SHREE GIRIRAJ FERROMET P. LTD,MUMBAI vs. ITO 13(2)(3), MUMBAI

At the outset, the learned Counsel for the assessee stated that he is not interested in prosecuting the issue of reopening raised by way of ground No.1 which reads as under: - “1. On the facts and in law, the learned CIT(A) erred in confirming the Validity of the issue of the notice under section 148 and assessment thereof."

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 Hence, we dismiss this issue of re-opening as withdrawn.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 in this appeal of assessee is against the order of CIT(A) confirming the addition made by AO on share premium treating the same as unexplained under section 68 of the Act. For this assessee has raised the following ground No. 2: -

Briefly stated facts are that during the course of assessment proceedings the AO noticed that the assessee has received share premium from the following parties: - Name of the persons/ investors Amount Radhe Krishna Chemicals and Minerals pvt. Ltd. 4650000 Ambuj Mercantile Pvt. Ltd. 1500000 Amul Mercantile Pvt. Ltd 2500000 Vibhuti Mercantile Pvt. Ltd 1800000 Rawgold Securities Pvt. Ltd 5000000 Aries Mercantile Pvt. Ltd 1500000 Frank Mercantile Pvt. Ltd. 2500000 Aarika Steels and metals Pvt. Ltd 4200000 Benchmark Buildcon Pvt. Ltd 4500000 Proficient Merchandies pvt. Ltd 1500000 Gyaneshwar Trading and Finance Co 3200000 Doldrum Investment and Finance Pvt. Ltd 3000000 Oshin Investment and Finance Pvt. Ltd 10500000 Clifton Securities Pvt. Ltd 2850000 Nicco Securities Pvt. Ltd 5200000 Hingora Finvest Pvt. Ltd. 1650000 Sidh Housing Development Co. Ltd. 1650000 Total Share Application money received 61500000 6. The AO added this share premium of ₹ 61050000/- as unexplained cash credit under section 68 of the Act due to the following reasons given in Para 9 of the assessment order: - “Conclusion 9.1 From the foregoing discussion, following uncontroverted and undisputed facts emanate which are summarized as under• 1) Assessee Company is a closely held private limited company.

According to AO although these companies exists on MCA (Ministry of Corporate Affairs) website but despite summon issued under section 133(6) of the Act, which could not be served on the given addresses, the parties did not attend to the proceedings. According to AO, the share premium of ₹ 6,10,50,000/- is unexplained in view of the provisions of 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 7.10 of his appellate order as under: - “7.10 The distinguishing feature in this case noted is that the director of the 7 appellant company was summoned and his statement recorded at the time of the assessment proceedings itself. The statement is reproduced in the assessment order. In the summons, the director was informed that investor parties from whom share application money is received were summoned but the notices could not he served as they were not found at the address provided by the assessee. It is clearly seen that Shri Agrawal was clear about the questions and the issue at hand while his statement was recorded. He stated that the information not provided will be produced on 16.3.2015. He did not attend on 16.3.20 15 and no reasons are forthcoming. It is clear that he did not want to cornered. The parties were asked to be produced. At no stage after the statement was recorded or even in the statement of facts or submissions, this statement was denied, though it is part of the assessment order. I find in the present case that the Director of the Appellant company specifically asked to provide information regarding how the investor company were identified, who were persons who were contacted, how the investment were received by the appellant company. This information was not provided in the assessment proceedings. The investors also did not attend before the Assessing Officer in assessment proceedings, despite being aware that the summons were issued. Both the Appellant as well as investors did not attend even in the Remand proceedings. No valid reason is given for non-attendance in the remand proceedings. Thus, the directors of the appellant company avoided appearing before the assessing officer again. The genuineness of the credit transactions is not proved. In these facts) ground of appeal no 5 is dismissed."

Before us, the learned Counsel for the assessee stated that the AO in his assessment order admitted having received these details but only addition was made on the basis that these parties have not attended the proceedings before the Assessing Officer. The second reason stated by the AO for making addition was that the director Shri Vinit Aggarwal stated in his deposition that he do not know shareholders personally. The learned Counsel explained that at the time of issuance of shares, the issue of share was handled by the director Mr. Bhupendra Ballala, who unfortunately died in a road accident on 02.09.2010 and hence, the director who attended before the AO did not know much about shareholders. The learned Counsel for the assessee stated that since all the primary details were properly filed before the AO and who did not make any enquiry or no effort on the part of the revenue was made to ascertain the veracity of these shareholders either genuine of transaction or sources or creditworthiness of transaction. The learned Counsel for the assessee stated that identity of the parties are proved beyond doubt as these shareholders have been on the register of MCA and on the Register of Income Tax Department as their PAN No. is filed before the Assessing Officer. All are assessed to Income Tax regularly and even latest returns of income were made available to the Assessing Officer. Even the capacity of the person is also proved beyond doubt as the shareholders had given share premium and share capital through bank channel and for this confirmation can be made from bank passbook of both the parties i.e. the shareholders and the assessee were filed before the Assessing Officer. Even the genuineness of transaction is proved by filing confirmation of above parties as the ledger account or extracts were filed before the Assessing Officer. In view of these arguments, the learned Counsel for the assessee relied on the decision of 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).

On the other hand, the learned Sr. Departmental Representative relied on the assessment order and the order of the CIT(A). He argued that once the parties have not attended the proceedings, the AO has no alternative except to make addition.

We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee cannot be brushed aside by the AO to draw adverse view cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, we hold that an addition cannot be sustained merely based on inferences drawn by circumstance. We find that the assessee has filed following details before the AO, before CIT(A) and before Tribunal: - (i) Company master details, AO jurisdiction, ITR acknowledgement, Confirmation dated 03.09.2014, ank statement, audited balance sheet as on 31.03.2009 of Oshin Investment & Finance Limited. (ii) Company master details, AO jurisdiction, ITR acknowledgement, confirmation dated 03.09.14, Bank statement, audit report balance sheet 31.03.09 of Bhadrawati

To sum up section 68 of the Act, which provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature & source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO’s record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act.

We have gone through the case laws relied on by the assessee of 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.”

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.

The next issue in this appeal of assessee is against the order of CIT(A) in restricting the addition at the rate of 4% as against the addition made by AO of 12.5% of bogus purchases. For this assessee has raised the following ground: - “3. On the facts and in law, learned CIT(A) has erred in confirming the partial addition of ₹ 5,92,630/-.”

In the result, the appeal of assessee is partly allowed.