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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
PER RAMIT KOCHAR, Accountant Member
These two appeals, filed by assessee, being & 3634/Mum/2015, are directed against separate appellate orders both dated 15.09.2014 passed by learned Commissioner of Income Tax (Appeals)-8, Mumbai (hereinafter called “the CIT(A)”), for assessment year 1995-96 & 1997-98 respectively, the appellate proceedings had arisen before learned CIT(A) from separate assessment orders both dated 19.03.2013 passed by learned Assessing Officer (hereinafter
I.T.A. No.3633 & 3634/Mum/2015 called “the AO”) u/s 143(3) r.w.s. 254 of the Income-tax Act, 1961 (hereinafter called “the Act”) for AY 1995-96 & 1997-98 respectively. 2. First we shall take up appeal of the assessee for AY 1995-96 in . The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:- “1) On facts & circumstances of the case and in law learned CIT(A) confirmed addition of Rs. 1,00,00,000/- being subscription to share capital. 2) On facts & circumstances of the case & in law the learned CIT(A) did not consider confirmatory letters of subscriber of share capital wherein their names, address & PAN were duly reflected. 3) On facts & circumstances of the case & in law the learned CIT(A) failed to appreciate the fact that the details of balance sheet and other details called for pertains to 17 years back & subscriber of share capital were not obliged to maintain the said records. II) PRAYER :- 1) It is therefore prayed that addition of Rs. 1,00.00,000/- be deleted. III. The appellant craves leave to add, amend, delete and 7 or modify any grounds of appeal.”
3. The brief facts of the case are that the assessee is engaged in the business of trading in cloth, manufacturing of yarn & export of readymade garments. The assessee filed return of income for the impugned assessment year 1995-96 declaring „Nil‟ income on 30.11.1995. Regular assessment was framed by Revenue u/s. 143(3) of the 1961 Act vide assessment orders dated 03.03.1997 and the total income of Rs. Nil was assessed in the hands of the assessee wherein claim of the assessee for deduction u/s. 80IA of Rs. 61,01,273/- was allowed by the Revenue by accepting the claim of the assessee that it is engaged in the manufacturing activity. While the assessment proceedings for AY 1996-97 were underway with AO, survey action u/s. 133A of the 1961 Act was carried out by Revenue on 9.12.1998 wherein it was found that there was no manufacturing unit of assessee at Daman. A Search & seizure action was also I.T.A. No.3633 & 3634/Mum/2015 undertaken by revenue in the case of assessee on 27.02.1999 and 04.03.1999 . It was found by Revenue that the assessee has wrongly claimed deduction u/s. 80IA of Rs. 61,01,273/- which was earlier wrongly allowed by the AO. This was the main reason for reopening of the concluded assessment in the hands of the assessee for the impugned assessment year 1995-96 wherein notices u/s 148 of the 1961 Act were issued by the AO on 12.03.2001 which were duly served on assessee. The AO framed an assessment u/s. 143(3) r.w.s. 147 of the 1961 Act on 27.03.2002 assessing total income of the assessee at Rs. 2,25,30,420/- wherein, inter-alia, deduction u/s. 80IA of Rs. 61,01,273/- was denied to the assessee as also an addition of Rs.1,00,00,000/- u/s 68 of the 1961 Act was made by the AO on account of unexplained share capital . The solitary issue in the appeal before us for AY 1995-96 is with respect to addition of Rs.1,00,00,000/- made by Revenue u/s 68 of the 1961 Act with respect to the unexplained cash credit being share investment in assessee‟s company by the subscribers to the shares.
4. When the assessee carried the matter before the Ld. CIT(A) by filing first appeal in first round of litigation , the Ld. CIT(A) ,inter-alia, granted relief for deduction of Rs. 61,01,273/-u/s 80IB of the 1961 Act . The addition of Rs. 1,00,00,000/- which was made in respect of unexplained share capital u/s. 68 of the 1961 Act was however confirmed by Ld. CIT(A) in the first round of litigation by dismissal of the assessee appeal on this ground.
5. Aggrieved by the appellate orders of ld CIT(A),the assessee in the first round of litigation filed second appeal before the tribunal , inter- alia, challenging addition u/s. 68 of the Act made by the AO towards unexplained share capital of Rs. 1,00,00,000/-. The tribunal in first round of litigation vide orders dated 30.12.2011 in based on paper book filed by the assessee and after considering that the assessee has furnished complete list of shareholders but no enquiries were made by the authorities below,
I.T.A. No.3633 & 3634/Mum/2015 inter-alia remitted this issue of unexplained share capital back to the file of the AO for fresh consideration of the issue after making necessary enquiries from the share holders as on 31.03.95 . 6.The AO in second round of litigation observed that the assessee Director has given list of share holders along with their GIR/ PAN numbers . Following the directions of Hon‟ble ITAT , the AO issued notices u/s. 133(6) to the shareholders who subscribed share capital of Rs.1,00,000,000/- calling for all details/information from those shareholders. The AO received confirmation from these parties who had subscribed to share capital of the assessee company to the tune of Rs.1,00,00,000/- wherein they confirmed to having subscribed to equity shares of the assessee company as also confirmed to have paid the total amount to the assessee company. In the confirmation sent by these parties , they have stated and confirmed that investments were made out of their own capital and they gave their PAN/GIR number . The assessee also furnished copies of acknowledgement of return of their income filed with Revenue w.r.t. some of the parties for earlier years. The AO directed the assessee company to get either copies of Balance Sheet, Capital Account or copy of bank statements reflecting the relevant transactions to prove creditworthiness . The assessee submitted that the assessee has duly discharged its initial burden by filing confirmatory letters along with addresses and PAN of the said share holders It was submitted by assessee that these shareholders are appearing in assessee‟s Balance Sheet for AY 2012-13 filed with Revenue and these parties do not have any record to prove their creditworthiness . It was stated the all payments towards Share Capital were received through cheque only. The AO after considering submissions of the assessee held that confirmation letters were filed by the shareholders who subscribed share capital of the assessee wherein these shareholders have confirmed to have subscribed to share capital of the assessee out of their own capital but as per the AO even if the identity of the shareholder stood proved, but genuineness
I.T.A. No.3633 & 3634/Mum/2015 and creditworthiness of the shareholders could not be proved by the assessee. The AO thus confirmed the additions in second round of litigation toward unexplained cash credit vide share subscribed of the assessee company to the tune of Rs.1,00,00,000/- vide assessment order dated 19-03-2013 passed u/s 143(3) r.w.s. 254 of the 1961 Act.
The assessee carried the matter in appeal before learned CIT(A) in second round of litigation . The assessee submitted that the assessee duly filed confirmation letters of the parties who had subscribed to the shares of the assessee company which carried all their details such as GIR/PAN etc. The details of share capital were submitted . It was submitted that more than 17 years has expired and it is not possible to get the balance sheet etc. from these parties . The Ld. CIT(A) rejected the contention of the assessee and confirmed the additions towards share capital to the tune of Rs. 1,00,00,000/- being unexplained cash credit u/s 68 of the 1961 Act vide appellate orders dated 15-09-2014, by holding as under:- “ 2.3 I have considered the facts of the case and also gone through the appellant's submission. It is seen that during the course of assessment proceedings, the appellant was asked to file confirmations of various parties in whose name share capital of Rs. 1 crore was raised. Confirmation received by the AO revealed that various parties have subscribed to the share capital and also amount was paid by these persons to the appellant company. Since only confirmation was filed, the AO asked the appellant company to provide evidence to establish the genuineness of the transaction and creditworthiness of various persons. It was also submitted by the appellant during the course of assessment proceedings that these parties do not have any record such as balance sheet, bank statement etc. to prove creditworthiness of these parties. Appellant only maintained that the amount was received by cheque. In the case of Mangilal Jain vs. ITO (Mad.) 315 ITR 105 it was held that 'Mere proof of identity of .creditor or that transaction was by cheque, is not sufficient. In the case of CIT vs. Nivedan Vanijya Niyojan Ltd. (Cal) 263 ITR 623 it has been held that section 68 is applicable even to share application money - use of the words "any sum found to be credited in the books'" indicates that the section is widely worded and the AO is not precluded .from making enquiry as to the true nature and source thereof even if the sum is credited as share application money.
I.T.A. No.3633 & 3634/Mum/2015 2.4 In the instant case, only confirmation has been received from the share holders that they have subscribed to the share capital of the company out of their own fund. Even though identity of the share holders is established, the genuineness and credit worthiness of the share holders are not established. In view of the same, the addition of Rs. 1 crore made by the AO is accordingly upheld.”
Aggrieved by the appellate order dated 15-09-2014 passed by learned CIT(A) in second round of litigation, the assessee carried the matter in appeal before the tribunal and none appeared on behalf of the assessee when the appeal was called for hearing . The Ld. DR supported the order of the authorities below and strongly contended that assessee had not discharged burden u/s. 68 of the Act to prove creditworthiness and genuineness of the transaction of share subscription to the tune of Rs.1,00,00,000/- in the assessee company.
We have considered contentions of the Ld. DR and perused the material on record . We have observed that the assessee is engaged in the business of trading in cloth, manufacturing of yarn & export of readymade garments. The assessee during the previous year relevant to the impugned assessment year raised share capital to the tune of Rs. 1,00,00,000/- from different share holders. The details of share holders along with their addresses, GIR/PAN etc were duly supplied by the assessee. The payments for share capital to the tune of Rs.1,00,00,000/- raised by the assessee have been received by assessee company by cheques. This is the second round of litigation. In the first round of litigation matter went upto the tribunal and tribunal in vide orders dated 30.12.2012 after observing that the assessee has supplied complete list of shareholders was please to direct AO to make inquiries with the share holders. The AO in compliance of direction of tribunal issued notices u/s. 133(6) of the 1961 Act to these shareholders. The said shareholders in compliance to notice u/s 133(6) issued by the AO submitted confirmations and details of their subscription to the share capital of the assessee company in aggregate to the tune of Rs. 1,00,00,000/- which also included their PAN/GIR numbers. These
I.T.A. No.3633 & 3634/Mum/2015 shareholders also confirmed that they subscribed to share capital of the assessee company to the tune of Rs.1,00,00,000/- out of their own capital and payments were made by cheque. The AO was still not satisfied with the replies/information filed by respective shareholders in compliance of notices issued u/s 133(6) by the AO in second round of litigation. The AO asked the assessee to produce either Balance Sheet , Capital account or bank statement of these shareholders. The assessee expressed its inability to produce these documents called for by the AO citing that more than 17 years have elapsed and at this stage it is not possible to supply these documents. The assessee submitted that it has discharged its primary onus. The AO ignored the fact that the directions were issued by tribunal in first round of litigation to AO to make necessary enquiries from these shareholders who had subscribed to share capital of the assessee to the tune of Rs.1,00,00,000/-. The AO ought to have issued fresh notices u/s 133(6) or summons u/s 131 to these shareholders to get all desired evidences/explanations as were required by him for the purposes of satisfying mandate of Section 68 of the 1961 Act. These shareholders do responded to the notice issued by the AO u/s 133(6) of the 1961 Act in second round of litigation by furnishing confirmations and other details such as PAN/GIR number etc and it is not the case of the Revenue that these share holders are not available. The directions as were issued by the tribunal in first round of litigation were not rituals or empty formalities to be undertaken by the AO but in our considered view, the AO was infact under an obligation to make effective enquiries with the sharesholders to come to the conclusion whether the said investments by the shareholders in the assessee company satisfy mandate of Section 68 of the Act . More than 17 years had expired since these amounts were invested by these share holders in the assessee company at the time of second round of litigation before the AO , still at the time when the AO conducted enquiries during second round of litigation all these share holders responded to the enquiries made by the AO u/s. 133(6) of the Act and confirmed to have invested
I.T.A. No.3633 & 3634/Mum/2015 these amounts in assessee company.These shareholders further confirmed to have invested these amounts by cheques out of their own capital . The assessee expressed inability to produce balance sheet, capital account or bank statement etc. of these share holders citing before the AO that more than 17 years had expired since these shareholders made investment in the assessee company The assessee, however, produced Balance Sheet for the assessment year 2012-13 filed with Revenue to evidence before the AO that these shareholders are still existing in the books of the assessee company. It was incumbent at that point of time for AO to have issued summons u/s. 131 of the Act to these shareholders to appear before the AO with requisite information or otherwise the AO should have issued fresh notices u/s. 133(6) of the Act to these shareholders to file all the requisite information/evidences as were desired by AO to come to the conclusion whether these share investments in assessee company by these shareholders to the tune of Rs.1,00,00,000/- fulfil mandate of Section 68 of the Act but the AO despite being aware of directions of the tribunal did not issue notices /summons to these parties. The learned CIT(A) in second round of litigation in appellate proceedings also committed the same mistake by not issuing notice u/s. 133(6) or summons u/s. 131 of the Act to these shareholders despite being aware about the direction of the tribunal vide its order in the first round of litigation. The Ld. CIT(A) merely confirmed the order of the AO in second round of litigation by rejecting contentions of the assessee without making any further enquiries. Needless to say that powers of Ld. CIT(A) are co-terminus with the powers of the AO. At this stage of proceedings before us when more than 23 years have already elapsed since the investments were made by these shareholders in assesseee‟s share capital, no further opportunities can be given to the revenue to start fresh round of litigation more-so nothing incriminating has been brought on record by the authorities below. It is matter of record that these shareholders name, addresses, GIR/PAN etc are all on record along with their confirmation letter
I.T.A. No.3633 & 3634/Mum/2015 confirming that they made investments in the assessee company. These shareholders have also confirmed that these share investments were made out of their own capital and payments were all made by cheque. Under these circumstances keeping in view peculiar factual matrix of the entire case and material on record before us, we are inclined to accept the contentions of the assessee by holding that the assessee has discharged its burden/onus as was cast u/s 68 of the 1961 Act with respect to share investment of Rs.1,00,00,000/- made in the assessee company . We order deletion of the additions as were made by the AO which was later sustained by Ld. CIT(A) by setting aside the appellate order of learned CIT(A) and the assessment order of the AO. The appeal of the assessee , therefore, is allowed. We order accordingly.
In the result , appeal of the assessee in AY 1995-96 is allowed.
The second appeal in ITA no. 3634/Mum/2015 for AY 1997-98 is an assessee‟s appeal filed against an appellate order dated 15.09.2014 passed by learned CIT(A)-8,Mumbai. This is again second round of litigation before the tribunal wherein the solitary issue in this appeal is with respect to an unexplained income to the tune of Rs. 91,09,444/- found credited in the Reserve and Surplus Account in the assessee‟s audited Balance Sheet . The brief background is that assessee got two set of accounts audited from two different chartered accountants on the same day namely Sudhir M. Desai & Co. and Motilal & Associates, both Chartered Accountants. The assessee explained that since regular chartered accountant Sh Motilal Jain was not available for audit, the assessee got the audit done from other chartered accountant for filing return of income but since some errors were noticed later , the old chartered accountant was engaged to re- audit the accounts and prepare the revised audited accounts
I.T.A. No.3633 & 3634/Mum/2015 incorporating the transactions which were inadvertently not included earlier by new chartered accountant . Thus, it was explained that under these circumstances, revised Balance Sheet and Profit and Loss Accounts were prepared by the old chartered accountant. It was submitted that since in any case, the assessee was entitled for deduction u/s 80HHC and 80IA of the 1961 Act, there was no tax implications on account of revision of final accounts which was the reasons for not filing of revised return of income based on revised Balance Sheet. It was submitted that these revised figures albeit pertaining to previous year figures for financial year 1995-96 were incorporated in the audited balance sheet of next accounting year 1996-97. So far as the coinciding of date of audit report issued by the afore-stated both the chartered accountants, the assessee explained the same to be typing error on part of the auditors M/s Motilal & Associates. Mainly, there was a difference of Rs. 91,09,444/- in these two sets of audited accounts which were on account of licence sale of Rs. 67,30,933/- , raw material consumed of Rs. 18,29,804/- and employment cost of Rs. 5,48,707/- , which was shown in the figure of last year i.e. financial year 1995-96 in the audited account prepared for the financial year ended 31.03.1997 , but the same were not shown in the audited accounts of the assessee for financial year 1995-96. The assessee had contended that there is no change in computation of income for AY 1997-98 and hence there was no requirement of filing revised return of income for AY 1997-98 as there was no omission or wrong statement in the return of income filed with the revenue. The AO had observed that the assesseee has not disclosed the same as income in the return of income filed for AY 1996-97 and also the assessee failed to prove nature of the income. The AO considered the same to be undisclosed income for AY 1997-98 as the same was reflected in Balance Sheet of financial year 1996-97 albeit as part of the previous year figures for financial year 1995-96 while the same was conspicuously missing in the audited accounts prepared for financial year 1995-96. Since the assessee failed to file
I.T.A. No.3633 & 3634/Mum/2015 revised return of income for AY 1997-98 correcting aforesaid errors, the AO refused to accept the explanations of the assessee keeping in view ratio of decision of Hon‟ble Supreme Court in the case of Goetze (India) Limited v. CIT (2006) 284 ITR 323(SC). The learned CIT(A) also dismissed the appeal of the assessee by affirming the stand of the AO.
Aggrieved by dismissal of appeal by learned CIT(A) in second round of litigation, the assessee has filed an appeal before the tribunal. None appeared for assessee while learned DR supported the orders of authorities below.
We have considered contentions of the learned DR and carefully perused the material on record. We have observed that the assessee on its part is giving explanation as to the justification of having two sets of audited financial statements for financial year 1996-97 mainly due to non availability of old chartered accountant at the time of filing of income-tax return so it engaged new firm of chartered accountants which committed certain alleged error in the audited accounts for financial year 1996-97 and hence need arose to fall back on old chartered accountant to prepare revised audited accounts for financial year 1996-97 after eliminating the errors , while the Revenue is not accepting the bonafide of having two sets of audited accounts with common date. The assessee explaining the same date in two sets of audited accounts to be on account of typing error committed by old chartered accountant while auditing revised accounts. Both assessee and revenue misconstrued itself in the process of explanations and counter explanations wherein both ignored the true mandate of Article 265 of the Constitution of India which stipulates that no taxes can be levied or collected unless under the authority of law . The 1961 Act was enacted to achieve purposes as are enshrined under Article 265 of the Constitution of India so that correct taxes under authority of law can be collected from the tax payers. It is incumbent on the part of the tax-payers to file correct return of income declaring correct income
I.T.A. No.3633 & 3634/Mum/2015 and pay correct taxes to Government. Similarly it is incumbent on the part of Revenue to asssess correct income chargeable to tax within mandate of the provisions of the 1961 Act so that consequently correct taxes can be assessed and paid by the tax-payer. These are not adversarial proceedings but proceedings to arrive at correct income which satisfy mandate of the 1961 Act so that correct taxes can be paid to Revenue. The assessee for whatever reasons has got prepared two sets of audited balance sheets/accounts both dated 25.11.1996 from two different chartered accountants and there was a difference of Rs. 91,09,444/- in these two sets of audited balance sheets in the figure of Reserves and Surplus in the previous year figures for year ended on 31.03.1996 , in the audited sets of accounts prepared for the year ended 31.03.2017 , which difference it is stated to have arisen mainly on account of license sale of Rs. 67,30,933/- , raw material consumed of Rs. 18,29,804/- and employment cost of Rs. 5,48,707/- . The endeavour of both the Revenue and the assessee should have been to compute the correct income assessed to tax within mandate of the 1961 Act. The onus as well burden is very heavy in the instant case on the assessee to bring on record cogent evidences to substantiate that there is no income component in the said differential amount of Rs. 91,09,444/- which is liable to be chargeable to tax within mandate of the 1961 Act. The assessee and revenue erred in ignoring the mandate of the 1961 Act, which is supported by Article 265 of the Constitution of India to bring to tax correct income of the assessee. Under these peculiar facts and circumstances of the case, we are constraint to set aside and restore this issue back to the file of the AO for fresh determination of the issue on merits in accordance with law. We in exercise of powers u/s 254 of the 1961 Act direct AO to admit all necessary evidences and explanations which the assessee files before the AO in denovo assessment proceedings in its defence and thereafter adjudicate the same on merits in accordance with law despite the fact that no revised return of income was filed by the assessee . Needless to say that proper and adequate opportunity of I.T.A. No.3633 & 3634/Mum/2015 being heard shall be provided by the AO to the assessee in accordance with principles of natural justice in accordance with law. We order accordingly.
In the Result appeal of the assessee in for AY 1997-98 is allowed for statistical purposes.
In the result appeal of the assessee in AY 1995-96 is allowed while appeal of the assessee in for AY 1997-98 is allowed for statistical purposes.
Order pronounced in the open court on 19.09.2018 आदेश की घोषणा खुऱे न्यायाऱय में ददनांकः 19.09.2018 को की गई ।