ITO,, NEW DELHI vs. M/S AMB HOMES PVT. LTD.,, NEW DELHI

3. Aggrieved, assessee preferred an appeal before the ld. CIT (A)-I, New Delhi. Assessee filed grounds of appeal and detailed submissions.

CO No.152/Del/2017 After considering the submissions of the assessee, ld. CIT (A) rejected the submissions of the assessee on reasons of passing the order u/s 144 of the Act and found that the Assessing Officer has followed the due procedure laid down u/s 144(1) of the Act. He held that the Assessing Officer was justified in passing the order u/s 144 of the Act. However, on merits, ld. CIT (A) after considering the detailed submissions filed by the assessee deleted the additions u/s 14A of the Act with the observation that assessee has not received any exempt income during the year. With regard to addition u/s 68 of the Act, ld. CIT (A) considered the submissions and evidences made by the assessee during appellate proceedings along with paper book, confirmation and other supporting evidences to prove the identity, creditworthiness and genuineness of the loans accepted from various parties. After considering the above submissions, ld. CIT (A) remanded the matter back to the Assessing Officer and Assessing Officer submitted the remand report and for the sake of clarity, the remand report was also reproduced in the appellate order. However, for the sake of clarify, the same is reproduced below :- Name and address of Remarks S.No. the party 1. Sh. Manoj Sethi Letter sent on 17.08.2016 has neither been (Director of the received back nor any reply received. company) B-179, Greater Kail Another letter dated 30.09.2016 was sent ash, Part-1, New Delhi- on the similar address as provided by the 110048 assessee. This notice has been returned back with the remarks "Left". The assessee vide letter dated 23.11.2016 was asked to offer his comments on the above observation The assessee vide letter dated 09.12.2016 submitted that the address of Mr. Manoj Sethi has been changed from B-179, Greater Kail ash, Part-1, New Delhi-110048 to W- 12, Ground Floor, Greater Kailash-ll, New Delhi. Sh. Manoj Sethi vide his letter dated 16.12 2016 submitted his confirmation that an amount of Rs. 92,27,000/- was given as unsecured loan to the assessee company during the relevant assessment year. Sh. Manoj Sethi is the director of the assessee company.

2. M/s Crayons Reply was received vide letter dated Advertising Ltd., 25.08.2016 However, the party has denied NSIC Complex, Maa to have provided any loan and advances to Anandmayee Marg, the assessee. Copy of the response received Okhla Industrial Estate, is enclosed herewith. Phase- Ill, New Delhi- The assessee vide letter dated 23.11.2016 110020 was asked to offer his comments on the above observation. The assessee vide letter dated 09.12.2016 submitted that "in respect of M/s Crayons Advertising Pvt. Ltd, the balance amount of Rs.25,00,000/- has been confirmed by the party as a payment of share application money instead of loans & advance. It is a matter of change in grouping of the amount in Balance Sheet of the company. The company have not received any share application form from M/s Crayons Advertising Pvt Ltd". However, no further confirmation has been filed by the party.

4. M/s Omni Media Reply was received vide letter dated Communication (P) 25.8.2016. However, the party has denied to Ltd., have provided any loan and advances to the B-23, 3rd floor, Greater assessee Copy of the response received is Kailash-1, New Delhi – enclosed herewith. 48 The assessee vide letter dated 23.11.2016 was asked to offer his comments on the above observation. The assessee vide letter dated 9.12.2016 submitted that “in respect of M/s Omni Media Communication Pvt. Ltd. the balance amount of Rs. 25,00,000/- has been confirmed by the party as a payment of share application money instead of loans and advances. It is a matter of change in grouping of the amount in balance sheet of the company. The company have been received and share application from M/s Omni Media Communication Pvt. Ltd. However, no further confirmation has been filed.

5. M/s Pawansut Media Letters dated 17.8.2016 and 30.9.2016 were Services (P) Ltd., sent to the party. Both the letters have 1837/138, Shanti Nagar returned back with the remarks “left”. The assessee vide letter dated 23.11.2016 Trinagar, New Delhi 35 was asked to offer his comments on the above observation. The assessee vide letter dated 09.12.2016 submitted that, "in respect of M/s Pawansut Media Services Pvt Ltd, the address of the company has been changed from 1837/138, Shanti Nagar, Tri Nagar, New Delhi to B-8/38, Ansal Tower, Nehru Place, New Delhi-110019." In view of the above submission by the assessee, information u/s 133(6) was called vide letter dated 20.12 2016 from M/s Pawansut Media Services (P) Ltd at the new address. The party vide letter dated 27.12.2016 which was received on 3.11.2017 has submitted that it has given an amount of Rs.25,00,000/- during the AY 2012-13 to the assessee company as an interest free unsecured loan. From the details filed, it is noticed that the party has submitted the bank statement for the period1.4.2011 to 30.06.2011. Further, from the perusal of the bank statement, it is noticed that the opening balance of the account was only Rs. 10,225.88 and during this half year period, there are only two credit entries which are immediately followed by debit entries of the same amount, which is typical of a paper company. There was a credit entry of Rs 25,00,000/- on and on the same day, there was a debit entry in the bank account of the same amount in favour of the assessee company. It is also noticed that the party has shown returned income of Rs.53,054/- for the AY 2012-13. The party has only shown other income of Rs.6,57,285/- consisting of interest received and miscellaneous income. Thus, even though the identity of the party has been established, they have not been able to establish their profit generating apparatus to advance the said loan to the assessee company Therefore, the creditworthiness of the party is not proved.

4. Ld. CIT (A) considered the assessment order as well as remand report submitted by the Assessing Officer and discussed the individual transactions with Manoj Sethi, Director of the Company, Crayons Advertising Ltd., Mani Mudra Vincom (P) Ltd., Omni Media Communication (P)Ltd., M/s. Pawansut Media Services (P) Ltd., M/s. Real Vyapar (P) Ltd. and Ambica Tradeexpo (P) Ltd. in his order and he deleted the additions made by the Assessing Officer to the extent of CO No.152/Del/2017 Rs.5,58,28,164 and sustained addition of Rs.1 crore received from Ambica Tradeexpo (P) Ltd. with the following observations :- “ I have considered the submission of the appellant and the information filed by the appellant in the remand proceedings and verification done by the AO u/s. 133(6) in the remand proceedings. It is seen that identity, creditworthiness and genuineness of the transaction in respect of Sh. Manoj Sethi, Crayon Advertising Pvt. Ltd., Money Mudra Vincom Pvt. Ltd., Omni Media Communication Pvt. Ltd., Pawansut Media Services Pvt Ltd. and Real Vyapar Pvt. Ltd. has been established, therefore, the loan as well as share application money received from these companies to the extent of Rs. 5,58,28,164/- is held to be explained and addition to that extent made by the AO u/s. 68 is deleted. However, the loan shown from Ambika Tradexpo Pvt. Ltd. of Rs. 1,00,00,000 has not been proved by the appellant. In the case of said company, the appellant has failed to prove identity, creditworthiness and genuineness of transactions. Hence, amount received from the said company is treated as unexplained cash credits in the hands of the appellant and addition made by the AO to the extent of Rs.1,00,000/- u/s. 68 is upheld. As a result, ground no. 7 and 8 are partly allowed.”

5. Aggrieved with the above order, Revenue is in appeal before us raising following grounds of appeal :-

1. The Ld. CIT(A) erred in deleting addition of Rs. 4,65,69,863/- made u/s. 68 of the Act being non genuine loans introduced in the name of five parties namely (i) Ms Crayons Advertising ltd. (ii) M/s Mani Mudra Vincom (P) Ltd. (iii) M/s Omni Media Communication (P) Ltd., (iv) M/s Pawansut Media Services (P) Ltd. (v) M/s Real Vyapar (P) Ltd.

2. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”

6. Assessee has also filed cross objections received following grounds of appeals :-

1. That the Ld. Assessing Officer as well as CIT (Appeal) has erred while upholding the addition of Rs.100 lacs being amount borrowed from M/s. Ambika Tradeexpo Pvt. Ltd. u/s 68 of the Income Tax Act, 1961.

2. That Ld. Assessing Officer has erred while adding Rs.4,65,69,863/- u/s 68 of Income Tax Act, 1961 in spite of complete evidence available with the Ld. AO.”

7. At the time of hearing, ld. DR for the Revenue submitted that in this case, the AO has given proper and sufficient opportunity to the assessee before proceeding to make the assessment under section 144 of the Act. He submitted that it is also brought out in the Remand Report by the Assessing Officer that the investor companies have received the amounts in their accounts just before investing in the shares of the assessee company or before making loans to the assessee. He further submitted that ld. CIT (A) has not countered the findings given in the Remand Report of the AO specially in the case of the amounts received from M/s Mani Mudra Vincom Pvt Ltd., M/s Pawansut Media Services Pvt Ltd., and Real Vyapar Pvt Ltd. In the case of Mani Mudra Vincom Pvt Ltd and Pawansut Media Services Pvt Ltd , these entities have received amounts immediately before transfer to the assessee. He submitted that no explanation and evidence to show CO No.152/Del/2017 the creditworthiness of these entities was given. He further submitted that ITAT, Mumbai in & 1836/Mum/2014 M/s Royal Rich Developers Pvt. Ltd. vs DCIT Dated 24.08.2016 has held that it is for the assessee to explain the creditworthiness of the share subscribers and genuineness of the transaction including the source of source. He further submitted that in this regard, the ITAT held that section 68 of the Act amended by Finance Act 2012, w.e.f 01.04.2013 is clarificatory in nature and hence would apply retrospectively where by the onus is cast upon the assessee to justify the source of share subscription including share premium raised and to explain the source of source of raising the share subscription and ITAT, Mumbai has relied upon the decision of ITAT, Kolkata in the case of Subhlakshmi Vanijya (P) Ltd. Vs CIT (2015) 60 Taxmann.com 60 (Kolkata) in the above matter. He further submitted that similarly it is still not known whether the assessee has issued shares to M/s Cryons Advertising Ltd and M/s Omni Media Communications Pvt Ltd from whom amounts have been received for share subscription. In this regard, he placed reliance on further following decisions for genuineness of the transactions and creditworthiness and capacity to pay :- “1. PCIT, Central-I Vs NRA Iron & Steel Pvt. Ltd. [2019] 103 taxmann.com 48 (SC). The principal that emerges when sums of money are credited as share capital/ premium are:-

(i) Assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and creditworthiness of the investors who should have the financial capacity to make the investments in question, to the satisfaction of the Assessing Officer, so as to discharge the primary onus. (ii) The AO is duty bound to investigate the creditworthiness of the creditors/ subscribers, verify identity of the subscribers and ascertain whether the transaction is genuine or these are bogus entries of name lenders. (iii) If the enquiries & investigation reveal that the identity of the creditors to be doubtful or dubious or lack creditworthiness, then the genuineness of the transaction would not be established. Then assessee would not have discharged the primary onus contemplated by Section 68. Based on the above principles, the Assessing Officer have made verifications in the case of the assessee relating to unaccounted money placed as share application money. The other case laws that need to be considered regarding explaining source of source are as under:- 2. PCIT Vs. Rajmandir Estates (P.) Ltd. (2016) 70 taxmann.com124 (Calcutta) " Para 29 - Whether receipt of share capital was a taxable event prior to 1st April, 2013 before introduction of Clause (VII b) to the Sub-section 2 of Section 56 .of the Income Tax Act; whether the concept of arms length pricing in a domestic transaction before introduction of Section 92A and 92BA of the Income Tax Act was there at the relevant point of time are not questions which arise for determination in this case. The assessee with an authorised share capital of Rs.1.36 crores raised nearly a sum of Rs.32 crores on account of premium and chose not to go in for increase of authorised share capital merely to avoid payment of statutory fees is an important pointer necessitating investigation. Money allegedly received on account of share application can be roped in under Section 68 of the Income CO No.152/Del/2017 Tax Act if the source of the receipt is not satisfactorily established by the assessee. Reference in this regard may be made to the judgement in the case of Sumati Dayal (supra) wherein Their Lordships held that any sum "found credited in the books of the assessee for any previous year, the same may be charged to income tax .... ". We are unable to accept the submission that any further investigation is futile because the money was received on capital account. The Special Bench in the case of Sophia Finance Ltd. (supra) opined that "the use of the words "any sum found credited in the books" in Section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money. Mere fact that the payment was received by cheque or that the applicants were companies, borne on the file of Registrar of Companies were held to be neutral facts and did not prove that the transaction was genuine as was held in the case of Nova Promoters and Finlease (P) Ltd. (supra). Similar views were expressed by this Court in the case of Precision Finance (P.) Ltd. (supra). We need not decide in this case as to whether the proviso to Section 68 of the Income Tax Act is retrospective in nature. To that extent the question is kept open. We may however point out that the Special Bench of Delhi High Court in the case of Sophia Finance Ltd. (supra) held that "the ITO may even be justified in trying to ascertain the source of depositor". Therefore, the submission that the source of source is not a relevant enquiry does not appear to be correct."

2. CIT VS Nipun Builders & Developers (P.) Ltd (30 taxmann.com 292, 214 Taxman 429, 350 ITR 407, 256 CTR 34) Where Hon'ble Delhi High Court held that where assessee failed to prove identity and capacity of subscriber companies to pay share application money, amount so received was liable to be taxed under section 68. It was held as follows:

CO No.152/Del/2017 "12. A perusal of the order of the Tribunal shows that it has gone on the basis of the documents submitted by the assessee before the AO and has held that in the light of those documents, it can be said that the assessee has established the identity of the parties. It has further been observed that the report of the investigation wing cannot conclusively prove that the assessee's own monies were brought back in the form of share application money. As noted in the earlier paragraph, it is not the burden of the AO to prove that connection. There has been no examination by the Tribunal of the assessment proceedings in any detail in order to demonstrate that the assessee has discharged its onus to prove not only the identity of the share applicants, but also their creditworthiness and the genuineness of the transactions. No attempt was made by the Tribunal to scratch the surface and probe the documentary evidence in some depth, in the light of the conduct of the assessee and other surrounding circumstances in order to see whether the assessee has discharged its onus under Section 68. With respect, it appears to us that there has only been a mechanical reference to the case-law on the subject without any serious appraisal of the facts and circumstances of the case.

6. CIT Vs Empire Builtech (P.) Ltd (366 ITR 110) Where Hon'ble Delhi High Court held that u/s 68 it is not sufficient for assessee to merely disclose address and identities of shareholders; it has to show genuineness of such individuals or entities.

7. Burden to explain source of source of the credit is on the assessee - Blessing Construction VITO [2013] 32 taxmann.com 366/214 Taxmann 645 Gujarat.”

CO No.152/Del/2017 12. With regard to Crayons Advertising Pvt. Ltd., ld. CIT (A) deleted the addition with the observation that the said company has filed the reply u/s 133 (6) of the Act before the Assessing Officer and confirmed the transactions. He also observed that they have declared an income of Rs.9,36,77,261/- in their return of income. Therefore, we are inclined to accept the same.

13. With regard to Mani Mudra Vincom Pvt. Ltd., this company also replied to the notice issued/ u/s 133(6) of the Act during the remand proceedings and they have confirmed the transactions before ld. CIT(A). Further, he observed that the assessee also paid interest @ 12% after deducting TDS and all these transactions were routed through banking channel, they also submitted copy of bank statements, copy of books of account and Balance Sheet along with return of income. Accordingly, ld. CIT (A) after due consideration gave the relief. Therefore, we are inclined to accept the same.