ACIT, CENTRAL CIRCLE-17, NEW DELHI vs. DIAMOND TRADEX CO. LTD, NEW DELHI

“2.2 I have carefully considered the submissions made by the appellant as well as the observation given by the Assessing Officer in the assessment order. The Assessing Officer has made addition of Rs. 1.5 Crore u/s 68 in the hands of appellant holding that the receipt of share capital and share premium from three companies viz. (i) Cornelius Marketing & Research Pvt. Ltd.. (ii) Mithilanchal Investment & Finance & Finance (P) Ltd. and (iii) Rising Portfolio India Pvt. Ltd., primarily because in response to the summons issued to the investing companies, nobody turned-up with records which could confirm that they have invested Rs. 1.5 Crores for the purchase of shares of the appellant company. It was submitted that the appellant has furnished the necessary details and documents such as PAN, copy of Income Tax Return, copy of share application, their bank accounts statement, copies of their ITRs, Balance Sheet, Affidavits of the directors, list of investments. It was further submitted that due to change in the name of the investor company(s), the summons issued to them could not be served. The Assessing Officer has neither controverted nor disapproved the material filed by the appellant company in support of the receipt of share capital to the tune of Rs. 1.5 Crore. The AR of appellant submitted additional evidence which was forwarded in Paper-Book-1 to the assessing officer, DCIT, Circle-7(2), New Delhi on 09.06.2017 for his report under Rule 46A. Assessing officer sent his report on 09.06.2017 wherein it is stated, that he issued summons to all the three companies for their appearance, who filed supporting documents with regard to their investment of Rs. 1.5 Crore in the appellant company for the purchase of shares. The assessing officer in his remand report confirmed that authorized representatives of all the companies appeared before him in response to the notices issued to them and filed copy of the final accounts of the appellant company in their books of accounts, copy of the bank statements confirming the amount received / realized by them from their earlier investments out of which the funds were given to the appellant company for the purchase of their shares for the value of Rs. 1.5 Crore. They also filed copy of the ITRs of all investor companies for the A.Y. 2012- 13 alongwith the Audited Balance Sheet. They have also filed copies of the accounts from the third parties from whom they have realized their earlier investments, out of which the funds were given for the purchase of shares to the appellant company. Apart from the above, they have also filed the ROC documents by which the name of the earlier companies were changed to the new names. Hence the related parties have confirmed their investments of Rs. 1.5 Crore for the purchase of shares of the appellant company after the appearance of their authorized representative. Considering the above discussion, the facts of the case and respectfully following the decision of Hon'ble Courts ad ITATs relied upon by the appellant, which are applicable to this case, the addition made of Rs. 1.5 Crore in the hands of the appellant company is deleted. …… ….. .

3.2 I have carefully perused the submission of appellant, the assessment order and thefacts on recored. The Assessing Officer has made further addition of Rs. 3,68,63,089/- in the hands of the appellant company u/s 68 of the Income Tax Act 1961 of advance received from customers against sales. The ARs of the appellant company has furnished before me copies of the documents and the statements which were also produced before the Assessing Officer, from which it appears that the appellant company has received advances from the customers against the sale of material of Rs. 2,40,03,089/- in the F.Y. 2010-11, for which the details were also available with the Assessing Officer in the return of income for AY 2011-12. The appellant company has received advance from customers of Rs. 1,28,60,000/-. The total balance of advance received from customers against the supply of material for both the F.Y. 2010- 11 & 2011-12 is Rs. 3,68,63,089/- which was added by the Assessing Officer in the hands of the appellant company. This does not appear to be a correct addition because assessing officer has made the addition of Rs. 3,68,63,089 without taking into consideration the advance received from customers of Rs. 2,40,03,089/- against the supply of material in the F.Y. 2010-11 which has already been reflected in the return of income. It has been submitted that the officer has further not considered that against the advance received from the customers in the Financial Year 2010-11 & 2011-12, the finished goods have been sold

Rs. 2,64,28,589/ in the F.Y. 2012-13, Rs. 5435500/- in the F.Y. 2013-14 and Rs. 50,00,000/- in the F.Y. 2014-15 in the subsequent years. In view of the above discussion and the fact that advances were taken against supply of material in FY 2010-11 and sales have continued in FY 2011- 12, 2012-13, 2013-14 and 2014-15, albeit at a decreasing rate, it appears that this addition of Rs. 3,68,63,089/- is not called for. Hence these grounds of appeal are allowed and the addition made of Rs. 3,68,63,089/- in the hands of the appellant company is deleted.)”

4. The Revenue is in appeal raising following grounds:

“1. That the Commissioner of Income TaxtAppeale) erred on facte and in law in deleting the impugned addition of Rs.1,00,00,000/- made under Section 68 of the Income Tax Act, 1991 by treating the above amount claimed to having been received on account of share capital and share premium as unexplained credit.

2. That the Ld.CIT(A) has erred in ignoring the facts as the aвековие company failed to discharge the onus u/s 68 of the IT Act, 1991 prove the identity, creditworthiness and genuineness of the transactions made by the share holders.

3. That the Commissioner of Income Tax(Appeals) erred on facts and in law in deleting the impugned addition of Rs.308,03,089 / made under section 08 of the Income Tax Act, 1961 by treating the above amount of advance claimed to having been received from customer. 4. (a) The order of the CIT(A) is erroneous and not tenable in law and on facts, (b) The appellant craves leave to add, alter or amend any/all of the grounds of appeal

before or during the course of the hearing of the appeal.”

5. Heard and perused the record. The thrust of contention of learned DR was on the averment that CIT(A) has ignored the circumstances and merely re- appreciated the same set of evidences which were relied by AO to reasonably establish that the transactions were not genuine.

6. Learned AR, however, submitted that findings of learned CIT(A) are based on remand report and the evidences have been rightly interpreted.

7. As with regard to ground nos. 1 & 2 we observe that the AO vide remand report dated 9.6.2017 had admitted that Authorized Representative of M/s Mithilanchal Investment & Finance (P) Ltd. and M/s Cornelius Marketing & Research Pvt. Ltd. had appeared and confirmed the investment. Similarly, M/s Rising Portfolio India Pvt. Ltd. had also confirmed the investment. After taking into consideration the remand report and the submissions of the assessee on remand report, CIT(A) had deleted the addition on the basis of observations as reproduced above vide para 2.2. We are of the considered view that the AO has drawn conclusions primarily on the basis of suspicion arising out of poor financials and revenue of the assessee company and also of the investors. However, before CIT(A) on the basis of all the relevant evidences genuineness of transaction was established. After taking into consideration the observations of the AO and CIT(A) we are of the considered view that in fact the investors are not altogether strangers but related companies and the promoters are common. Thus to allege the introduction of money by accommodation entries is not justified. The intra companies transfer of resources has to be left to the wisdom of companies. The rotation of money or funds in itself cannot be a ground to create a suspicion. Thus, we are inclined to accept the findings of learned CIT(A) and find no substance in ground no. 1 and 2.

8. As with regard to ground no. 3, we are of the considered view that AO has primarily doubted the advance received on the basis that during the year there were no sales. The assessee had filed all relevant material and evidences before CIT(A) in the form of bills etc. to show that against advance received finished goods were sold in financial years 2012-13, 2013-14 and 2014-15. Thus, under these circumstances, the increase in the advance from customers could not be considered to be unexplained cash credits for the purpose of Section 68 of the Act. The CIT(A) require no interference. There is no substance in ground no. 3.