Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “D” Bench, Mumbai
Before: Shri Shamim Yahya (AM) & Shri Amarjit Singh (JM)
Per Shamim Yahya (AM) : These are Revenue’s appeals against a common order of learned CIT(A) for A.Y. 2006-07 & 2010-11.
2. Issues raised in these cases are common and connected. Issue raised is that learned CIT(A) erred in deleting the addition made by the Assessing Officer u/s. 68 of the Act amounting to Rs. 10,00,000/- for A.Y. 2006-07 and Rs. 73,50,000/- for A.Y. 2010-11 on bogus share application money and share premium received as bogus accommodation entries provided by Shri Mukesh Choksi and Shri Shirish Shah respectively.
A.Y. 2006-07 : 3. Brief facts are as under :-
2 M/s. Mamta Gold Pvt. Ltd.
The assessee-company is engaged in the business of manufacturing and trading in gold ornaments. The return of income for the year under appeal was e-filed on 25-11-2006 declaring total income of Rs. 1,24,691/-. This case was re-opened by issuing notice u/s.148 of the Act on 26-03-2013 which has been duly served upon the assessee.
During the course of re-assessment proceedings, the Assessing Officer observed that the transactions shown by the assessee with M/s. Mahasagar Securities P Ltd. (Now M/s. Alag Securities Pvt.Ltd.) were sham as the said entity was not engaged in any genuine business but engaged in fraudulent billing activities and in the business of providing bogus speculation profit/loss, short term/long term capital gain/loss, share application money, commodities profit/loss on commodity trading (through MCX). As per records available, the appellant was in receipt of share application money of Rs. 10,00,000/-during FY 2005-06 (AY 2006-07) and the same was treated as undisclosed income u/s.68. Accordingly, the impugned re-assessment order was passed u/s. 143(3) r.w.s.147 on 11-03-2014 determining the total income at Rs. 11,24,6907-.
In this regard assessee submitted all necessary details. However, the Assessing Officer proceeded on investigation carried out in the case of Mr. Mukesh Choksi. He proceeded to make the addition without issuing notice to the share applicants.
Upon assessee’s appeal in this regard, learned CIT(A) noted that the assessee has provided all necessary details. Learned CIT(A) also referred to several case laws including Hon'ble Apex Court decision in the case of CIT Vs. Lovely Exports (P) Ltd. 216 CTR 195 and decision of Hon'ble Bombay High Court in the case of Gagandeep Infrastructure Pvt. Ltd.(394 ITR 680) another decision of Hon'ble Bombay High Court in the case of CIT Vs. Orchid Industries Ltd (ITXA 1433 of 2014 dated 5.7.2017). Learned CIT(A) concluded as under :-
3 M/s. Mamta Gold Pvt. Ltd.
In the case of Orchid Industries P Ltd (supra). Ld.AO issued 133(6) notices to the parties. Despite the fact that the parties did not appear before the Ld.AO, the Hon'ble Bombay High Court have held that the transaction was genuine as the assessee produced voluminous documentary evidence. I find that the facts of this case are identical to that of the assessee's case. Therefore, in view of the binding decisions of the jurisdictional High Court in similar set of facts, the addition u/s 68 of Rs.10,00,000/- cannot be upheld and is hereby deleted. Accordingly, Ground Nos. 2 to 5 of the appeal are Allowed.
A.Y. 2010-11
Brief facts are as under : The assessee company is engaged in the business of manufacturing and trading in gold ornaments. The return of income for the year under appeal was filed on 04-10-2010 declaring total income of Rs.15,26,598/-. This case has been re-opened by issuing notice u/s.148 of the Act on 02-03-2015 which has been duly served upon the assessee after recording reasons on receipt of information from Pr.DIT(INV)-2, Mumbai vide their letter No. DIT(Inv)- 2/lnformation/SCS/2014-15 on 16-02-2015, as per which a search action was carried out by the Ahmedabad Directorate of Income tax in Mumbai at the residence and office premise of Shri Shri Shirish C. Shah and key employees and his associates on 09-04-2013 and assessee was one of the alleged beneficiaries.
During the course of re-assessment proceedings, Ld. AO observed and stated that the identity, creditworthiness of the lender and genuineness of the transactions are not proved, hence, an amount of Rs.73,50,000/- credited in the books of assessee was added back to the total income of the assessee. Accordingly, the impugned re-assessment order was passed u/s. 143(3) r.w.s. 147 on 30-03-2016 determining the total income at Rs.88,76,600/-.
4 M/s. Mamta Gold Pvt. Ltd.
Upon assessee’s appeal learned CIT(A) noted that the assessee has given all necessary details. Placing reliance upon several case laws and also decision for A.Y. 2006-07. Learned CIT(A) himself concluded as under :-
“At the outset, it has been stated by the Ld.AO that the details of alKthe share applicants were provided before the Ld.AO vide its letter dated 02-03-2016, detailing the Bank Statement, PAN, ITR etc. Apart from the case laws related upon in AY 2006-07, Ld.AR has further placed reliance on the decision of Hon'ble Mumbai Bench of ITAT in the case of Green Infra Ltd, v. ITO [ITS-420- ITAT-2013 (Mum)], where it was held that the addition on account of share application money cannot be made in the hands of the company u/s.68 in AY 2012-13. Reliance was placed by the Ld.AR on the decision of Hon'ble Supreme Court in the case of Divine Leasing & Finance (Supreme Court) 299 ITR 268 [ITA No. 53/2005]. As the facts containing in the present year are the pari material with the facts obtaining in appellant’s own case for A.Y. 2006-07 (supra), for the detailed reason given therein, the grounds raised are allowed in favour of the appellant.”
Against the above order, Revenue is in appeal before us.
We have heard both the counsel and perused the records.
Learned Departmental Representative relied upon the orders of the authorities below. He also referred to the decision of Hon'ble Apex Court in the case of PCIT Vs. NRA Iron and Steel Ltd. [SLP (Civil) No. 29855 of 2018) dated 5.3.2019].
Per contra, learned Counsel of the assessee submitted that assessee has submitted all the required documents to establish the identity, creditworthiness and genuineness of the transaction. He submitted that no defect in the same has been pointed out. He referred to a Catena decisions that in such circumstances no addition under section 68 is warranted. He submitted that the decision of Hon'ble Apex court relied upon by the learned departmental representative is not applicable on the facts of the case. The learned counsel for the assessee submitted that the amendment to section 68 warranting examination of the source of source was brought in with effect from 5 M/s. Mamta Gold Pvt. Ltd.
assessment year 2013-14, which has been held by honourable jurisdictional High Court to be prospective. Further the learned counsel submitted that Hon'ble Jurisdictional High Court in the case of Green Infra Ltd. (supra), has held that provisions relating to section 56(vii) of the Act with regard to examination of share premium has been brought into the statute books with effect from 1.4.2013 and the same is prospective in nature. Hence learned counsel of the assessee submitted that the addition under section 68 this case is liable to be deleted.
Up on careful consideration we note that it is the plea of the assessee that assessee has submitted all the requisite documents to establish the identity, creditworthiness and genuineness of the transaction. In this regard following submission of the learned counsel of the assessee may be gainfully referred :-
“To prove the Identity :- A) The appellant has submitted the addresses, PAN and certificate of incorporation of the above subscribers who have subscribed to the shares along with :- a) Company’s Master Data like company name, company Identification Number (CIN), date or ,r corporation, registered address, e-mail ID, etc. of Investor's companies downloaded from www.mca.gov.in; b) Name, Address, PAN, Income-tax Jurisdiction, etc. of the Investor's companies; c) Certificate of Incorporation of the Investor's companies; d) Form of application for equity shares filled by the Investor's companies, e) Copy of Audit Report and Balance-Sheet of the Investor's companies. B) The Company's Master Data, Income-tax Jurisdiction details and financials of the Investor's companies proved the identity as well as financial capacity i.e. creditworthiness of the Investor's companies. Hence, the aforesaid documents have proved the identity of the shareholders. II. To prove the creditworthiness of the subscribers
6 M/s. Mamta Gold Pvt. Ltd.
The appellant has submitted the Balance Sheet, Profit & Loss a/c and Return of Income for share applicants.
The financials of the Investor's companies proved the identity as well as financial capacity i.e. creditworthiness of the Investor's companies. Further, the Appellant submit the details of share capital, reserve and surplus, networth of the investor's companies as under:
A.Y 2010-11
Sr. Name of Amount Amount of Total Share capital Reserves of Networth of % No. investor’s of share premium amount of investor’s investor’s investor’s (Investment/ companies capital invested by companies companies companies Networth) the investor 1 Avance 1,22,500 23,27,500 24,50,000 640,387,500 1,003,793,034 1,644,180,534 0.15 Technologies Ltd. 2 Prabhav 1,22,500 23,27,500 24,50,000 46,08,91,000 1,02,58,57,000 1,48,67,48,000 0.16 Industries Ltd. 3 Yantra Natural 1,22,500 23,27,500 24,50,000 450,653,000 1,000,000,000 1,450,653,000 0.17 Ltd.( Formerly Ganesh Spinners Ltd.) Total 3,67,500 69,82,500 73,50,000 1,551,931,500 3,029,650,034 4,581,581,534 0.16
In view of the aforesaid details, the Appellant submits that all the Investor's companies have positive net worth and have only invested on an average 0.16% of their net worth in the Appellant. Hence, the creditworthiness of the Investor's companies cannot be doubtful.
Further, the Appellant submit that the Company's Master Data, Income-tax Jurisdiction details and financials of the Investor's companies proved the identity as well as financial capacity i.e. creditworthiness of the investor’s companies.
The AO treated Share capital and share premium received by the Appellant as unexplained cash credit under section 68 of the Act on the alleged ground that the Appellant has not brought on record to prove the identity, genuineness of the transactions and creditworthiness of the investors without appreciating that the Appellant has submitted the copies of director report, balance sheet, bank statements, share application forms, etc. clearly brought out the nature of the transactions, amount involved and scope of the transaction.
4. The Appellant submit that the Appellant has discharged its onus of proving the identity of the parties, genuineness of the transactions and the creditworthiness of the shareholder. Therefore, the Appellant humbly submit that the addition made under section 68 of the Act be deleted.
III. To prove the Genuineness of the above share transaction :
7 M/s. Mamta Gold Pvt. Ltd.
The appellant has submitted the Extract of Bank Statement of all above mentioned subscribers, duly highlighting the entries of Share money and Premium money given by them to the appellant company along with copy of board resolution, resolving the decision of investment into appellant company.”
Further, we note that honourable jurisdictional High Court has expounded that amendment in section 68 for examination of the share applicants is effective from assessment year 2013-14. Furthermore honourable jurisdictional High Court has also held that provisions of section 56 (vii) with regard to examination of share premium is also effective from assessment year 2013-14. Hence these provisions of the act cannot be invoked in the present assessment year. In the present assessment year assessee has submitted that it has submitted all the information and documents. Not specific defect in the same has been pointed out by the assessing officer. Assessing officer has solely gone on the investigation done in the case of third parties. As a matter of fact, no summons were issued by the assessing officer to the share applicants the present case. For assessment year 2006-07, even notice under section 133(6) were not issued. In this regard we may gainfully refer to the following case laws and the proposition in brief from the honourable jurisdictional High Court:-
PCIT Vs. Acquatic Remedies Pvt. Ltd.(Bombay High Court),section 68: Bogus share capital: If copies of the share application form, share allotment Register and Bank Statements showing receipt of funds are on record and if all the shareholders have filed Affidavits declaring the-fact that they are investing in the assessee-Company by issuing of cheques from their Accounts, the assessee has fulfilled the requirement of proving genuineness of the transaction, identity and creditworthiness of the shareholders/investors and addition cannot be made u/s 68.
PCIT Vs. Veedhata Tower Pvt. Ltd. (Bombay High Court), S. 68 Bogus loans: The assessee is not required to explain the "source of source" prior to insertion of the proviso to s. 68. If the assessee has discharged the primary onus placed upon it u/s 68 by filing confirmation letters, the Affidavits, the full address and pan numbers of the creditors, the Revenue has to proceed against the persons whose source of funds are alleged to be not genuine.
8 M/s. Mamta Gold Pvt. Ltd.
PCIT Vs. Paradise Inland Shipping P. Ltd. (Bombay High Court), S. 68 Bogus share capital: Companies which invest share capital cannot be treated as bogus if they are registered and have been assessed. Once the assessee has produced documentary evidence to establish the existence of such companies, the burden shifts to the Revenue to establish their case. Reliance on statements of third parties who have not been subjected to cross examination is not permissible. Voluminous documents produced by the assessee cannot be discarded merely on the basis of statements of individuals contrary to such public documents.
CIT Vs. Orchid Industries Pvt. Ltd. (Bombay High Court), S. 68 Bogus share capital: Mere fact that parties to whom the share certificates were issued and who had paid the share capital money were not traceable and did not appear before the AO in response to summons does not mean that the transaction can be treated as bogus if the documentation shows the genuineness of the transaction.
CIT Vs. Gagandeep Infrastructure Pvt. Ltd. (Bombay High Court), Bogus share capital/ premium: The proviso to s. 68 (which creates an obligation on the issuing Co to explain the source of share capital & premium) has been introduced by the Finance Act 2012 with effect from 01.04.2013 and does not have retrospective effect. Prior thereto, as per Lovely Exports 317ITR 218 (SC), if the AO regards the share premium as bogus, he has to assess the shareholders but cannot assess the same as the issuing company's unexplained cash credit.
In the background of aforesaid discussion and precedent in our considered opinion assessee has discharged its onus and no addition under section 68 is warranted. Accordingly we uphold the order of learned CIT-A.
The result appeal filed by the revenue stands dismissed.
Order has been pronounced in the Court on 18.7.2019.