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Income Tax Appellate Tribunal, “C” Bench, Mumbai
Before: Shri Ravish Sood & Shri N.K.Pradhan
O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the revenue is directed against the order passed by the CIT(A)-4, Mumbai, dated 09.03.2017, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short „I.T. Act‟) dated 27.03.2015 for AY. 2012-13. The revenue assailing the order of the CIT(A) has raised before us the following grounds of appeal : “1. On the f acts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.1,35,00,000/- made u/s 68 of the Act, without appreciating the fact that the genuineness of the transactions and the credit worthiness of these parties have not been proved.
2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) also erred in deleting the addition without appreciating the fact that the parties have only conf irmed the investment in shares P a g e | ITO-2(1)(4) Vs. M/s Citymaker Builder Pvt. Ltd. of company but have not explained as to why share were purchased with premium.
3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in appreciating the facts that out of four investors, two investors namely M/s Duke Business Pvt. Ltd. And M/s Atharva Business Pvt. Ltd. are the companies involved in Hawal a Entry Operations which were admitted as such by Shri Pravin Kumar Jain in his statement.
4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition without appreciating the fact that the assessee had failed to prove its claim that it has received the said amount from the parties on account of share premium as the onus to prove the identity, creditworthiness & genuineness is upon assessee as a pre-condition of section 68 of the I.T Act.
5. For these and other grounds that may he urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored.”
2. Briefly stated, the assessee company which is engaged in the business of building and development of real estate had e-filed its return of income for A.Y. 2012-13 on 31.07.2013, declaring total income at Rs. 29,348/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the I.T Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2).
During the course of the assessment proceedings it was observed by the A.O that the assessee company had accepted share application money of Rs.1,75,00,000/- during the year. As per the details furnished by the assessee, it was observed by the A.O that the assessee had accepted fresh share application money for 43,750 shares @ Rs.400 per share viz. (i). Face value of Rs.10/- per share; and (ii) Share premium of Rs.390/- per share. Further, it was noticed by him that the share application money received by the assessee company included an amount of Rs.40 lac that was received from its promoter director i.e Mr. Aziz-ur-Rahman who had subscribed for 10,000 shares. Apart there from, the balance amount of Rs. 1,35,00,000/- was received by the assessee company from six companies which had subscribed for 33,750 shares. The A.O observed P a g e | ITO-2(1)(4) Vs. M/s Citymaker Builder Pvt. Ltd. that as a result of accepting of share application money for 43,750 shares (which included 10,000 shares that were subscribed by the promoter director), nearly 63% of the share holding of the assessee company would be given out to the external parties, and the share holding of the existing shareholders would be reduced to 37%. On the basis of the aforesaid facts, the A.O was of the view that the assessee company by accepting share application money of Rs.1,35,00,000/- from outside parties was effectively handing over the control of its affairs to them.
In the backdrop of the aforesaid facts, the A.O not inspired with the genuineness of the transaction of receipt of share application money, thus, in order to make necessary verification issued notices under Sec. 133(6) to the applicant companies. On a perusal of the replies filed by the applicant companies, it was observed by the A.O that complete information was not furnished by them. It was noticed by the A.O that though the share applicants had confirmed to have invested in the shares of the assessee company, however, despite specific query they had not came forth with any explanation as to why the shares were purchased at a substantial premium of Rs. 390/- per share. Apart there from, it was observed by the A.O that two of the share applicants viz. (i) M/s Duke Business Pvt. Ltd. (JPK Trading I.P Ltd.): Rs.20,00,000/-; and (ii) M/s Atharva Business Pvt. Ltd.: Rs. 25,00,000/-, as per the information received from the office of the DGIT (Inv.), Mumbai, were the entities which were controlled by Shri. Praveen Kumar Jain, an infamous accommodation entry provider. In the backdrop of the incomplete information provided by the share applicants, the A.O called upon the assessee to furnish replies to certain queries. The assessee in order to impress upon the A.O that it was in receipt of genuine share application money, therein tried to fortify the authenticity of the transaction of receipt of share P a g e | ITO-2(1)(4) Vs. M/s Citymaker Builder Pvt. Ltd. application money on the basis of its multiple submissions viz. (i) that, it had received share application money from prospective strategic partners in order to augment its requirements of funds for development of its business; (ii) that, the calculation of „book value‟ of the shares of the assessee company at Rs. 387/- per share as on 31.03.2011 was worked out as per Rule 11UA of the Income-tax rules, 1963 ; (iii) that, its promoter director had also applied for the shares of the companies at the same premium of Rs. 390/- per share; (iv) that, the shares could not be allotted till date due to some pending compliance with the ROC; (v) that, there was no change in the shareholding in the assesses company till date; (vi) that, no dividends had been paid till date; and (vii) that, the issue price of share capital was justified on a comparison with its „book value‟ and the intrinsic value of the company. However, the A.O was not persuaded to accept the aforesaid explanation of the assessee for certain reasons, viz. (i) that, though the share application money was received by the assessee during the year under consideration i.e financial year 2011-12, however, till date despite lapse of a substantial period of three and a half years shares were not issued to the investor companies; (ii) that, as the assessee company had never declared any dividend, therefore, the same raised serious doubts as regards the rationale of the investor companies for making investment towards shares of the assessee company at such huge share premium; (iii) that, shares had not been even issued by the assessee company to its existing shareholder i.e Shri Aziz-ur-Rahman (director of the company); (iv) that, two of the six investor companies appeared in the list provided by the DGIT (Inv.) Mumbai, which revealed that they were the entities which were controlled by Shri Praveen Kumar Jain, an infamous accommodation entry provider; (v) that, the fact that the assessee had accepted money from dubious parties even in the subsequent year viz. A.Y. 2014-15, P a g e | ITO-2(1)(4) Vs. M/s Citymaker Builder Pvt. Ltd. revealed that it was the modus operandi of the assessee company to introduce its unaccounted income in the form of share capital, share premium or unsecured loans; and (vi) that, it was beyond comprehension that the assessee company by accepting the share application money of Rs.1,35,00,000/- from external parties would be handing over the control of its affairs to the said external investor parties. On the basis of the aforesaid observations, the A.O was of the view that the assessee company had used the aforementioned investor parties as a tool to introduce its unaccounted income. Accordingly, in the backdrop of his aforesaid conviction the A.O treated the amount of Rs.1,35,00,000/- claimed by the assessee to have been received towards share application money, as an unaccounted cash credit under Sec. 68 of the I.T Act.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee, observed, that though the assessee had placed on record the necessary evidences to substantiate the genuineness of the share application money received by it, however, the same were conveniently ignored by the A.O. Further, it was observed by the CIT(A) that the A.O had also not been able to place on record any documentary evidence which could justify drawing of adverse inferences as regards the genuineness of the transaction of receipt of share application money by the assessee from the six applicant companies. In fact, it was observed by the CIT(A), that though in response to the specific notices issued by the A.O under Sec.133(6) the six share applicant companies had furnished documentary evidence and their explanations, however, the same were conveniently ignored by the A.O. As regards the two share applicant companies which were stated by the A.O as entities which were controlled by Shri. Praveen Kumar Jain, an infamous accommodation, it was observed by the CIT(A) that the A.O except for P a g e | 6 AY. 2012-13 ITO-2(1)(4) Vs. M/s Citymaker Builder Pvt. Ltd. so stating had failed to place on record any documentary evidence which could have substantiated that the aforesaid entities were merely namesake concerns which had only facilitated providing of accommodation entries to the assessee company. On the basis of his aforesaid deliberations, the CIT(A) being of the view that as the A.O had failed to dislodge the genuineness of the transaction of receipt of share application money as was claimed by the assessee on the basis of documents placed on record, therefore, concluded that the addition made by him could not be sustained and was liable to be vacated.
The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Departmental Representative (for short „D.R‟) took us through the facts of the case. It was submitted by the ld. D.R that the shares of the assessee company with a face value of Rs.10/- per share were issued at an exorbitant share premium of Rs. 390/- share. The ld. D.R took us through the observations of the A.O and submitted that the notices issued by him under Sec. 133(6) to the share applicants were partly replied by them. It was submitted by the ld. D.R, that the fact that the assessee had failed to produce the share applicants for necessary examination before the A.O duly supported the view taken by him that the assessee had merely obtained accommodation entries in the garb of share application money. In support of his aforesaid contentions, the ld. D.R relied on the certain judicial pronouncements viz. (i) Pawan Kumar M. Sanghavi Vs. ITO (2018) 90 taxman.com 386 (Guj); and (ii) Pratik Syntex (P) Ltd. Vs. ITO-13(1)(4), Mumbai (2018) 94 taxman.com 12 (Mum).
Per contra, the ld. Authorized Representative (for short „A.R‟) for the assessee submitted, that the assessee company had with the purpose of augmenting its funds which were required for facilitating P a g e | ITO-2(1)(4) Vs. M/s Citymaker Builder Pvt. Ltd. further development of its business was in search of strategic partners. Accordingly, it was submitted by the ld. A.R that the share application money was received by the assessee company to facilitate the further expansion of its business. In order to support the identity of the aforementioned companies, it was submitted by the ld. A.R that the said respective companies were registered with the