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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI S. S. GODARA, JM &DR. A.L.SAINI, AM
आदेश / O R D E R Per Dr. A. L. Saini: The captioned appeal filed by theRevenue,pertaining to Assessment Year 2006-07, is directed against an order passed by the Ld. Commissioner of Income Tax (Appeals)-4, Kolkata in Appeal No.1942/CIT(A)-4/Circle-12(1)/Kol/14-15 dated 20.08.2015, which in turn arises out of an order passed by the Assessing Officer,u/s 143(3)/147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 31.03.2014.
The grievances raised by the Revenueare as follows:
“1. In the facts and circumstances of the case the Ld. CIT(A) has erred by not appreciating the fact that various petty companies were found indulging in providing accommodation entries to business companies after various enquiries/search & Survey operation conducted by Income Tax Investigation Wing from time to time.
2. In the facts and circumstances of the case, the Ld. CIT(A) has ignoring the statement of Shri Arun Kr. Nangalia who had admitted in his sworn statement u/s. 132(4) of the IT. Act, of providing accommodation entries through the various companies managed by him which included the said two investor companies, namely RMPL & EVL and these two companies provided the accommodation entry to the assessment company hence, there was nothing more to prove by the AO in respect of bogus credit made by the assessee company in its books in the garb of share capital through the said two investor companies.
M/s. Energy Development Co. Ltd. Assessment Year: 2006-07
In the facts and circumstances of the case, Ld. CIT(A) has erred by ignoring the fact that Shri Nangalia, in course of investigation by the Investigation Wing, failed to explain the source of money being invested in different companies and accepted indulging himself in the activity of providing accommodation entries through the company managed by him which was including the said two investor companies, thereby creditworthiness & genuineness of the investor companies were lapse. 4. ln the facts and circumstances of the case, Ld. CIT(A) has erred by ignoring the fact that the period of directorship of Shri Nangalia in the said two investor companies does not matter rather the important point is that at some point of time he was director in these two companies whose main activity was to provide accommodation entry through his company(ies) hence, the said two investor companies, by their nature, were the entry provider only irrespective of the fact that Shri Nangalia was director or shareholder in the said two companies in the relevant previous year or not." 5. In the facts and circumstances of the case, Ld. CIT(A) has erred by appreciating that even if there was no adversarial finding noted by the respective AOs of the said two investor companies in their order of assessment then also the same cannot be a basis of giving relief to the specially, in the light of the finding of the Investigation Wing & AO.” 3. The brief facts qua the issue are that the assessee had filed its return of income for the Assessment Year 2006-07, on 30.11.2006, declaring total income of Rs.39,04,753/-. The case was selected for scrutiny and the assessment was completed by the Assessing Officer u/s 143(3) of the Act on 18.12.2008 at an assessed income of Rs.52,55,550/-. Later, the assessee’s case was reopened u/s 147 of the Act, and finally concluded u/s 147/143(3) on 31.03.2014 atan re- assessed income of Rs.16,72,55,550/-.
Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer. Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us.The ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have alreadynoted in our earlier para and is not being repeated for the sake of brevity.On the other hand, the ld. Counsel for the assessee relied on the submissions made before the ld. CIT(A) and defended the order passed by the ld CIT(A).
We have given a careful consideration to the rival submissions and perused the materials available on record, we note that in the assessee`s case under consideration the AO has reclassified the receipts of share capital and share
M/s. Energy Development Co. Ltd. Assessment Year: 2006-07 warrants aggregating to Rs. 16.20 crores as unexplained credit u/s 68 of the Act and added the same to the income of the assessee. We note that the assessee is a public limited company whose shares are traded on the BSE/NSE. During the year, the appellant has received Rs.15 crore against issue of shares and Rs. 1.20 crores against issue of share warrants. The party wise details are as follows: i. Rottex : Rs. 12.90 crores (Rs. 12 crores against shares and Rs. 0.90 (against warrants) ii. Exude : Rs. 3.30 crores (Rs. 3 crores against shares and Rs. 0.30 (against warrants) The AO issued notices u/s 133(6) and also called for the personal appearance of the directors. Both the subscribers responded to the notices and submitted the required information but the director of Exude could not make a personal appearance. The AO accepted all the information but was not satisfied and so proceeded to conclude that the said receipts were unexplained credits u/s 68 of the Act. The report sent by the Investigation Wing through the ITO (lnv.), Unit-III, New Delhi was also marked to the AOs of the two investor companies. During the course of the proceedings, the assessee has placed on record the assessment order of the two investor companies. A perusal of the said assessment orders reveals that on the basis of the report sent by the Investigation Wing through the ITO (lnv.), Unit-lll, New Delhi, the respective AOs had initiated reassessment proceedings with respect to the investor companies. Further, a reading of the assessment orders reveals that during the course of the reassessment, no adverse findings have been recorded. In both the assessment orders, the conclusion is not adverse. Hence it can be reasonably concluded that investigation into the affairs of the investor companies has not brought to light any irregularity with respect to the investments made by the said investor companies in Energy Development Company Limited, the assessee. It is a well accepted principle that under section 68, to accept a credit in the form of a share capital / application money made by an investor as genuine, all the three conditions i.e. identity of investor who has invested the money, genuineness of transaction and creditworthiness of the investor has to be satisfied. If any of the aforesaid conditions are absent, the said transaction comes under a Page | 3
M/s. Energy Development Co. Ltd. Assessment Year: 2006-07 cloud. The onus to satisfy the above three conditions is on the assessee. In the given case, the assessee has satisfied all the three conditions during the course of the assessment proceedings and also in the course of appellate proceedings.
We note that based on the materials on record, it is clear that the investor companies are income tax assessees who have made the investments through the banking channels for which there is no doubt based on the materials on record. In the given case, it is found that the investor companies were identified and the assessee had submitted their bank statements and returns filing receipts. Further, it is observed that the investor companies had responded to the summons issued by the AO and had presented all the relevant details. Further, it is observed that the investor companies have been investigated by the Department in connection with providing of accommodation entries to the assessee but no such adverse findings have been brought to record as a result of these investigations. The assessment orders of the investor companies do not bring about any adversarial findings so as to impute the assessee of having accommodated any dubious entries in its accounts. In the given facts and circumstances, it is apparent that not only the identity of the investor companies but their creditworthiness have also been established beyond doubt. Based on the material on record it can be said that the monies invested by the investors in the form of Share Capital / Application money cannot be termed as mere accommodation entries. We note that the assessee under consideration to discharged his primary onus in respect of identity of subscriber, genuineness of the transaction and creditworthiness of the subscriber. The assessee has submitted the copy of the annual accounts, copy of income tax return and other details like copies of bank accounts which clearly established the existence of the subscriber in the assessee’scase. The assessee submitted copies of bank statement showing receipt of subscription money and the copies of bank statement of the subscribers which clearly show that the transactions are genuine and have been transmitted through the banking channels and this cannot be disputed. The annual accounts of the subscribers clearly indicate that they have invested in the instrument issued by the M/s. Energy Development Co. Ltd. Assessment Year: 2006-07 assessee based on their own existing balance sheet strength and have not depended on any account of credit infusion of funds during the year. In fact, there has been no increase in the source of the funds of the subscriber during the Assessment Year 2006-07. The balance sheet of the subscribers clearly evidences the adequacy of funds. The following table shows the movement of net worth of the subscribers during the year.
(Rupees in lacs)
S. No. Company Name Net worth as on 31.03.2005 31.03.2006 1 RMPL 2201.02 2201.04 2 EVL 707.64 707.66 From the above table it is obvious that the subscriber companies have not raised any funds during the AY 2006-07. This clearly indicates the creditworthiness of the subscribing companies.
So far identity is concerned,the details of the address andPAN of the creditor/subscriberswere furnished to the Department along with copies of the Shareholders Register, Shared Application Forms, Share Transfer Register etc. We note that once the assessee has disclosed the source from which he has received money and established that this share subscribers are genuine and had the creditworthiness to subscribe the shares, assessee had issued, the assessee discharges his burden so placed on him by section 68. When the burden is so discharged by the assessee, the onus shifts to the AO. If the AO wants to assess the share capital as income of the assessee as unexplained cash credit then he has to prove by direct evidence that the money which assessee received from the share subscribers actually belong to itself.
We note that undisputedly the share application money was received by the assessee by way of account payee cheques, through normal banking channels. It was not the case of the revenue that the payment of share application money was not made from the bank account of the assessee company. Admittedly, copies of applications for allotment of shares were also provided to the Assessing Officer. It Page | 5
M/s. Energy Development Co. Ltd. Assessment Year: 2006-07 was not the case of the revenue that the share applications were not signed on behalf of the assessee companies and were forged documents or the shares were not actually allotted to the companies. Admittedly, copies of applications for allotment of shares were also provided to the Assessing Officer. Therefore, the ld. CIT(A) was justified in holding that the genuineness of the transactions had been duly established by the assessee. For that we rely on the judgment of Delhi High Court in the case of CIT vs. Winstral Petrochemicals (P) Ltd. in of 2010 order dated 12.05.2010 on the similar facts. We also rely on the judgment of the Hon’ble Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd. [2008] 216 CTR (SC) 195, wherein it was held as follows:
2.Can the amount of share money be regarded as undisclosed income under section 68 of Income Tax Act, 1961? We find no merit in this special leave petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment……….
Under the facts and circumstances of the case, we do not find any palpable merit in the action of the AO in making the impugned addition of Rs. 16.20 crores u/s 68 of the Act. That being so we decline to interfere in the order passed by the ld. CIT(A), his order on this issue is hereby upheld and the grounds of appeal raised by the Revenue is dismissed.
In the result, the appeal raised by the Revenue is dismissed.
Order is pronounced in the open court on 23.01.2019