium and share capital without appreciating the fact that the parties had no creditworthiness to justify such high amount of share premium.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in not appreciating the fact that the shares which were subscribed by bogus concerns for high premium were resold by them to promoters of assessee company at face value without charging any premium thus questioning the amount of high premium paid.
5.1 Facts on record would reveal that the assessee being resident corporate assessee was saddled with impugned addition of Rs.250 Lacs in the year under consideration in an assessment framed u/s 143(3) on 30/03/2015. During assessment proceedings, upon perusal of assessee’s financial statements, it transpired that the assessee had issued 1 Lacs equity shares of face value of Rs.10/- each at a premium of Rs.240/- per share to various concerns and accordingly received Share premium of Rs.240 Lacs. The details of these parties, for ease of reference, could be extracted in the following manner: - 5 M/s. Adhunik Transport Organisation Ltd. Assessment Year :2012-13 No. Name No. of Amount of Amount of Shares Share Share Issued Capital Premium 1. Casper Enterprises Pvt. Ltd 10,000 Rs.1.00 Lacs Rs. 24.00 Lacs 2. Kush Hindustan Entertainment Ltd 16,000 Rs.1.60 Lacs Rs. 38.40 Lacs 3. Olive Overseas Pvt. Ltd 22,000 Rs.2.20 Lacs Rs. 52.80 Lacs 4. Nakshatra Business Pvt. Ltd. 16,000 Rs.1.60 Lacs Rs. 38.40 Lacs 5. Rigveda Properties Ltd 10,000 Rs.1.00 Lacs Rs. 24.00 Lacs 6. Aquastel Water Purification System P. 6,000 Rs.0.60 Lacs Rs. 14.40 Lacs Ltd 7. Utkantha Trading and Properties Ltd. 6,000 Rs.0.60 Lacs Rs. 14.40 Lacs 8. A&A Shelters Pvt. Ltd. 14,000 Rs.1.40 Lacs Rs. 33.60 Lacs Total 1,00,000 Rs.10 Lacs Rs.240 Lacs Accordingly, the assessee was directed to file the requisite details thereof and documentary evidences to substantiate the fulfillment or primary ingredients of Section 68. In response, the assessee, vide submissions dated 23/01/2015, inter-alia, submitted that following documents in support of the transactions: - -Address, PAN of the Shareholders, Number of Shares issued -Copies of Share Application Form -Details of Payment made by the share applicants -Confirmation of Share Applicants along with their respective bank statement, financial statements, board resolutions, Income tax returns etc. 5.2 However, upon verification of details, it transpired that the entities listed at serial nos. 1 to 4 were managed and operated by one Mr. Praveen K. Jain who, under search proceedings u/s 132 carried out by the department, admitted to be indulging in providing accommodation entries. The entities listed at serial nos. 5 to 7 were stated to be entities controlled by one Mr. Abhishek Morarka who admitted before Sales Tax Authorities that no genuine activities were being carried out by these entitles. No reply was received from entity listed at serial No.
Upon confrontation of said facts, the assessee demanded copy of statements / documents relied upon by Ld. AO in 6 M/s. Adhunik Transport Organisation Ltd. Assessment Year :2012-13 case of Shri Pravin Kumar Jain. The assessee denied having any dealing with Shri Pravin Kumar Jain. Similarly, the assessee demanded copy of statement of Shri Abhishek Morarka given before the Sales Tax Authorities. The attention was also drawn to the fact that in response to summons issued by Ld. AO, Shri Abhishek Morarka visited the office of Ld. AO on 17/03/2015 and on 20/03/2015. The assessee reiterated that the documentary evidences already submitted by the assessee would establish that all the entities were genuine and independent entities who applied to assessee’s share capital. In the said background, it was submitted that invocation of provisions of Section 68 was not justified since the assessee established the primary ingredients of the transactions. Reliance was placed, inter-alia, on the decision of Hon’ble Supreme Court rendered in Lovely Exports P. Ltd. [319 ITR 5]. 5.3 The assessee, vide further submissions dated 25/03/2015, drew attention to the retraction dated 15/05/2014 in the shape of an affidavit filed by Shri Pravin Kumar Jain before investigation wing wherein it was stated that statement during search operations was recorded under coercion, force and mental duress. He confirmed that the activities of all the entities were genuine and all the entities were carrying on legal business. To substantiate the genuineness of the transactions, the assessee filed copies of the affidavits executed by the directors of entities listed at serial nos. 1 to 4 confirming the transactions of share capital with assessee company. 5.4 At the same time, the assessee also submitted Copy of Income Tax Return, financial statement of entity listed at Serial No.8 in 7 M/s. Adhunik Transport Organisation Ltd. Assessment Year :2012-13 support of genuineness of the transaction with respect to the said party. The assessee also filed valuation report to justify the premium received on the share transactions. 5.5. in the above circumstances, the assessee pleaded for acceptance of the stated transactions. 5.6 However, the Ld. AO, at para 5.2, observed that mere filing of declarations by directors of entities listed at serial nos. 1 to 4 that the shares have been subscribed would not serve any purpose since Shri Pravin Kumar Jain has not proved the source of funding and also not made any attempt to counter evidences unearthed during the search proceedings and therefore, these affidavits would have no value in the eyes of law. The Ld. AO also disregarded the valuation arrived at by the assessee using Discounted Cash Flow method. At para 5.4, Ld. AO observed that all the shares subscribed during the year were transferred in Financial Year 2013-14 to Mr. Rajender K. Agarwal, promoter shareholder and Managing Director of the assessee company at face value. No satisfactory reply could be received from Mr. Rajender K. Agarwal in response to notice u/s 131. Summons issued u/s 131 to directors of concerns managed and controlled by Shri Pravin Kumar Jain through ward inspector revealed that none of the party was available at the given addresses. 5.7 The search action u/s 132 on 01/10/2013 on Shri Pravin Kumar Jain, in the opinion of Ld. AO, established beyond doubt that the said group was engaged in the business of providing accommodation entries of various types through numerous self-controlled business entities. The findings of the search have been extracted on para 8 M/s. Adhunik Transport Organisation Ltd. Assessment Year :2012-13 5.7.1 of the quantum assessment order. Further, the retraction statements filed in the shape of affidavits were termed as a planned move to thwart the process of investigation in the cases of beneficiaries of accommodation entries. In the above background, Ld. AO, at para 5.7.3 came to a conclusion that Shri Pravin Kumar Jain was providing accommodation entries through numerous entities running in the names of various name sake directors / proprietors. All these entities were not carrying out any genuine business but solely used as conduits for providing accommodation entries. The real objective of these share subscription was to introduce unaccounted money of the assessee company in the garb of share capital. Another fact noted was that during the year 50,000 shares were issued to Mr. Ritesh Agarwal and Mr. Rajender K Agarwal at face value of Rs.10/- each as against the fact that such shares were issued to the applicant at a premium of Rs.240/- per share. Further, the shares, in later year, was transferred by the share applicants to the promoter shareholders at face value. 5.8 Finally, citing various judicial pronouncements, the said amount of Rs.250 Lacs representing Share Capital & Share Premium was added in the income of the assessee as unexplained cash credit u/s 68 by Ld. AO by observing as under: - 5.13 Creditworthiness is not proved by showing issue and receipt of a cheque or by furnishing a copy of statement of bank account, when circumstances requires that there should be some more evidence of positive nature to show that the subscribers had made genuine investment or had, acted as angel investors after due diligence or for personal reasons. The final conclusion must be pragmatic and practical, which takes into account holistic view of the entire evidence including the difficulties, which the assessee may face to unimpeachably establish creditworthiness of the shareholders.
9 M/s. Adhunik Transport Organisation Ltd. Assessment Year :2012-13 5.14 On the question of creditworthiness and genuineness, there is no doubt that the money was received through banking channels, but did not reflect actual genuine business activity. The share subscribers do not have their own profit-making apparatus and were not involved in business activity. They merely rotated money, which was coming through the bank accounts, which means deposits by way of cash and issue of cheques. The bank accounts, therefore, did not reflect their creditworthiness or even genuineness of the transaction. 5.15 Correct position of law is that the revenue authorities or the judiciary should be convinced about the identity, creditworthiness and genuineness of the transactions. The onus to prove the three factum is on the assessee as the facts are within the assessee’s knowledge. Mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. 5.16 Respectfully relying on the facts of the case and aforesaid judgments, the apparent was not real in the present case. The various judgments relied upon by me lend full support to the findings. Therefore, the addition is made at Rs.2,50,00,000/- being share capital raised by the assessee, u/s 68 of the I.T.Act, 1961. 6.1 Aggrieved, the assessee contested the quantum additions with success before Ld. first appellate authority by way of elaborate written submissions, which has already been extracted in the impugned order and therefore, not repeated here for the sake of brevity. In the submissions, the assessee drew attention to the elaborate documentary evidences submitted by it to prove the identity, creditworthiness of the investors and genuineness of the transactions. In the said circumstances, the assessee pleaded that it had discharged the onus by furnishing the identity of the investor, their address, PAN, financial statements, confirmations, details of bank account, bank statements, registration number of the company with the