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Income Tax Appellate Tribunal, “A” BENCH : KOLKATA
Before: Hon’ble Shri A.T. Varkey, JM & Shri M.Balaganesh, AM ]
Per M.Balaganesh, AM
This appeal by the assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-9, Kolkata [in short the ld CIT(A)] in Appeal No.141/CIT(A)- 9/Cir-1(1)/2016-17/Kol dated 29.03.2017 against the order passed by the DCIT, Circle-1(1), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 25.03.2015 for the Assessment Year 2012-13.
The only effective issue to be decided in this appeal is as to whether the ld CITA was justified in upholding the addition of Rs 86,00,000/- u/s 68 of the Act in the facts and circumstances of the case.
2 ITA No.1519/Kol/2017 ABN Tower & Transmission Pvt. Ltd. A.Yr. 2012-13
The brief facts of this appeal are that the assessee is a private limited company engaged in the business of transmission line of power service station and civil work. The return of income for the Asst Year 2012-13 was filed by the assessee company on 30.9.2012 declaring total income of Rs 30,97,180/-. The ld AO observed that during the year under appeal, the assessee had allotted paid up share capital to the tune of Rs 86,00,000/-. The details of the same are as under:-
3.1. The assessee explained that it had received unsecured loans from all the aforesaid parties and that some of the parties had lent monies to the assessee in the earlier year and the same was carried over as opening balance during the year under appeal. On these loans, the assessee had paid interest up to the date of conversion of unsecured loans into equity share capital at face value. It was submitted that the interest paid on such unsecured loans was allowed as deduction by the ld AO in the earlier year. The details of the unsecured loans received and amounts converted into share capital
3 ITA No.1519/Kol/2017 ABN Tower & Transmission Pvt. Ltd. A.Yr. 2012-13 together with details of interest paid duly subjected to deduction of tax at source are as under:- Name Balance at Addition Converted Interest TDS Closing 31.03.2011 into Share balance as at Capital 31.03.20112 Balasaria 9,41,974.50 6,00,000.00 15,00,000.00 90,662.00 9,066.00 1,23,570.50 Holdings (P) Ltd. Datamatics 0.00 9,00,000.00 9,00,000.00 53,260.00 5,326.00 47,934.00 Infonet (P) Ltd. Dayanidhi 11,64,136.30 0.00 10,00,000.00 80,243.00 8,024.00 2,36,355.30 Real Estate (P) Ltd. Jiwandeep 10,66,304.07 0.00 10,00,000.00 68,471.00 6,847.00 1,27,928.07 Commercial (P) Ltd. Rose Merry 14,96,245.40 0.00 12,00,000.00 1,08,239.00 10,824.00 3,93,660.40 Marketing (P) Ltd. Dhanya 16,66,553.70 0.00 15,00,000.00 1,10,781.00 11,078.00 2,66,256.70 commosales (P) Ltd. Paramatama 3,86,060.00 0.00 3,00,000.00 28,503.00 2,850.00 1,11,713.00 Invest Advisory Services (P) Ltd. Sharda 12,22,636.00 0.00 12,00,000.00 75,315.00 7,531.00 90,420.00 Films (P) Ltd. Total 86,00,000.00 6,15,474.00 61,546.00
3.2. The assessee also stated that it had started its operations during financial year 2008- 09 and had been showing profits consistently on an increasing trend and had paid due taxes thereon. The details of the same are as under:-
Assessment Year Returned Income (Rs. ) 2009-10 1,39,050/- 2010-11 23,25,539/- 2011-12 8,61,316/-
4 ITA No.1519/Kol/2017 ABN Tower & Transmission Pvt. Ltd. A.Yr. 2012-13 2012-13 30,97,183/- 2013-14 49,82,161/- 2014-15 86,44,995/- 2015-16 1,35,76,104/- 2016-17 2,61,27,693/-
3.3. There were totally 8 loan creditors who had advanced loan to the assessee company. Out of this, 7 loan creditors had duly responded to the notice issued u/s 133(6) of the Act by filing the replies directly before the ld AO by enclosing their audited financial statements, PAN, source of funds for advancing monies to assessee company, bank statements, loan confirmation , letter of allotment of shares, details of interest received on loans from the assessee company and income tax return acknowledgement. These details were furnished for the following parties :-
(i) M/s Datamatics Infonet Private Limited (ii) M/s Jiwan Deep Commercial Private Limited (iii) M/s Rosemerry Marketing Private Limited (iv) M/s Dhanya Commosales Private Limited (v) M/s Sharda Films Private Limited (vi) M/s Balasaria Holdings Private Limited (vii)M/s Paramatama Invest Advisory Private Limited
The ld AO on going through some features of the financial status of the aforesaid parties / shareholders, concluded that the creditworthiness of the alleged shareholders is highly questionable and observed that they are almost not having any business activity and the taxable income for the Asst Year 2012-13 are substantially low. Later the ld AO issued summons u/s 131 of the Act to the director of the assessee company with a direction to produce the share subscribers and to prove the three ingredients of section 68 of the Act viz . identity of the creditors / shareholders , creditworthiness of the creditors / shareholders and genuineness of transactions, which, in the opinion of the ld AO , remain uncomplied with. The ld AO finally observed that due to complete non- compliance to the summons from the part of the assessee, the entire credit in the form of 4
5 ITA No.1519/Kol/2017 ABN Tower & Transmission Pvt. Ltd. A.Yr. 2012-13 share capital along with premium raised by the assessee to the tune of Rs 86,00,000/- during the year under consideration was to be treated as unexplained cash credit u/s 68 of the Act.
The ld CITA obtained remand reports from the ld AO wherein the ld AO observed that no fresh documents were furnished by the assessee and all the documents furnished in the remand proceedings were already on record before the file of the ld AO while framing the original assessment itself. Accordingly, the ld AO in the remand report vehemently supported the original assessment order and the addition made thereon in the sum of Rs 86,00,000/- u/s 68 of the Act. The ld CITA accordingly upheld the action of the ld AO. Aggrieved, the assessee is in appeal before us.
We have heard the rival submissions and perused the materials available on record including the paper book filed by the authorized representative of the assessee comprising of pages 1 to 109 of the Paper Book. At the outset, we find from the aforesaid tables, that the assessee company had not received any sum of money towards share capital during the year under consideration. We find that the assessee company had received unsecured loans from 8 parties and paid interest thereon. Out of these 8 parties, unsecured loans were received from 6 parties in the earlier year and were carried over as opening balance during the year under consideration. We find that the interest has been paid on these unsecured loans after duly subjecting the same to deduction of tax at source and the same were allowed as deduction by the ld AO in the earlier year as well as in the year under appeal. Moreover, during the year under appeal, the assessee company had received only a sum of Rs 15 lacs as unsecured loans as under:-
Balasaria Holdings P Ltd – Rs 6,00,000/- (who is already an existing loan creditor) Datamatics Infonet P Ltd – Rs 9,00,000/- (who is already an existing loan creditor)
6 ITA No.1519/Kol/2017 ABN Tower & Transmission Pvt. Ltd. A.Yr. 2012-13 6.1. Hence we hold that in any case, the addition u/s 68 of the Act could be made only for the amounts received during the year under appeal to the tune of Rs 15 lacs. However, this is also not required to be made in as much as these loans have been received from the existing loan creditors only, who had already advanced loans to the assessee in the earlier year and the same was accepted as genuine by the revenue. This is also further evident from the fact that the interest paid on such unsecured loans to all the loan creditors were duly allowed as deduction by the ld AO in the past as well as in the year under appeal. Hence the identity, creditworthiness of the loan creditors and genuineness of transactions were duly accepted by the revenue himself. Hence there cannot be any doubt on the three ingredients being satisfied by the assessee company in the instant case. We find that the assessee company had paid interest on unsecured loans to all the 8 parties upto the date of conversion of the loan amounts into equity. These unsecured loans were converted into equity share capital at par during the year to the tune of Rs 86,00,000/-. There is no share premium as wrongly stated by the ld AO in his order. Either way, there cannot be any addition towards the opening balance of unsecured loans by invoking the provisions of section 68 of the Act in the year under appeal. We find that the reliance placed by the ld AR on the decision of Hon’ble Karnataka High Court in the case of CIT vs Sridev Enterprises reported in 192 ITR 165 (Kar). We find that the reliance placed on the decision of Hon’ble Gujarat High Court in the case of DCIT vs Rohini Builders reported in 256 ITR 360 (Guj) is very well founded. We also find that the Hon’ble Jurisdictional High Court in the case of CIT vs J.J.Development (P) Ltd reported in 2016 (6) TMI 804 – Calcutta High Court in ITA No. 519/2008 dated 16.6.2016 had adjudicated the very same issue under dispute before us. The questions raised before the Hon’ble Jurisidictional High Court are as under:-
(a) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding out of Rs 95,00,000/-, Rs 76,98,000/- constituted of old loans being converted into share application money and since
7 ITA No.1519/Kol/2017 ABN Tower & Transmission Pvt. Ltd. A.Yr. 2012-13 ther was no fresh infusion of credit, section 68 of the Income Tax Act, 1961 is not applicable ?
(b) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in uphgolding the order of the Commissioner of Income Tax (Appeals) to the extent that the amount of Rs 76,98,000/- could not come under the purpose of section 68 ?
(c ) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal failed to consider that since the loan creditor has not given his consent to convert the unsecured loan to share application money treating the amount as cash credit under section 68 was justified ?
The Hon’ble High Court held as under:-
It is not the case of the revenue that any sum was found credited in the books of the assessee maintained for the previous year. We are, in this case, concerned with the financial year ending on March 31, 2003 which commenced on April 1, 2002. It is not the case of the revenue that during the period between April 1, 2002 and March 31, 2003, any sum was credited in the books of accounts of the assessee. The case of the revenue is that on April 1, 2002 , the assessee owed a sum of Rs 76,98,000/- to four several creditors. The debt owed by the assessee to those creditors was converted into share application money. It is as such not a case where money was introduced to the till of the assessee during the relevant previous year. The money had already found its way into the till of the assessee since prior to April 1, 2002. Only the nature of deposit had changed during the previous year. The money which was owed by the assessee by way of loan now became the capital of the assessee. We find that the views taken by the learned Tribunal are in conformity with section 68. Ms/ Quereshi has also not been able to disclose any reason why any other view should be taken by us.
In that view of the matter, questions (a) and (b) are answered in the affirmative and against the revenue.
In so far as question (c ) is concerned, Ms. Banerjee, learned Advocate appearing for the assessee, submitted that the revenue is not concerned nor can the revenue raise the question as to whether consent was obtained from the creditors. That is a question strictly between the assessee and its creditors. She added that it is not also the fact that consent was not obtained. She drew our
8 ITA No.1519/Kol/2017 ABN Tower & Transmission Pvt. Ltd. A.Yr. 2012-13 attention to paragraph 2 of the impugned judgement, wherein the learned Tribunal has recorded as follows :
“The A.O. sent notices under section 133(6) to the above persons and notices were served on the persons except M/s Ramsay International and a letter sent by registered post to M/s Ramsay International also returned unserved. All the other share applicants confirmed that they had applied for the shares of the company.”
It is submitted that just because one of the applicants of the shares chose to go back on his commitment, the issuance of shares in his favour cannot become bad. But that, in any case, is a matter of dispute between the assessee and M/s Ramsay International with which the revenue is not concerned.
We have considered the submissions advanced by Ms.Banerjee and are of the opinion that there is some force in her submission. In that view of the matter, we are of the opinion that question (c ) is not germane for the purpose of deciding the applicability of section 68. We are not called upon to decide the matter between the assesee and Ramsay International. Any observation if passed by us may adversely affect Ramsay International who is not present before us. We therefore refrain from answering question (c ).
In the result, the appeal fails and is dismissed.
6.2. We also find that the co-ordinate bench decision of this tribunal in the case of ITO vs Jellotic Supply Pvt Ltd in ITA No. 1972/Kol/2016 dated 5.7.2018 had held in favour of the assessee in similar circumstances . Similarly, this tribunal in the case of DCIT vs M/s Paramic Goods Pvt Ltd in ITA No. 1931/Kol/2016 dated 27.7.2018 had held as under:- “9. As held by the Hon’ble Delhi High Court in the case of Usha Stud Agricultural Farms Ltd. reported in 301 ITR 384 as well as by the Hon’ble Rajasthan High Court in the case of Parmeshwar Bohra reported in 301 ITR 404, the amount received by the assessee in the earlier year and not in the year under consideration and duly credited in the books of account of the assessee for such earlier year cannot be added under section 68 as unexplained cash credit for the year under consideration. In our opinion, the ratio of the said two judicial pronouncements is squarely applicable to the facts of the present case and the Ld. CIT(A) was fully justified in deleting the addition made by 8
9 ITA No.1519/Kol/2017 ABN Tower & Transmission Pvt. Ltd. A.Yr. 2012-13 the A.O. under section 68 during the year under consideration by treating the amount in question towards share capital and share premium which was received by the assessee company in the earlier year and not in the year under consideration. At the time of hearing before us, the learned DR has not disputed this factual position or even the applicability of the ratio of the said two judicial pronouncements relied upon by the Ld. CIT(A) while deleting the addition made by the A.O. under section 68.
10……………. 11. Respectfully following the decision of the coordinate bench of this Tribunal in the case of Geoletic Supply Pvt. Ltd. (supra) as well as that of Hon’ble Delhi High Court in the case of Usha Stud Agricultural Farms Ltd. (supra) and Hon’ble Rajasthan High Court in the case Parmeshwar Bohra (supra), we uphold the impugned order of the Ld. CIT(A) deleting the addition made by the A.O. under section 68 by treating the amount of share capital and share premium received during the earlier year as unexplained cash credits for the year under consideration.”
6.3. We find that this tribunal in the case of ACIT vs Bharat Kumar Jhawar in ITA No. 2100/Kol/2016 dated 25.5.2018 had held that no addition could be made for the opening balance i.e amounts brought forward from earlier years by observing as under:-
“3.3. We have heard the ld DR. We find that the ld CITA had given a finding that on examination of books and records, the unsecured loans of Rs 31,58,367/- were only brought forward from earlier assessment years by the assessee and that the same were not received during the year under appeal. This fact remain uncontroverted by the ld DR before us. Hence the provisions of section 68 of the Act cannot be applied at all for the year under appeal before us. Hence we hold that the ld CITA had rightly deleted the addition thereon which does not require any interference. Accordingly, the Ground No. 1 raised by the revenue is dismissed.”
6.4. At the cost of repetition, we would like to state that the interest paid on unsecured loans to all the loan creditors till the date of conversion of part of the amounts of the same into equity share capital were duly allowed as deduction by the ld AO. Hence there is no scope for treating the loan creditors / shareholders as ingenuine. We hold that the assesee had furnished all the required documents to prove that the identity of the creditors, creditworthiness of the creditors and the genuineness of transactions within
10 ITA No.1519/Kol/2017 ABN Tower & Transmission Pvt. Ltd. A.Yr. 2012-13 the meaning of section 68 of the Act in the instant case. All the creditors had duly filed confirmations before the ld AO . Merely because the summons issued seeking their personal appearance is not complied with, the entire transactions cannot be treated as bogus and cannot be doubted by the revenue, especially when the entire onus has been proved by the assessee in the facts of the instant case. In any case, we find that the assessee had only converted the unsecured loans with interest into equity share capital in part in the facts of the instant case. Out of total 8 loan creditors, the assessee had received loans from 6 parties in the earlier years and were carried over as opening balances during the year under appeal. Even the sum of Rs 15 lacs was received from 2 parties during the year were from existing loan creditors only and not new loan creditors. Hence the test of identity, creditworthiness of loan creditors and genuineness of transactions had already been tested and accepted by the revenue in the earlier year.
6.5. In view of the aforesaid observations in the facts of the instant case and respectfully following the various judicial precedents relied upon hereinabove, we hold that there is absolutely no case for making any addition u/s 68 of the Act in the sum of Rs 86,00,000/-. Accordingly, the grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 12.10.2018
Sd/- Sd/- [A.T. Varkey] [ M.Balaganesh ] Judicial Member Accountant Member
Dated : 12.10.2018 SB, Sr. PS
11 ITA No.1519/Kol/2017 ABN Tower & Transmission Pvt. Ltd. A.Yr. 2012-13 Copy of the order forwarded to: 1. ABN Tower & Transmission Pvt. Ltd., 10A, Hospital Street, Vinayak Chanbers, 2nd Floor, Room No. 206, Kolkata-700072. 2. DCIT, Circle-1(1), Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata- 700069. 3..C.I.T(A).- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.