ITO, WARD - 1(1), KOLKATA , KOLKATA vs. M/S. DAZZLE PROJECTS PVT. LTD., , KOLKATA

The Revenue’s sole substantive grievance seeks to challenges correctness of CIT(A)’s action reversing the assessment findings treating assessee’s share application / premium receipt amounting to ₹4,53,00,000/- ITO Wd-1(1) Kol. Vs. M/s Dazzle Projects Pvt. Ltd. Page 2 as unexplained cash credits liable to be added u/s 68 of the Act. The CIT(A)’s detailed discussion to this effect reads as under:- “5. Conclusion: I have carefully read the order 01' the A.O as well as the detailed submission of the assessee, The sole issue for my consideration is that whether the sum of Rs 4,53,00,000/- received by the appellant from sore share applicant M/s Lakshmirarnan Investment: & Finance L.td can be considered as unexplained cash credit in the hands of the appellant u/s 68 of the Act. I find that during the relevant assessment year the appellant has allotted 90,600 equity: shares of Rs 10/- each at a premium of Rs 490/- per share. The ,AR has explained that out of the total sum of Rs 4,53,00,000/- only Rs 3,21,00,000/- was received a share application money in earlier financial year i.e 2010-11. I find from the audited accounts as well as the ledger copies filed in the paper book that indeed the appellant has received the sum of Rs 3,21,00,00/- in FY 2010-11. Thus, I am of the considered opinion that addition u/s 68 can be made only for the sum of money found credit during the relevant previous year and it cannot have any applicability on sum of money received in earlier year. Thus the .AO is directed to delete the addition of Rs 3,21,00,000/- as it was not received during the relevant: assessment year. As regards the remaining addition of Rs 1,32,00,000/- ( Rs 4,53,00,000 - Rs 3,21,00,000/-) received from the same share applicant M/s Lakshmiraman Investment & Finance Ltd. Section 68 of the Act can be invoked upon an assessee only if the assessee fails to 'prove the identity, creditworthiness of the share applicant and genuineness of the transaction. In the instant case the appellant has received a sum of Rs 1,32,00,000/- towards share capital including share premium of Rs 1,29,36,000/- from M/s Lakshmiraman Investment & Finance Ltd. I find that the appellant has filed complete details as requisitioned through notice u/s 142(1.) by the AO in course of the assessment proceedings. I also find that the AO has issued summon u/s 131 to the director of the share applicant company M/s Lakshrnirarnan Investment: & Finance Ltd. on, 05.11.2014 and the AO also issued summon to the director of the appellant company 13.02.15. From the order sheet entry dated 23.02.2015, common director of the share applicant as well as the assessee company duly appeared before the AO. The AO has accepted all the submissions along with details and evidences filed by such director in respect of the share application money, The AO placed all such documents on record, I find that the AO has not pointed out any discrepancy in the details filed. The evidences filed have not been found to be non-genuine or bogus or false. No material has been brought on record to establish that the appellant has failed to discharge the onus cast upon it under section 68 of the Act. I also find that both the share applicant company as well as the appellant company are operational companies having business as well as substantial net worth. I find from the audited accounts of the appellant company that indeed it is holding real estate' and investments in mutual fund apart from other investments. Thus there remains no doubt that the appellant is not a paper company involved in rotating money.

ITO Wd-1(1) Kol. Vs. M/s Dazzle Projects Pvt. Ltd. Page 3 I find that the share applicant company M/s Lakshrnirarnan Investment & Finance Ltd is a registered with the RBI as a Non Banking Finance Company. In compliance to the summon issued u/s 131 the share applicant through its director furnished its identity as well as address proof, Copy of MOA & AOA, Copy of NBFC certificate, copy of annual return filed with the ROC, Copies of Audited accounts for FY 2010-11 & 2011-12, copies of bank statement. It also explained in details about the source as well as the source of source of fund for making the investment in the appellant company. I find that the share applicant had filed explanation for justification of premium paid for acquiring the shares of the appellant company. None of the documents furnished or explanation furnished by either the share applicant or the appellant was found to be incorrect or none genuine. The AO has not been to point out any discrepancy in these documents. It is further observed that the corporate share applicant are registered under the Companies Act, 1956 as well as an NBFC with the RBI and is on the records of Registrar of Companies functioning under Ministry of Corporate Affairs, Government of India and is also having Permanent Account Number. In fact, the share subscriber have responded to the statutory notices issued to them u/s 131 of the Act. In compliance to notice u/s 131 the share subscriber had, disclosed, inter alia, it's Permanent Account Numbers along with the acknowledgment of submission of their return of income and furnished audit report and financial statements which in my humble opinion proves their identities. It is also observed that the share applicant maintained bank accounts; and copies of their respective bank accounts from which it made payments to the appellant for subscribing to the shares issued to them, was filed by before the AO. Further, the share applicant accepted the fact that they had subscribed to the shares issued by the appellant; and that such transactions were duly reflected in their respective books of accounts, as well as in their audited Balance Sheet. These facts, in my opinion, clearly prove the genuineness of the transaction. It is also observed t.hat the share applicant has explained the source of funds in its reply to notice u/s·131 of the Act, from which the payments were made to the appellant for subscribing to its share capital. The facts furnished on record by the share applicant, in my opinion, clearly prove their source of funds, and its capacity for making such payments and accordingly, the criteria of, its creditworthiness is proved. It is also observed that the share subscriber in its reply to the statutory notices issued u/s 131 of the Act, furnished copies of its income tax acknowledgment evidencing filing of income tax return by them, copies of its audited accounts including Balance Sheets wherein such investments made by them in the subscription of share capital issued by the appellant is duly reflected and also copies of its bank statements for the relevant period from which such subscription monies were paid by them and copy of the allotment advise received by them from the appellant in respect of shares allotted to them. The return of allotments as well as the annual return for the assessment year 2012-13 filed by the appellant with the Registrar of Companies, Ministry of Corporate Affairs, further categorically proves the fact: of allotment of shares-to the share applicant.

We have given our thoughtful consideration to rival contentions. The assessee’s detailed paper book forming part of record comprising of copy of Form-2 and Form-5 filed before the Registrar of Companies, bank statement, audited accounts, sec. 142(1) notice dated 02.09.2014 & reply, yet another sec. 142(1) notice, sec. 131(1) summons and letter No.1214 all dated 13.02.2015, the taxpayer’s reply dated 23.02.2015, assessment’s order-sheet entries, letter dated 22.11.2014 filed before Addl. CIT, Range-I alongwith summons u/s 131 dated 05.11.2014, details of source of funds for share ITO Wd-1(1) Kol. Vs. M/s Dazzle Projects Pvt. Ltd. Page 5 application money received in financial year 2010-11, sources of payment of share application money to appellant co., audited accounts of the assessee’s holding co. M/s Lakshmiraman Investment & Finance Ltd. as on 31.03.2011 & 31.03.2012, its corresponding ledger accounts in appellant-company for financial year(s) 2010-11 and 2011-12 as well as various judicial precedents; stands perused.

The Company failed to prove and established identity of the subscriber, genuineness and creditworthiness. The assessee failed to provide any information regarding the real owner of the same. Addition made by the Assessing Officer held justified. In appellant's case the appellant is a listed Public Company and had received more than Rs.54.67 crores as Public Issue. The Investing company, who had given Rs.9,99,99,900/- had shown all evidences of genuineness and creditworthiness which could not be disproved by the Assessing Officer. (vi) ITAT Delhi Bench "A" in the case of DCIT vs. Shri Shyam Pulp & Board Mills Ltd. -17 SOT 13 (Delhi) The assessee-company which had raised fresh unsecured loans, was asked to give names and addresses of creditors. The assessee did not give. Before C.I.T. (Appeals) assessee filed copies of ration cards, affidavits and papers of alleged creditors. In remand report the Assessing Officer stated that these documents were not sufficient to prove genuineness and creditworthiness. However, CIT (Appeals) deleted the addition. Held the deletion of addition by CIT(Appeals) is not justified as identify of loan creditors and capacity to advance were never proved. In appellant's case the appellant is a listed Public Company and had received more than Rs.54.67 crores as Public Issue. The Investing company, who had given Rs.9,99,99,900/- had shown all evidences of genuineness and creditworthiness which could not be disproved by the Assessing Officer. (vii) High Court of Calcutta in the case of CIT vs. Precision Finance (P) Ltd. 208 ITR 465 (Cal) Huge cash creditors were found in accounts of assessee being a loan financing company. Assessee gave only Income Tax PA No. and File No. of creditors. Tribunal deleted the addition on the ground that identify of creditors were proved. High Court held that Tribunal has failed to fake in to account all the three ingredients, namely; identify, genuineness and creditworthiness. In appellant's case, as stated above a/I the three ingredients are proved and the Assessing Officer has disregarded the same and wrong/y interpreted that there Is a pattern and methodology of infusing cash In to the account and within a short while afterward withdrawing them to pay for the shares to the appellant's company. These are absolutely incorrect and untrue statements of the Assessing Officer as can be seen ITA No. 102/Ahd/14 [DCIT vs. Gyscoal Alloys Ltd. ] A.Y. 2010-11 - 6 – from the bank statement of General Capital and Holding Pvt. Ltd., copies of which are filed. Copies of decisions are enclosed as per Page 123 to 145. SUBMISSION: It is therefore submitted that the Assessing Officer has made an addition, which is totally incorrect, absolutely unjustified, on wrong facts, on incorrect observation and felling untrue things on paper. The assessee has proved identify, genuineness and creditworthiness, particularly so because Mr. Viral Shah, who appeared on behalf of General Capital & Holding Pvt. Ltd. is Managing Director of the Assessee company. General Capita/ & Holding Pvt. Ltd. has filed its Income Tax Returns and balance ITO Wd-1(1) Kol. Vs. M/s Dazzle Projects Pvt. Ltd. Page 10 sheets with Income Tax authorities and Company Law authorities and the same are fully approved and accepted. The appellant finally relies on the very well established and accepted principle that if the assessee discharges its onus and proves (in our case beyond doubt) the identity, genuineness and creditworthiness, then addition just cannot be made u/s. 68 of the Income Tax Act. (1) High Court of Gujarat in the case of CIT vs. Indrajit Singh Suri reported in 33 Taxman 281 (Gujarat) (2) High Court of Madhya Pradesh in the case of CIT vs. Peoples General Hospital Ltd. 35 Taxmann 444 (MP) (3) High Court of Delhi in the case of CIT vs. Gangeshwari Metal (P) Ltd. (2) reported in 30 Taxmann 328 (Delhi) (4) ITAT Lucknow Bench in the case of Vishnu Jaiswal vs. CIT reported in 23 Taxmann 374 (Luck)(TM) (5) ITAT Mumbai Bench in the case of /TO vs. Anant Sheltees (P) Ltd. reported in 20 Taxmann 153 Mum) " 2.3 Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The appellant has received an amount of Rs.9,99,99,900/- on account of share capital and share premium from M/s General Capital and Holding Co. Pvt. Ltd, Ahmedabad during the year. The AO held that the creditworthiness and the genuineness of the transaction were not proved by the appellant and accordingly made the addition under section 68 of the Act for the above amount. The appellant has submitted that- all the three ingredients such as, credit worthiness, genuineness and the identity of the share applicant have been proved and therefore, the addition should not have been made by the AO. During the course of appellate proceedings, the assessment records were also obtained from AO and the same have also been examined by me to ascertain the facts correctly. The share applicant company, M/s General Capital has been duly confirmed the fact of making investment in the appellant company. The amounts have been received through banking channel. The same are duly reflected in the annual accounts of that company. The extracts of the bank statement which have been filed before me during the course of appellate proceedings as well as before the AO clearly show that there are no cash deposits as mentioned by the AO in the assessment order. The observation of the AO that the cash has been deposited and subsequently cheque were issued is factually incorrect. The director of the company also attended before AO and [DCIT vs. Gyscoal Alloys Ltd. ] A.Y. 2010-11 - 7 – confirmed the fact. It is also noted that both the companies, that is the appellant company as well as the share applicant are managed by the same group of persons. Honourable High Court of Gujarat has consistently held that if the assessee has given sufficient proof in respect of the share application no addition can be made in the hands of the assessee. If the AO has any doubt about the source of the share applicant further investigation can be made in the hands of the share applicant but not in the case of the appellant. The following recent decisions on the issue are worth mentioning: - "1. CIT vs. Shree Rama Multi Tech Ltd. [20I3] 34 taxmann.com 177 (Gujarat) Section 68 of the Income-tax Act, 1961 - Cash credit [Share application money]- Assessment year 2005-06 - Whether where assessee company had furnished complete details of receipt of share application money along with share application forms, names, addresses, PAN and other relevant details of ITO Wd-1(1) Kol. Vs. M/s Dazzle Projects Pvt. Ltd. Page 11 share applicants, share application money could not be added as cash credit under section 68 - Held, yes [Para 7] [In favour of assessee] 2. CIT vs. Himatsu Bimet Ltd. [2011] 12 taxmann.com 87 (GUJ) Section 68 of the Income-tax Act, 1961 - Cash credits - Assessment year 1997-98 - Assessee was a company, engaged in manufacturing of beam/ess strips and bearings at its factory - In assessment proceedings, assessee was asked to give details of unexplained share application money - Since assessee was avoiding giving details without reasonable cause, Assessing Officer made addition to assessee's income by way of unexplained share application money - On appeal, Commissioner (Appeals) upheld order of Assessing Officer - On second appeal. Tribunal noticed that assessee had filed confirmations from all share applicants with details of share capital paid which contained details such as full addresses, permanent account numbers and tax jurisdiction of depositors - Tribunal further noted that all payments were received by cheques and were credited in bank account of assessee: share application forms contained all details of depositors; their confirmations were clear with all addresses; and that they were on departmental records as taxpayers - In aforesaid factual background, Tribunal was of view that assessee had sufficiently discharged its burden of explaining source of the share application money; accordingly, it deleted impugned addition - Whether, on facts, impugned order of Tribunal did not suffer from any legal infirmity so as to warrant interference - Held, yes, In favour of assessee 3. CIT vs. Ambuja Ginning Pressing and Oil Co. (P.) Ltd. [2011] 332 ITR 434 (GUJ) Section 68 of the Income-tax Act, 1961 - Cash Credits - Assessment year 1998-99 - Whether where assessee received share capital and deposits from its shareholders and had established identity and creditworthiness of shareholder and depositors by furnishing complete particulars of payments like cheque numbers and date, extract of bank passbooks, explanation of credits appearing in bank passbook, it could be said that assessee had proved genuineness of transaction warranting no addition under section 68 - Held, yes [In favour of assessee]". In view of the above factual circumstances and the above mentioned judgements of honourable Gujarat High Court, it is held that the appellant Company has clearly explained the source of share application money received by it during the [DCIT vs. Gyscoal Alloys Ltd. ] A.Y. 2010-11 - 8 – year. No addition on account of the fact that the share applicant money had no employees and was being managed from the residential premises can be made as it has sufficiently shown that it has made investment. If the AO had any doubts about the source of income of the share applicant company he could have made further enquiries in respect of that company, in case the same was assessed with him, or by passing the information to the AO, in case it was not assessed with him. It appears that the share applicant company is not assessed to tax with the present A.O. therefore, he is directed to pass this information to the AO of the share applicant company for further examination. The AO has placed reliance on the judgements of honourable Delhi High Court in various cases. However, it is noted that the facts of the present case are different from the cases mentioned by him. In the case of NR Portfolio Pvt. Ltd, supra, the share applicant did not respond to Summons but in the present case the director of the applicant company attended and gave the details. In the case of Rajeev Tandon, supra, the addition was upheld on the ground that no other corroborative evidence was given. In the present case the appellant has given copies of bank account as well as the audited balance sheet of the share applicant company wherein the share ITO Wd-1(1) Kol. Vs. M/s Dazzle Projects Pvt. Ltd. Page 12 application investment has been duly reflected. Similarly the other cases are also different to the present case and are accordingly respectfully distinguished. In view of the above mentioned discussion the addition, made by the A.O in respect of share application money and share premium amounting to Rs.9,99,99,900/- is directed to be deleted.”

Learned Authorized Representative on the other hand places strong reliance upon the CIT(A)’s above extracted findings deleting the impugned ITA No. 102/Ahd/14 [DCIT vs. Gyscoal Alloys Ltd. ] A.Y. 2010-11 - 9 – addition. His case is that the assessee has duly proved all three components of identity, genuineness and creditworthiness of the share application/premium in question to have come from the group entity hereinabove alongwith all of its necessary details. He then seeks to affirm the lower appellate findings deleting the impugned addition.

We have given our thoughtful consideration to rival submissions. There is no dispute that the sole issue between the parties is about correctness of the impugned Section 68 addition of Rs.9,99,99,900/- as made in the course of assessment and deleted in the lower appellate proceedings. The Revenue’s case is that the Assessing Officer had rightly disputed the genuineness / creditworthiness element in the said sum which is contested at the assessee’s behest. We proceed in this backdrop of facts to notice first of all that the identity of the investor entity M/s. General Capital and Holding Company Pvt. Ltd. (supra) is not in dispute. And also that both the assessee and the said investor entity are group concerns having common Directors. The first component of identity therefore vis-à-vis Section 68 of the Act duly stands satisfied. It is evident thereafter that the assessee’s relevant paper books forming part of record before us contain all necessary details of its copy of certificate of incorporation alongwith listing notification/circular of National Stock Exchange and Bombay Stock Exchange, its return and computation for the impugned assessment year with tax audit report, Auditor’s report, audited accounts, its replies to the Assessing Officer during the course of assessment proceedings, copy of ledger account of the investor entity in its books alongwith bank statement indicating the money in question to have come through banking channel, reply to Assessing Officer’s notice issued u/s.133(6) of the Act dated 09.01.2013 alongwith necessary consequential correspondence dated 18.01.2013 at pages 94 & 95, its ledger maintained in investor entity’s books page 96, bank statement page 97, summons issued u/s.131(1A) to investor entity as well as its details of PAN card, audited accounts, income tax returns, confirmation, share holders’ details, Demat statements of the investor entity, Inspector’s inquiry report, Mr. Viral Shah’s statement (supra) recorded during scrutiny in support of the ITA No. 102/Ahd/14 [DCIT vs. Gyscoal Alloys Ltd.] A.Y. 2010-11 - 10 – impugned investment; respectively, sufficiently indicate that the assessee has been able to support its case of having received the investment in question from the group ITO Wd-1(1) Kol. Vs. M/s Dazzle Projects Pvt. Ltd. Page 13 entity only. The Revenue’s case is that all the said details failed to prove genuineness and creditworthiness element. We see no reason to concur with this argument. More particularly in view of the fact that it is the assessee’s group company having common Director(s) who has made the impugned investment. Learned CIT(DR) at this stage sought to reiterate Assessing Officer’s conclusion that this investor company has adopted cash deposit root to reinvest the same in assessee’s stake holding. We do not see any material on record to agree to the instant plea. We afforded sufficient opportunity to the Revenue to file on record any such cogent material indicating M/s. General Capital and Holding Company Pvt. Ltd. to have first deposited cash sums followed by its reinvestment in assessee’s share holding. The Revenue has failed to indicate any such material.

Ms. Vasundhra Upmanyu at this stage reiterates the above case law in Revenue’s favour (supra). We find that the above co-ordinate bench’s decision in Nakoda Fashion Pvt. Ltd. (supra) deals with case wherein the investor company(ies) had turned out to be shell entity without any genuineness/creditworthiness. Latter two case laws in Sumati Dayal and Durga Prasad More (supra) settle the law regarding genuineness of an explanation in light of human probability and appreciation of relevant details on record. The Revenue fails to indicate any misappreciation of evidence at the CIT(A)’s behest during the course of lower appellate proceedings. We rather find that the CIT(A)’s directions to the Assessing Officer to pass the relevant information to assessee’s group concerns Assessing Officer sufficiently protect Revenue’s interest so far as the impugned addition is concerned. Learned CIT.D.R’s. further reliance on all the case laws discussed in assessment order is also without any significance since there is no instance therein dealing with a group entity having invested in concerned assessee’s stake holding. The said case law is therefore held to be not relevant to the issue in hand. We conclude in light of all these facts and circumstances that the assessee has been able to prove all three components of identity, genuineness and creditworthiness of impugned share [DCIT vs. Gyscoal Alloys Ltd.] A.Y. 2010-11 - 11 – application/premium amount of Rs.9,99,99,900/- to have come from its group company M/s. General Capital and Holding Company Pvt. Ltd. Coupled with this, we must also observe that it has successfully produced its common Director Mr. Shah (supra) before the Assessing Officer alongwith all necessary details and confirmation despite the fact that such a personal appearance is required as per Section 68 (First proviso) inserted by the Finance Act, 2012 applicable w.e.f. 01.04.2013 only whereas we are dealing with assessment year 2010-11. We thus affirm the CIT(A)’s findings under challenge. The Revenue’s sole substantive grievance is accordingly declined.” The Revenue’s Tax Appeal No. 1180 of 2018 in hon'ble Gujarat high court against the said decision stood dismissed on 01.10.2018 as follows:- “The issue pertains to the share application money received by the respondent-assessee-company. The Assessing Officer added a sums of Rs.9.99 crores [rounded off] in the hands of the assessee with the aid of Section 68 of the Income-tax Act, 1961 [“The Act” for short]…. CIT[A] deleted such addition primarily on the ground that the assessee had established the source, genuineness of the transactions and the creditworthiness of the investors. In further detailed consideration, the Tribunal confirmed the view of CIT[A], making the following observations:-

Mr. Choudhury at this stage vehemently contends that the assessee’s holding company had nowhere put in appearance to explain its identity, genuineness and creditworthiness regarding the impugned share application/ premium. We find no substance in Revenue’s instant arguments. We have made it clear that the Assessing Officer’s assessment findings nowhere indicate as to whether he had ever concluded that the said holding company had not turned up to explain all the three ingredients of its share capital. The CIT(A)’s findings extracted hereinabove make it clear that the common director of these two entities had duly put in appearance before the Assessing Officer who never pin-pointed any specific discrepancy in the corresponding details filed. Coupled with this, it has come on record that the assessee had not credited / received the entire share application money in the relevant financial year (supra). Be that as it may, we conclude that CIT(A) has rightly deleted the impugned unexplained cash credit addition in the nature of share application money / premium money coming from assessee’s holding ITO Wd-1(1) Kol. Vs. M/s Dazzle Projects Pvt. Ltd. Page 15 company M/s Lakshmiraman Investment & Finance Ltd. in view detailed supportive evidence forming part of records. The Revenue fails in its sole substantive ground therefore.