SUNSHINE METALS & ALLOYS INDUSTRIES P.LTD,MUMBAI vs. ITO 4(3)(4), MUMBAI

At the outset, the learned Counsel for the assessee stated that he is not interested in prosecuting the issue of reopening, which is raised by way of ground No.2 which reads as under: - “2. Reopening of the assessment under section 147 of the Income Tax Act 1961 is bad in law- a. The ld. CIT(A) erred in confirming the action of the ld. AO in reopening the Assessment under section 147 of the Act without having any new tangible material in his possession to show that any income has escaped assessment. The Appellant, therefore, prays that reopening of assessment on the same set of facts during the original assessment amounts to change of opinion. The Appellant, therefore, prays that the notice issued under section 148 of the Act as well as subsequent proceedings are void-ab-initio and the same may be quashed. b. The ld. CIT(A) further erred in confirming the action of the Ld. AO. in issuing notice under section 148 of the Act without recording proper and valid reasons to show that any income has escaped assessment. The Appellant, therefore, prays that reopening of its assessment is bad-in-law and the same may be quashed.”

As the learned Counsel for the assessee has not pressed this issue and want to withdraw under instructions of the assessee, the learned Departmental Representative was asked and he has not objected. Hence, we dismiss this issue of re-opening as withdrawn.

The next issue on merits is as regards to the order of CIT(A) confirming the action of the AO in treating the share application money as unexplained cash credit under section 68 of the Act. For this assessee has raised the following ground No. 3: - “3. Treating the share application money as unexplained cash credit under section 68 of the Act - Rs.35,00,000/- a. The ld. CIT(A) erred in confirming the action of the ld. AO in treating the share application money received amounting to Rs.35,00,000/- as unexplained cash credit under section 68 of the Act without appreciating the facts and circumstances of the case. The Appellant, therefore, prays that the addition of Rs.35,00,000/- under section 68 of the Act is not at all justified and the same may be deleted. b. The Ld. CIT(A) failed to appreciate that the Appellant has discharged the primary onus cast upon it to prove the identity, capacity and creditworthiness of the share applicant by furnishing the P.A. Nos. and share application forms. The Appellant, therefore, prays that treating the share application money amounting to Rs.35,00,000/- as undisclosed income of the Appellant under section 68 of the Act is not at all justified and the same may be deleted. c. The Ld. CIT(A) further failed to appreciate that the share applicant has appeared before the 14. AO during the course of remand proceedings confirming the transaction. Hence, treating the amount of Rs.35,00,000/- as unexplained cash credit under section 68 of the Act is not at all justified and the me may be deleted."

Briefly stated facts are that the assessee has received a sum of ₹ 35 lacs as share application money including share premium as under: - Name of Allottee No. of Nominal Security Total shares value of premium Receipt in allotted Shares value @ ₹ ₹/- @100% 600/- per share Buniyad Chemicals 2500 250000 1500000 1750000 Ltd. Talent Infoway Ltd 2500 250000 1500000 1750000 Total 5000 500000 3000000 3500000 The AO noted that the assessee has received share application and premium to the tune of ₹ 35 lacs from Buniyad Chemicals Ltd. & Talent Infoway Ltd. run by one Shri Mukesh Choksi, whose admission was that these entities were utilized by him only in the business of providing bogus share application money. The AO noted that the assessee has utilized their own resources but through Shri Mukesh Choksi who operated Buniyad Chemicals Ltd. & Talent Infoway Ltd. for routing back its undisclosed and unaccounted income of ₹ 35 lacs in the form of share application money and share premium. Accordingly, the AO added these receipts of share application money and share premium as cash credit under section 68 of the Act. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) confirmed the action of the AO by observing in para 3.3 as under: - “3.3 I have carefully considered the facts of the case, observation of the Assessing Officer and also gone through the appellant's contention. I find that the authorised representative of the appellant relied on various judgements mainly dealing with two issues i.e. the identification of persons who had advanced share application money and secondly the onus to prove. In majority of the decisions cited by the appellant, the clinching point for consideration by the Hon'ble Courts are that where the identity of persons who had provided the share application money is proved then the onus is on the Department to prove whether there exists creditworthiness or not. In the instant case, I find that Shri Mukesh Choksi who was the director in MIs. Buniyad Chemicals Ltd.. and MIs. Talent lnfoway Ltd.. attended the proceedings before the Assessing Officer. In remand report, it was admitted by him before the Assessing Officer that all the bills/share application money issued/given to different entities were accommodation entries without having any proper transaction The statement was nothing but reiteration of the fact which Shri Mukesh Choksi and their group companies have made before the Investigation Wing In their detailed submission, they have also explained the modus operandi of the group wherein they have given share application money to various persons. It is quite strange that the authorised representative of the appellant white quoting the facts of several cases is trying to infer that the facts of these cases are applicable to the facts of appellant's case. However, I find that the said statement is totally devoid of any merit and is misleading the fact that there are two parties who has done transaction and the other party who categorically denying of having given any share application money to the appellant. Even the entire transactions these two parties have entered with several clients and the nature of business which in fact is nothing on record clearly proves that accommodation entries were made by these two parties to several other companies. It is a case where totally fraudulent company was created on record to provide accommodation entries The source of the said entries are nothing but cash receipts from the appellant and deposited in some other company and after four to five layers of circuitous transaction, the money is given as share application money to the appellant. The source, therefore, primarily remains that all the appellant's ill gotten money is routed through such transactions. Under the circumstances. I find that the Assessing Officer for the detailed reasoning given by him in his assessment order has accordingly made addition u/s. 68 of the Act. The addition made by the Assessing Officer is accordingly upheld. This ground of appeal, is thus dismissed."

This was done during remand proceedings and in the remand report vide CIT(A)’s letter No. CIT(A)-8/255/12.-13/2013-14/53 dated 21st August 2013 was called for from the Assessing Officer. The AO vide letter No. ITO-4(3)(4)/Remand Report /2013-14, dated 14.11.2013 has submitted as under: - “'As per your direction, the undersigned have verified the submission filed by the assessee before your honour in which it is stated that the assessee was not given proper opportunity to cross examination of the department's witness though specifically requested during the course of reassessment proceedings In this connection the undersigned submit the comments as tinder:

The learned Counsel for the assessee stated that while cross examining Shri Mukesh Choksi, he admitted that Buniyad Chemicals Ltd. & Talent Infoway Ltd have invested in term of share application money and share premium in assessee company. The assessee furnished the name, address, PAN no and Bank details to the AO and it is the duty of the AO to make further investigation and also to provide cross examination of the parties on whose statement he is relying upon. The learned Counsel for the assessee pointed out that the statement given by Shri Mukesh Choksi, where assessee’s name is not at all mentioned as one of the beneficiaries of the share application money. On the other hand, the learned Departmental Representative, relied on the assessment order and the findings of CIT(A).

We have heard rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that the assessee has furnished the Name, Address, PAN no and Share Application Form to prove that the shares were allotted to the applicants. The assessee has also furnished its bank statement to show that the money was received through banking channels and there were no immediate withdrawals from the banks which shows that the share application amounts have not been returned back to these parties in cash. Thus, the assessee has discharged the primary onus cast upon it to prove the identity, capacity and genuineness of transactions. We also find that the CIT(A) provided opportunity to assessee to cross examine Shri Mukesh Choksi by sending the matter to AO for remand report. During remand proceeding, the AO provided opportunity to assessee to cross examine Shri Mukesh Choksi and who in turn during cross examination admitted having invested in assessee company by these two concerns namely Buniyad Chemicals Ltd. & Talent Infoway Ltd. in assessee as share application and premium amounting to ₹ 35 lacs. During cross examination the AO could not further examine Shri Mukesh Choksi that why he is now admitting that why these two concerns admitted in the assessee company as share application money and share premium. The AO could not controvert the same. The CIT(A) also could not give any finding on this aspect. We have gone through the statement of Shri Mukesh Choksi i.e. cross examination by the assessee on 30.10.2013, wherein, he vide question No. 3 to 7 admitted investing by Buniyad Chemicals Ltd. & Talent Infoway Ltd. in assessee as share application and premium.

In view of the above facts and circumstances, we are of the view that in the given facts of the present case the issue is considered by Hon’ble Bombay High Court in the case of CIT vs. Orchid Industries Pvt. Ltd. (2017) 397 ITR 136 (Bom.) wherein honorable High court has considered the decision of division Bench of Bombay High Court in the case of CIT vs. Gagandeep Infrastructure P. Ltd (2017) 394 ITR 680 (Bom) & Hon’ble Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd (2008) 216 CTR (SC) and held as under: - “5. The Assessing Officer added Rs. 95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account.

The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P.) Ltd. (supra) would be applicable in the facts and circumstances of the present case.” 11. Respectfully following the ratio of Hon’ble Bombay High court in the case of Orchid Industries Pvt. Ltd. (supra) and the facts of the present case, we delete the addition made by AO and confirmed by CIT(A) on account of share application money and share premium and allow the appeal of the assessee on this issue.

In the result, the appeal of assessee is allowed.