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Income Tax Appellate Tribunal, MUMBAI BENCH “D” MUMBAI
Before: SHRI PAWAN SINGH & SHRI N.K. PRADHAN
ORDER PER N.K. PRADHAN, A.M. The appeal by the Revenue and the cross objection by the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-4 [in short ‘CIT(A)], Mumbai and arise out of the assessment order passed by the Assessing Officer (AO) u/s 143(3) r.w.s. 147 of the Income Tax Act 1961, (the ‘Act’). Assessment Year: 2009-10 2. The grounds of appeal filed by the revenue read as under:
1. On the facts and circumstances of the case and in law, whether the Ld. CIT(A) was justified in directing to delete the addition of Rs.7,00,00,000/- made u/s, 68 of the Income-Tax Act, 1961, thereby allowing the share application money received by the assessee as properly explained, without appreciating that the genuineness of this transaction is in serious doubt and as such the amount as taxable u/s 68 of the LT. Act as unexplained cash credit,
2. On the facts and circumstances of the case and in law, whether the Ld. CIT(A) was justified in directing to delete the addition of Rs.7,00,00,000/- made u/s, 68 of the Income-tax Act, 1961, by holding that the transaction is genuine without appreciating that this share application money was received from companies which are "Balance-Sheet heavy" and of little economic significance.
3. On the facts and circumstances of the case and in law, whether the Ld. CIT(A) was justified in directing to delete the addition of Rs.7,00,00,000/- made u/s. 68 of the Income-tax Act, 1961, without appreciating that the same is covered by the ratio laid down in the judgment of the Bombay High Court in M/s Realstone Entertainment CO. No. 201/Mum/2018 the case of Major Metals Vs. Union of India wherein the judgment of the Hon'ble Supreme Court in the case of CIT Vs Lovely Exports Pvt Ltd. (2008) 319 ITR 5 (SC)has been duly discussed and distinguished.
3. Briefly stated, the facts are that the assessee filed its return of income for the assessment year (AY) 2009-10 on 30.09.2009 declaring total income of Rs.4,12,614/-. The nature of business of the assessee- company is consultancy and film production. The return was processed u/s 143(1) of the Act. Subsequently, the Assessing Officer (AO) received information from the Chief Commissioner of Income Tax, Mumbai that during the impugned assessment year the assessee has issued 60,0000 shares on premium, the face value for which is Rs.100/-. The premium amount received on cash amounts to Rs.5,40,00,000/- which comes to Rs.900/- per share. The AO observed that as per the balance sheet and profit and loss account, the intrinsic value of the shares are much less to command such a huge amount of premium. Based on the above information and after recording the reasons, the AO reopened the case by issuing notice u/s 148 dated 28.03.2014 to the assessee. The AO also provided to the assessee the reasons recorded for reopening the assessment vide office letter dated 06.02.2015. During the course of reassessment proceedings, the AO noticed that the assessee had issued shares at a huge premium to 7 parties and during the year the assessee had actually issued 70,000 equity shares at a price of Rs.1000/- per share for a total sum of Rs.70,000,000/- and out of this, face value of one share is Rs.100/- and premium is Rs.900/-. As recorded by the AO, the assessee filed the valuation report dated M/s Realstone Entertainment CO. No. 201/Mum/2018 07.04.2008 wherein the valuation of one share is done at the value of Rs.1004.81. Further, the AO has mentioned that the assessee filed before him details such as balance sheet, profit and loss account and ITR of the parties for the relevant period. However, the AO was not convinced with the above submission of the assessee for the reason that the creditworthiness of the investors is not proved and given the past performance of the company, the share premium is highly suspicious. Referring to section 68 of the act and relying on various case laws, the AO made an addition of Rs.70,000,000/- received as share capital and share premium as unexplained credit u/s 68 of the Act.
4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). In order dated 21.11.2016, the Ld. CIT(A) deleted the above addition by observing that : “3.13 Thus in the light of the above factual narration, various references and judicial propositions I reach to the conclusion that the AO has made addition u/s 68 for the sake of addition. The appellant has established beyond doubt, identity, and genuineness of transaction and source of share application money. The AO has, however, merely doubted the capacity but has not been able to refer single evidence that such share application money is from unknown or undisclosed source. On the contrary, it is found beyond that share application money has been received by the appellant from established companies duly assessed to tax. These companies have given share application money from their own funds and the AO has accepted the fact that share application money has been advanced from the said funds, hence it becomes crystal clear that there is no unexplained cash credit or unexplained share capital. Therefore, such baseless addition made by the AO of Rs.70,000,000/- u/s. 68 of the IT. Act is deleted.”
M/s Realstone Entertainment CO. No. 201/Mum/2018
Before us, the Ld. DR relies on the order of the AO.
On the other hand, the Ld. counsel relies on the order of the Ld. CIT(A). The Ld. counsel further submits that the assessee had filed the following documents before the AO and CIT(A) :
1. 1. Acknowledgement of ROI filed originally together with computation of total income & audited financial statements for the year under appeal.
2. Notice u/s 148 of the IT Act, 1961 dt.28.3.14.
3. ITO's letter dt. 06.02.15 furnishing the reasons recorded for re- opening of the assessment.
4. Appellant's letter dt. 09.02.15 objecting to the reasons recorded for re-opening of the assessment.
5. ITO’s letter dt. 05.03.15 disposing off the objections to the reasons recorded for re-opening of the assessment.
6. Appellant's AR's letter dt.11.03.15 furnishing details in the course of re-assessment proceedings together with relevant details & supporting with regard to issue of shares at a premium.
7. Appellant's AR's letter dt. 17.03.15 together with annexures with regard to justification for issue of shares at a premium. 6.1 In response to clarification during the course of hearing on 03.05.2019 the Ld. counsel submits that the AO in the present case, without making any inquiry into the matter and without dislodging the plethora of evidence placed on record and the submission made, considered the share capital raised at a premium as unexplained cash credit u/s 68 of the Act and added the same to the total income of the assessee mainly on the ground that creditworthiness of the share M/s Realstone Entertainment CO. No. 201/Mum/2018 applicants is not proved as they have returned low income compared to the amount of investment made by them. Distinguishing the case of NRA Iron & Steel Pvt. Ltd. decided by the Hon’ble Supreme Court on 05.03.2019, the Ld. counsel submits that the facts in the above case are totally different from the facts of the present assessee in as much as detailed inquiries were conducted by the AO and he concluded that the assessee failed to prove the identity of the investor companies and genuineness of the transaction in as much as the investor companies were found to be non-existent, almost none of the companies produced bank statements to establish source of funds for making huge investments in the shares, and none of the investor companies appeared before the AO. The Ld. counsel submits that in the present case of the assessee, no inquiries were made by the AO, relevant bank statements of each of the share applicants were furnished by the assessee, the AO himself accepted that the source of funds for making investment was out of the share capital received by them and all the share applicants are bodies corporate who are regularly filing their return of income with the department and annual returns with the ROC and are shown as ‘active’ on the website of the Ministry of Corporate Affairs. Thus it is submitted by him that the order of the Ld. CIT(A) both on the validity of assumption of jurisdiction as well as on merits have to be sustained.
We have heard the rival submissions and perused the relevant materials on record. It is well settled that in order to discharge the onus u/s 68 of the, the assessee must prove the following : (i) the identity of the creditor, M/s Realstone Entertainment CO. No. 201/Mum/2018 (ii) the capacity of the creditor to advance money; and (iii) the genuineness of transaction. It is also well settled that after the assessee has adduced evidence to establish prima facie the aforesaid, the onus shifts to the department. It is has been held so in Shankar Ind v. CIT 114 ITR 689; Prakash Textile v. CIT 121 ITR 890 ; CIT v. United 187 ITR 596; Rajshree v. CIT 256 ITR 331; Ashokpal v. CIT 220 ITR 452, 454; CIT v. Metachem 245 ITR 160; CIT v. Shree Gopal 204 ITR 285; MOD Creations P. Ltd. v. ITO 354 ITR 282. As mentioned earlier at para 6, the assessee filed before the AO the relevant details and supporting documents with regard to issue of shares at a premium. A perusal of the assessment order clearly indicates that the AO without making any sort of inquiry has rejected the evidence filed by the assessee on the basis of conjectures and assumptions. Facts being so, we confirm the order of the Ld. CIT(A).
In the result, the appeal filed by the revenue is dismissed.
The cross-objection filed by the assessee reads as under : The order under appeal is void and illegal and, therefore, bad in law for want of approval of satisfaction for re-opening the case from the competent authority as required u/s 151 of the IT Act, 1961.
The Ld. counsel submits that as clear from the reasons recorded by the AO that there is no material, let alone any cogent material which would give rise to reasons to believe that the income chargeable to tax has escaped assessment warranting action u/s 147 of the Act. It is M/s Realstone Entertainment CO. No. 201/Mum/2018 further stated that reopening of the assessment is not permitted for a fishing or roving inquiry.
On the other hand, the Ld. DR submits that the AO has rightly reopened the return of income which was processed originally u/s 143(1) of the Act.