Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI RAJESH KUMAR & SHRI AMARJIT SINGH
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the Revenue against the order dated 09.06.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2011-12.
The only issue raised by the Revenue is against the deletion of addition by Ld. CIT(A) in respect of share application money which was added by the AO under section 68 of the Act as unexplained cash credit.
2 M/s. Greeksoft Institute of Financial Market Pvt. Ltd.
The facts in brief are that the assessee filed return of income on 27.09.2011 declaring income of Rs.2,77,001/- which was processed under section 143(1) of the Act. Thereafter, the case of the assessee was reopened by issuing notice under section 148 dated 23.03.2016 after the AO received the information from investigation wing of the Department that the assessee has received share application money from those entities which are managed and controlled by entry provider from Shri Sirish Chandrakanth Shah. The AO also issued notices under section 133(6) to six parties to whom the assessee allotted shares during the year which was duly responded by those investors by filing their bank statements, ITRs, audited annual statements, ledger etc. along with share certificates. It is pertinent to state that the assessee has received share application money of Rs.2,25,00,000/- during the year from six parties and allotted shares of face value of Rs.10 at a premium of Rs.240/-. The AO, instead of carrying on the investigation himself and relying on the proofs and evidences submitted by the assessee and by the investors ,solely relied on the statement of Shri Sirish Chandrakanth Shah and treated the entire share application money of Rs.2,25,00,000/- as an unexplained cash credit under section 68 and added the same to the income of the assessee by framing assessment vide order dated 13.12.2016 passed under section 143(3) read with section 147.
In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee by holding that the assessee has proved the identity and creditworthiness of the investors and genuineness of the transactions by filing all the necessary
3 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. evidences. The Ld. CIT(A) also noted that the notices issued under section 133(6) of the Act were duly responded by filing the necessary details such as copy of ITR confirmation, bank statements, annual audit accounts and ledger copies etc. However, the AO instead of carrying out further verification relied solely on the statement of Shri Sirish Chandrakanth Shah and thus deleted the addition made by the AO.
The Ld. A.R., at the outset, pointed out that the identical issue has been decided by the co-ordinate bench of the Tribunal in own case of the assessee in A.Y. 2012- 13 vide order dated 24.10.2018 wherein the issue of share application money was decided by the co-ordinate bench of the Tribunal in favour of the assessee by deleting the addition made by the AO. The Ld. A.R. prayed before the Bench that in the current year also the addition may kindly be deleted by following the same decision as the facts are materially same.
The Ld. D.R., on the other hand, heavily relied on the order of AO and submitted that the assessee is clearly beneficiary of hawala share capital entries which were rightly added by the AO observed that entities belonging to Shri Sirish Chandrakanth Shah have invested in the assessee company by way of hawala transactions. The ld DR argued that though the AO has not further investigated the matter further, but he made the additions only after satisfying on the basis of records and circumstantial evidences. The ld DR submitted that if all further investigation are required to be carried out the matter may kindly be restored to AO by setting aside the order of Ld. CIT(A). The Ld. D.R. also relied heavily on the decision of the Apex
4 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. Court in the case of Pr. CIT vs. NRI Iron Steel Pvt. Ltd., Civil Appeal No.2019 (arising out of SLP) 29855 of 2018 order dated 05.03.2019.
After hearing both the parties and perusing the material on record, we observe that the similar addition was made by the AO in the earlier year in the assessee’s own case which was deleted by the co-ordinate bench of the Tribunal in A.Y. 2012-13 (supra). The operative part is reproduced as under: “14. We heard rival contentions and perused the record. As noticed earlier, the assessee has received money towards share application from two companies, viz., M/s Speciality Papers Ltd and M/s Samguine Media Ltd aggregating to Rs.370 lakhs. Both the companies are public limited companies listed in stock exchanges. The AO, during the course of assessment proceedings, issued notice u/s 133(6) of the Act to both the above said share applicants. It is pertinent to note that both the share applicant companies have duly responded to the notices and have furnished relevant details like copy of bank statements, copy of acknowledgement of return of income, copy of audited accounts, ledger account copies, copies of share certificates. It is also pertinent to note that the AO did not find fault with any of the documents furnished by these parties. Only in respect of transactions found in the bank statements of these share applicant companies, the AO has commented that the funds have come from other companies belonging to the same group. Ultimately, the AO has placed reliance on the statement given by Shri Shirish Chandrakant Shah and held that the assessee has failed to prove the three main ingredients.
The Ld CIT(A) has noticed that both the share applicant companies are doing business and have also filed its tax returns regularly. They have also paid taxes on the income declared by them. Accordingly, the Ld CIT(A) held that the assessee has discharged onus placed upon it, as observed by Hon’ble Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd (supra). Accordingly the Ld CIT(A) held that the peculiar facts of the case may have caused suspicion in the mind of the AO, but there is no evidence or other material to hold that the assessee has routed its own money. The Ld CIT(A) has also held that the assessee has discharged the three ingredients in this matter. The following observations made by Ld CIT(A) are relevant:-
“5.6 On an analysis of the facts on records, it is seen that the share application money of `3,70,00,000/-has come from share subscribers. It is noted that the share applicants are existing and have confirmed that they had contributed to the share capital of the assessee company. The next
5 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. aspect is creditworthiness. During the course of assessment proceedings, the AO has issued notices u/s. 133(6) of the Act to the aforesaid parties. In response, the said parties have filed copies of PAN card, bank statement, Balance sheet and profit and loss account, Share Application Form, Board Resolution of Assessee Company empowering the applicants to invest in the assessee company. It emerges out from the record that the applicants have duly recorded the investments in their books of accounts. Thus, the share applicants had demonstrated these balance in their balance sheets in the shape of investment as well loan and advances. The next issue is about the genuineness of the transaction. On response to notice u/s 133(6) of the Act, the share applicants have submitted the bank statements. The share application money has been paid through banking channel. The AO has observed that the source of funds of the share applicants is by way of issue of preference share capital. Thus, there is no cash transaction which could compel oneself to assume that the transactions were not genuine. The onus cast upon the assessee under Section 68 of the Act; is to satisfy the department about the true identity of an investor, its creditworthiness and genuineness of a transaction was explained by the Supreme Court in CIT Vs. Lovely Exports (P) Ltd., 216 CTR 295. The objective of Section 68 is to avoid inclusion of amount which are suspect. Therefore, the emphasis is on all the three aspects, identity, creditworthiness and genuineness of the transaction which isproved by the assessee beyond doubt.
We notice that the Ld CIT(A) has given a categorical finding that the assessee has proved all the three ingredients viz., the identity of the share applicants, the credit worthiness of share applicants and the genuineness of transactions. Before us, the revenue could not controvert the finding given by Ld CIT(A).
We notice that the Ld CIT(A) has also taken support of the decision rendered by Hon’ble Delhi High Court in the case of Oasis Hospitalities P Ltd (333 ITR 119), wherein the decision rendered by Hon’ble Supreme court in the case of lovely exports P Ltd (supra) was also discussed. The Hon’ble Delhi High Court has held that the assessee is required to prove the three ingredients mentioned above in respect of share application money also. The Hon’ble Delhi High Court further held that once the assessee discharges the onus placed upon its shoulders, thereafter, it is for the Assessing Officer to scrutinize the same and in case he nurtures any doubt about the veracity of these documents to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there have to be some cogent reasons and materials for the assessing officer and he cannot go into the realm of suspicion.
In the instant case, admittedly, the assessing officer has failed to probe the matter further. He has not found fault with the documents furnished by the share applicants to prove their identity, creditworthiness and genuineness of the transactions. As noticed earlier, the AO has simply relied upon by the statement given by Shri Shirish Chandrakant Shah. The relevant portion of statement extracted in the assessment order does not show that the above said person has specifically implicated the transactions entered by the share applicants with the 6 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. assessee company. As contended by the assessee before tax authorities, the statement given by the above said person appears to be too general in nature.
Further, it is pertinent to note that the assessee has asked for copy of statement given by Shri Shirish Chandrakant Shah before the investigation authorities in order to rebut the same. We notice that the assessing officer has not furnished copies of the statement given by Shirish Chandrakant Shah, though he has heavily relied upon the same to discredit the documents furnished by the assessee. It is a well settled proposition of law that the documents/statements, which were not confronted with the assessee, could not have been relied upon by the assessing officer.
We notice that the Ld CIT(A) has also placed reliance on the decision rendered by Hon’ble Bombay High Court in the case of CIT vs. Creative World Telefilms Ltd (2011)(333 ITR 100), wherein also identical views as that of Hon’ble Delhi High Court has been expressed. The relevant observations made by Hon’ble jurisdictional High Court are extracted below:-
“In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PA/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the Assessing Officer to make proper investigation and reach the shareholder. The assessing officer did nothing except issuing summons which were ultimately returned back with an endorsement “not traceable”. In our considered view, the Assessing Officer ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the share holders since all the relevant material details and particulars were given by the assessee to the Assessing Officer. In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is involved in the appeal. In the result, the appeal is dismissed in limine with no order as to costs.”
The facts available in the present case are, in our view, better than the facts available in the case considered by the Hon’ble Bombay High Court (referred supra). In the instant case, the noticesissued by the AO u/s 133(6) of the Act have been responded by both the share applicants. Both the parties have furnished all the details that were called for by the assessing officer. The details so furnished by them proved their identity and creditworthiness and also the genuineness of transactions. However, the assessing officer did not examine them at all nor did he carry out any further enquiry to disprove those documents.
Before us, the Ld A.R placed reliance on the decision rendered by Hon’ble Bombay High Court in the case of M/s Acquatic Remedies P Ltd (supra). Following observations made by Hon’ble jurisdictional Bombay High Court with regard to the three ingredients are worth extracting here:-
(b). So far as the identity is concerned, we find that the persons who invested in the shares of the respondent-assessee had PAN numbers
7 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. allotted to them which was made available by the respondent to the Assessing Officer. Besides, the shareholders had also filed Affidavits before the Assessing Officer pointing out that they had invested in the shares of the respondent assessee out of their own bank accounts. Copies of acknowledgement of Return of Income of the shareholders was also filed. The respondent also requested the Assessing Officer to summon the shareholders. These evidences have not been shown to be incorrect. Therefore, this objection with regard to identity of the shareholders not being established does not survive. (c) So far as, the creditworthiness of the investors is concerned, Mr. Mohanty seeks to rely upon the decision of the Delhi High Court in the case of Commissioner of Income-Tax Vs. Nipun Builders & Developers Pvt. Ltd. 350 ITR 407. This, in support of his submission that the source of the funds of the shareholder-investor in the respondent-assessee's company was not considered by the Tribunal. Thus, where the creditworthiness of the investor is not established by finding out the source of the source, the deletion of cash credit was not justified. We are concerned in these Appeals with Assessment Years prior to Assessment Year 2013-14. It was only with effect from 1st April, 2013 i.e. from the Assessment Year 2013-14 that a proviso was added to Section 68 of the Act which required the person investing in shares of any Company to satisfy, if required by the Assessing Officer, the source of the funds which enabled the investments in shares. Infact, our Court in Commissioner of Income Tax-1 V/s. M/s. Gagandeep Infrastructure Pvt. Ltd. (Income Tax Appeal No. 1613of 2014) rendered on 20th March, 2017 and in The Pr. Commissioner of Income Tax-5 V/S. M/s. SDB Estate Pvt. Ltd. (Income Tax Appeal No. 1356 of 2015) rendered on 27th March, 2018 has held that the requirement to explain the source of the source of the funds in respect of the investment as shareholders in which the public are not substantially interested as share application money is only prospective as it is introduced w.e.f. 1st April, 2013. The Delhi High Court in the case of Nipun Builders and Developers (supra), held the creditworthiness of the shareholder was not accepted, as the source of the funds of the shareholder was not explained. This was for a period prior to Assessment Year 2013-14 and the subsequent introduction of the proviso to Section 68 of the Act was not considered by the Delhi High Court. We are bound by the decisions of this Court in Gagandeep Infrastructure Pvt. Ltd. (supra). Besides, before the Delhi High Court in Nipun Builders and Developers (supra), the identity of the shareholders was not established as the summons sent were returned with a remark 'no such company” and the same was confirmed by the Inspector of the Income-Tax Department. No PAN of the shareholder was also submitted before the Assessing Officer. It was in the above context, that the Delhi High Court decision was rendered. Thus, completely different facts from the present case, where even affidavits of the shareholders were filed who on oath stated that the investment in the respondents was made from their Bank Accounts. Thus, the initial burden was discharged by the respondent in respect of creditworthiness of the investor and nothing has been shown by the Revenue to doubt the same and/or steps taken and result thereof. Thus, this objection of lack of creditworthiness of the shareholder also does not 8 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. survive. (d). So far as the genuineness of the investment by the shareholders is concerned, Mr. Mohanty placed reliance upon the statement dated 9th September, 2010 of Kamlesh Jain who was an employee, as well as, theshareholder of the respondent-assessee and on the fact that during the course of the search, certain blank transfer forms were found in the possession of the respondent-assessee. Besides, it is submitted that the shares were supposed to be finally transferredto the family members of the Directors of the respondent assessee company at a discounted price. We note that, the impugned order of the Tribunal records the fact that copies of the share application form, share allotment Register and Bank Statements showing receipt of funds were on record. Moreover, all the shareholders had filed Affidavits declaring the fact that they are investing in the respondent-Company by issuing of cheques from their Accounts. As pointed earlier, the PAN details of the shareholders was also submitted to the Assessing Officer. Moreover, the statement of Kamlesh Jain dated 9thSeptember, 2010 relied upon by the Revenue in terms, deals with his investment in a group company viz. Aqua Formations (P) Ltd and not with the investment made in respondent-assessee Company. In fact, the statement very categorically states that, he did not intend to purchase any shares of Aqua Formulations (P) Ltd. but no such declaration is made in respect of the investment made by him in the respondent-assessee Company. The statement dated 9th September, 2010 made by Kamlesh Jain does not in any manner, state that the investment made in the respondent- assessee Company was an investment which he did not want to make. So far as the shares allegedly/supposedly being taken by the members of the family of the Director of the respondent is concerned, the statement made by Mr. Jain dated 9th September, 2010 is not with regard to the respondent, Company but in respect of its sister company. Thus, there is no conclusive evidence in support of the above submission in the context of the respondent. In any case, this would not necessarily lead to a conclusion that the original investment made by the shareholder in the respondent- assessee was not genuine. This, at the highest, may give rise to suspicion but it does not prove that the investment made originally in the respondent assessee's Company was not genuine. Thus, not in the nature of cash credit as alleged by the Revenue. (e). In fact, the impugned order of the Tribunal, on examination of facts, has come to the conclusion that the investment made by the shareholders is not hit by Section 68 of the Act. It records, that the entire basis of the Revenue's case is based on surmise that the respondent was taking bogus purchase bills and cash was introduced in the form of share capital without any evidence in support. Therefore, the view taken by the impugned order of the Tribunal on facts is a possible view. (f). Thus, this Question as proposed does not give rise to substantial question of law. Thus, not entertained.
The facts prevailing in the instant case are identical. The assessing officer has collected the relevant details to prove the three ingredients, directly from the share applicants. He could not found fault with those documents. Instead, he has placed reliance on the statement given by Shri Shirish Chandrakant Shah, that too without
9 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. confronting the said statement with the assessee. The assessing officer has not disproved the contention of the assessee that Shirish Chandrakant Shah is not a director or employee of the share applicant companies and further the assessee was not aware of such a person. The AO has also not shown that the above said person, has implicated the transactions entered between these two share applicant companies and the assessee. The fact that both the share applicant companies are listed companies having huge share capital was ignored by the assessing officer. The financial statements furnished by these two companies to prove theircredit worthiness have also been ignored by the AO. Hence, in our view, the assessing officer was not justified in placing full reliance on the general statement given by Shirish Chandrakant Shah.
In view of the foregoing discussions, we are of the view that the Ld CIT(A) was justified in deleting the impugned addition, as the assessee has discharged the onus placed upon it u/s 68 of the Act. Accordingly we uphold the order passed by Ld CIT(A).
In the result, the appeal filed by the revenue is dismissed.”
In the present case before us, the facts are materially same as in the subsequent year. We observe from the records before us that assessee has filed all the evidences before the AO, however, the AO has not bothered to further investigate the matter. Similarly, the notices issued under section 133(6) of the Act to the various investors were duly responded who filed the confirmations of the investments, PANs, bank statements, copy of audited financial statement and ledger etc. However, the AO brushed aside all these evidences and solely relied on the statement of Shri Sirish Chandrakanth Shah. The facts of the case as decided by the Hon’ble Apex Court in the case of Pr. CIT vs. NRI Iron and Steel Pvt. Ltd. (supra) is different from the present case and therefore the same is not applicable. In that case, the AO has carried out further enquiry and appointed the inspector to further verify the matter. During the course of further verification it was proved that the entities were nonexistent. However, this is not the case in the present case. We are, therefore, respectfully following the decision of the co-
10 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. ordinate bench of the Tribunal in assessee’s own case uphold the order of Ld. CIT(A) by dismissing the appeal of the Revenue.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 22.08.2019.