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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
AadoSa / O R D E R महावीर स िंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
This appeal filed by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-7, Mumbai [in short CIT(A)], Appeal No. CIT(A)-7/IT-10/2015-16 vide order dated 09.08.2016. The Assessment was framed by the Asst. Commissioner of income Tax, Circle-16(3) (in short ‘ACIT/ AO’) for the A.Y. 2009-10 vide order dated ITAs No. 6528/Mum/2016 16.03.2015 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO on account of share capital introduced by assessee amounting to ₹ 2.50 crores as unexplained under section 68 of the Act. For this Revenue has raised the following ground No. 1: -
1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition made on share capital amounting to ₹2,50,00,000/-.”
Briefly stated facts are that the assessee is engaged in the business of facility management services and earning commission on sales. The AO during the course of reassessment proceedings under section 147 of the Act read with section 143(2) of the Act noted that the assessee has received share capital and share premium to the extent of ₹ 2.50 crores from the following three parties: - Sr. Name of No of Face Total No. the shares value/ amount company premium 1. Blazer 5000 100/900 5000000 Venture Pvt. Ltd. 2. Fairmont 10000 100/900 10000000 Venture Pvt. Ltd 3. Kumaon 10000 100/900 10000000 Engineering Pvt. Ltd. Total 25000000 ITAs No. 6528/Mum/2016
The AO issued notice under section 133(6) to the above three parties and asked for balance sheet, profit and loss account and banking accounts for AY 2009-10 relating to these entities. These parties furnished replies in response to these notices under section 133(6) of the Act. The AO noted that these companies who have subscribed the shares of the assessee company at a premium of ₹ 900/- on the face value of shares of ₹ 100/-, these companies income does not commensurate with the operations of the company. It was noted by the AO that companies are not having regular income from the business operations and are having no fixed assets. It was noted that these companies does not have commensurate share capital to the funds of the assessee company. It was also noted that the said companies are routing money as compared to their financial accounts. Considering these evidences, he noted that the assessee was not able to prove the creditworthiness of the creditors beyond doubt and to the satisfaction of the AO. Hence, he treated this share capital and share premium as unexplained under section 68 of the Act. Aggrieved, against the action of the AO, assessee preferred the appeal before CIT(A).
The CIT(A) deleted the addition by observing in Para 4.3 and 4.4 as under: - “4.3. I have carefully considered the facts of the case and the submissions made by the Ld. AR. I have also gone through the decisions relied on by the Ld. AR. The AO has added the share capital and share premium of Rs. 2,50,00,000/- received from these companies namely, Blazer venture Pvt. Ltd, Fairmount ITAs No. 6528/Mum/2016 Venture Pvt Ltd and Kumaon Engineering Pvt Ltd. The AO has not accepted the credit- worthiness of the above share applicants. The Ld AR. On the other hand, has submitted the names, addresses and PANs of the shareholders, audited profit and loss accounts, balance sheets, returns of income, ledger confirmations, bank statements, MCA data downloaded from Ministry of Company Affairs, Board resolution, form 2(Return of allotment) etc. in support of its contention that addition is not warranted. It is seen from the details that the appellant had issued shares to the Blazer Venture Pvt. Ltd of Rs. 50,00,000, Fairmount Venture Pvt. Ltd of Rs. 1,00,00,000, and Kumaon Engineering Pvt Ltd. Of Rs. 1,00,00,000. These sums are reflected in the bank account of the appellant maintained with State Bank of Hyderabad, (7olaba, Mumbai. It is further seen that these payments are also reflected in the bank statements of Blazer venture Pvt. Ltd, Fairmount Venture Pvt. Ltd, and Kumaon Engineering Pvt Ltd. with Kotak Mahindra Bank Ltd. These applicants have filed their respective returns of income for the subject assessment year. It is seen from the profit and loss accounts and balance-sheets of the above share applicants that these companies are having huge share capital and reserves & ITAs No. 6528/Mum/2016 surplus of Rs. 18,97,26,322/- (BVPL), Rs. 37,56,43,283/- (KEPL) and Rs. 20,17,63,084(FVPL). Against such large shareholders' fund, the share investments were Rs. 50,00,000/-, Rs. 1,00,00,000/- and Rs. 1,00,00,000/- respectively. The identity of the share applicants is supported by their PANs, income-tax returns, bank statements and MCA data downloaded from the website of Ministry of Company Affairs. In fact, these shareholders have independently attended before the AO also. Regarding the capacity of the share applicants, it has already been discussed that they had substantial capital and reserves and their investment in the shares of the appellant company was relatively small. Further, the amounts have been paid through banking channel and bank statements have been submitted in this regard. The genuineness of the transaction is also supported by the ledger confirmation of each of the applicants, bank statements, Board Resolution passed in this regard, actual allotment of shares to the share applicants and return of allotment filed with ROC etc. In view of these facts, the appellant has satisfactorily explained the credit found in its books of account.
ITAs No. 6528/Mum/2016 4.4 It may be stated u/s.68 (I) there has to be credit of the amounts in the books maintained by the assessee; (ii) such credit has to be a sum of money during the previous year; and (iii) either (a) the assessee offers no explanation about the nature and source of such credit found in the books or (b) the explanation offered by the assessee, in the opinion of the AO, is not satisfactory. The expression that "the assessee offers no explanation" means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the A.O. is required to be formed objectively with reference to the material on record. Application of mind is a sine qua non for forming the opinion. In this case, the appellant has given reasonable, proper and acceptable explanation with relevant supporting documents in respect of the said share application money of Rs.2,50,00,000/- received from three parties. The decisions relied on .by the Ld. AR in the case of Lovely Exports (P) Ltd. (supra), Divine Leasing & Finance (supra) and Stellar Investment Ltd. (supra) and other decisions relied upon by the Ld. AR support the case of the appellant. The Hon'ble Supreme Court in case of Lovely Exports Pvt. Ltd (supra) has held that if the details including names of share ITAs No. 6528/Mum/2016 holders are given, the Department is free to proceed to reopen the individual assessments of the shareholders, but it cannot treat the share application money as undisclosed income of the assessee company. The Hon'ble Delhi High Court in the case of CIT vs. Value Capital Services Pvt. Ltd. 307 ITR 334 has held that if the department wants to make addition on account of share application money, burden is on the department to show that even if the applicants do not have the means to make the investment, investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as undisclosed income of the assessee. It is clear from the facts discussed above that the conditions for applying the provisions of section 68 are not fulfilled in the instant case. In view of the above facts and respectfully following the precedents, I am of the considered opinion that the appellant has satisfactorily explained the nature and source of the impugned share capital and premium of Rs.2,50,00,000/-. Hence, the addition made by the AO u/s.68 is not justified. Accordingly, the same is deleted and the ground is allowed.
Aggrieved, against deletion of addition by CIT(A), Revenue came in appeal before Tribunal.
ITAs No. 6528/Mum/2016
Before us, the learned Counsel for the assessee filed paper book consisting of pages 1-90 and additional paper book consisting of pages 91-144 in which he has filed the details of companies. The learned Counsel for the assessee explained that these parties had capacity and creditworthiness and hence, these parties have genuinely invested share capital and share premium with the assessee company. With regard to the capacity and creditworthiness of the investors, the assessee filed audited accounts, financial statements of the year in respect of investee companies. It was explained that in view of the details of financial strength of the investee companies, which is based on its net worth as depicted from audited accounts, which has been placed before AO and before CIT(A). The learned Counsel for the assessee drew our attention to the facts and figure as culled out from audited financial accounts as against findings of AO, the relevant reads as under:
Name of Total net worth of the investee Total value Share the of shares application Investee applied in money company the paid % of Assessee Total net company ₹ worth M/s Blazer 19,95,950 187,743,737 18,97,39,687 2012 50,00,000 2.63% Venture Pvt. Ltd M/s 21,16,500 1,99,601,656 20,17,18,156 2014 1,00,00,000 4,96% Fairmount Venture Pvt. Ltd. M/s 76,32,000 36,82,49,151 37,58,81,151 2014 1,00,00,000 2,66% Kumaon Engineering Pvt. Ltd. Total Rs 2,50,000 On the other hand, the learned Sr. Departmental Representative relied on the assessment order.
ITAs No. 6528/Mum/2016