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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI G.S. PANNU & SHRI RAM LAL NEGI
The captioned appeal by the Revenue is directed against the order of CIT(A)-4, Mumbai dated 26.02.2016 pertaining to Assessment Year 2012-13, which in turn has arisen from the order passed by the Assessing Officer, Mumbai, dated 27.03.2015 u/s 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
In this appeal, Revenue has raised the following Grounds of appeal :-
M/s Diligent Media Corporation Ltd.
“A. On the facts and circumstances of the case and in law, whether the Ld. CIT(A) was justified in directing to delete the addition of Rs. 345,48,31,000/- made u/s. 68 of the Income Tax Act, 1961, treating the "Share Application Money" received by the assessee as "Unexplained Credits" in the assessment order, without appreciating that the same is covered by the ratio laid down in the judgment of the Bombay High Court in the cases of Major Metals Vs. Union of India?
B. On the fact and circumstances of the case and in law, whether the Ld. CIT(A) was justified in directing to delete the addition of Rs. 345,48,31,000/- made u/s. 68 of the Income Tax Act, 1961, without appreciating that the same is covered by the ratio laid down in the judgement of the Bombay High Court in the cases of Major Metals Vs. Union of India wherein the judgement of the Hon'ble Supreme Court in the cases of CIT Vs. Lovely Exports Pvt. Ltd. (2008) 319 ITR 5 (SC) has been duly discussed and distinguished?
C. On the fact and circumstances of the case and in law, whether the Ld. CIT(A) was justified in directing to delete the addition of Rs. 345,48,31,000/- made u/s. 68 of the Income Tax Act, 1961, without appreciating that in the instant case, the amounts which were realized by the assessee claimed to be in the nature of share application moneys were not in the context of a public issue of share capital but essentially in the nature of a private placement and that too from related parties?
D. On the fact and circumstances of the case and in law, whether the Ld. CIT(A) was justified in directing to delete the addition of Rs. 345,48,31,000/- made u/s. 68 of the Income Tax Act, 1961, by holding that it is beyond doubt that the share application money has been received from established companies, duly assessed to tax in Mumbai and where regular assessments have been completed, without simultaneously appreciating the facts that heavy additions of adverse nature have been made to the total income offered by those share applicant companies is such regular assessments completed, which adversely speak about their creditworthiness?
E. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing Officer be restored.”
M/s Diligent Media Corporation Ltd.
As a perusal of the aforestated Grounds of appeal reveal, the singular grievance of the Revenue is arising from the action of CIT(A) in holding that the addition of Rs.345,48,31,000/- made by the Assessing Officer u/s 68 of the Act was not merited.
4. In brief, the relevant facts are that the respondent-assessee is a company incorporated under the provisions of the Companies Act, 1956 and in the course of assessment proceedings, the Assessing Officer noted that assessee had received share application money to the extent of Rs.345,48,31,000/- from three concerns, namely, 25 FPS Media Pvt. Ltd. (hereinafter referred to as ‘25 FPS’) – Rs.141,14,31,000/-, ICL Lions Pvt. Ltd. (hereinafter referred to as ‘ICL Lions’) – Rs.200,00,00,000/- and Jai Properties Pvt. Ltd. (hereinafter referred to as ‘Jai Properties’) – Rs.4,34,00,000/-. The Assessing Officer also observed that assessee had in turn made investments in the equity shares of one, M/s. Diligent Media Corporation Ltd. to the tune of Rs.382,16,99,963/-. The Assessing Officer required the assessee to explain the aforesaid receipt of share application money from the three concerns. In response, assessee furnished the relevant Balance-sheet of the three concerns as well as their bank statements, copy of income-tax returns and other income-tax particulars. The Assessing Officer was not satisfied with the creditworthiness of the three concerns for having given share application money to the assessee. In the context of 25 FPS, assessee had explained that in the month of April, 2012, Compulsory Convertible Debentures to the extent of Rs.141,14,31,000/- was issued to the said concern, which was its holding company. So far as the amount received from ICL Lions and Jai Properties was concerned, it was explained that the amounts were refunded
M/s Diligent Media Corporation Ltd. subsequently to the said entities. The Assessing Officer was not satisfied with the explanation furnished by the assessee and he treated the impugned sums as ‘unexplained’ within the meaning of Sec. 68 of the Act. The reason weighing with the Assessing Officer was primarily that the three concerns have invested in the share application money of the assessee out of borrowed funds and, therefore, they lacked the required creditworthiness. The Assessing Officer also observed that no prudent businessman would invest in a loss making company having no business activities and that the transaction was a colourable device and a bogus transfer of money by the assessee. In this manner, the amount of share application money of Rs. 345,48,31,000/- was added to the returned income. The aforesaid addition was challenged by the assessee in appeal before the CIT(A) on points of law as well as on facts. Assessee challenged the plea of the Assessing Officer that the three subscribers to the share application money were lacking in creditworthiness. As per the assessee, merely because the subscribers had invested by raising borrowed funds is no ground to doubt their creditworthiness. It was also explained that so far as 25 FPS was concerned, it was assessee’s holding company and, therefore, it would be inappropriate to say that there was any device or a bogus transfer of money to the assessee-company. Assessee also referred to the financial accounts of the three concerns to point out that they had sufficient funds to make investments in the share application money of the assessee-company. Assessee also reiterated before the CIT(A) that the amount was refunded to ICL Lions and Jai Properties due to insufficient authorised capital in April, 2012 and so far as the share application money received from 25 FPS was concerned, the necessary Convertible Debentures were issued, albeit in the month of April, 2012. Before the CIT(A), assessee again referred to the bank
M/s Diligent Media Corporation Ltd. statement and Audited financial statements of all the three concerns to demonstrate that there was enough funds available with the three concerns to invest in the share application money of the assessee-company. It was, therefore, contended that not only the creditworthiness, but the identity of the three concerns as well as the genuineness of the transactions stood established. Apart from the aforesaid, which was a reiteration of the material earlier produced before the Assessing Officer, assessee produced before the CIT(A) copy of the assessment orders passed u/s 143(3) of the Act for Assessment Year 2012-13 in the case of Jai Properties and ICL Lions as also in the case of 25 FPS and pointed out that they are regularly being assessed to tax by the Income-tax Department in Mumbai itself. On this basis, it was sought to be pointed out that since the three concerns have been subjected to assessment and their financial details are known to the Department, the impugned addition could not have been made by the Assessing Officer treating the three concerns to be lacking in creditworthiness. The CIT(A) examined the material furnished by the assessee and, in particular, considered the assessment orders in the case of the three concerns as well as the fact that before the Assessing Officer, assessee, vide compliance to the notice of Assessing Officer dated 16.03.2015, had explained the source of the source of funds, i.e. the source of funds available with the three concerns to invest in the assessee company. The relevant discussion by the CIT(A) in this regard is contained in para 9 of his order. On the basis of his analysis of the material and evidence on record, CIT(A) deemed it fit to delete the addition and he has summed-up his final analysis in para 18 of his order, which reads as under :-
M/s Diligent Media Corporation Ltd.
“18. Thus in the light of the above factual narration, various references and judicial propositions I reach to the conclusion that the AO has made addition u/s 68 for the sake of addition. The appellant has established beyond doubt, identity, and genuineness of transaction and source of share application money. The AO has, however, merely doubted the capacity but has not been able to refer single evidence that such share application money is from unknown or undisclosed source. On the contrary, it is found beyond that share application money has been received by the appellant from established companies duly assessed to tax in Mumbai and their regular assessments have also been completed. These companies have given share application money from borrowings and the AO has accepted the fact that share application money has been advanced from borrowed funds, hence it becomes crystal clear that there is no unexplained cash credit or undisclosed or unaccounted deposit. Therefore, such baseless addition made by the AO of Rs.3,45,48,31,000/- u/s 68 of the I.T. Act is deleted.”
Against such a decision, Revenue is in appeal before us. At the time of hearing, the ld. DR appearing for the Revenue has reiterated the reasons advanced by the Assessing Officer in support of the case of Revenue, which we are not repeating for the sake of brevity, as the same have already been noted by us in the earlier part of this order. Apart therefrom, the Grounds of appeal have been reiterated wherein reliance has been placed on the judgment of the Hon'ble Bombay High Court in the case of Major Metal Ltd. vs UOI, 359 ITR 450 (Bom.).
6. On the other hand, the learned representative for the respondent- assessee referred to the Paper Book filed, wherein is placed the material on the basis of which the CIT(A) came to conclude that assessee had discharged its onus of explaining satisfactorily the credits in question in terms of the requirement of Sec. 68 of the Act. It is pointed out that having regard to the M/s Diligent Media Corporation Ltd.
material and evidence on record, the share application money received from the three concerns stood adequately explained and, in the light of the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Creative World Telefilms Ltd., 333 ITR 100 (Bom.), the impugned addition was rightly deleted by the CIT(A).
We have carefully considered the rival submissions. Sec. 68 of the Act provides that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof, or the explanation offered by the assessee is not found to be satisfactory, the Assessing Officer is empowered to treat such sum as an income of the assessee. Quite clearly, Sec. 68 of the Act casts a burden on the assessee to explain the nature and source of the credits appearing in the books of account. Notably, Sec. 68 of the Act is a rule of evidence and it has been judicially well-settled that the burden cast on the assessee would be satisfied if the assessee is able to explain the identity and creditworthiness of the creditor as well as the genuineness of the transaction. In the instant case, the claim of the assessee is that it has discharged such burden on the basis of the material and evidence on record and that there was no repudiation to such material by the Assessing Officer on the basis of any credible material, except on mere conjectures and surmises.
In the context of 25 FPS, we find that the said concern is the holding company of the assessee. At the time of hearing, the learned representative has referred to the copy of the return and the annual financial statement of the said concern for the year under consideration. We find that in the Notes
M/s Diligent Media Corporation Ltd. forming part of the financial statements, contribution towards the share application money of the assessee company has been enumerated. It is stated therein that investment in the share application money of the assessee are long term investments for strategic business interests. Our attention was also invited to page 34 of the Paper Book wherein is placed a copy of the Convertible Debentures Certificate issued to the holding company, i.e., 25 FPS against the impugned share application money of Rs.141,14,31,000/-. Ostensibly, the Debentures have been issued on 15.04.2012, which date falls in the next year. Further, at the time of hearing, the learned representative also furnished a copy of the assessment order in the case of 25 FPS passed u/s 143(3) dated 31.03.2015 for Assessment Year 2012-13. In the said assessment order, the share application money and other funds available with 25 FPS have been noted, which is much more than the amount invested in the assessee-company. In fact, the investment of 25 FPS in the share application money of the assessee company of Rs.141,14,31,000/- has also been specifically noted in the said assessment order. Ostensibly, there is no addition qua the source from which the said concern has made the investments in the assessee company. In this view of the matter, in our view, there is nothing to doubt either the creditworthiness or the genuineness of the transaction as sought to be made out by the Assessing Officer. In fact, the stand of the Assessing Officer is not based on any credible material or evidence, but merely on his own perception of the affairs. In fact, there is no verification or any independent inquiry conducted by the Assessing Officer which would give any adverse inference qua the creditworthiness of the creditor or even the genuineness of the transaction. Thus, considering the entirety of circumstances, in our view, the CIT(A) made no mistake in deleting the said addition.
M/s Diligent Media Corporation Ltd.
Now, we may examine the material and evidence which has lead the CIT(A) to delete the addition with respect to the other concern, i.e. ICL Lions. Assessee had received Rs. 200,00,00,000/- from ICL Lions which has been repaid in the subsequent year. In this context, the objection of the Assessing Officer was that the said concern subscribed to assessee’s share application money out of borrowed funds, whereas it had only meagre Share Capital of its own. In this context, the CIT(A) noted that for Assessment Year 2012-13, assessment of the said concern was completed u/s 143(3) dated 31.03.2015 and the income has been assessed by the Assessing Officer at Rs.200,78,67,428/-. Therefore, the CIT(A) found the finding of the Assessing Officer of the said concern having meagre income as being factually incorrect. Be that as it may, in this context, the learned representative pointed out that the funds borrowed by the said concern was held to be ‘unexplained’ by the Assessing Officer in its assessment for Assessment Year 2012-13, which travelled to the Tribunal, and vide order in & 2597/Mum/2017 dated 31.01.2018, said credit was found to be duly explained. A copy of the said order has been placed on record. In particular, our attention was invited to the addition of Rs.200,00,00,000/- made in the hands of ICL Lions u/s 68 of the Act, which has since been deleted by the Tribunal in its order dated 31.01.2018 (supra). Having perused the order of the Tribunal, we find that ICL Lions as well as the assessee before us are part of the same group. The Tribunal, in para 6 of its order, by means of a pictorial depiction has noted the transaction of money coming from one group concern to the other in a round manner. The Tribunal has also examined the bank statement of ICL Lions which corroborates the rotation
M/s Diligent Media Corporation Ltd. of money between the group concerns. After noticing so, it deemed it fit to delete the addition, and the following discussion in this regard is relevant :-
“11. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the transaction has been layered and it has entrusted its own money of ₹ 50 crores in four tranches and raise this as share application money to 200 crores rupees by the same transaction. From the above chart it is explained by the assessee that this amount is the main source and which is only basic amount of ₹ 50 crores invested by the assessee in Mediavest India Pvt. Ltd who in turn invested in Tapaswi Mercantile Pvt. Ltd. and ultimately came back to assessee. This transaction was routed four times i.e. the same money of ₹ 50 crores. It means that the assessee has invested its own money of ₹ 50 crores and the source of which is clearly explained that it has come from its own source. The AO and CIT(A) both are of the view that the entire ₹ 200 crores is unexplained, but from the above facts it is clear that it is only ₹ 50 crores which is been invested four times and it has become 200 crores rupees. The same money was routed at least four times and hence, according to our view this basic amount of ₹ 50 crores was invested by assessee. Whether the assessee is able to prove the sources of ₹ 200 cores share application money raised in term of section 68 of the Act, we are of the view that the assessee is able to explained the source which is its own money of ₹ 50 crores invested four times on a single day as is narrated in the above banking transaction. The assessee has produced complete details and these companies i.e. mediavest Pvt. Ltd and Tapaswi Mercantile Pvt. Ltd. are active companies on the site of Ministry of Corporate Affairs (MCA). There is no doubt in the transaction and assessee is able to explain the source, genuineness of transaction and identity of the parties. In term of the above, we are of the view that the assessee has satisfactorily explained the ingredients of section 68 of the Act and we accept the same. Accordingly, the addition made by AO and confirmed by CIT(A) is deleted. The orders of the lower authorities are reversed and this issue of assessee’s appeal is allowed.”
Be that as it may the import of the aforesaid decision of the Tribunal is that the source of funds available with ICL Lions to make the impugned
M/s Diligent Media Corporation Ltd. investment in the share application money of assessee-company stands established. Merely because the source of ICL Lions is in the shape of borrowed funds is no ground to say that it lacks creditworthiness. Notably, the veracity of the said borrowed funds lies accepted and in this view of the matter, we find no error on the part of CIT(A) in holding that the creditworthiness of ICL Lions or the genuineness of its transaction with the assessee could not be doubted. Pertinently, the entire income-tax particulars of the said concern was very much in the knowledge of the Assessing Officer and apart from surmises, there is no material brought out to say as to how he treated such transaction as bogus. Thus, even with regard to the creditor, ICL Lions, we affirm the decision of CIT(A) and Revenue fails on this aspect also.
Now we may take-up the facts in relation to the other subscriber to the share application money, i.e. Jai Properties. In this context, the learned representative has referred to the copy of the income-tax return of the said concern including the annual financial statement for the relevant period, which is placed in the Paper Book. With regard to its creditworthiness to advance sum of Rs.4,34,00,000/- to the assessee, it has been pointed out that the said concern has gross revenues of Rs.26,59,01,658/- and the profit for the year before tax stood at Rs.8,20,16,335/-. Apart therefrom, our attention has also been invited to the Balance-sheet where the Share Capital & Reserves stand at Rs.8,02,63,059/-. In our considered opinion, keeping aside other aspects of the Balance-sheet of the said concern, the profit for the year under consideration and the total shareholder fund available with it are enough to justify the receipt of Rs. 4,34,00,000/- by the assessee- company from the said concern. So far as the assessment status of the said
M/s Diligent Media Corporation Ltd. creditor is concerned, the learned representative referred to the assessment made u/s 143(3) dated 31.03.2015 for Assessment Year 2012-13, a copy of which is placed on record. In the said assessment, apart from other additions, a sum of Rs.409,87,45,530/- has been added u/s 68 of the Act being the share application money/share premium, share capital received by the said concern as being ‘unexplained’. The learned representative pointed out that the said addition has since been deleted by the CIT(A). Be that as it may, the assessment particulars of the said creditor reveal an undisputed fact that so far as the amount received by the assessee of Rs.4,34,00,000/- is concerned, the same was well within the capacity of the said creditor to invest in the assessee-company having regard to the facts and material on record. It is also notable that the said amount has been refunded by the assessee in the subsequent year as no shares could be issued due to insufficiency of assessee’s authorised Share Capital. Considering the entirety of circumstances, on this ground also, we find that the CIT(A) made no mistake in deleting the addition made by the Assessing Officer.
Before parting, we may also refer to the judgment of the Hon'ble Bombay High Court in the case of Creative World Telefilms Ltd. (supra) relied upon by the assessee before us. In the case before the Hon'ble High Court, assessee had received share application money from shareholders who were alleged to be bogus. The Hon'ble High Court noted that once their names and addresses were given to the Assessing Officer alongwith their PAN/GIR numbers as also the payment details being cheque numbers and name of bankers, etc., the Assessing Officer could carry out the relevant verification and the Department could proceed against them and, if necessary, reopen their individual assessments. In any case, as per the Hon'ble High Court, the M/s Diligent Media Corporation Ltd.
addition could not be made in the hands of the assessee on account of unexplained share application money. In our considered opinion, the ratio of the judgment of the Hon'ble Bombay High Court in the case of Creative World Telefilms Ltd. (supra) is squarely applicable in the present case inasmuch as the income-tax particulars and the attendant assessment details of the three subscribers are very much in the knowledge of the Department inasmuch as the three concerns are being assessed in Mumbai itself. Therefore, an addition could not lie in the hands of the assessee and if there was any unexplained investment, the necessary action could have been taken in the hands of the three concerns, but certainly not in the case of the assessee-company. Thus, on this point also, we are inclined to uphold the ultimate conclusion of the CIT(A).
Before parting, we may also refer to the reliance placed by the Revenue in the Memo of appeal on the judgment of the Hon'ble Bombay High Court in the case of Major Metal Ltd. (supra). In fact, the Assessing Officer has also relied on the said judgment to say that the impugned credits have not been appropriately explained by the assessee within the meaning of Sec. 68 of the Act. We have carefully perused the said judgment and find that the same is wholly inapplicable in the facts and circumstances of the case before us. In the case before the Hon'ble High Court, no doubt the issue related to invoking of Sec. 68 of the Act qua the credits by way of subscription to the Share Capital of the assessee therein. The Hon'ble High Court especially noted that the Settlement Commission had considered all the material on record including the material which had a bearing on the creditworthiness and financial standing of the subscriber companies and none of them were found to have financial standing and creditworthiness
M/s Diligent Media Corporation Ltd. which would justify making of investments in the Share Capital of the assessee therein. Based on such factual finding of the Settlement Commission, the Hon'ble High Court ultimately noted that the credits in the books of account were not adequately explained by the assessee. It was noted that the explanation of the assessee about the source of the credit was not supported by any evidence. In particular, it was noted that only a bland explanation about the source of credits in question, i.e. realisation from debtors of the erstwhile firm was being advanced by the assessee, which was not found satisfactory. Thus, what emerges is that the judgment of the Hon'ble Bombay High Court in the case of Major Metal Ltd. (supra) has been rendered in the background of its own facts. Quite clearly, in the present case the material and evidence which the assessee has brought on record to explain the source of funds with the three creditors for investing in the share application money of the assessee stands appropriately explained and justified. Therefore, on facts, the judgment of the Hon'ble Bombay High Court in the case of Major Metal Ltd. (supra) is inapplicable to the facts of the present case.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on 13th July, 2018.