ACIT, CIRCLE-1(1), RAJKOT, RAJKOT vs. AXWELL GRANITO PVT. LTD., MORBI

We have given our thoughtful consideration to rival contention. Case file as well as paper book are perused with the able assistance of both the learned Counsels representing the Assessee and the Revenue. We find that one key issues arises for our apt adjudication in the instant lis, is that when the 89% of the share capital to the tune of Rs. 10,07,86,700/- has been accepted by the assessing officer, as a genuine, then why not only 11% share capital to the tune of Rs.1,32,68,300/-, should not be treated as a genuine, based on the same facts and circumstances. We find that assessee has filed the details, before assessing officer, such as, identity proofs, acknowledgements of returns of income for the assessment year under consideration and the immediately preceding assessment year, bank statements / passbooks, copies of balance sheet for the previous year relevant to the assessment year under consideration and immediately preceding previous year of the said persons to establish genuineness of transactions, (A.Y.17-18) Axwell Granito Pvt. Ltd. identity and creditworthiness of shareholders. The assessee also submitted the relevant documents and evidences of the third parties from whom they took the loan. Thus, the ingredients of section 68 of the Act, that is, identity and creditworthiness of the lenders and genuineness of transaction were satisfactorily proved by the assessee. The ld. Counsel for the assessee in support of his arguments submitted detail of share applicants along with relevant case laws which has been duly perused.

We find that shareholders have furnished the entire data of his financial statements which are not in doubt and the shareholder have also furnished the financial data of its creditors (third party) duly supported by their ITR, statement of income, profit and loss account, bank statement and balance sheet. The audited cash book of share applicants reflecting cash on hand were also submitted before the assessing officer. Once the source of the source is explained with supporting evidences the assessee has discharged onus lies on it as provided in proviso inserted by the Finance Act, 2012 to section 68 of the Act. We find that assessee has furnished, in respect of each person/ shareholder, following documentary evidences to prove the identity and creditworthiness of the persons/ shareholder from whom the assessee has received share application money: • Copy of the duly notarised affidavit of the share applicants. • Copy of Bank statement of shareholder showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital • Acknowledgement copy of Income Tax Return of share applicants. • Copy of PAN card to verify the identity • Copy of computation of income of the above share applicants confirming and complete details of Sources of funds and Investments made. • Copy of ledger accounts of the share applicants.

The ld CIT(A) noticed that in all cases there has been substantial amount of cash balance available to the source of such share applicants from whom funds has been received. Therefore, AO's contention that the immediate funds were deposited in the bank account of the share applicants is devoid of merit and has hardly any strength. It is pertinent to mention here that all the share applicants filed the response in compliance to notice issued u/s 133(6) of the Act. Further, it is also noted that when a question as to the creditworthiness of the creditors is to be adjudicated and if the creditor is an income tax assessee, it is now well settled by the decision of the Calcutta High Court that the creditworthiness of the creditor cannot be disputed by the AO of the assessee but the AO of the creditor. In this regard, the Hon'ble High Court, Calcutta in the case of COMMISSIONER OF INCOME TAX KOLKATA-III Versus DATAWARE PRIVATE LIMITED of 2011 Date: 21st September, 2011, held as follows: “9.6 "In our opinion in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditors himself is an income tax assessee. After getting the information that the creditor is assessed under the Act, the assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness" of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. 9.7 So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the (A.Y.17-18) Axwell Granito Pvt. Ltd. genuineness" of transaction through account payee cheque has been established. 9.8 We find that both the Commissioner of Income Tax (Appeal) and the Tribunal below followed the well-accepted principle which is required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities." 9.9 It is pertinent to mention here that if creditworthiness of the share applicant is disputed by the A.O then all the share application money is to be added back by the AO and not just a partial sum out of total which clearly is a case of arbitrary application of a criterion. Therefore, in light of above discussion, I am of the considered opinion that the creditworthiness of the share applicants should have been accepted by the A.O.”

We find that in assessee`s case under consideration, the assessee has explained, both the nature & source of the share application money received, and source of the source also was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the loan. In the wake of above delineation, we see no error in the conclusion drawn by the CIT(A) in this regard. We thus decline to interfere with the conclusion so drawn by the CIT(A), and dismiss ground No.1 raised by the revenue.

About ground No.2 raised by the revenue, we have heard both the parties and noticed that during the appellate proceedings, the assessee has not submitted any additional evidence. The evidence which is available at the public domain, which is available for all as a supporting evidence to prove the original evidence submitted by assessee during assessment proceedings, cannot be treated additional evidence. It has to be further noted that though powers of the Id. CIT(A) are co-terminus with the AO and the Id. CIT(A) had all the plenary powers as that of the AO. The Hon'ble Delhi High Court in the case of Commissioner of Income-tax v. Manish Build Well (P.) Ltd. reported in [2011] (A.Y.17-18) Axwell Granito Pvt. Ltd. 16 taxmann.com 27/245 CTR 397/[2012] 204 Taxman 106 (Delhi) has held that the CIT(A) is statutory first appellate authority and has independent power of examination of evidences and possesses co-terminus power of assessment apart from appellate powers. Based on these facts and circumstances, we dismiss the ground No.2 raised by the revenue.

In the result, appeal filed by the Revenue is dismissed.