Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI C.N. PRASAD & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
1. This is an appeal filed by the Revenue. The relevant assessment year is 2012-13. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-20, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
M/s Elegant Creations Pvt. Ltd.
2. The grounds of appeals read as under:
1. Whether on the fact CIT(A) was justified in deleting the addition of Rs.3,85,00,000/- made on account of non-genuine Share Capital and Share Premium.
2. Whether in the facts and circumstances of the case and in law, the CIT(A) erred in admitting and considering the additional evidences of the Assessment order and not appreciating that the assessee has misrepresented that these evidences were submitted before the Assessing Officer. 3. The appellant prays that the order of the CIT(A) on the grounds be set aside and that of the Assessing Officer be restored. 3. The assessee is a private limited company. It filed its return of income for the assessment year (AY) 2012-13 on 11.09.2012 declaring total income of Rs.2,00,540/-. It had received share premium money during the financial year (FY) 2011-12 from the following persons.
Sr. No. Name of the concern No. of shares Share capital Share Total amount allotted (Rs.) premium (Rs.) paid (Rs.)
Aarika Steel and metal 2,500 25,000 4,75,000 5,00,000 Pvt. Ltd.
Parraneta industries 27,500 2,75,000 52,25,000 55,00,000 Ltd.
Speciality Papers Ltd. 12,500 1,25,000 23,75,000 25,00,000
Manilal M. Limbani 1,25,000 12,50,000 2,37,50,000 2,50,00,000
5. Jayshree M. Limbani 25,000 2,50,000 47,50,000 50,00,000 M/s Elegant Creations Pvt. Ltd. 1,92,500 19,25,000 3,65,75,000 3,85,00,000 3.1 During the course of assessment proceedings, the Assessing Officer (AO) issued notice u/s 133(6) to the above parties from whom share subscription money was received. However, the notices were returned unserved by the postal authorities in respect of party at serial No. (1), (2), (4) and (5). In respect of party at serial No. (3), the AO did not receive any confirmation or compliance till the date of finalization of the assessment order. Thereafter, the AO vide office letter dated 15.03.2015 asked the assessee to produce the parties along with books of accounts and other details to establish the identity and creditworthiness of the above parties. Further, the AO issued a show cause notice to the assessee vide letter dated 15.03.2015 stating therein that in case of failure to comply with the above, the claim made in respect of share application money received shall be treated as non- genuine and added back to the total income. However, there was no compliance by the above parties. Also the assessee failed to produce them with supporting evidence. Consequently, the AO failed to verify the transaction of share capital/share premium money received by the assessee. The AO noted that merely producing PAN No. or balance sheet etc. of investing company do not establish the identity of the person. The AO thus held that the assessee had not genuinely received the share application amount and therefore, he made an addition of Rs.3,85,00,000/- u/s 68 of the Act. 4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) observed at para 5.5 of his M/s Elegant Creations Pvt. Ltd. 16.06.2016 that three companies were existing and they had confirmed that they had contributed to the share capital of the assessee. Regarding their creditworthiness, the Ld. CIT(A) further observed that the assessee had filed copy of PAN cards, bank statements, balance sheet and P&L account, share application forms, Board Resolution empowering the applicant company to invest in the assessee- company. Then, the Ld. CIT(A) held : “It emerges out from the record that these companies have duly recorded these investments in their books of accounts which were duly audited during the relevant financial year. Thus, the companies have demonstrated these balance in their balance sheets in the shape of investment as well loan and advances. As regards the two applicants for share application Mr. Manilal H Limbani and Mrs. Jayshree H Himbani it is submitted that these are non- residents and are based at Oman and hence are not available at the Indian address during their stay overseas. They have contributed the money through banking channel. The next issue is about the genuineness of the transaction. The assessee has produced the details of bank accounts. All share application money have been issued through banking channel. There is no cash transaction which could compel oneself to assume that the transactions were not genuine.” Drawing the above conclusion by relying on decision in CIT v. Lovely Exports (P) Ltd. 216 CTR 295 (SC), Oasis Hospitalities P. Ltd. (2011) 333 ITR 119 (Del), Sophia Finance Ltd. 205 ITR 98 (Del) (FB), CIT v. Creative World Telefilms Ltd. (2011) 333 ITR 100, CIT v. Mohanakala (2007) 291 ITR 278 (SC), CIT v. Stellar Investment Ltd. (1991) 192 ITR 287 (Del), CIT v. Gangeshwari Metal Pvt. Ltd. 361 ITR 10 (Del), the Ld.
M/s Elegant Creations Pvt. Ltd. CIT(A) deleted the addition of Rs.3,85,00,000/- made by the AO u/s 68 of the Act.
Before us, the Ld. DR submits that the Ld. CIT(A) has wrongly held that the additional evidence was filed before the AO. The conclusion arrived at by the Ld. CIT(A) on the basis of such additional evidence may not be considered as those documents were not filed before the AO. Thus the Ld. DR submits that the order passed by the Ld. CIT(A) be set aside.
On the other hand, the Ld. counsel of the assessee files a Paper Book (P/B) stating that the copy of the documents contained therein were filed before the AO. It is his contention that the Ld. CIT(A) has rightly arrived at a decision on the basis of documents which were before the AO. Thus the Ld. counsel supports the order passed by the Ld. CIT(A).
We have heard the rival submissions and perused the relevant materials on record. The bone of contention here is whether the copy of documents relied on by the Ld. CIT(A) mentioned at para 4 hereinbefore were submitted before the AO or not. Nowhere in the P/B, there is evidence that the copy of the said documents were filed before the AO. The AO has mentioned at para 2 of his order dated 27.03.2015 that the assessee failed to establish the creditworthiness of the above parties by filing the relevant documents/evidence. On the other hand, the Ld. CIT(A) observed that those documents were filed before the AO.
M/s Elegant Creations Pvt. Ltd. As we have mentioned above, there is no evidence emanating from the P/B that the copy of said documents were filed before the AO. Once these were filed before the CIT(A), he should have allowed the AO to have his say. Rule 46A(3) of Income Tax Rules 1962 enjoins upon the first appellate authority, if he thinks it proper to admit additional or fresh evidence, to allow and afford a reasonable opportunity to the AO- (i) to examine the evidence or document so produced by the assessee appellant; (ii) to cross-examine any evidence so produced; and (iii) to produce any evidence or document or any witness in rebuttal of the additional evidence so produced. Unless such an opportunity has been allowed to the AO, the fresh evidence so produced cannot be taken into account by the first appellate authority. As mentioned hereinbefore there is no evidence that the copies of the said documents were filed before the AO. Thus, without allowing the AO to have his say, the Ld. CIT(A) has violated the provisions of Rule 46A. 7.1 It is well-settled that in order to discharge the onus u/s 68, the assessee must prove the following: (i) the identity of the creditor, (ii) the capacity of the creditor to advance money; and M/s Elegant Creations Pvt. Ltd. (iii) the genuineness of the transaction. In Major Metals Ltd. v. UoI (WP No. 397 of 2011), the Hon’ble Bombay High Court held that: “25. Now, it is this decision of the Delhi High Court against which a Special Leave Petition before the Supreme Court came to be dismissed on 11 January 2008. In CIT v. Lovely Exports (P.) Ltd. [2008] 6 DTR 308 (SC) while dismissing the Special Leave Petition the Supreme Court observed that if the share application money was received by the assessee from allegedly bogus shareholders whose names were given to the Assessing Officer, the department was free to proceed to reopen their individual assessments in accordance with law. On this ground, the Supreme Court while dismissing the Special Leave Petition found no infirmity in the judgment of the Delhi High Court. The principle which was emphasised by the Delhi High Court in the case of Lovely Exports was followed by another Division Bench in CIT v. Value Capital Services (P.) Ltd. [2008] 307 ITR 334 (Delhi). In CIT v. Oasis Hospitalities (P.) Ltd. [2011] 331 ITR 119 (Delhi), a Division Bench of the Delhi High Court observed that the initial burden must be upon the assessee to explain the nature and source of the share application money received. In order to discharge this burden, the assessee is required to prove: (a) Identity of shareholder; (b) Genuineness of transaction; and (c) Credit worthiness of shareholders. As far as the creditworthiness of the subscriber is concerned, that can be proved by producing a bank statement of the subscriber showing that it has sufficient balance in its account to enable it to subscribe to the share capital. The Delhi High Court held that once the initial burden has been discharged, the observations of the Supreme Court in the case of Lovely Exports (P.) Ltd. (supra) would suggest that the Department is free to proceed to reopen the individual assessments in the case of alleged bogus shareholders in accordance with law and is not remediless. This would be more so when the assessee is a public limited company and has issued share capital to the public at large as in such