ITO, NEW DELHI vs. M/S. ROYAL FINVEST PVT. LTD., NEW DELHI

PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER

1 SI. No. Amount Party name PAN [Cheque/DDNo 1. AABCC0706 H 4,00,0007- M/s Changia Steel Pvt Ltd. DD No.094059 dated 20.06.2005 2. AABCD2582Q 5,00,0007- Division Trading Pvt. Ltd DD No.094062dated 20.06.2005 3. AMCG3754E 7,00,000/- Garg Finvest Pvf. Ltd DD No. 093807 dated 11,05,2005 4 MACG4449G Garg Infine Pvt. Ltd DD No.093806 and DD Total No.094060 dated 14.02,2006 11,00,0007- AAACK8837C 13,00,0007- 5. Kesari Industrial Lab Pvt, fDD No. 093959 dated* Ltd. 07.06.2005and DD No.859976 dated 14.02.2006 6, AACCK3115F 10,00,0007- Kesari Lab Electronics Pvt 093676 dated DD No.093958 dated 07.06.2005 Ltd.

Subsequently, the assessee was asked to furnish reply to a 2 detailed questionnaire and also to prove the genuineness, identity and creditworthiness of the share application money transaction.

The Assessing Officer was directed to produce the Managing Director of the companies who had given the share application money. The assessee in response submitted copies of ITRs, copies of balance sheets of the share applicants. However, the Assessing Officer proceeded to add the amount of Rs. 85 lakh as unexplained cash credit u/s 68 of the Act. Further, the Assessing Officer also made an addition of Rs. 13.50 lakh being cash deposits in the bank account of the assessee company with Bank of India.

4. Aggrieved, the assessee preferred an appeal before the ld. CIT(A) who deleted both the additions and now, the department has approached the ITAT and has challenged the deletion of Rs. 85 lakh deleted by the ld. CIT(A). The grounds of appeal read as under:-

“1. That on the facts and circumstances of the case and in law the Ld.CIT(A) erred in deleting the addition of Rs. 85,00.000/- made on account of share application money u/s 68 of the Income Tax Act. 1961. 2. That on the facts and circumstances of the case as well as in law. the Ld. C1T(A) erred in ignoring the fact that the judgment of the Supreme Court in the case of Lovely Exports (P) Ltd. 216 CTR 199(SC) cannot be extended to a situation where 3 a mechanism has been formed to introduce unaccounted money in the books of accounts with the help of accommodation entry providers, which has been exposed by deep and detailed investigation carried out by the Investigation wing of the Department.

3. That the C1T(A) has erred in applying the judgment of the Hon’ble Supreme Court in the case of M/s Lovely Exports (P) Ltd. 216 CTR 199 (SC) which is not applicable where the share application is not received in a Public Issue.

5. Ld. Sr. DR appearing for the department placed reliance on the order of the Assessing Officer and vehemently argued that the assessee had only filed copies of the ITRs and the balance sheets of the share applicants but had failed to produce the Managing Directors even after being specifically directed by the Assessing Officer. He further submitted that by merely filing the confirmatory letters and the relevant particulars, the assessee had not discharged the onus.

7. We have heard the Ld. Sr. DR and have also perused the records. We find from the order of the Ld. CIT(A) that Ld. CIT(A) has given a finding that the share application money was received through demand draft and the relevant details regarding the same were furnished during the course of assessment proceedings. Ld. CIT(A) has also noted that the assessee had filed the PAN Nos. of the share applicants along with the copy of ITRs, audited balance sheets, Memorandum and Articles of Association and also a copy of the applicant companies muster.

He has also noted that the assessee had produced copies of share certificates issued to the investor companies as well as copies of Form no. 2 filed with the Registrar of Companies. Ld. CIT(A) noted that the Managing Directors and the bank statements of the investor companies could not be produced by the assessee.

Thereafter, the Ld. CIT(A) has adjudicated the issue in para 6 of the impugned order which is being reproduced hereinunder for a ready reference:-

“6. I have carefully considered the assessment order as well as the submissions made by the Id. AR. From the facts as discussed above, I find that the appellant has furnished all relevant documents in support of its claim of having received the share application money from the 10 companies. It is established judicial position that in the matter of cash credit, the initial onus lies on the assessee to prove the genuineness of the transaction along with the Identity of the lender/investor and his creditworthiness. Having done so, the appellant in the instant case has discharged the onus cast upon it. Beyond this, for the charge of unexplained cash credit to stick, the onus lies on the AO to disprove the claim of the assessee by establishing that the evidence filed by the assessee was false and by bringing new material on record, which I find the AO has failed to do in this case. Further, I find that the Apex Court in CIT v Lovely Exports (P) Ltd. (2008) 216 CTR 195 held that the even if the share application money received by the appellant company is from alleged bogus shareholder, whose identity is produced by the appellant company, the revenue can always proceed against such shareholders and if necessary reopen their individual assessment. Following the aforesaid decision, the Hon'ble Mumbai High Court in the recent judgement in the case of CIT v Creative World Telifilms Ltd. (order dated 12.10.2009 in ITA(L) no. 2182 of 2009) has held as under: "The question sought to be raised in the appeal was also raised before the Tribunal and the Tribunal was pleased to follow the judgement of the Apex Court in the case of CIT vs. Lovely Exports (P) Ltd. reported in (2008) 216 CTR 195 (SC) wherein the Apex Court observed 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 can always proceed against them and if necessary reopen their individual assessments. In the case in hand, it is not disputed that the assessee has given the details of name and address of the shareholders, their PA/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the assessing officer to make proper investigation and reach the shareholders. The assessing officer did nothing except issuing summons which was ultimately returned back with an endorsement 'not tenable'. In our considered view, the assessing officer ought to have found out their details through PAN Card, Bank Account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the assessing officer. In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is involved in the appeal. In the result, the appeal is dismissed in limine with no order as to costs. "

Similar decision has also been taken by the Hon'ble Chatisgarh High Court in ACIT vs Venkateshwar Ispat Pvt. Ltd. (2009) 319 ITR 393. In view of the factual and legal position as discussed above and respectfully following the aforecited decision of the Hon'ble Apex Court and High Courts, I am of the opinion that the addition of Rs. 85,00,000/- made by the AO u/s 68 cannot be sustained. The same is, therefore, deleted.”

Therefore, we find no reason to interfere with the findings of the Ld. CIT(A) and respectfully following the ratio of the Ld. Apex Corut in the case of CIT vs Lovely Exports (supra), we uphold the orders of the Ld. CIT(A) and dismiss the grounds raised by the department.

Order pronounced in the Open Court on 30th August, 2017.