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Facts
The assessee, Ritisha Oils (P) Ltd., received share application money/premium totaling Rs.8.90 crores from M/s Jain & Co. and M/s H.G. Exims (P) Ltd. for the assessment year 2012-13. The Assessing Officer added this amount under Section 68, questioning the identity, creditworthiness, and genuineness of the transactions, noting related party dealings, meager profits, and cash deposits. The CIT(A) deleted the addition, finding the transactions to be genuine.
Held
The Tribunal upheld the CIT(A)'s order, concluding that the assessee had sufficiently proved the identity, creditworthiness, and genuineness of the share application money. For M/s H.G. Exims, the amount was refunded due to the investment not proceeding, and for M/s Jain & Co., the assessee demonstrated the source of funds through significant cash sales and VAT assessment records.
Key Issues
Whether the addition of share application money under Section 68 of the Income Tax Act, 1961, was justified, given the assessee's claims of proving the identity, creditworthiness, and genuineness of the investors and transactions.
Sections Cited
68, 131, 133(6), 142(1), 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘F’: NEW DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘F’: NEW DELHI BEFORE, SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI VIMAL KUMAR, JUDICIAL MEMBER (ASSESSMENT YEAR 2012-13) Dy. CIT M/s Ritisha Oils (P) Ltd. Circle-21(2) 39, First Floor New Delhi Vs. Mohalla Ramanuj Dayal Nai Basti Ghaziabad-201002 PAN-AAECR 3737L (Appellant) (Respondent) Assessee by Sh. C.S. Anand, Adv. Respondent by Mr. Vivek Vardhan, Sr. DR Date of Hearing 16/04/2024 Date of Pronouncement 26/04/2024 ORDER PER S.RIFAUR RAHMAN, AM:
This appeal has been filed by the Revenue against the order of Learned Commissioner of Income Tax (Appeals)-7, New Delhi [“Ld.
CIT(A”, for short], dated 26/03/2018 for Assessment Year 2012-13.
The grounds raised by the Revenue are as under:
“1. On the facts and under the circumstances of the case, the Ld. CIT(A) has erred in law and fact in deleting the addition of Rs.2,45,00,000/- (being the amount received by the assessee from M/s Jain & Co. by way of Share Application Money u/s 68 of the Income Tax Act, 1961.
2. On the facts and under the circumstances of the case, the Ld. CIT(A) has erred in law and facts in deleting the addition of Rs.6,47,00,000/- (being the amount received by the assessee from M/s H. G. Exims Pvt. Ltd. by way of Share Application Money) u/s 68 of the Income Tax Act, 1961.
3. The appellant craves to be allowed to add and alter any fresh ground(s) appeal and/or delete or amend any of the ground(s) of appeal.”
Brief facts relating to grounds of appeal are, the assessee has filed its return of income on 31/03/2013 declaring total income of Rs.3,78,76,040/-. The case was selected for scrutiny under CASS.
Notice u/s 143(3) and 142(1) were issued and duly served on the assessee along with questionnaire. In response, the Ld. AR of the assessee attended and submitted the relevant information as called for. The Assessing Officer, during the course of assessment, observed that assessee has received share premium from M/s Jain & Company and M/s H.G. Exims (P) Ltd. to the extent of Rs.2,45,00,000 and Rs.6,45,00,000/- respectively. In order to verify the genuineness of the transaction, the assessee was asked to prove the identity, capacity and genuineness of the transaction and why u/s 68 cannot be invoked. In response, the assessee has submitted ITR, Financial Statement of the above said subscribers of the shares. After considering the submissions of the assessee with regard to M/s Jain & Company, the Assessing Officer observed the creditworthiness of the company has not been proved by the assessee. He observed that M/s Jain & Company has declared the meager income in the ITR and the Balance Sheet of the company shows that major source of its funds are mainly from Sundry Creditors and further it had a bank loan of 19 lakhs and unsecured loan of 55 lakhs. It has a cash of only 28 lakhs and closing stock of only 30 lakhs. He observed that the M/s Jain & Company does not have sufficient funds or liquidity to make such a huge investment of 2.45 crores, and he relied on the statement of Sh. Namit Jain, partner of the company recorded u/s 131 of the Act. He observed that the bank statement shows that on various dates, when the amount of share capital and premium was given, the bank balance was in the negative.
With regard to genuineness of the transaction, the Assessing Officer observed that large number of cash deposits were made before the date of transfer of money to the assessee company for share capital/premium. Further, he observed that M/s Jain & Co. is a related party of M/s Ritisha Oils Pvt. Ltd.. The partners of M/s Jain and Co. are all related to the Promoters/Directors of the assessee company. Assessee company has full control over M/s Jain & Company and it is fairly convenient for the assessee company to route the transactions through M/s Jain & Company M/s Jain & Company is not an investment company but its major assets as per its balance sheet have been shown to be share application money which is abnormal. M/s Jain & Company has paid a premium Rs.115 per share which has a face value of Rs.10 which is not logical or explained. As per the statement of Sh Namit Jain (Partner of Jain and Company) recorded u/s 131 on 20.3.15.
From the above statement recorded, Ld. Assessing Officer observed that following points emerge: No surplus profit was generated by M/s Jain and company which warrants the huge investment in the assessee company. No explanation was given on the high share premium of Rs 115/-. No other investment was made by M/s Jain and Company in later years or in the same year. There is no proper explanation of the cash deposits prior to transfer of share capital/premium to M/s Ritisha. He observed that to most questions, the reply was 'I don't know. When asked what is the explanation of huge cash deposits prior to giving of share premium, the reply was 'I don't know' (Q32). No explanation was given on why all the shares were not allotted despite giving the entire money.
(Q35)
With regard to M/s H.G. Exims Pvt. Ltd., he observed that assessee has not filed any details about the above party and notices u/s 133 (6) and u/s 131 were issued and served on assessee as well as the party, however, the notices were returned unserved and assessee was asked to produce the above said party. The Assessing Officer confirmed the receipt of ITR from the above said company and from the above ITR, the Assessing Officer observed that the company had declared meager income in the ITR and does not satisfy the creditworthiness and he also referred to the information contained in Ministry of Corporate Affairs website for present company and observes that reveals that the company had filed its financials under a different name i.e. Delhi Export Import Pvt. Ltd..
6. With regard to genuineness of the transaction, he observed that as per ITR filed by the assessee, the company has no business activity, assessee has produced the above party and confirmation field by the assessee from the above said company appears to be dubious. The Assessing Officer further observed that the said parties has given 6.47 crores in F.Y. 2011-12 and the money was lying till FY 2014-15, which is abnormal.
With the above observation, the Assessing Officer came to the conclusion that both the parties are not genuine and relied on the several decisions, in particulars decision of Hon’ble Supre Court in the case of Sumati Dayal214 ITR 801, Hon’ble Delhi High Court decision in the case of Ashok Mahindra & Sons (HUF) vs. CIT 173 taxman 178 (2008) and proceeded to make addition of share capital/premium amounting to Rs.8.90 crs to the income of the assessee u/s 68 of the Act.
Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) and filed the detailed submissions before the Ld. CIT(A) which is reproduced in page 6 to 9 of the appellate order. After considering the detailed submissions of the Ld. CIT(A) observed that M/s Jain & Co. had advanced an amount of Rs.2.45 Crs. to the assessee by way of share application money for allotment of shares.
The assessee had allotted 1,20,000 shares of Rs. 10/- each on premium of Rs.115/- each during the year under consideration itself and 76000 shares of 10 each with the premium of Rs.115/- each during the subsequent year. He observed that in the Balance Sheet of Jain Co. as at 31/03/2012 an amount of Rs.1,50,00,000/- is already declared under the head “Shares in companies” and Rs.95,00,000/- was shown under the head share application money pending allotment. He further observed that during the course of assessment proceedings, the Assessing Officer had examined Sh.
Namit Jain and recorded his statement in this regard. He observed that Assessing Officer had passed the assessment order on 30/03/2015 without providing photo copies of the recorded statement of Sh. Namit Jain and also without issuing any show cause notice to the assessee as to why an amount of Rs.2,45,00,000/- should not be treated as unexplained credit and consequentially be not added u/s 68 of the Act. It was observed by Ld. CIT(A) that only after receipt of assessment order, the assessee has come to know that AO has accepted the identity of the M/s Jain & Co. but doubted the creditworthiness as well as genuineness of the transaction.
The Ld. CIT(A) has reproduced the summary findings of the Assessing Officer in para 5.6 of the order and he has addressed the same at para 5.7 of the order. For the sake of clarity the same are reproduced below.
“5.7. The appellant in its submission stated that the party, M/s Jain & Co. attended before the AO and produced their proof of identity, bank statements, copies of ITRs and source of funds. All the loans were received through cheques. The appellant stated that the sources of cash deposited in the bank account of M/s Jain & Co. were mostly the sale proceeds Out of the total sales of Rs. 15.58 crores made by the said M/s Jain & Co. during the year under consideration, an amount of Rs.7.23 Crores approx. was in cash. The said M/s Jain & Co. used to deposit its cash sales into its bank account. The appellant has substantiated this fact by furnishing the VAT assessment in the case of M/s Jain & Co. as well as the assessment order u/s 143(3) of the Act for the concerned year. This fact has not been refuted to the AO at assessment or remand stage.
With regard to the share application money from M/s H.G.
Exims Pvt. Ltd., the Ld. CIT(A) observed that M/s H.G. Exims Pvt. Ltd., approached the assessee and expressed its desire to purchase 800000 shares of Rs.10 each at premium of Rs.115/- for total consideration of Rs.10,00,00,000/-. During the year under consideration, the said company had paid only 6.47,00,000/- by way of share application money for allotment of shares. Since, the said company had failed to pay the entire agreed amount of Rs.10,00,00,000/-, the assesse had not allotted shares to the said company. On the written request of the above said company, the assessee had returned the entire amount of Rs.6,47,00,000/- on 31/03/2014 and 30/06/2014. The Ld. CIT(A) also observed that vide letter dated 23/03/2014 the said M/s H.G. Exims Pvt. Ltd. had confirmed that it could not arrange the balance amount and at the same point of time, had requested the assessee to return its money of Rs.6,47,00,000/-. Considering the above request, the assessee had issued cheques for Rs.6,47,00,000/- on 31/03/2014 with the understanding that the same will not be lodged till the time the assessee conveys its go ahead in this regard. Further, he observed that the above said cheques for Rs.6,47,00,000/- was cleared out of the assessee’s bank account on 30/06/2014. The Ld. CIT(A) also recorded the fact that assessee has submitted various copies of letters dated 02/03/2014 and 30/06/2014 and also ITR of M/s H.G. Exims Pvt. Ltd. for A.Y.2012-13. After observing the above facts on record, he observed that assessee has satisfied the identity of the persons, establish the creditworthiness of the genuineness of the transaction. Accordingly, he directed the Assessing Officer to delete the addition of Rs.8,92,00,000/- by allowing the grounds raised by the assessee in its favour.
Aggrieved with the above order, the Revenue is in appeal before us. At the time of hearing, the Ld. DR brought to our notice the detailed findings of the Assessing Officer in its order and he submitted that the assessee has not proved the capacity and genuineness of the transaction. He supported the findings of the Assessing Officer that there are several cash deposits before the investment and further submitted that both the companies have declared meager profit and the profit declared by them does not match the value of investments made by these companies. He also brought to our notice page 9 of the appellate order where Ld. CIT(A) has given his findings and he objected to the findings of the Ld. CIT(A) and prayed that the detailed findings of the Assessing Officer may be sustained.
On the other hand, the Ld. AR brought to our notice page 29 of the Paper Book which is Balance Sheet of the M/s Jain & Co. wherein the declared investment made in the assessee company and the assessee company has issued shares to them to the extent of Rs.1,50,00,000/- and balance of Rs.95,00,000/- were disclosed as share application money pending for allotment. Further, he brought to our notice page 30 of the Paper Book which is profit and loss account of M/s Jain & Co. in which they have declared 15.57 Crs. of sales transaction and he submitted that this cannot be treated as paper company. He submitted that M/s Jain & Co. has sufficient funds at its disposal to make the above said investment.
All these documents clearly shows that assessee has proved the identity, capacity and genuineness of the transaction. With regard to M/s H.G. Exims Pvt. Ltd., he submitted that the above said company had initially shown interest to make huge investment in the assessee company but could not keep of the promise of making the investment. They have invested particularly and subsequently based on their own request the share application money was refunded to them without allotment. Therefore, it is genuine transaction, submitted that the findings of the Assessing Officer is not proper. In this regard, he relied on decision of Hon’ble High Court of Gujrat in the case of PCIT (Central) vs. Ambe Tradecorp (P.)
Ltd., 147 taxmann.com 375 (Gujarat).
Considered the rival submissions and material placed on record. We observed from the record that assessee has received share application money from two companies namely M/s Jain & Co. and M/s H.G. Exims Pvt. Ltd. 2.47 crs. and 6.47 crs respectively.
With regard to the M/s Jain & Co., the Assessing Officer has observed that the bank statement of the M/s Jain & Co. shows that there are several cash deposits recorded in the bank statement and the company has also made investment in the assessee company.
He has linked the cash deposits and the investment to come to conclusion that it is a non-genuine transaction and assessee has invested its own funds through M/s Jain & Co.. Further, he observed that there is no profit generated by the company to support such huge investment. However, we observed that the assessee has brought on record that M/s Jain & Co. has huge trading transaction of Rs.15.58 crs. and majority of sale transaction are through cash sales and to the extent of Rs.7.23 crs. involving cash receipts which was deposited in its bank account. Further, the Jain & Co. has substantiated by submitting VAT assessment records and assessment order u/s 143(3) of the Act before the Ld. CIT(A) to establish that it has sufficient cash sales to make the cash deposits in its bank account. In our considered view, there is no direct link with the profit declared by the company and investment made by the company. It is relevant to show that it has sufficient funds to make the investment to prove the capacity of the investor.
In this case, the Ld. CIT(A) has brought on record that it has sufficient fund to make the investment in assessee company.
Therefore, we do not see any reason to interfere with the finding of the Ld. CIT(A).
With regard to M/s H.G. Exims Pvt. Ltd., the facts clearly brought on record by the assessee that initially they have shown interest in making investment of Rs.10,00,00,000/-, however, they could make only 6.47 crs. towards share application money, however, several correspondance were brought on record by Ld. CIT(A) that they could not make any further investment and also they made a request to refund the same. It is also brought on record that the assessee has refunded the share application money on 30/06/2014, therefore, it has clearly brought on record that assessee has received the above said investment and also refunded the same. Therefore, after considering the overall facts on record and also Ld. CIT(A) elaborately discussed the provisions of section 68 in his order, we do not see any reason to disturb the finding of the Ld. CIT(A) in this regard and the facts brought on record by the assessee clearly establishes the findings of the Ld. CIT(A) is just and proper. Accordingly, we deem it fit a proper to dismiss the ground raised by the Revenue. Accordingly, the appeal filed by the Revenue is dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in open Court on 26th April, 2024.