ITO 12(2)(3), MUMBAI vs. GGF INDUSTRIES PVT. LTD., MUMBAI

The revenue has filed the present appeal against the order dated 29.07.2016 passed by the Commissioner of Income Tax (Appeals)-20, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the AY. 2009-10.

The revenue has raised the following grounds: - “

In case the investor/shareholder is an Individual, some documents will have to be filed or the said shareholder will have to be produced before the Assessing Officer lo prove his identity If the creditor/subscriber is a company, then the details in the form of registered address or PAN identity, etc., can be furnished. 13' The genuineness of the transaction is to be demonstrated by showing that the assesses had, in fact, received money from the said shareholder and it came from the coffers of that very shareholder. The Division Bench held that when the money is received by cheque and is transmitted through banking or other indisputable channels, the genuineness of transaction would be proved. Other documents showing the genuineness of transaction could be copies of the shareholder’s register, share application forms, share transfer register, etc. 14 As far as creditworthiness or financial strength of the creditor/subscriber concerned, that can be proved by producing the bank statement of the creditor/subscriber showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. This judgment further holds that once these documents are produced, the assessee would have satisfactorily discharged the onus case upon him. 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” The Bombay High Court in the case of CIT v. Creative World Telefilms Ltd. (In L T. A. No. 2182 of 2009 decided on October 12, 2009) [2011] 333 ITR 100 has held that: - The relevant portion of this order is reproduced 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. II was expected on the part of the Assessing Officer to make proper investigation and (each the shareholders. The Assessing Officer did nothing except issuing summons which were ultimately returned A.Y. 2009-10 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 shareholders 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 Jaw is involved in the appeal. In the result, the appeal is dismissed m limine with no order as to costs." The Hon'ble Bombay High court thus clearly held that once documents like PAN card, bank account details or details from the bankers were given by the s onus shifts upon the Assessing Officer and it is on him to reach the shareholders to ascertain the true facts. It is, thus, for the Assessing Officer to make further inquiries with regard to the status of these parties to bring on record any adverse findings regarding their creditworthy ness. This would be more so where the assesses is a public limited company and has issued the share capital to the public at large, as in such cases the company cannot be expected to know every detail pertaining to the identity and the financial worth of the subscribers. Further the initial burden on the assessee would be somewhat heavy m case the assessee is a private limited company where the shareholders are family friends/close acquaintances, etc. It is because of the reason that m such circumstance, the assessee cannot feign ignorance about the status of these parties. 6.7 The judgment of the Supreme Court in the case of CIT v. P, Mohanakala [2007] 291 ITR 278 is also relevant on the facts of the case. In that case, the assessee had received foreign gifts from one common donor. The payments were made to them by instruments issued by foreign banks and credited to the respective accounts of the assessee by negotiations through bank in India. The evidence indicated that the donor was to receive suitable compensation from the assessee. The Assessing Officer held that the gifts though apparent were not real and accordingly treated all those amounts which were credited in the books of account of the assessee, as their income applying section 68 of the Act. The assessee did not contend that even if their explanation was not satisfactory the amounts were not of the nature of income. The Commissioner of Income-tax (Appeals) confirmed the assessment. On further appeal, there was a difference of opinion between the two Members of the Appellate Tribunal and the matter was referred to the Vice President who concurred with the findings and conclusions of the Assessing Officer and the Commissioner of A.Y. 2009-10 Income-tax (Appeals). On appeal, the High Court re-appreciated the evidence and substituted its own findings and came to the conclusion that the reasons assigned by the Tribunal were in the realm of surmises, conjecture and suspicion. On appeal to the Supreme Court, the court while reversing the decision of the High Court held that the findings of the Assessing Officer, Commissioner of Income-tax (Appeals) and the Tribunal were based on the material on record and not on any conjectures and surmises. That the money came by way of bank cheques and was paid through the process of banking transaction as not by itself of any consequence. The High Court misdirected Itself and erred in disturbing the concurrent findings of fact. While doing so, the legal position contained in section 68 of the Act was explained by the Supreme Court by assessing that a bare reading of section 68 of the Act suggests that (i) there has to be credit of amounts in the books Ltd. maintained by the assessee; (ii) such credit has Co be a sum of money during the previous year j and (iii) either la) the assessee offers no explanation about the nature and source of such credits found in the books, or (b) the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. It is only then that the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression "the assessee offers no explanation" means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material on record. Application of mind is the sine qua non for forming the opinion. In cases where the explanation offered by the assessee about the nature and source of the sums found credited in the books is not satisfactory there is, prima facie, evidence against the assessee, viz, the receipt of money. The burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was a receipt of an income nature. The burden is on the ^o take the plea that even if the explanation is not acceptable, the material and attending circumstances available on record do not A.Y. 2009-10 justify the sum found credited in the books being treated as a receipt of income nature. 6.8 It is also of relevance to point out that in CIT vs Stellar Investment Ltd, [1991] 195 ITR 287 (Delhi) where the increase in subscribed capital of the respondent-company accepted by the Income-tax Officer and rejected by the Commissioner of Income- tax on the ground that a detailed investigation was required regarding the genuineness of subscribers to share capital, as there was a device of converting black money by issuing shares with the help of formation of an investment which was reversed by the Tribunal, the Delhi High Court held that even if it be assumed that the subscribers to the increased share capital were not genuine, under no circumstances the amount of share capital could be regarded as undisclosed income of the Company. This view was confirmed by the apex court in CIT v. Steller Investment Ltd* [2001] 251 ITR 263. In view of this legal position, the present appeal is to be decided. It is clear from the decision of the Hon'ble Delhi High Court in the case of Oasis Hospitalities P Ltd, 2011 333 ITR 119 [Del.), that once the assessee filed copy of PAN, Acknowledgement copy of the return of income of the investing company, their bank accounts statements for the relevant period; then even if the parties were not produced in spite Of the specific directions of the Assessing Officer, the addition could not be sustained as the primary onus was discharged by the assessee by producing the PAN, balance sheet, copy of the acknowledgement copy of return of the applicants etc.. In the instant case, there is no dispute about the identity of the applicant companies, who had paid the application money and the source of the application money was also found in the respective bank accounts of the investing companies and there was no trace of cash deposit in the bank accounts of the investing companies, then, the action of the Assessing Officer due to the premium on shares without making further detailed enquiry to establish that the provisions of section 68 of the '/Income Tax Act were attracted in the present case, is difficult to sustain in appeal. The Assessing Officer has made addition on some doubts and suspicion but has not established any direct or indirect link of assesses own money flowing out and then again received by the assessee in the form of share capital and premium. The assesses had placed on record the evidence as well as copy of income-tax returns of the share applicants. Keeping in view all these evidence it cannot be held that the assessee did not A.Y. 2009-10 establish the identity of the share applicants. The Hon'ble Delhi High Court in the case of CTT vs Gangeshwari Metal Pvt Ltd 2014 361 TTR 10 has held that: - "In fad, in Nova Promoters and Finlease (p) Ltd. (supra) itself this Court has observed, m the context of Lovely Exports (p) Ltd. (supra), as under: - The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file number^ their creditworthiness, share application forms and share holders'1 register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec.68 and the retied open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assesses and also the link between self- confessed "accommodation added to its income. Since I am satisfied that (he assesses has furnished inaccurate particulars of its income, penalty proceedings under section 271(1)(c) are being initiated separately." The facts of Nova Promoters and finlease (P) Ltd. (supra) fail in the former category and that is why this Court decided in favour of the revenue in that case However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra) There was a clear lack of inquiry on the part of the assessing officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no addition can be made under section 58 of the Act Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law. The appeal is dismissed." 6.9 In view of the legal position emanating from legal precedents and the observations of Hon'ble Delhi High Court, in the case of Gangeshwari Metal P. Ltd. as discussed above it is noted that when requisite documents such as PAN, Bank accounts, Balance Sheet etc. were available with the A.G., to establish that no cash transactions were involved in the bank accounts of the investing company then without further probe to prove contrary the addition u/s 68 in the hand of the assessee cannot be made. In view of the above discussion on the facts of the case and having regard to the decisions of courts and judicial precedents as noted above, the addition made by the A.O. of the share capital and premium of Rs.2,25,00,000/- under section 68 of the I.T. Act, 1961 cannot be sustained in appeal and is directed to be deleted. Accordingly, this ground of appeal is allowed.”