DCIT, CENTRAL CIR-8(4), MUMBAI vs. M/S. AMAZON METALS PRIVATE LIMITED, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “A”, BENCH MUMBAI

BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA No.903/Mum/2018 (Assessment Year :2009-10) DCIT, CC-8(4) Vs. M/s Acro Exports Trade Room No. 658, 6th Floor Pvt.Ltd. 5th Floor, Sunteck Centre, Aaykar Bhawan, M.K.Road Mumbai-400 020 37-40 Subash Road Vile Parle(E) Mumbai-400 057

PAN/GIR No.AAHCA6693B (Appellant) .. Respondent) & C.O. No. 74/Mum/2019 (Arising out of ITA No.903/Mum/2018) (Assessment Year: 2009-10) M/s Acro Exports Trade Vs. DCIT, CC-8(4) Room No. 658, 6th Floor Pvt.Ltd. 5th Floor, Sunteck Centre, Aaykar Bhawan, M.K.Road 37-40 Subash Road Mumbai-400 020 Vile Parle(E) Mumbai-400 057

PAN/GIR No. AAHCA6693B (Appellant) .. Respondent) &

ITA No.905/Mum/2018 (Assessment Year :2009-10) DCIT, CC-8(4) Vs. M/s Amazon Metals Room No. 658, 6th Floor Pvt.Ltd. 5th Floor, Sunteck Centre, Aaykar Bhawan, M.K.Road Mumbai-400 020 37-40 Subash Road Vile Parle(E) Mumbai-400 057

PAN/GIR No.AAICA0130C (Appellant) .. Respondent)

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C.O. No. 76/Mum/2019 (Arising out of ITA No.905/Mum/2018) (Assessment Year: 2009-10) M/s Amazon Metals Pvt.Ltd. Vs. DCIT, CC-8(4) 5th Floor, Sunteck Centre, Room No. 658, 6th Floor 37-40 Subash Road Aaykar Bhawan, M.K.Road Vile Parle(E) Mumbai-400 020 Mumbai-400 057 PAN/GIR No.AAICA0130C (Appellant) .. Respondent)

Assessee by Rakesh Joshi Revenue by Somnath Wajale

Date of Hearing 17/07/2019 Date of Pronouncement 28/08/2019 आदेश आदेश / O R D E R आदेश आदेश PER G.MANJUNATHA, Accountant Member:

These two appeals, filed by the revenue and separate cross- objections filed by the assessee’s are directed against separate, but identical orders of the Commissioner of Income tax (Appeals)-50, Mumbai, both dated 22/12/2017 and they pertain to Assessment Year (AY) 2009-10. Since, facts are identical and issues are common, for the sake of convenience, the appeals filed by the revenue and Cross Objections filed by the assessee’s are disposed- off by this consolidated order.

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reopened u/s 147 of the Act, 1961, for reasons recorded, as per which, income chargeable to tax had been escaped assessment within the meaning of section 147 of the I.T.Act, 1961, on account of receipt of share capital by issue of shares at huge premium of Rs. 460/- per equity shares having face value of Rs. 10/- per share. The reasons, further stated that information received from the office of DIT(I & CI) by the ITO, Ward 1(1), Kalyan regarding huge premium received by the assesee company. Therefore, the AO had reason to believe that income chargeable to tax had been escaped assessment, on account of issue of shares to various parties. Accordingly, notice u/s 148 of the Act, dated 28/03/2016 was issued and duly served upon, the assessee 31/03/2016. In response to notice, the assessee vide its letter dated 28/07/2016 requested to treat the return of income filed u/s 139 of the I.T.Act, 1961, as return filed in response to notice issued u/s 148 of the I.T.Act, 1961. Thereafter, the assessee requested for reasons for reopening of the assessment and such reasons were provided to the assessee. Thereafter, the case was selected for scrutiny and notices u/s 143(2) and 142(1) of the I.T. Act, 1961 were issued.

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charged and collected amounting to Rs. 9,80,00,000/-. Thereafter, the AO, in order to verify, the genuineness of transactions and establish the fact, whether the assessee company commends such huge premium, issued notice 133(6) of the Income Tax Act, 1961, to the Bank of Rajasthan (Now ICICI Bank Ltd.) for the purpose of ascertaining details of transactions for financial year 2008-09. The AO has also issued notices u/s 133(6) of the Act, to various other parties with whom, the assessee company has entered into transactions, during the relevant period. However, most of the notices returned un-served with a remark ‘left’ or ‘not known’. Thereafter, the AO deputed Inspector of his office to examine where about of the bank address of Bank of Rajasthan and the Inspector visited the premises and noticed that Bank of Rajasthan has been taken over by the ICICI Bank Ltd. Accordingly, a letter was issued to the Principal Officer of ICICI Bank, calling for information u/s.133(6) of the Act, in respect of bank statement for the period from 01/04/2008 to 31/03/2015, for which the bank has replied that the bank statement, for the above period cannot be furnished, because the number of accounts furnished in your letter does not match with bank account number begin with ICICI bank. Thereafter, the assessee was given a show-cause to produce, the complete bank account statements for the period from 01/04/2008 to 31/03/2015, for which, the assesee has filed complete set of documents, including bank statement for the relevant period. Further, the AO issued summons to the promoter of Sunteck group shri Kamal Khetan and recorded his statement of oath u/s 131 of the I.T.Act, 1961, in respect of investments and share premium collected from

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various parties and such statement has been reproduced at page no. 7 to 16 of assessment order.

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companies promoted, for the purpose of conversion of unaccounted income of Sunteck group, in the form of share capital and share premium, which is evident from the fact that although, the above companies carries huge reserves and surplus of Rs. 46.06 crores, but said companies have been taken over by Sunteck group through SK Infrastructure Pvt.Ltd. at face value of Rs. 1 crore. He, further analyzed financial statement of the assessee company and come to the conclusion that although, the assessee has issued shares at huge premium, but on perusal of its financial statement, the financial of the company does not support such huge valuation of shares, which is evident from the fact that it has earned ‘nil’ income from operations and also declared net loss of Rs. 24,676 for the year under consideration. Therefore, he opined that the assessee has failed to prove, credit found in the form of share capital and share premium received from allotment of shares by discharging its onus cast upon u/s 68 of the I.T.Act, 1961, in order to prove identity, genuineness of transactions and credit worthiness of the parties and accordingly, by relied upon various judicial precedents, including the decision of Hon’ble Supreme Court in the case of Suamati Dayal vs CIT (995) 2014 ITR 801 and also decision of Hon’ble Delhi High Court in the case of CIT vs Nova promoters & Finlease Pvt.Ltd. (2012) 18 taxmann.com 2017 held that the assesee has failed to conclusively prove receipt of share premium as a genuine transaction in light of provision section 68 of the I.T.Act, 1961 and accordingly, made additions of Rs. 9,80,00,000/- u/s 68 of the I.T.Act, 1961.

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8.0 I have gone through the assessment order, the appellant's submission and other materials on record. 8.1 The main thrust of the appellant's arguments is that the A.O. has not applied his mind and has mechanically reopened, the assessment for A.Y.2009-10. In this regard, it has been noted that the A.O. has received credible information from DIT (I & CI),regarding the receipt of huge amount of share premium, which according to the A.O. was prima-facie not justifiable. 8.2 It is pertinent to note that no scrutiny assessment was done in the case of the appellant company and the case was just processed u/s 143(1) of the Act. In view of this, there was hardly any information on record, which could have explained the huge quantum of share premium introduced during the year under consideration. The A.O, has also noted that the appellant is a new company and barely had the financial strength to support the quantum of share premium, as has been received. 8.3 It is a matter of record that the copy of [he reasons recorded for reopening the assessment u/s 147 of the Act were duly provided 10 the appellant company. During the course of the appellate proceedings, the appellant company has filed an objection, vide letter dated 11.08.2016 for the reopening of assessment. This objection has been duly disposed of by The A.O., vide his office fetter dated 16.08.2016. Thus, the A.O. has meticulously followed the due procedure for re-opening of the assessment u/s 147 of the Act, which can't be faulted with. 8.4 The section 147 of the Act authorizes and permits, the Assessing Officer to assess or reassess income chargeable to tax, if he has reason

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to believe that income for any assessment year has escaped assessment. The word ‘reasons’ in the phrase “reason to believe” means cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of tilt1 Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. 8.5 At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. This is so because [the formation of belief by the Assessing Officer is within the realm of subjective satisfaction. [ITO v. Selected Dalurband Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC); Raymond Woollen Mills Ltd, vs I TO [1999]236 ITR 34 (SC)]

8.6 The Hon'ble Apex Court in the case of AOT vs. Rajesh Jhaveri Stock Brokers Pvt. Lttd (2007) (291 ITR 500) has categorically stated that "reason to believe" does not mean that the reason for re-opening should have been factually ascertained by legal evidence or conclusion before the re-opening of an assessment. 8.7 Any fresh information received by the A.O can. entitle him to issue notice u/s.148, if on the basis of such information, he has prima facie reason to believe that income has escaped assessment. So much so that it was held by the Hon’ble Supreme Court in Claggett Brachi Co.Ltd. vs CIT 177 ITR 409 (SC) that an information obtained during assessment proceedings of a subsequent year can also validate the proceedings initiated u/s 147 for earlier year. Similarly, Hon’ble Bombay High Court in the case of Anusandhan Investments Ltd. vs. M.R.Singh, DCIT, 287 ITR 482 held that a notice issued u/s. 148 based on assessment of subsequent assessment year is valid even if the appeal is pending for such assessment.

8.8 Further, it is the duty of the assesse to disclose full and true materials to the A.O. but for which the AO, could initiate the reassessment proceedings. It has been held by the Hon’ble Supreme Court in Shri Krishna P. Ltd. 221 ITR 538, 549 that every disclosure is not and cannot be Treated to be a true and full disclosure. A disclosure may be a false one or a true one. It may be a full disclosure or it may not be. The Hon’ble Supreme Court held that a partial disclosure may very often be a misleading one. Therefore, what is required is a full and true

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disclosure of all material facts necessary for making assessment for that year.

8.9 The Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd. VS. ITO 236 ITR 34, 35 (SC) has held that for determining whether initiation of reassessment proceedings was valid, it has only to be seen whether there was prima facie some material on the basis of which the department could reopen the case. It further held that the sufficiency or correctness of the material is not a thing to be considered at this stage.

8.10 The present case is also not one of change of opinion. The question of change of opinion arises, when the AO forms an opinion and decides not to make an addition and holds that the appellant was correct in his stand.

8.11 The Supreme Court in Malegaon Electricity Co. (P) Ltd. vs. CIT (1970) 78 ITR 466 (SC) has observed, as under : If is true that if the ITO had made, some investi0aiionf particularly if He had looked into the previous assessment records, he would have been able to find out what the written down value of the assets sold was and consequently he would have been able to find out the price in excess of their written down value realized by the assessee. It can be said that the ITO if he had been diligent could have got all the necessary information from his records. But that is not the same thing as saying that the assessee had placed before the ITO truly and fully all material facts necessary of the purpose of assessment. The law casts a duty on the assessee to’ disclose fully and truly all material facts necessary for his assessment for the year’”. 8.12 When there is no discussion on the issue in the Assessment order and no details were called for by the AO or filed by the assessee on the issue, no finding either positive or negative can be said to have been arrived at during the course of original assessment proceedings. Hence, there is no question of change of opinion, as has been held in the following judgments: 1. Kalyanji Mavji& Co. vs. CIT 102 ITR 287 (SC) 2. Esskay Engineering P. Ltd. vs. CIT 247 ITR 818 3. ITO v Purushottam Das Bangur & Anr. 224 ITR 362 (SC)

8.13 In Writ Petition. No. 9036 of 2007, Honda SielPower Products Ltd. vs DyClT&Anr. Decision dt. 14th Feb. 2011 reported in (2011) 52 DTR (Del) 353 - Ed.), it was held as under:-

"10 The term 'failure' on the pan of the assessee is not restricted only to the IT return and the columns of the IT return or the tax

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audit report. This is the first stage. The said expression 'failure to fully and truly disclose material facts' also relate to the stage of the assessment proceeding, the second stage. There can be omission and failure on the part, of the assessee to disclose fully and truly material facts during- the course of the assessment proceedings. This can happen when the assessee does not disclose or furnish to the AO complete and correct information and details it is required and under an obligation to disclose. Burden is on the. assesses to make full and the true disclosure". 8.14 Further, in the case of Piaggio Vehicles P. ltd. YS. DCIT 290 ITR 377 (Bom), the Hon’ble jurisdictional High Court held that in a case of reopening after 4 years subsequent 10 scrutiny assessments, contradiction was discovered between Tax Audit report and Return of income, it was a case of omission and /or failure on the part of its income. It is also held by Hon’ble Supreme Court that facts which could have been found by the ITO by further probing arc covered under failure to disclose fully and truly all material facts. 8.15 In the case of Coca Cola India Vs. ACIT &Or& (2009)221 CTR 0225 : (2009) 17 DTR 0066 : (2009) 309 ITR 0194 ; (2009) 177 TAXMAN 0103, the Hon'ble Punjab & Haryana High Court has held that notice u/s 147 should be held as bad in law, only if extraneous or absurd reasons are recorded by the AO, R was further held by the Hon'ble Court that whether or not the material should be finally taken into account for reassessment is a separate matter, which has to be dealt with during the course of reassessment proceedings. The relevant portion of the judgment in this regard is reproduced as under: -

"Objection of counsel for petitioner is two fold :- (a) Reference to inapplicable provision of s. 92 as it stood prior lo amendment w.e.f. 1st April, 2002 and (b) irrelevance of order of the TPO under Chapter X passed in respect of a subsequent assessment year. Applicability of s. 147 requires formation of opinion that income escaped assessment. The said provision is not if! arty manner controlled by s. 92 nor there is any limit to consideration of any material having nexus with the opinion on the issue of escapement of assessment of income, interference with the notice for reassessment is called for only where extraneous or absurd reasons are made the basis [or opinion pro/wring to reassess. Apart from the fact that the AO has given other reasons, it cannot be held that the material relied upon by the AO for proposing reassessment is irrelevant Whether or not, the said material should be. finally taken into account for reassessment is a matter which has to be left open to be decided by the AO after considering the explanation of the assessee. it can only be mentioned that having regard to relationship of the petitioner to its associate company, it cannot he claimed {hat the price mentioned

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by it must he accepted as final and may not he looked at by the AO. There is no infirmity in the notice proposing reassessment. The AO will be at liberty to pass an appropriate order of assessment, subject to the rights and remedies of the assessee. Order of the TPO can certainly have nexus for reaching the conclusion that income has been incorrectly assessed or has escaped assessment. In the present case, the said material came to the notice of the AO subsequent to the assessment. There is no grievance that provisions of ss. 148 to 153 have not been followed. In such a situation, it cannot be held that the notice proposing reassessment is vitiated merely because one of the reasons. referred to order of TPO- Raymond Woollen Mills Ltd, vs. ITO &Ors. (1999) 152 CTR (SC) 418 ; (1999) 236 ITR 34 (SC) and Phool Chand Bajrang Lal vs. ITO (1993) 203 ITR 456 (SC): AIR 1993 SC 2390 relied upon. (Paras 46, 47, 50&51) 8.16 In view of the above binding precedents of the Hon'ble Supreme Court, 1 am of the view that t he AO had valid reasons to initiate reassessment proceedings which were duly recorded and communicated to the appellant. 8.17 Thus, there is no denying of the fact that the A.O had in his possession, credible information, which prima facie led to the formation of a belief that income has escaped assessment in the case of the appellant company. Therefore, in my considered opinion, reopening of assessment was in accordance with the provisions of section 147 of the Income Tax Act. Accordingly, this Ground of Appeal NO.1 of the appellant company is dismissed.

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share capital is unexplained credit within the meaning of section 68 of the Income Tax Act, 1961. The CIT(A) had also discussed the issue in light of decision of Hon’ble Supreme Court in case of Kishinchand Chellaram vs CIT, 125 ITR 713, and Andaman Timber Industries Ltd vs CCE,(2015) 62 Taxmann.com 3(SC) and held that the AO had used third party information in contravention of principles natural justice, without furnishing said information to the assessee for its rebuttal, and thus, violated principles of natural justice, consequently additions cannot be sustained. The relevant findings of the ld. CIT(A) are as under.

12.16 A perusal of the various statements of Shri Kamal Khetan, reveals that he has categorically denied any knowledge- about the transaction of investments and share capital in [he above mentioned five companies, which were taken over through the holding company namely M/s Akshunya Energy Private Limited. Shri Khetan in his statements has admitted that M/S Eskay Infrastructure Pvt. Lid. had invested a sum of Rs. 1 crore in M/s Akshunya Energy Private Limited. Moreover, in the statement he also confirms that as these companies were taken over in the F.Y. 2011-12 relevant to A.Y. 2012-13, he does not know, us to what has happened in F.Y. 2008-09 relevant to 2009-10, when he was not even the shareholder of these companies. 12.17 A perusal of the various statements and material on record, clearly reveals the fact that all these 5 companies were taken over through M/s Akshunya Energy Private Limited by Shri Kamal Khetan of Sunteck Group m the A.Y. 2012-13. On the contrary, the entire addition u/s 68 of the Act for the share premium has been made by the A.O. in A.Y. 2009- 10 based on the above narrated Placements of Shri Kamal Khetan & Shri Vikas Sankhlecha, which are with reference to subsequent events falling in A.Y. 2012-13. 12.18 It is pertinent to note that in relation to the current A.Y, 2009-10, Shri Kamal Khetan was in no way connected with any of the 5 companies viz. M/s Pali Fabrics Pvt Ltd., M/s Acro Exports Trade Pvt.Ltd. M/s Amazon Metal Pvt. Ltd., M/s Bell Fabrics Pvl. Ltd.& M/s Gandhar Yarn Pvt. Ltd, It is also a fact that in the A.Y. 2009-10, Shri Kainal Khetan was nm connected / related even with the holding company namely, M/s Akshunya Energy Private Limited, Shri Kamal Khetan was neither a shareholder nor a director in the 5 companies or it's holding company in

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the A.Y. 2009-10. It was only in A.Y. 2012-13 that Shri Kamal Khetan of Sunteck Group has taken over M/s AkshunyaEnergy Private limited through M/s Eskay Infrastructure Private Ltd ( a concern of Sunteck Group)

12.19 In view of these circumstances, it is factually incorrect to adversely interpret the statements of Shri Kamal Khetan & Shri Vikas Sanklecha, which are not relevant for the current assessment year i.e. A.Y. 2009-10. It is pertinent to note that neither Shri Kamal Khetan nor Shri Vikas Sankleeha, had any locus-standi in A.Y. 2009-10, in relation 10 the impugned j companies. In fact, in all the statements recorded of Shri Kamal Khetan& Shri Vikas Sanklecha are referring to events, which have happened after the current assessment year under consideration. 12.20 The above observations are further reinforced from the fact that Shri Kamal Khetan has not made any disclosure for the A,Y. 2009-10, the current assessment year, under consideration. At the cost of repetition, it is stated that Shri Kamal Khetan has made a disclosure of Rs 47.6 Crore relevant to A.Y. 2010-11, A.Y, 201243 & A.Y. 2013-14.

12.21 Further, the AO, has without bringing on record any material evidence held that the Impugned 5 companies including the appellant are shell companies. During the course of the appellate proceedings, the appellant has filed the details of these companies downloaded from the site, of Ministry of Corporate affairs showing that in the case of all the impugned 5 companies, accounts have been filed till 31.03.2017. Further, the status of all the companies in the ROC Data has been shown as '"Active". On the basis of the information supplied by the Appellant, which is in public domain, I have noted that all the 5 companies are still active companies and are filing their returns with ROC on regular basis. During [he course of The appellate proceedings, it was also argued that none of these companies are shell companies, as their names don't find mention in the list of such companies maintained by SEBI, IT or any other Regulatory authority. 12.22 The Appellant has further submitted that during the course of the assessment proceedings, the Assessing Officer had asked the appellant company to furnish name, address, PAN of the persons from whom the share application and premium was received, share allotment certificates, confirmation from the parties to whom share were allotted and Bank statement etc. in order to verify the identity, genuineness and creditworthiness of the investor.

12.23 I have noted that during the course of the assessment proceedings, the appellant has filed various details such as share application form, copy of declaration, Board resolution, Hank statement of investor company, PAN card, Acknowledgement of Return of income, Financial statement of investor company, Form No 2 for Allotment, Rank

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Statement reflecting the amount received through banking channel, etc in order to prove the identity, genuineness and creditworthiness of the investor. Such details were also filed before the undersigned, during the course of the appellate proceedings, it is a fact that the AO has not raised any doubt on any of the voluminous' documentary evidence placed on record, by the Appellant, No further verification or enquiries were done by the A.O. on the documentation of shareholders / investors provided by the Appellant. Thus, the Appellant Company has duly discharged the onus for proving the identity, genuineness and creditworthiness of the various investors. 12.24 As regards the valuation of the shares of the appellant company is concerned, it has been submitted that valuation is a consideration for the investor and not for the Revenue, especially in the light of the fact that the provisions of section 56(2)(viib) were introduced in the statue w.e.f. 01.04.2013 and have not been given retrospective effect. Thus, as per the Appellant, the provisions of section 56(2)(viib) are applicable from the A.Y, 2013-14 and onwards. Accordingly, it has been submitted that the A.Q, ought to have considered the law as it was in force during A-Y.2009- 10. It has also been emphasized, during the appellate proceedings that even the first proviso appended 10 section 68 of the Act, which requires the investor also, to satisfactory explain the nature and source of the credits was inserted w.e.f 01.04.2013 i.e. from A.Y, 2013-14 and hence the same is not applicable for the present assessment year, viz. A.Y. 2009-10.

12.25 As regards the notices issued under section 133(6) of the Act are concerned, the Appellant Company has stated that due to time lag certain persons might have left the place and for this no responsibility ca be fastened on the appellant. It has been stated that the appellant has furnished the following details to the A.O., regarding the receipt of share premium:-

12.26 The appellant company has contended that by furnishing the above mentioned details regarding the investors, the appellant has duly discharged the initial onus cast on it. After this stage, the onus shifts on the A.G. to show as to how the explanation furnished by appellant is not

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satisfactory in his opinion. In this regard, the appellant has also relied on the judgment of jurisdictional High Court of Bombay ID the case of C1T vs. Gagandeep Infrastructure Pvt. Ltd, 394 ITK 680, the relevant portion of which is reproduced hereunder:-

" Proviso to section 68 introduced by Finance Act 2012 with effect from 1- 4-2013, would not have retrospective effect. Where assessee-company had established identity, genuineness and capacity of shareholders who had subscribed to its shares, Assessing Officer was not justified in adding amount of share capital subscription as unexplained credit. Where revenue urged that assesses had received share application money from bogus shareholders, it was for Income-tax Officers to proceed by reopening assessment of such shareholders and assessing them to tax in accordance with law and it did not entitle revenue to add same to assessee’s income as unexplained cash credit.”

“The assessee had received certain amounts from various persons as share application money. No addition on account unexplained cash credits could be made to its income in the absence of any evidence to suggest that the subscribers were benamidars or any part of the share capital represented the assessee’s own income from undisclosed sources, as the assessee had furnished relevant details of the subscribers and the shares were allotted as per the rules of stock exchange."

12.28 Apart from the above two decisions, the Appellant Company has also relied on many other decisions in support of its contention that no such addition could have been made by the assessing officer in the light of the fact that statue was amended with the proviso appended to section 68 w.e.f. A.Y.2013-14 and it WAS not a retrospective amendment. 12. 29 Another objection of the A.O. contained in the assessment order is that the bank of the appellant company has failed to provide the bank statement of the appellant company, which was requisitioned under section 133(6) of The Act. As far as the issue of bank statement is concerned, the appellant company has supplied the same to the A.O., during the course of assessment proceedings, itself. In fact the A.O. has made observations in the assessment order based on the bank statements provided by the appellant company. Hence, no adverse inference can be drawn by the A.O. on this issue. 12.30 The A.O. has erred in relying on the statements of Shri Kamal Khetan& Shri Vikas Sanklecha for making addition on account of share premium u/s 68 of the Act, for the current year under consideration. The

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A.O. has failed to appreciate that the statements of Shri Kamal Khetan& Shri Vikas Sanklecha relate to events, which have happened subsequent to the current assessment year under consideration. The A.O. has also ignored the fact that Shri Kamal Khetan has not made any disclosure of income for the current assessment year under consideration, in any of his statement recorded by the Department. In his statements recorded by the. Department, Shri Kamal Khetan has stated that he is unaware about the introduction of the share premium, as it was handled by the old management. Even the statement recorded of Shri Vikas Saaklecha refers lo events, which have happened in the subsequent assessment years. Thus, the reliance of the AO on the statements of Shri Kamal Khetan& Shri Vikas Sanklecha for making the addition in the current year under consideration, is misplaced and contrary to material facts on record.

12.31 In fact, for making a case of addition u/s 68 of the Act for the current year under consideration, the A.O. should have examined & rebutted the voluminous details of shareholders furnished by the Appellant Company, during the course of the assessment proceedings. The AO has not placed any adverse material on record in relation to the actual shareholders, who have paid the share premium to the appellant company and instead erroneously relied on a subsequent change in shareholding in A.Y. 2012-13, of a holding company, namely M/s Akshunya Energy Private limited. 12.32 I have also taken note of the fact that on similar facts and circumstances, my Id. Predecessor CIT(A)-50, Mumbai has in a connected case of M/s Prime Developers for A,Y. 201 2-1 3 in Appeal No. CIT(A) 50/1T-186/2015-16, vide order dated 24.02.2017 deleted the addition made on the basis of statement of Shri Paras Porwal& Shn Vikas Sanklecha. In the present appeal at hand, instead of Shri Paras Porwal of ''Om Shanti Group", Shri Kamal Khetan of "Sunteck Group" is involved. My Ld. Predecessor CIT(A)-50, Mumbai has deleted the addition in the case of M/s Prime Developers for AT. 2012-13 by holding as under;- "6. 1 In the course of the appeal proceedings, the AR of the appellant submitted that the addition is not sustainable for the following reasons:

• Ld. A.O. made addition without bringing material on records which is bad in taw. • Mr Paras Ponval was not partner and employee of this firm and hence the addition is bad in laws. • There should sufficient and adequate material on records for making any addition. • During the assessment year there was not purchases and sales of properly and assesses profit & Loss account shows very clearly that there was not deaf in immovable property during the year.

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• The statement given by Paras Porwal is retreated by him on 26 July 2013 and he said retraction confirmed on 29-04-2014 vide affidavit. • The Ld. A.O did not bring any calculation and supporting evidences on records that how to derived this amount and how to earn this income from assessee. • Addition made on a statement which was retreated by party cannot concluded as reliable evidences. 6.2 I have gone through the assessment order and the submissions of the appellant. I find that the addition of Rs. 28,60,00,000/- was made solely on the basis of the statement of Shri Paras Porwal. The appellant has contested the addition on the ground that Shri Paras Porwal is not connected with the firm (appellant)'. As per the appellant, Shri Paras Porwal has no locus standi as far as the affairs of the appellant is concerned. The Assessing Officer on the other hand claimed that appellant is part of, what the AO called, the Om Shanti Group. The AO further contended that Shri Paras Porwal is CMD of "Om Shanti Group" and therefore, this statement made by Shri Paras Porwal was binding on the appellant. 6.3 The contention of the Assessing Officer is grossly wrong. The Income Tax Act does not recognize the concept of Group. Therefore, the contention of the AO that the appellant belongs to the Om Shanti Group is not a valid around for making the addition. Consequently, the contention of the AO that this statement of Shri Paras Porwal is binding on the appellant is without any basis whatsoever. I agree with the contention of the appellant that Shri Paras Porwal has no locus standi as far as it (the appellant) is concerned and, therefore,t he addition made on the basis of the statement of shri Paras Porwal is not sustainable. I, therefore, delete the addition of Rs. 28,60,00,000/- made by the AO. In the result, the first ground of appeal is allowed.” 12.33 In view of the facts and circumstances, discussed in details in the above paras & in the light of various judicial pronouncements and following the order of my Id Predecessor CIT(A)-50, this ground of appeal of the appellant company is allowed. In the result, the Ground of Appeal No. 2 of the present appeal is allowed.

brought out clear fact to the effect that although the assessee has

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filed number of documents to prove identity of the creditors,

remaining two aspects of the issue i.e. genuineness of the

transaction and creditworthiness of the subscribers are in doubt.

The DR further submitted that mere furnishing of documents to

prove identity is not sufficient enough to come out of the shadow of

provisions of section 68 of the I.T.Act, 1961, but, what is relevant is

to discharge the onus by filing necessary evidence to prove true

identity of the creditors, genuineness of the transactions and

creditworthiness of the parties. In this case, although the assessee

has filed number of documents to prove the identity, he could not

produce creditors in person when the AO called upon the assessee

to produce them personally for examination, therefore, it is very clear

that identity of the parties is in doubt. As regards genuineness of

transaction and creditworthiness of parties, the AO has brought out

clear facts to the effect that the assessee could not discharge its

onus in respect of creditworthiness. Although, the subscribers have

filed their acknowledgment of income tax return, but profit declared

for the year under consideration is either nil or negligible when

compared to the huge amount of share capital invested in the

assessee company. The CIT(A) without appreciating these facts,

simply deleted additions made by the AO towards share capital and

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premium u/s 68 of the Income Tax Act, 1961. In this regard, he relied

upon the decision of Hon’ble Supreme Court in the case of Konark

Structural Engineers Pvt Ltd vs. DCIT (2018) 257 Taxmann.com

262(SC).

had rightly deleted the additions made by the Assessing Officer

towards share capital amounting to Rs.9,80,00,000/- u/s. 68 of the

I.T.Act, 1961, because the assessee has discharged primary onus of

proving identity, genuineness of transaction and creditworthiness of

parties. The AR further submitted that although the Assessing

Officer has accepted identity of the subscribers, but he has disputed

credit worthiness of the subscribers on the basis of financial

statements without carrying out further enquiries either by issue of

notice u/s. 133(6) or summons u/s 131 to ascertain true nature of

transactions between the parties. On the other hand, the assessee

has discharged its initial onus by filing enormous documents,

including confirmation from the parties where they have categorically

stated that investments in assessee company is genuine transaction

and has been routed through banking channels. The assessee has

also filed complete details about identity of the subscribers including

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their PAN, address etc. The assessee has also filed income tax

acknowledgment of the subscribers along with financial statement

and bank statements. The Assessing Officer never disputed fact

that the assessee has filed necessary documents in order to prove

identity of the subscribers and genuineness of the transactions.

Once, the assessee discharges initial burden placed upon him, then

the onus shifts to the assessing officer to prove otherwise. In this

case, the Assessing Officer neither carried out any further enquiries,

nor called upon the assessee to explain the credit with further

evidences. The Assessing Officer came to the conclusion that the

transaction between the parties are not genuine merely on the basis

of survey conducted in the case of Sunteck Group and statement

recorded from certain persons where they had admitted that share

capital in not genuine transaction and also on the basis of financial

statements of the assessee, more particularly on the basis of income

declared for the year under consideration without appreciating the

correct legal position of law that in order to bring any credit within the

ambit of section 68 of the Act, the Assessing Officer should prove

that the credit is, in fact, the income of the assessee from

undisclosed sources. In this case, nothing has been pointed out by

the Assessing Officer. The learned AR further referring to various

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judicial precedents including the decision of Hon’ble Bombay High

Court in the case of CIT vs. Creative World Telefilms Ltd. (333 ITR

100) submitted that once the assessee has discharged initial onus of

proving identity, genuineness of transaction and credit worthiness of

the parties, then the Assessing Officer can proceed to re-open the

assessment of the creditors, but sum so received from the creditors

cannot be regarded as undisclosed income of the assessee. The

assessee has further relied upon the following judicial precedents:

a) CIT vs. Green Infra Ltd (2017) 292 CTR 233(Bombay) b) CIT vs. Gagandeep Infrastructure Pvt Ltd.(2017) 394 ITR 680(Bombay) c) CIT vs. Goa Sponge and Power Ltd Tax Appeal No. 16 of 2012 (Bombay High Court) d) CIT vs. Creative World Telefilms Ltd 333 ITR 100 (Bom- High Court) e) CIT vs. Lovely Exports (P) Ltd 216 CTR 195 (SC) f) CIT vs. Steller Investment Ltd 251ITR 263 (SC) g) SDB Estate Pvt Ltd vs. ITO ITA No.584/M/2015 h) CIT vs. Expo Globe India Ltd 361 ITR(0147 (Del-High Court) i) CIT vs. Victory Spinning Mills Ltd (2014) 90 CCH 55 (Mad -High Court) j) CIT vs. Dwarkadhish Investment (P) Ltd (2011) 330 ITR 298 (Del-High Court)

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k) CIT vs. Nishan Indo Commerce Ltd 101 DTR 0413 (Cal - High Court) l) CIT v. Vacmet Packaging (India) Pvt Ltd (2014) 88 CCH 065 (All-HC) m) CIT vs. Gangeshwari Metal Pvt Ltd (2014) 361 ITR 10 (Del-High Court) n) ACIT vs. Venkateshwar Ispat Pvt Ltd (2010) 319 ITR 393 (Chhatisgarh-High Court) o) CIT vs. Nav Bharat Duplex Ltd (2013) 35 Taxmann.com 289 (All-High Court) p) CIT vs. Samir Bio-Tech Pvt Ltd (2010) 325 ITR 294 (Del- High Court) q) Mod Creations Pvt Ltd vs. ITO (2011) 354 ITR 282 (Del- High Court) r) CIT vs. Jay Dee Securities & Finance Ltd 32 Taxmann.com 91 (All-High Court) s) Jaya Securities Ltd vs. CIT (2008) 166 Taxman 7 (All- High Court) (SLP filed by dept dismissed)

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infrastructure Development Pvt.Ltd., a Sunteck group company. On 15/10/2013 a survey u/s 133A of the I.T.Act, 1961 was conducted in Sunteck group of companies. During the course of survey, statement u/s 131 of the I.T.Act, 1961 was recorded from shri Kamal khetan, the main promoter of Sunteck group of company. In the statement, shri Kamal khetan, while replying to question No. 18 he had offered an amount of Rs. 46.6 crores as unaccounted income, in the name of five companies towards share capital and share premium received for the year under consideration. In the above statement, he further stated that his group concern M/s Eskay Infrastructure Development Pvt.Ltd. had acquired a controlling interest in M/s Akshunya Energy Pvt.Ltd. by investing a sum of Rs. 1 crore, as additional capital in the company, which has made him 99% owner of the company. Another statement of Shri Kamal Khetan was recorded on 16/10/2013. In response to question No.10, he confirmed that one of his group company M/s Eskay Infrastructure development Pvt.Ltd. had acquired holding company of five companies namely M/s Akshunya Energy Pvt.Ltd for a consideration of Rs. 1 crore. During the course of assessment proceedings, another statement of shri Kamal Khetan was recorded u/s 131 of the I.T.Act, 1961 on 08/11/2016. In the said statement, while replying to question No.9, he had denied any knowledge about all the transactions of investments and share capital in the above mentioned five companies. He, further stated that transactions of investments and share capital were handled by the old management and hence, he was not in a position to offer any comments on the admission made by the old management, in respect of share capital

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and share premium. In the said statement, in reply to question No.11, shri Kamal Khetan, once again stated that he was unaware as to the basis on which, shri Vikas Sankhlecha has stated that these five companies are Shell Company. He had also asked for cross-examination of shri Vikas Sankhlecha for the facts mentioned in his statement.

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statement recorded from certain persons, including shri Kamal Khetan and shri Vikas Sanklecha to come to the conclusion that the assessee has entered into an arranged transactions with certain companies, in order to convert its own unaccounted income in the form of share capital, which is evident from the fact that the assessee has issued share capital with a huge premium of Rs. 480 per share, even though, the financial of those companies is not supporting such a huge valuation. Further, the AO has taken support from the admission of shri Kamal Khetan, during the course of survey where, he had admitted that share capital, including premium received for the year under consideration is an unexplained credit and accordingly, the same has been offered to tax.

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see, whether the assessee has discharged its initial onus cast upon u/s 68 of the I.T.Act, 1961 or not. In this case, the assesee has filed various details, including share application form, copy of declaration, board resolution, bank statement of Investor Company, PAN card, acknowledgment of return of income, financial statement of Investor Company, form No. 2 for allotment of equity shares and bank statement reflecting, the amount received through banking channels. Once, the assessee has discharged its initial onus by filing various details, then the onus shift to the AO to carry out further verification, in the light of evidences filed by the assessee to ascertain true nature of transactions between the parties before, he come to the conclusion that the transactions between the parties are genuine or not. In this case although, the AO has issued 133(6) notices to the parties, no further enquiry has been conducted, including issue of summons u/s 131. No doubt, none of the investors companies have responded to 133(6) notices issued by the AO, but fact of the matter is when, assessee has filed complete set of documents, including name and address of the parties, it is for the AO to carry out further investigation by exercising all possible options available to him, but non attendance of parties in response to 133(6) cannot be attributed to the assessee, because due to time lag certain persons might have left the place and for this no responsibility can be fastened upon the assessee. In this case, the assessee done what best it could do and filed, whatever information available with it, in order to satisfy the AO. In case, the AO is not satisfied with documents furnished by the assessee, then he is free to carry out his own investigations by exercising powers conferred u/s 131 or u/s 133(6) of the I.T.Act,

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1961. In this case, the AO, except issue of 133(6) notices nothing has been done to find out, the nature of transactions between the parties. Therefore, we are of the considered view that when, assessee has filed complete details to prove identity, genuineness of transactions and creditworthiness of the parties, then there is no reason for the AO to came to the conclusion that share capital and share premium is unexplained only for the reason that during the survey proceedings, the director of the company had admitted that those five companies are shell companies ignoring the fact that such admission has been retracted by filing affidavit along with letter explaining reasons fro such admission during survey proceedings. Further, additions made by the AO cannot be sustained even on this count ,because the AO has relied upon statement of shri Vikas Sankhlecha, the erstwhile director of those five companies to make additions towards share capital, but when ,shri Kamal Khetan, the present director of the assessee company asked for copies of statement of shri Vikas Sankhlecha and also opportunity for cross examination of shri Vikas Sankhlecha, the AO has denied, the opportunity of cross examination and also not furnished copies of statement recorded from shri Vikas Sankhlecha. It is a settled position of law that once, any third party information/statements is relied upon to make additions, it is the obligation of the AO to provide copies of such statements/information and also to provide an opportunity of cross examination of the person, who gave the statement, when such opportunity has been availed by the person against whom, such statements are used. This legal proposition is supported by the decision of Hon’ble Supreme Court in the case of

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Kishanchand Chellaram vs CIT 1980 125 ITR 713 (SC), where it was held that when, third party information is relied upon to draw an adverse inference against the assessee, the same needs to be provided and also opportunity of cross examination shall be given, if such opportunity is availed by the assessee. The Hon’ble Supreme Court in the case of Andaman Timber Industries Ltd Vs CCE, Kolkata II in Appeal No 4228 of 2006 has vide order dated 02.09.2015 had also upheld a similar legal position and held that not allowing the assessee to cross-examine the witnesses by the adjudicating the authority, though the statements and those witnesses were made the basis of the impugned order is a serious flaw, which makes the order nullity in, as much as, it amount to violation of principle of natural justice, because of which, the assessee was adversely affected. Therefore, on this count also the additions made by the AO cannot be sustained.

the provisions of section 56(2)(viib) of the I.T. Act, 1961. We find

that the said provision has been inserted by Finance Act, 2012 w.e.f

10.04.2013, where it provides that where a closely held company

issues its shares at a price which is more than its fair market value,

then amount received in excess of fair market value will be charged

to tax in the hands of the company as income from other sources.

We, further noted that the provisions of section 56(2)(viib) was

inserted by Finance Act,2012 w.e.f. 1.04.2013 is applicable from

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A.Y. 2013-14 onwards. In fact, a similar amendment has been made

in section 68 by insertion of a proviso by the Finance At 2012 w.e.f.

01.04.2013 as per which the assessee company (not being a

company in which public are substantially interested) and sums so

credited consists of share application money, share capital , share

premium or any such amount by whatever name called, any

explanation offered by such assessee company shall be deemed to

be not satisfactory, unless the person being, a resident in whose

name such credit is recorded in the books of such company also

offers an explanation about the nature and source of such sum so

credited and such explanation in the opinion of the AO aforesaid has

been found to be satisfactory. On perusal of amendments brought

out by Finance Act 2012, w.e.f. 01.04.2013 to the provisions of

section 56(2)(viib) and section 68 of the Act, it is very clear that

where the assessee has issued shares at premium and also

received share capital and if such company do not offer any

explanation about the nature and source, then sum so received may

be regarded as income of the assessee from undisclosed sources.

In other words, the purpose of insertion of proviso is to examine the

source of investment by subscriber to the share capital. This

amendment has been examined by the Hon’ble Bombay High Court

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in the case of CIT vs. Gagandeep Infrastructure (P) Ltd. (2017) 394

ITR 680, where the court observed that proviso inserted to section

68 w.e.f. 01.04.2013 is considered to be prospective in nature and is

applicable from A.Y. 2013-14 onwards. From the above, it is very

clear that similar amendment has been made to provisions of section

56(2) by insertion of clause (viib) so as to bring share premium

within the ambit of section 56(2) of the I.T Act, 1961. Since, the

proviso inserted to section 68 is considered to be prospective in

nature, obviously sub clause (viib) inserted to section 56(2) is also

considered to be prospective and cannot be applied to the

assessment year in question. Even otherwise, assuming for a

moment above provisions are applicable for the year under

consideration, in order to apply said amended provisions, the AO

has to prove that the assessee has not proved capacity of the

investors and also not offered any justification for issue of shares at

premium. In this case, from the facts on record, it is clear that the

assessee has proved identity and genuineness of the transactions

by filing necessary evidences. The assessee has filed valuation

report from registered valuer as per which the share price of the

company is over and above premium charged by the assessee.

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Therefore, we are of the considered view that provisions of section

56(2)(viib) has no application.

assessee has relied upon plethora of judgements, including the

decision of Hon’ble Supreme Court in the case of CIT vs Lovely

Exports Pvt Ltd (2008) 216 CTR 195 (SC). In the case laws relied

upon by the assessee, the issue has been dealt as under:-

CIT vs. Goa Sponge and Power Ltd (13/02/2012) Tax Appeal No. 16 of 2012 (High Court-Bombay) "Once the authorities have got all the details, including the name and addresses of the shareholders, their PAN/GIR number, so also the name of the Bank from which the alleged investors received money as share application, then, it cannot be termed as "bogus". The controversy is covered by the judgements rendered b y the Hon'ble Supreme Court in the case of Lovely Exports Pvt Ltd, vs. CIT, (2008) 216 CTR (SC) 195, as also by this Court in CIT vs. Creative World Tele films Ltd, (2011) 333 ITR 100 (Bom). In such circumstances, we are of the view that the Tribunal's finding that there is no justification in the addition made under Section 68 of the Income Tax Act,, 1961 neither suffers from any perversity nor gives rise to any substantial question of law." CIT vs. Creative World Tele films Ltd (2011) 333 ITR 100 (Born- High Court) "The question sought to be raised in the appeal was also raised before the Tribunal and the Tribunal was pleased to follow the judgment of the apex Court in the case of CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195. wherein the apex Court observed that if the share application money is received by the assessee-company from alleged bogus shareholders, w hose names are given to the AO, then the Department can always proceed against them and if necessary reopen their individual assessments. In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank. It was expected on the part of

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the AO to make proper investigation and reach the shareholders. The AO did nothing except issuing summons which were ultimately returned back with an endorsement "not traceable In our considered view, the AO ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the AO. In the above circumstances, the view taken by the Tribunal cannot be faulted." CIT vs. Lovely Exports (P) Ltd (2008) 216 CTR 195 (SC) "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, but it cannot be regarded as undisclosed income of assessee company." CIT vs. Steller Investment Ltd (2001) 251 ITR 263 (SC) (civil appeal) "That the increase in subscribed capital of the respondent company could not be a device of converting black money into white with the help of formation of an investment company, on the round that, even if it be assumed that the subscribers to the increased capital were not genuine, tinder no circumstances could the amount of share capital be regarded as un disclosed income, an appeal was taken by the Department to th e Supreme Court. The Supreme Court dismissed the appeal holding that the Tribunal had come to a conclusion on facts and no interference was called for." CIT vs. Nav Bharat Duolex Ltd (2013) 35 Taxmann.com289 (All- High Court) "We have considered the arguments of the counsel for the parties. CIT(A) found that five companies subscribing the equity shares amounting to Rs. 25,00.000/- were identified and they had submitted their bank statements, cash extracts and returns filing receipts. As such identity of the share applicant companies and purchase of share had been proved by the assessee. Supreme Court in the cases of CIT v. Steller Investments Ltd. [2001] 251 ITR 263 and Lovely Exports case (supra), has held that the identity of the shareholder alone is required to be proved, in case of the capital contributed by the shareholders. Accordingly CIT(A) and the Tribunal has not committed any illegality in allowing the appeal of the assessee. We do not find any illegality in the judgment of the CIT(A) and the Tribunal." CIT vs. JayDee Securities & Finance Ltd (2013) 32 Taxmann.com91 (All-High Court) "The Tribunal recorded findings that the assessee had produced the return of income filed by the relevant shareholders who had paid share application money. The assessee had also

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produced the confirmation of share holders indicating the details of addresses, PAN and particulars of cheques through which the amount was paid towards the share application money. The Tribunal thereafter relied upon the judgment of the Supreme Court in CIT V. Lovely Exports (P.) Ltd wherein it was held that if the assessee produces the names, addresses, PAN details of the share holders then the onus on the assessee to prove the source o f share application money stands discharged. If the Assessing Authority was not satisfied with the creditworthiness of the shareholders, it was open to the Assessing Authority to verify the same in the hands of the shareholders concerned, The Tribunal has relied upon an order of the Supreme Court in case o f CIT v. Divine Leasing & Finance Ltd. In view of the decision 'of the Supreme Court, we dismiss the appeals with observations that the department is free to proceed to reopen their individual assessments of the shareholders whose names and details were given to the Assessing Officer." ACIT vs. Venkateshwarlspat Pvt Ltd (2009) 319 ITR 393 (Chhatisgarh-High Court) "If the share applications are received by the assessee from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as the undisclosed income of the assessee." Mod Creations Pvt Ltd vs. ITO (2013) 354 ITR 282 (Del-High Court) "Held, allowing the appeal, (i) that the assessee had discharged the initial onus placed on it. In the event the Revenue still had a doubt with regard to the genuineness of the transactions in issue or as regards the creditworthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the Assessing Officer that the credits were a circular route adopted by the assessee to plough back its own undisclosed income into its accounts, could be of n o avail. The Revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The Revenue would be required to bridge the gap between the suspicions and proof in order to bring home this allegation. The Tribunal without adverting to the principle laid stress on the fact that despite opportunities, the assessee and/or the creditors had not proved the genuineness of the transaction. Based on this it construed the intentions of the assessee as being mala fide. The Tribunal ought to have analysed the material rather than be burdened by the fact that some of the creditors had chosen not to make a personal appearance before the Assessing Officer. If the Assessing Officer had any doubt about the material placed on record, which was largely bank statements of the creditors and their income-tax

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returns, it could gather the necessary information from the sources to which the information was attributable......If it had any doubts with regard to their creditworthiness, the Revenue could always bring the sum in question to tax in the hands of the creditors or sub- creditors." CIT vs. Al Anam Agro Foods (P.) Ltd (2013) 38 Taxmann.corn 375 (All-High Court) Tribunal, however, held that since identity of share holders stood proved on record, amount of share application money could not be added to income of assessee. According to Tribunal, in such a case amount could be taxed in hands of persons who had invested" CIT vs. Dwarkadhish Investment (P) Ltd (2011) 330 ITR 298 (Del- High Court) "Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke s. 68— Revenue has all the power and wherewithal to trace any person—Moreover, it is settled law that the assessee need not to prove the 'source of source'— In the instant case, the Tribunal has confirmed the order of the CIT(A) deleting the impugned addition holding that the assessee has been able to prove the identity of the share applicants and the share application money has been received by way of account payee cheques." CIT vs. Namastey Chemicals Pvt Ltd (2013) 33 Taxmann.com271 (Guj-High Court) "In the present case also, the respondent assessee has received share application money from different sub scribers. It was found that large number of subscribers had responded to the letters issued by the Assessing Officer or summons issued by him and submitted their affidavits. In some cases such replies were not received through posts. Rs. 9 lacs represented those assessees who denied having made any investment altogether. The issue thus would fall sq uarely within the ambit of the judgment of the Supreme court in the case nf Lovely Exports (supra). No error of law can be stated to have been committed by the Tribunal. Tax Appeal is therefore dismissed." CIT vs. Peoples General Hospital Ltd (2013) 356 ITR 65 (MP- High Court) " Held , dismissing the appeals , that it the assessee had received subscriptions to the public or rights issue through banking channels and furnished complete details of the shareholders, no addition could be made tinder section 68 of the Income-tax Act, 1961, in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part o f the share capital represented the company's own income from undisclosed sources. It was nobody's case that the non resident Indian company was a bogus or non-existent company or that the

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amount subscribed by the company by way of share subscription was in fact the money of the assessee. The assessee had established the identity of the investor who had provided the share subscription an d that the transaction was genuine. Though the assessee's contention was that the creditworthiness of the creditor was also established, in this case, the establishment of the identity of the investor alone was to be seen. Thus, the addition was rightly deleted." CIT vs. Shree Rama Multi Tech Ltd (2013) 34 Taxmann.com177 (Guj-HC) "It is noted that Commissioner (Appeals) as well as the Tribunal have duly considered issue and having found complete details of the receipts of share application money, along with the form names and addresses, PAN and other requisite details, they found complete absence of the grounds noted for invoking the provision of section 68. Moreover, both rightly had applied the decision of CIT vs. Lovely Exports (P) Ltd to the case of the assessee. Therefore, no reason was found in absence of any illegality much less any perversity too to interfere with the order of the both these authorities, who had concurrently held the due details having been proved. The assessee company had presented the necessary worth proof bef ore both the authorities and it was not expected by the assesseecompany to further prove the source of the deceased." CIT vs. Nikunj Eximp Enterprises (P.) Ltd (2013) 35 Taxmann.com384 (Bom) "Whether merely because suppliers had not appeared before Assessing Officer or Commissioner (Appeals), it could not be concluded that purchases were not made by assessee - Held, Yes.... Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the CIT(A), one cannot conclude that the purchases were not made by the respondent- assessee" CIT vs. Samir Bio- Tech Pvt Ltd (2010) 325 ITR 294 (Del-High Court) "Identities of the subscribers are not in doubt. The transactions have also been undertaken through banking channels inasmuch as the application money for the shares was given through account payee cheques. The creditworthiness has also been established, as indicated by the Tribunal. The subscribers have given their complete details with regard to their tax returns and assessments. In these circumstances, the Department could not draw an adverse inference against the assessee only because the sub scribers did not initially respond to the summons. The subscribers, however, subsequently gave their confirmation letters as would

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be apparent from the impugned order. The identity of the subscribers stands established and it is also a fact that they have shown the said amounts in their audited balance sheets and have also filed returns before the IT authorities. The decision of the Tribunal deleting the addition cannot befaulted.” 18. Coming to the case laws relied upon by the learned DR. The

DR has relied upon the decision of the Hon’ble Supreme Court in the

case of DCIT vs. NRA Iron & Steel Pvt. Ltd. (supra). We find that

co-ordinate Bench of ITAT vide its order dated 03.05.2019 in the

case of Shree Laxmi Estate Pvt. Ltd. in ITA No. 6557/Mum2017 for

A.Y. 2013-14 had considered the decision of Hon’ble Supreme Court

in the case of NRA Iron & Steel P. Ltd. and held that the facts of the

case before the Hon’ble Supreme Court are entirely different, where

on the basis of facts of that case Hon’ble Supreme Court came to

the conclusion that mere furnishing of certain documents is not

sufficient enough and what is relevant is all three ingredients, i.e.

identity, genuineness of transactions and creditworthiness of the

parties should be proved beyond doubt. We find that in the case

before the Hon’ble Supreme Court the parties never responded to

133(6) notices. The AO has carried out inquiries by issuing notices

u/s. 133(6), for which none of the companies have replied. None of

the companies produced bank statements to establish source of

funds for making such huge investments in shares, even though they

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were declaring a very meagre income in the return. None of the

investors appeared before the AO, but merely sent response through

Dak. In this case, from the facts on record, it is clear that the

assessee has filed complete set of documents, but the AO neither

carried out any investigation nor issued notices u/s. 133(6) or

summons u/s. 131(1) to examine the veracity of documents

furnished by the assessee. Unless, the AO carried out further

investigations to ascertain true nature of transactions, he cannot

come to the conclusion merely on the basis of documents submitted

by the assessee. Therefore, after considering relevant facts, the co-

ordinate Bench came to the conclusion that decision rendered by

Hon’ble Supreme Court in the case of NRA Iron & Steel Pvt. Ltd.

(supra) has no application, where the AO has not carried out any

inquiries. The relevant findings of the Tribunal re as under:

“8. We have heard the rival submissions and perused the materials available on record. It is not in dispute that the assessee had borrowed loans from the aforesaid loan creditors and had duly repaid the same in subsequent years by account payee cheques, for which evidences are already on record before us. It is also not in dispute that the assessee had paid interest on the aforesaid loans which had been allowed as a deduction by the lower authorities. We are unable to persuade ourselves as to how the interest portion on loan alone could be treated as genuine transactions after treating the principal portion of loan as ingenuine. We also find that the interest paid on such unsecured loans to aforesaid loan creditors have been duly subjected to deduction of tax at source. Notice issued u/s 133(6) of the Act by the ld AO had been duly replied by the concerned loan creditors directly before the ld AO and no deficiencies were noticed by the ld AO thereon. After this, the ld AO did not proceed to make

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further enquiry on the subject mentioned loan creditors. It is not in dispute that the assessee and the concerned loan creditors had duly filed their respective bank statements to prove the immediate source of credit for advancing loans to the assessee company, confirmation of having given loans to the assessee company, together with their income tax return acknowledgements and other requisite details called for by the ld AO in the notice u/s 133(6) of the Act. In case if the ld AO had any doubt on the veracity of the documents submitted by the loan creditors, the same could have been confronted on the said loan creditors by issuing summons u/s 131 of the Act and examine them on oath or correspondingly verify the same through the Assessing Offficers of the concerned loan creditors through the internal source of the department. The ld AO did not do either of these in the instant case and merely disregarded the evidences submitted on record before him both by the assessee as well as by the loan creditors directly to him. The written submissions filed by the ld DR in this regard is repetition of various contentions already available on record by the lower authorities, apart from placing reliance on certain decisions. We find that both the aforesaid loan additions were confirmed by the ld CITA by placing reliance on the decision taken by his predecessor in Asst Year 2012-13. We find that this tribunal in assessee’s own case for the Asst Year 2012-13 in ITA No. 5954/Mum/2016 dated 29.12.2017 in respect of loan transactions of entities controlled by Shri Pravin Kumar Jain and others had elaborately dealt this issue and held as under:- “5. We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The AO made addition towards unsecured loans received from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd on the basis of information received from Investigation Wing which revealed that the assessee is the beneficiary of bogus accommodation entries provided by Shri Praveenkumar Jain through his bogus companies. The AO has made additions u/s 68 of the Income-tax Act, 1961 on the ground that though the assessee has furnished necessary evidences to prove identity of the parties, but failed to establish genuineness of transactions and creditworthiness of parties in the backdrop of clear findings of Investigation Wing that those companies are hawala companies involved in providing M/s Shree Laxmi Developers accommodation entries. The AO has brought out facts in the light of statement of Shri Pravinkumar Jain deposed before the Investigation Wing to make addition. Except this, there is no contrary evidence in the possession of the AO to disprove the loan transactions from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd. On the other hand, the assessee has furished various details including confirmation letters from the parties, their bank

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statements alongwith their financial statements to prove identity, genuineness of transactions and creditworthiness of the parties. The assessee also furnished evidences to prove that the parties have responded to the notices issued u/s 133(6) by AO by filing various details. The assessee also filed bank statements to prove that the said unsecured loans have been repaid in the subsequent financial years. Therefore, we are of the view that there is no reason for the AO to doubt the genuineness of transactions despite furnishing necessary evidences including their financial statements, bank statements and IT returns.

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filing identity, genuineness of transaction and creditworthiness of the parties. Once, the assessee has discharged its initial burden, the burden shifts to the AO to prove otherwise. In this case, the AO made addition only on the basis M/s Shree Laxmi Developers of information received from Investigation Wing, but not based on any evidence to disprove the loan transaction from above companies are ingenuine. Therefore, we are of the view that there is no reason for the AO to treat loans from above 2 companies as unexplained credits u/s 68 of the Act.

"The proviso to section 68 has been introduced by the Finance Act, 2012 with effect from 1-4-2013. Thus, it would be effective only from the assessment year 2013-14 onwards and not for the subject assessment year. In fact, before the Tribunal, it was not even the case of the Revenue that section 68 as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1-42013 was its normal meaning. The Parliament did not introduced to proviso of section 68, with retrospective effect nor does the proviso to introduced states that it was introduced 'for removal of doubts' or that it is 'declaratory'. Therefore, it is not open to give it retrospective effect, by proceeding the basis that the addition of the proviso to section 68is M/s Shree Laxmi Developers immaterial and does not change the interpretation of section 68 both before and after the adding of the proviso.

In view of the matter the three essential tests while confirming the section 68 laid down by the Court namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order

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of the Tribunal and on fact it was found satisfied. Further 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 a case in this context to the pre- amended section 68 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 shareholder and assessing them to tax in accordance with law. It does not entitle the revenue to add the same to the assessee's income as unexplained cash credit." [Para 3]

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8.1. We find that the ld DR vehemently placed reliance on the recent decision of Hon’ble Supreme Court in the case of PCIT vs NRA Iron & Steel Pvt Ltd arising out of SLP(Civil) No. 29855 of 2018 dated 5.3.2019 in support of contentions of the revenue on the impugned issue. In this regard, we find that the facts before the Hon’ble Supreme Court are clearly distinguishable on the following grounds:- a) In Para 3.6. of the said judgement of Hon’ble Supreme Court, it was mentioned that the entire share capital had been received by the assessee through normal banking channels by account payee cheques / demand drafts, and produced documents such as income tax return acknowledgements to establish identity and genuineness of the transaction. It was submitted that, there was no cause to take recourse to section 68 of the Act, and that the onus on the Assessee Company stood fully discharged. b) In Para 3.7. of the said judgement of Hon’ble Supreme Court, it was mentioned that the AO had issued summons to the

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representatives of the investor companies. Despite the summons having been served, nobody appeared on behalf of any of the investor companies. The Department only received submissions through dak, which created a doubt about the identity of the investor companies.

c) In Para 3.8. of the said judgement of Hon’ble Supreme Court, it was mentioned that the AO independently got field enquiries conducted with respect to the identity and credit-worthiness of the investor companies, and to examine the genuineness of the transaction. Enquiries were made at Mumbai, Kolkata and Guwahati where these Companies were stated to be situated.

In the aforesaid case before the Hon’ble Supreme Court, the result of the enquiry by the AO revealed the following:- a) Notice were duly served on certain investor companies, but no reply was received from them ; b) Some of the investor companies were found to be closed at their correct address ; c) Notice could not be served on some of the investor companies ; d) Some of the investor companies replied to notice u/s 133(6) of the Act wherein they had confirmed having made investment in share application money in NRA Iron & Steel Pvt Ltd but had limited income as per their income tax returns which in turn resulted in doubting of creditworthiness ; e) Most of the investor companies though confirmed the fact of having made investment in share application money in NRA Iron & Steel Pvt Ltd , but had not filed their bank statements to prove the immediate source of credit available to them for making the said investment. 8.1.1. In the instant case before us, the ld AO did not issue any summons u/s 131 of the Act or make further enquiries to examine the veracity of the evidences filed on record before him by the assessee as well as by the loan creditors in response to notice u/s 133(6) of the Act. Moreover, all the loan creditors had duly furnished their respective bank statements proving the immediate source of credit for them to justify that they had sufficient creditworthiness to advance loan to the assessee company. From the perusal of the balance sheet of all investor companies, all the loan creditors had sufficient own funds in their kitty which prove their creditworthiness to advance loan to the assessee company. As has been stated hereinabove, the most excruciating point of difference in facts vis a vis the facts of the case before the Hon’ble Supreme Court supra that the investor companies had not even furnished their bank statements to prove their immediate source of credit for making investment in share application monies of NRA Iron & Steel Pvt Ltd. From the bank statements furnished by the loan creditors in the case of the assessee herein, we find that there were no cash deposits in the bank accounts of the lenders prior to issuance of loan to the

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assessee company. In the case before the Hon’ble Supreme Court, the AO in that case had made field enquiries at Mumbai, Kolkata and Guwahati where those investor companies were stated to be situated to examine their identity and credentials and the result of such enquiry had been summarized hereinabove. Whereas in the instant case before us, no such enquiries were conducted by the ld AO to doubt the veracity of the details and evidences filed by the loan creditors in response to notice u/s 133(6) of the Act directly before him. In the instant case before us, all the notices u/s 133(6) of the Act were duly served on all the aforesaid loan creditors and all of them had independently filed their replies directly before the ld AO. The bank statements were also duly furnished by the loan creditors to prove that they had sufficient creditworthiness to advance loan to the assessee company and since all the transactions were routed through regular banking channels by account payee cheques and in view of the fact that there were no cash deposits prior to issuance of loan to the assessee company, the genuineness of transactions also stand clearly established. This goes to prove their identity, creditworthiness and genuineness of transactions of all the loan creditors. In this scenario, it could be safely presumed that the ld AO was apparently satisfied with the replies given thereon by the loan creditors directly before him in response to notice u/s 133(6) of the Act and hence there is no need to make any examination further. 8.2. In view of the aforesaid distinguishing features on facts of the assessee company vis a vis the facts before the Hon’ble Supreme Court, we hold that the reliance placed by the ld DR on the decision of Hon’ble Supreme Court supra does not come to the rescue of the revenue. 8.3. At the cost of repetition, we would like to state that the ld CIT(A) had merely placed reliance on the decision taken by his predecessor in Asst Year 2012-13 in assessee’s own case in similar set of facts. We find that this decision for Asst Year 2012-13 in assessee’s own case has been reversed by this tribunal vide its order dated 29.12.2017 referred to supra. In view of our aforesaid findings in the facts and circumstances of the case and respectfully following the decision of this tribunal in assessee’s own case for Asst Year 2012-13, we hold that the assessee company had duly proved the nature and source of credit in the form of unsecured loan and had duly satisfied the three necessary ingredients of section 68 of the Act viz, the identity of the loan creditors , creditworthiness of loan creditors and genuineness of loan transactions. Hence we direct the ld AO to delete the addition made in the sums of Rs 50 lacs and Rs 25 lacs towards unsecured loan u/s 68 of the Act. Accordingly, the Grounds 1 to 6 raised by the assessee are allowed.”

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Taxman 335, Hon’ble Supreme Court has considered identical issue

and held that where an assessee company had discharged the onus

of establishing identity, genuineness of transaction and

creditworthiness of investors, no additions could be made u/s. 68 of

the I.T. Act, 1961. We, further, noted that although the Apex Court

has not expressed any opinion, because of dismissal of SLP filed by

the assessee, the fact of the matter is that this issue has been

considered by the Hon’ble Supreme Court in the case of CIT vs.

Lovely Exports (P) Ltd (supra), where the issue has been thoroughly

examined in the light of provisions of section 68 of the Act, and held

that if the share application money is received by the assessee

company from alleged bogus share holders, whose names are given

to the AO, then the department is free to proceed to reopen their

assessment in accordance with law, but sum received from share

holders cannot be regarded as undisclosed income of the assessee.

circumstances of this case and also taking into consideration various

case laws as discussed hereinabove, we are of the considered view

that the assessee has discharged its initial onus to prove identity,

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genuineness of transactions and creditworthiness of the parties by

filing various documents. The AO, without carrying out further

inquiries in order to ascertain the claim of the assessee, jumped into

conclusion on the basis of financial statements of the subscribers

that none of them had enough source of income to establish

creditworthiness. Therefore, we are of the view that the AO was

erred in making additions towards share capital u/s 68 of the Income

Tax Act, 1961. The learned CIT(A) after considering relevant facts

and also by relied upon various case laws has rightly deleted

additions made by the AO towards share capital u/s 68 of the

Income Tax Act, 1961. Hence, we are inclined to uphold order of the

ld. CIT(A) and direct the AO to delete the additions made towards

share capital u/s. 68 of the Act.

Co.No.74/Mum/2019

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against revenue in appeal filed by the revenue in ITA.No. 903/Mum/2018, the cross objection filed by the assessee challenged validity of reopening of assessment becomes academic in nature and, therefore, the cross examination filed by the assessee has been dismissed as infructuous.

ITA.No. 905/Mum/2018 and Co.No. 76/Mum/2019

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Order pronounced in the open court on this 28 /08/2019

Sd/- Sd/- (RAM LAL NEGI) (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 28/08/2019 Thirumalesh Sr.PS

Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. BY ORDER, 6. Guard file. स�यािपत �ित //True Copy// (Asstt. Registrar) ITAT, Mumbai