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Income Tax Appellate Tribunal, “G” Bench, Mumbai
Before: Shri B.R. Baskaran (AM) & Shri Ravish Sood(JM)
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the revenue is directed against the order dated 16- 03-2017 passed by Ld CIT(A)-20, Mumbai and it relates to the assessment year 2012-13. The revenue is aggrieved by the decision of Ld CIT(A) in deleting the addition of Rs.370 lakhs relating to Share application money received by the assessee made by the assessing officer u/s 68 of the Act.
The facts relating to the issue are discussed in brief. The assessee company is engaged in the business of providing commercial training and coaching in financial market operations. During the year under consideration, the assessee has received share application of Rs.185.00 lakhs each from M/s Speciality Papers Ltd and M/s Sanguine Media Ltd, thus aggregating to Rs.370 lakhs. The assessee had issued 74,000 shares of Rs.10/- each at a premium of Rs.240/- to each of the parties. The assessing officer received information from investigation wing of the Department that both the above said companies are managed and controlled by a person named Shri Shirish Chandrakanth
2 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. Shah and the enquiry conducted by the investigation revealed that the group of companies belonging to the above said person are providing only accommodation entries and hence there was no genuine business activity.
Hence, in order to examine the genuineness of transactions, the assessing officer issued notices u/s 133(6) of the Act to both the parties specified above. Both the parties responded to the notices and furnished copy of bank statements, income tax acknowledgement, audited financial statements, ledger account of the assessee, copies of share certificates. They explained their sources as receipts on sale of shares and securities.
The AO examined the bank statements of both the parties and noticed that they have entered into transactions amongst their group concerns only. Further the funds were seen received from other group concerns only. Accordingly, the AO took the view that the claim of creditworthiness of these two share applicants were found to be incorrect. Accordingly the AO took the view that the share application transactions are not genuine transactions.
The assessee contended before the AO that the two share applicants have confirmed their identity, creditworthiness and also proved the genuineness of transactions. Accordingly it was contended that the assessee has discharged the initial burden of proof placed upon it u/s 68 of the Act. It was submitted that both the above said companies are public limited companies whose shares are listed in Stock Exchange. The share capital of M/s Speciality papers Ltd was Rs.156.00 crores and that of M/s Sanguine Media Ltd was Rs.104.00 crores. It was contended that the assessee is not aware of Shri Shrish Chandrakant Shah and further it was stated that the above said person does not have any connection with the above said two share applicant companies. It was also contended that the AO was not entitled to place reliance on the sweeping statement given by Shrish Chandrakant Shah without allowing opportunity to rebut the same. The assessee also furnished affidavits obtained from the above said two share applicants, wherein they have again confirmed
3 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. the payments made by them to the assessee company. The assessee relied upon various case laws such as CIT vs. Lovely Exports P Ltd (2008)(216 CTR (SC) 195); Shree Barkha Synthetics Ltd vs. CIT (155 Taxman 289)(Raj); CIT vs. Value Capital Services P Ltd (307 ITR 334)(Delhi) and CIT vs. VLS Foods P Ltd (203 Taxman 213)(Delhi) and contended that, in case source of an investor is not proved, the addition can only be made in the case of Investor and not in the hands of investee.
The AO was not convinced with the contentions of the assessee. He noticed that the funds to these two companies have come from other compnies controlled by Shrish Chandrakant Shah. The AO also placed reliance on the statement given by the above said person before investigation wing, wherein he had stated that the companies were providing only accommodation entries only. He had also explained modus operandi followed by him for providing accommodation entries. The AO also placed reliance on the report of the Investigation wing, wherein it was stated that the search action conducted on Shrish Chandrakant Shah revealed that he was controlling various companies, cheque books of companies, PAN cards, other statutory forms were seized from him. The AO took the view that the facts available in various case laws are distinguishable, i.e., the identity of share applicants were proved in those cases. The AO took the view that the share applicants, in the present case, merely exist on paper.
The AO relied upon the decision rendered by Hon’ble Delhi High Court in the case of CIT vs. Oasis Hospitalities P Ltd (2011)(331 ITR 119), wherein the Hon’ble High Court held that the burden to prove the nature and source of share application money received still lies upon the assessee only. It was held that the assessee should discharge initial burden of proof and is required to prove (a) Identity of shareholder; (b) genuineness of transactions and (c) credit worthiness of shareholder. Once the initial burden is discharged, the observations of Supreme Court made in the case of Lovely Exports (P) Ltd (supra) would suggest that the department is free to proceed to reopen the 4 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. individual assessments in case of alleged bogus shareholders in accordance with the law and is not remediless.
The AO also placed reliance on the decision rendered by Hon’ble Supreme Court in the case of CIT vs. P Mohanakala (291 ITR 278), Sumati Dayal vs. CIT (1995)(214 ITR 801). Accordingly the AO took the view that the assessee has failed to prove identity of persons, genuineness of transactions and creditworthiness of persons in respect of share application money received by it. Accordingly he assessed the sum of Rs.370 lakhs as income of the assessee u/s 68 of the Act.
Before Ld CIT(A), the assessee reiterated the contentions raised before the AO. Further the assessee has placed reliance on a host of case laws to support its claim that no addition u/s 68 is warranted in the facts and circumstances of the case. The Ld CIT(A) noticed that the assessee has proved the three ingredients, viz., the identity, creditworthiness and genuineness of transactions. The Ld CIT(A) also took support of the following decisions to support his order:- (a) Oasis Hospitalities P Ltd (2011)(333 ITR 119)(Delhi) (b) CIT vs. Creative World Telefilms Ltd (ITA No.2182 of 2009 dated October 12, 2009 – 333 ITR 100) (c) CIT vs. P Mohanakala (2007)(291 ITR 278)(SC) (d) CIT vs. Stellar Investment Ltd (1991)(192 ITR 287)(Delhi) (e) CIT vs. Gangeshwari Metal P Ltd (2014)(361 ITR 10)(Delhi)
Accordingly, the Ld CIT(A) deleted the addition of Rs.370 lakhs made by the AO u/s 68 of the Act.
The revenue is aggrieved by the decision rendered by Ld CIT(A).
The Ld D.R submitted that the assessee has received the impugned amount of Rs.370 lakhs from the companies controlled by Shrish Chandrakant Shah, who had admitted before the Investigation wing that these companies are providing only accommodation entries. He submitted that the examination of bank accounts of these two companies revealed that they have received
5 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. funds from other companies belonging to the group before issuing cheques to the assessee company. Hence the assessing officer has taken the view that the creditworthiness of these two share applicants has not been proved by the assessee. In view of the categorical statement given by Shri Shirish Chandrakant Shah, the genuineness of transactions cannot be held to be proved. Since these companies are mere paper companies and since they do not carry on real business, the identity of the share applicants also cannot be said to have been proved. Accordingly the AO has taken the view that the assessee has failed to discharge the burden placed upon it u/s 68 of the Act by not proving the three main ingredients.
The Ld A.R, on the contrary, submitted that the share applicant companies are listed companies having huge amount of share capital and they are also assessed under Income tax Act. Further, both the companies have responded to the notice u/s 133(6) of the Act issued by the assessing officer. Hence the identity of the share applicants, are proved. These companies, in response to the notices issued by the AO have furnished copies of their audited financial statements, which show that they were having enough funds to make investments in the assessee company. Hence the credit worthiness of the share applicants also stands proved. These share applicants have also furnished copies of their bank statements in order to show that the transactions have been done through banking channels. Accordingly the genuineness of the transactions also stands proved. Further both the share applicants have furnished affidavits confirming the transactions. Accordingly the Ld A.R submitted that the assessee has discharged the initial burden of proof placed upon its shoulders u/s 68 of the Act by proving identity of the share applicants, genuineness of transactions and creditworthiness of the share applicants. The Ld A.R submitted that the assessing officer has, however, failed to disprove the documents furnished by the share applicants, meaning thereby, the AO has failed to discharge the burden shifted to his shoulders by disproving the claim of the assessee. Accordingly he submitted
6 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. that the AO was not justified in making the impugned addition and hence the Ld CIT(A) was right in law in deleting the addition.
The Ld A.R further submitted that the assessing officer has placed reliance on the statement alleged to have been given by Shri Shirish Chandrakant Shah before the Investigation wing. He submitted that the assessee has asked for copy of the statement of the above said person in order to rebut the same. However, the AO has not supplied the copy of the same and hence the AO could not have placed reliance on the document collected behind the back of the assessee without confronting the same with the assessee. Further the assessee has submitted before the AO that Shri Shirish chandrakant Shah is not connected with the two share applicants company and the assessee itself is not aware of him. He submitted that the AO did not address these claims of the assessee, but proceeded to disbelieve the credible evidences furnished by the assessee as well as share applicant companies. The Ld A.R submitted that an identical issue was considered by Hon’ble Bombay High Court in the case of The Pr. CIT (Central)-4 vs. M/s Acquatic Remedies P Ltd (Income tax Appeal No.83 of 2016 and others dated 30th July 2018) and the decision of Tribunal in deleting identical addition made by the AO was considered as a possible view. He submitted that the Ld CIT(A) has also placed reliance on various case laws, which support the claim of the assessee. Accordingly he contended that the order passed by Ld CIT(A) does not call for any interference.
We heard rival contentions and perused the record. As noticed earlier, the assessee has received money towards share application from two companies, viz., M/s Speciality Papers Ltd and M/s Samguine Media Ltd aggregating to Rs.370 lakhs. Both the companies are public limited companies listed in stock exchanges. The AO, during the course of assessment proceedings, issued notice u/s 133(6) of the Act to both the above said share applicants. It is pertinent to note that both the share applicant companies have duly responded to the notices and have furnished relevant details like
7 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. copy of bank statements, copy of acknowledgement of return of income, copy of audited accounts, ledger account copies, copies of share certificates. It is also pertinent to note that the AO did not find fault with any of the documents furnished by these parties. Only in respect of transactions found in the bank statements of these share applicant companies, the AO has commented that the funds have come from other companies belonging to the same group. Ultimately, the AO has placed reliance on the statement given by Shri Shirish Chandrakant Shah and held that the assessee has failed to prove the three main ingredients.
The Ld CIT(A) has noticed that both the share applicant companies are doing business and have also filed its tax returns regularly. They have also paid taxes on the income declared by them. Accordingly, the Ld CIT(A) held that the assessee has discharged onus placed upon it, as observed by Hon’ble Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd (supra). Accordingly the Ld CIT(A) held that the peculiar facts of the case may have caused suspicion in the mind of the AO, but there is no evidence or other material to hold that the assessee has routed its own money. The Ld CIT(A) has also held that the assessee has discharged the three ingredients in this matter. The following observations made by Ld CIT(A) are relevant:-
5.6 On an analysis of the facts on records, it is seen that the share application money of ` 3,70,00,000/- has come from share subscribers. It is noted that the share applicants are existing and have confirmed that they had contributed to the share capital of the assessee company. The next aspect is creditworthiness. During the course of assessment proceedings, the AO has issued notices u/s. 133(6) of the Act to the aforesaid parties. In response, the said parties have filed copies of PAN card, bank statement, Balance sheet and profit and loss account, Share Application Form, Board Resolution of Assessee Company empowering the applicants to invest in the assessee company. It emerges out from the record that the applicants have duly recorded the investments in their books of accounts. Thus, the share applicants had demonstrated these balance in their balance sheets in the shape of investment as well loan and advances. The next issue is about the genuineness of the transaction. On response to notice u/s 133(6) of the Act, the share applicants have submitted the bank statements. The share application money has been 8 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. paid through banking channel. The AO has observed that the source of funds of the share applicants is by way of issue of preference share capital. Thus, there is no cash transaction which could compel oneself to assume that the transactions were not genuine. The onus cast upon the assessee under Section 68 of the Act; is to satisfy the department about the true identity of an investor, its creditworthiness and genuineness of a transaction was explained by the Supreme Court in CIT Vs. Lovely Exports (P) Ltd., 216 CTR 295. The objective of Section 68 is to avoid inclusion of amount which are suspect. Therefore, the emphasis is on all the three aspects, identity, creditworthiness and genuineness of the transaction which is proved by the assessee beyond doubt.
We notice that the Ld CIT(A) has given a categorical finding that the assessee has proved all the three ingredients viz., the identity of the share applicants, the credit worthiness of share applicants and the genuineness of transactions. Before us, the revenue could not controvert the finding given by Ld CIT(A).
We notice that the Ld CIT(A) has also taken support of the decision rendered by Hon’ble Delhi High Court in the case of Oasis Hospitalities P Ltd (333 ITR 119), wherein the decision rendered by Hon’ble Supreme court in the case of lovely exports P Ltd (supra) was also discussed. The Hon’ble Delhi High Court has held that the assessee is required to prove the three ingredients mentioned above in respect of share application money also. The Hon’ble Delhi High Court further held that once the assessee discharges the onus placed upon its shoulders, thereafter, it is for the Assessing Officer to scrutinize the same and in case he nurtures any doubt about the veracity of these documents to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there have to be some cogent reasons and materials for the assessing officer and he cannot go into the realm of suspicion.
In the instant case, admittedly, the assessing officer has failed to probe the matter further. He has not found fault with the documents furnished by the share applicants to prove their identity, creditworthiness and genuineness of the transactions. As noticed earlier, the AO has simply relied upon by the 9 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. statement given by Shri Shirish Chandrakant Shah. The relevant portion of statement extracted in the assessment order does not show that the above said person has specifically implicated the transactions entered by the share applicants with the assessee company. As contended by the assessee before tax authorities, the statement given by the above said person appears to be too general in nature.
Further, it is pertinent to note that the assessee has asked for copy of statement given by Shri Shirish Chandrakant Shah before the investigation authorities in order to rebut the same. We notice that the assessing officer has not furnished copies of the statement given by Shirish Chandrakant Shah, though he has heavily relied upon the same to discredit the documents furnished by the assessee. It is a well settled proposition of law that the documents/statements, which were not confronted with the assessee, could not have been relied upon by the assessing officer.
We notice that the Ld CIT(A) has also placed reliance on the decision rendered by Hon’ble Bombay High Court in the case of CIT vs. Creative World Telefilms Ltd (2011)(333 ITR 100), wherein also identical views as that of Hon’ble Delhi High Court has been expressed. The relevant observations made by Hon’ble jurisdictional High Court are extracted below:- “In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PA/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the Assessing Officer to make proper investigation and reach the shareholder. The assessing officer did nothing except issuing summons which were ultimately returned back with an endorsement “not traceable”. In our considered view, the Assessing Officer ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the share holders since all the relevant material details and particulars were given by the assessee to the Assessing Officer. In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is involved in the appeal. In the result, the appeal is dismissed in limine with no order as to costs.”
10 M/s. Greeksoft Institute of Financial Market Pvt. Ltd.
The facts available in the present case are, in our view, better than the facts available in the case considered by the Hon’ble Bombay High Court (referred supra). In the instant case, the notices issued by the AO u/s 133(6) of the Act have been responded by both the share applicants. Both the parties have furnished all the details that were called for by the assessing officer. The details so furnished by them proved their identity and creditworthiness and also the genuineness of transactions. However, the assessing officer did not examine them at all nor did he carry out any further enquiry to disprove those documents.
Before us, the Ld A.R placed reliance on the decision rendered by Hon’ble Bombay High Court in the case of M/s Acquatic Remedies P Ltd (supra). Following observations made by Hon’ble jurisdictional Bombay High Court with regard to the three ingredients are worth extracting here:-
(b). So far as the identity is concerned, we find that the persons who invested in the shares of the respondent-assessee had PAN numbers allotted to them which was made available by the respondent to the Assessing Officer. Besides, the shareholders had also filed Affidavits before the Assessing Officer pointing out that they had invested in the shares of the respondent assessee out of their own bank accounts. Copies of acknowledgement of Return of Income of the shareholders was also filed. The respondent also requested the Assessing Officer to summon the shareholders. These evidences have not been shown to be incorrect. Therefore, this objection with regard to identity of the shareholders not being established does not survive. (c) So far as, the creditworthiness of the investors is concerned, Mr. Mohanty seeks to rely upon the decision of the Delhi High Court in the case of Commissioner of Income-Tax Vs. Nipun Builders & Developers Pvt. Ltd. 350 ITR 407. This, in support of his submission that the source of the funds of the shareholder-investor in the respondent-assessee's company was not considered by the Tribunal. Thus, where the creditworthiness of the investor is not established by finding out the source of the source, the deletion of cash credit was not justified. We are concerned in these Appeals with Assessment Years prior to Assessment Year 2013-14. It was only with effect from 1st April, 2013 i.e. from the Assessment Year 2013-14 that a proviso was added to Section 68 of the Act which required the person investing in shares of any Company to satisfy, if required by the Assessing Officer, the source of the funds which enabled the investments in shares. Infact, our Court in Commissioner of Income Tax-1 V/s. M/s. Gagandeep Infrastructure Pvt.
11 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. Ltd. (Income Tax Appeal No. 1613 of 2014) rendered on 20th March, 2017 and in The Pr. Commissioner of Income Tax-5 V/S. M/s. SDB Estate Pvt. Ltd. (Income Tax Appeal No. 1356 of 2015) rendered on 27th March, 2018 has held that the requirement to explain the source of the source of the funds in respect of the investment as shareholders in which the public are not substantially interested as share application money is only prospective as it is introduced w.e.f. 1st April, 2013. The Delhi High Court in the case of Nipun Builders and Developers (supra), held the creditworthiness of the shareholder was not accepted, as the source of the funds of the shareholder was not explained. This was for a period prior to Assessment Year 2013-14 and the subsequent introduction of the proviso to Section 68 of the Act was not considered by the Delhi High Court. We are bound by the decisions of this Court in Gagandeep Infrastructure Pvt. Ltd. (supra). Besides, before the Delhi High Court in Nipun Builders and Developers (supra), the identity of the shareholders was not established as the summons sent were returned with a remark 'no such company” and the same was confirmed by the Inspector of the Income-Tax Department. No PAN of the shareholder was also submitted before the Assessing Officer. It was in the above context, that the Delhi High Court decision was rendered. Thus, completely different facts from the present case, where even affidavits of the shareholders were filed who on oath stated that the investment in the respondents was made from their Bank Accounts. Thus, the initial burden was discharged by the respondent in respect of creditworthiness of the investor and nothing has been shown by the Revenue to doubt the same and/or steps taken and result thereof. Thus, this objection of lack of creditworthiness of the shareholder also does not survive. (d). So far as the genuineness of the investment by the shareholders is concerned, Mr. Mohanty placed reliance upon the statement dated 9th September, 2010 of Kamlesh Jain who was an employee, as well as, the shareholder of the respondent-assessee and on the fact that during the course of the search, certain blank transfer forms were found in the possession of the respondent-assessee. Besides, it is submitted that the shares were supposed to be finally transferred to the family members of the Directors of the respondent assessee company at a discounted price. We note that, the impugned order of the Tribunal records the fact that copies of the share application form, share allotment Register and Bank Statements showing receipt of funds were on record. Moreover, all the shareholders had filed Affidavits declaring the fact that they are investing in the respondent-Company by issuing of cheques from their Accounts. As pointed earlier, the PAN details of the shareholders was also submitted to the Assessing Officer. Moreover, the statement of Kamlesh Jain dated 9th September, 2010 relied upon by the Revenue in terms, deals with his investment in a group company viz. Aqua Formations (P) Ltd and not with the investment made in respondent-assessee Company. Infact, the statement very categorically states that, he did not intend to purchase any shares of Aqua Formulations (P) Ltd. but no such 12 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. declaration is made in respect of the investment made by him in the respondent-assessee Company. The statement dated 9th September, 2010 made by Kamlesh Jain does not in any manner, state that the investment made in the respondent-assessee Company was an investment which he did not want to make. So far as the shares allegedly/supposedly being taken by the members of the family of the Director of the respondent is concerned, the statement made by Mr. Jain dated 9th September, 2010 is not with regard to the respondent, Company but in respect of its sister company. Thus, there is no conclusive evidence in support of the above submission in the context of the respondent. In any case, this would not necessarily lead to a conclusion that the original investment made by the shareholder in the respondent-assessee was not genuine. This, at the highest, may give rise to suspicion but it does not prove that the investment made originally in the respondent assessee's Company was not genuine. Thus, not in the nature of cash credit as alleged by the Revenue. (e). In fact, the impugned order of the Tribunal, on examination of facts, has come to the conclusion that the investment made by the shareholders is not hit by Section 68 of the Act. It records, that the entire basis of the Revenue's case is based on surmise that the respondent was taking bogus purchase bills and cash was introduced in the form of share capital without any evidence in support. Therefore, the view taken by the impugned order of the Tribunal on facts is a possible view. (f). Thus, this Question as proposed does not give rise to substantial question of law. Thus, not entertained.
The facts prevailing in the instant case are identical. The assessing officer has collected the relevant details to prove the three ingredients, directly from the share applicants. He could not found fault with those documents. Instead, he has placed reliance on the statement given by Shri Shirish Chandrakant Shah, that too without confronting the said statement with the assessee. The assessing officer has not disproved the contention of the assessee that Shirish Chandrakant Shah is not a director or employee of the share applicant companies and further the assessee was not aware of such a person. The AO has also not shown that the above said person, has implicated the transactions entered between these two share applicant companies and the assessee. The fact that both the share applicant companies are listed companies having huge share capital was ignored by the assessing officer. The financial statements furnished by these two companies to prove their credit worthiness have also been ignored by the AO. Hence, in our view, the 13 M/s. Greeksoft Institute of Financial Market Pvt. Ltd. assessing officer was not justified in placing full reliance on the general statement given by Shirish Chandrakant Shah.
In view of the foregoing discussions, we are of the view that the Ld CIT(A) was justified in deleting the impugned addition, as the assessee has discharged the onus placed upon it u/s 68 of the Act. Accordingly we uphold the order passed by Ld CIT(A).
In the result, the appeal filed by the revenue is dismissed.
Order has been pronounced in the Court on 24.10.2018.