INCOME TAX OFFICER 12(1)(4), MUMBAI vs. CYMBAL MERCANTILE PRIVATE LIMITED, MUMBAI

1. Whether on the facts and circumstance of the case, the Ld. CIT(A) was justified in deleting the addition of Rs. 1.40 Crores made by the A.O. u/s. 68 of the I.T. Act treating the Share Premium received by the assessee company as unexplained cash credit.

We have heard the submission of ld. Department Representative (DR) for the revenue and ld. Authorized Representative (AR) of the assessee and perused the material available on record. The ld. DR for the revenue submits that the assessing officer received information from Principal Director of Income Tax (Pr DIT) that one Mr. Sarish Shah floated bogus company and provided bogus entries of share capital, share premium, share application money and unsecured loan etc. The list of beneficiary was also furnished by Pr DIT. The name of assessee also appeared in the said list. The assessee availed the bogus entry from said Sarish Shah.

On the other hand the ld AR for the assessee submits that the during the relevant period the assessee allotted 1,40,000 equity shares of Rs. 10/- each at a premium of Rs. 490/- per share (i.e. Rs. 500 per share ) to M/s Allied Computers International (Asia) Ltd and receive a sum of Rs. 1.40 crore from the said company (investor), as part payment, against the said allotment during the impugned assessment year. This amount was received through normal banking channel. The assessing officer, during the assessment proceeding required the assessee to file details of payment received and the details of Allied Computers International (Asia) Ltd in order to satisfied himself that the amount was indeed received from the said investor and that the investor had means and capability of making such payments. The assessee furnished details of address, PAN, bank account statement of investor, financial statement, and confirmation letter from investors. The assessing officer also made enquiries under section 133(6) and call for details about investor, which were responded by the investor. The assessing officer despite being provided with all necessary proof of payment received, proceeded to make addition of the amount of Rs. 1.40 crore under section 68, to the income of assessee. The assessing officer held in the assessment order that it does not make commercial sense for investor to purchase a share 6 ITA No. M/s Cymbal Mercantile Pvt. Ltd. with the face value of Rs. 10/- for Rs. 500/-, paying a premium of Rs. 490/- per share. The financial of the assessee company do not justify a premium of Rs. 490/- per share. The assessee company started only in November 2010 and that financial year 2011-12 relevant to the impugned assessment year 2012-13 was effectively the year in which the assessee has commenced its commercial operation and has a meager net profit of Rs. 25,885/-. The assessing officer in para-10.5 of the assessment order also concluded that from the balance-sheet that the shares had no capability and no basic value to give rise to premium.

In support of his submission the learned AR of the assessee relied upon the decision of Delhi High Court in case of CIT Vs Dwarkadhish Investment Private Ltd (330 ITR 298 Delhi), wherein it was held that where assessee proves the identity of the creditor by providing their PAN and shows the transaction is through banking channel, then the onus to prove the act contrary would ship to the revenue. On the decision of honorable Supreme Court in case of CIT Versus Lovely Exports Private Ltd (216 CTR 195), wherein it was held that, if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the assessing officer, then the Department is free to proceed to reopen their individual assessment in accordance with law, but it cannot be regarded as undisclosed income of the assessee company.

The learned AR for the assessee submits that in the present case the assessing officer failed to appreciate that assessee has discharged the primary onus by submitting name and address of the investor and who are income tax assessee and they have provided there PAN, GIR number, copy of returns filed, confirmation letters, and further the transactions are through banking channels and thus, the assessee has discharged the capacity of the creditors, and the genuineness of the transaction. The learned AR of the assessee also relied upon the decision of Gujarat High Court in case of DCIT Versus Rohini Builder (256 ITR 9 Cymbal Mercantile Pvt. Ltd. 360 Gujarat), where it is held that the onus on the assessee is to prove the identity of the creditor and genuineness of transaction. Madras High Court in case of CIT Versus Pranav Foundation Ltd (51 taxmann.com 198), wherein it was held that where the assessee is categorically established the nature and source of the said sum is and discharge the onus that lies on it in term of section 68. When the ‘nature and source’ of the amount so invested is known, it cannot be said to be in disclosed income. Therefore, the aforesaid addition under section 68 on account of unexplained credit is unwarranted. 7. The learned AR also relied upon the decision of Mumbai tribunal in case ITO Vs Super Line Construction P Ltd (ITA No.3645/Mumbai 2014), Elder Royalty Solution Private Ltd versus CIT (ITA. No. 3325/ Mum/ 2014) 8. The learned AR of the assessee submits that reliance of learned DR on the latest decision of Hon’ble Apex Court in PCIT Vs NRA Iron and Steel Private Ltd SLP( Civil) No. 29855 of 2018, wherein Hon’ble Court confirmed the addition under section 68, the fact of that case are not same as of assessee. In case of assessee the investor had a strong financial capital of Rs. 119 crore as shown its balance sheet, regularly assessed to tax and is a listed company. The said company confirmed that they are investing money is. The enquiry conducted by assessing officer does not proved any information provided by assessee about the 10 Cymbal Mercantile Pvt. Ltd. investor company to be false. The assessing officer is not convinced that share of assessee company desires a premium of Rs. 490/- percent. The assessee had filed a valuation report in support of fixation a premium.

The learned AR in alternative and without prejudice submission submits that if the assessing officer was of the opinion that amount of premium received was not justifiable in view of the commercial of the assessee company and that what was received by way of premium of a windfall, as concluded in para-10.5 of the assessment order, then the assessing officer ought to have taxed the same under the head ‘income from other sources’ and not as ‘unexplained cash credit’ under section 68 of the Act.

In other alternative and without prejudice submission the learned AR further submits that, if assessing officer was of the opinion that it is a case of circular transaction undertaken by the assessee with the intended purpose of building up share capital only on paper and transaction are only paper transaction and not real transaction, then the question of the assessee being text does not arise inasmuch as it is a case of the assessing officer that the assessee received money toward allotment of shares and the same finds it is way back to the investors. So, the money 11 Cymbal Mercantile Pvt. Ltd. received from the investor his return to him through a company belonging to investor group. The money received in shown as a share capital and money written is shown as advances. In this scenario, the question of any unexplained cash credit does not arise and no addition can be made under section 68 of the Act. The learned AR for the assessee prayed for dismissal of the appeal filed by revenue.

We have considered the rival submission of the parties and have gone through the orders of authorities below. During the assessment the assessing officer noted that the assessee has shown increasing the share capital of Rs. 1.40 crore. The assessee received share application money from allied computers international Asia Ltd. The assessee was asked to furnish detail regarding receipt of funds and to justify charging of such high premium. The assessee filed its detailed reply. Along with the reply the assessee furnished documentary evidence to establish the nature of transaction and source of receipt of such funds. The assessing officer in order to verify the nature and source of the alleged receipt of funds, issued notices under section 133(6) to the investor. The investor complied the notice served by assessing officer and also furnished the required documents. The details furnished by investor were not found acceptable by the assessing officer by taking view that the basic three conditions like proof of identity of creditor, capacity of creditors to lend money and genuineness of transaction was not proved. The assessing 12 ITA No. M/s Cymbal Mercantile Pvt. Ltd. officer took his view that information was received from investigation wing that Allied Computers International (Asia) Ltd was in the list of companies floated by Shri Sarish C. Saha, group of companies which were engaged in providing accommodation entries in the form of share application money and unsecured loans etc. The assessing officer concluded that the investor was not engage in genuine business activities; rather the company was controlled by Suresh Shah and engaged only in providing expedition entries. The assessing officer concluded that assessee failed to explain the identity of person, genuineness of transaction and to establish the creditworthiness of the investor. The assessing officer treated the share application money as unexplained cash credit within the meaning of section 68 of the Act. we have noted that no finding was given by assessing officer on the documentary evidences furnished by assessee as well as by Allied Computers International (Asia) Ltd.

Before learned CIT (A) the assessee made detailed submissions. It was explained that as per section 68, after 1st April 2013 (i.e. AY 2013-14 onwards) where a company, not being a company in which the public are substantially interested, received share capital in any previous year from any person being a resident, any share capital and the nature and source of such credited is not explained then the said amount is to be treated as cash credit. It was explained that the provision of section 68 is 13 Cymbal Mercantile Pvt. Ltd. not applicable in case of assessee due to the reasons;(i) the assessee had explain nature and source of the share application money to the assessing officer about the identity, genuineness of creditworthiness of the parties, as such the assessee has not failed to provide the explanation to the assessing officer, (ii) the amended provisions of section 68 is applicable from assessment year 2013-14 onwards and not retrospectively from assessment year 2011-12. It was further explained that share applicant was itself a listed company, the share applicant’s itself furnish detail explanation and source to the assessing officer in response to the notice is issued under section 133(6). The assessing officer treated the share capital and share premium received against issue of share as unexplained cash credit under section 68 without considering the fact that assessee furnish detail explanation and prove the identity, genuineness and creditworthiness of the investor the assessee also furnished the details and justification for high premium in the form of project report showing projection and valuation of the assessee company by net worth, residual value and earning capacity.

The learned Commissioner (Appeals) after considering the submission of the assessee observed that the assessee filed copy of PAN card, bank statement, balance-sheet and P&L account of share applicant along with share application form to invest in the assessee company. The investor company had duly recorded the investment in the assessee company in their books of accounts during the relevant financial year. The investment investor company has demonstrated these balances in their balance sheet in the shape of investment as well loan and advances. For genuineness of transaction, the learned CIT (A) observed that the assessee produced the details of bank account, share application money and share premium has been issued through banking channel. There is no cash transaction which could compel oneself to assume the transaction was not genuine. The assessee discharged its onus about the identity of investor, creditworthiness and genuineness of transaction.

We have seen that the ld CIT(A) has given categorical finding that assessee has proved the identity of investor, creditworthiness and genuineness of transaction. No contrary facts of law is brought to our notice that the finding of the ld CIT(A) is not based on the material available on record. With utmost regard to the decision of the Hon’ble Apex Court, we find that the ratio in case law in NRA Iron and Steel Ltd (supra) relied by ld. DR for the revenue is not applicable on the facts of the present case as the facts of the present case are at variance. In the said case six of the parties were not in existence, no proof of creditworthy was filed in the said case. However, in the present case the investor company is a listed company, has proved it creditworthy before the lower authorities by filing the audited report and the bank statement.

In the result, appeal of the revenue is dismissed.