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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
आयकर अपील�य अ�धकरण “ई” �यायपीठ मुंबई म�। IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI AMARJIT SINGH, JM आयकर अपील सं./ (�नधा�रण वष� / Assessment Year: 2010-11) The I.T.O-8(3)(2), M/s. Spartacus Farms Pvt. Ltd. 201, Aayakar Bhavan, 11-A, Gr. Floor, बनाम/ M. K. Marg, Mumbai-400 020 Technopolis Knowledge Park, Vs. Mahakali Caves Road, Andheri (E), Mumbai-400 093 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. AANCS 6632 A (अपीलाथ� /Appellant) (��यथ� / Respondent) : अपीलाथ� क� ओर से / Appellant by : Shri V. Justin ��यथ� क� ओर से/Respondent by : Shri Mihir Naniwadekar & Ms. Trupti Y. Katale सुनवाई क� तार�ख / : 30.11.2017 Date of Hearing घोषणा क� तार�ख / : 13.02.2018 Date of Pronouncement आदेश / O R D E R Per Shamim Yahya, A. M.:
This appeal by the Revenue is directed against the order by the Commissioner of Income Tax (Appeals) dated 26.02.2014 and pertains to the assessment year 2010- 11.
The grounds of appeal read as under:
(A.Y. 2010-11) M/s. Spartacus Farms Pvt. Ltd. i. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the addition of Rs. 6,64,32,810/-made u/s 68 of the Income Tax Act 1961 towards share application money shown to have received by the assessee from Ms. Rachna Fall Press, NRI". ii. " On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the ratio laid down by the Supreme Court in the case of CIT v/s P. Mohankala (291 ITR 278) that mere identification of the said source of funds and the movement of funds through banking channels is not sufficient to prove the creditworthiness of the said investgor. iii. On the facts and in the circumstances and in law, the Ld CIT(A) erred in not appreciating the fact that the burden of proof to establish that the investor had means & capacity to make such huge investment was not discharged at all by the assessee." iv. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in placing reliance on the judgment of Supreme Court in the case of Lovely Exports Pvt Ltd (216 ITR 195) (SC) without appreciating that the facts involved in this case cited supra are not applicable to the facts of the case of the assessee and are clearly distinguishable." v. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 6,64,32,810/- made u/s 68 of thel.T. Act towards share application money shown to have been received by the assessee company ignoring the ratio laid down by the juridictional Bombay High Court in the case of Major Metals Ltd. Vs. UOI (Writ Petition No. 397 of 2011, Order dated February 22, 2012). vi. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating that the amount shown to have received as share application money has to be taxed as income of the assessee company from undisclosed sources since the assessee had failed to substantiate the nature and source of this sum with cogent evidences to rebut the presumption drawn against the assessee under the provisions of section 68 of the Income Tax Act 1961". vii. " The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the A.O. be restored."
Brief facts of the case are as under:
(A.Y. 2010-11) M/s. Spartacus Farms Pvt. Ltd. The assessee company is having two directors 1. Mr. Jerxis K. Vandrevala having 9999 shares and 2. Mr Ajay K. Bali having 1 share. The share capital of the assessee company is of Rs.1,00,000/- (10000 shares each of face value of Rs.10/-). On the perusal of the Balance sheet of the assessee as at 31.03.2010 it was found by the Assessing Officer that the assessee company had received a sum of Rs.6,64,32,910/- by way of share application money. The details regarding the same were called for during the assessment proceedings. The ld. Counsel of the assessee vide letter date 23.08.2012 stated therein that the entire said share application money was received from Ms. Rashna Fali Press, an UAE based NRI and submitted a Certificate of Foreign Inward remittance. The assessee also submitted a copy of acknowledgment of return of income for assessment year 2010-11 of Ms. Rashna Fali Press wherein she had declared a total income only of Rs.5,03,220/-, however, copy of her Balance Sheet and Capital Account was not submitted and a confirmation letter from Ms.
Rashna Fali Press was submitted wherein her address was mentioned as P.O. Box no 42211, Deira Dubai, UAE. Besides, the assessee submitted the copy of Indian Passport issued to the assessee wherein the address of the assessee was mentioned at Colaba, Mumbai. The Assessing Officer was of the opinion that since the income of the Ms. Rashna Fali Press was very meager as compared to the amount advanced by way of share application money amounting to Rs.6,64,32,910/- and the representative of the assessee vide order sheet noting dated 10.10.2012 was asked to give details and evidence regarding the capacity of Ms. Rashna Fali Press to give the advance.
(A.Y. 2010-11) M/s. Spartacus Farms Pvt. Ltd. 4. In response to the above, the assessee submitted that the assessee had received the money which has been substantiated both by assessee company and the statutory government body i.e. RBI and the nature of receipt is share application money and the source of the receipt is Ms. Rashna Fali Press and the assessee company has offered complete explanation of the nature and source of the transaction by providing identity of the transaction like inward remittance certificate, allotment of shares and name and address of the person including her PAN from whom the said credits have been received. That the assessee also relied on various judicial pronouncements namely CIT vs. Lovely Exports Pvt. Ltd. (SC) (216 CTR 195), CIT vs. M/s. Stellar Investments Company Ltd. (251 ITR 263) (SC), CIT v/s P. Mohankala (2007) 291 ITR 278 (SC) and also various other rulings of various High Courts and the Apex Court and stated that an analysis of the various judgement goes to show that assessee's burden is restricted to establish the existence of the share holders and not the capacity/ability.
Subsequently, the Assessing Officer asked the assessee to give the details of business activities of Ms. Rashna Press, her bank statement from which the funds have been given by her to the assessee company. The assessee did not submit the details thereof and submitted that the assessee was relying on the Hon’ble Supreme Court decision in the case of Lovely Exports Pvt. Ltd. (supra). The Assessing Officer observed that despite several particulars, the assessee has not submitted any detail about the creditworthiness of the assessee. Hence, he held that the assessee has not (A.Y. 2010-11) M/s. Spartacus Farms Pvt. Ltd. discharged its burden with regard to the creditworthiness. The Assessing Officer distinguished the decision relied upon by the assessee. He referred to the provision of section 68 of the I. T. Act and observed that Section 68 confers upon the Assessing Officer discretionary powers in respect of the nature and source of the amount credited in the books of the assessee. That in other words if the Assessing Officer is of the opinion that the explanation offered regarding the sum credited in the books of the assessee is not satisfactory, then in such cases the Assessing Officer can invoke the provisions of section 68. That in the instant case the explanation offered by the representative of the assessee is not satisfactory. Thus, Section 68 of the I.T. Act takes within its ambit the lending capacity of the person advancing the funds, but the assessee has restricted the said section only to the extent of giving the nature of income and the source from whom the money is received. That the question regarding the financial capacity of the person advancing the money which is an essential ingredient remains untouched. That there is no dispute that the money is received from Ms. Rashna Fali Press and is in form of share application money and the assessee is not discharged of its burden to prove the capacity of the share applicant to advance such huge funds. The Assessing Officer further referred to several case laws as under:
1. 1. CIT vs. P. Mohankala (2007) 161 Taxman 169 (SC) 2. Mr. Kale Khan Mohammad Hanif vs. CIT 50 ITR 1 (SC) 3. M/s. Precision Finance Pvt. Ltd.
4. Orient Trading Co. Ltd. vs. CIT 49 ITR 723
(A.Y. 2010-11) M/s. Spartacus Farms Pvt. Ltd. 5. R. B. Mittal vs. CIT 165 CTR 366 6. CIT vs. Nova Promoters & Finlease (P) Ltd. order dated 15.2.2012 7. Ld. Departmental Representative. D. Siva Sankara Rao vs. ITO dated 27.11.2012
The Assessing Officer concluded as under: 6. If the totality of the facts and judicial pronouncements discussed above are kept in juxtaposition, it is clear that the initial burden is upon the assessee to explain the nature and source of share application money received by the assessee. In order to discharge its burden, the assessee is required to prove The identity of the share holder, The nature and genuineness of the transaction, and the Creditworthiness of the Share applicant and the burden to prove credit worthiness is heavier in case the share application money is received by the Private limited Company. 7.0 To summarize the case Ms. Rashna Fall Press is a non-resident Indian residing in Dubai and has advanced an amount of Rs. 6,64,32,910/- by way of share application money to the assessee company. In this case the assessee has only submitted a copy of acknowledgment of filing return of income for AY 2010-11 of Ms.Rashna Fali Press wherein she has shown to have earned a meager income of Rs.5,03,220/- which is not in proportion to the money advanced by way of share application. The copies of her Capital a/c, Balance Sheet, bank statement etc were not submitted. Besides this, the assessee has not filed any details/evidence as to her activities in Dubai and her source of income in Dubai to substantiate her financial capacity. 7.1 The address mentioned in her confirmation letter was of P.O. Box at Dubai and her address in the documents submitted by the assessee to RBI, was mentioned as Taj Palace Hotel, Apt 1054, Al Rigga Road, P.O. Box 4221, Deira Dubai. There is no evidence as to the permanent address of residence/office of Ms.Rashna Fali Press in Dubai as it is not submitted by the assessee. 7.2 Furthermore, it will be pertinent to note that Ms. Rashna Fali Press is the only person who has paid share application money to the assessee and in the subsequent year she became the major shareholder with 99.85% shares of the assessee company.
(A.Y. 2010-11) M/s. Spartacus Farms Pvt. Ltd. 7.3 The assessee was given several opportunities to prove the creditworthiness of Ms. Rashna Fali Press as discussed in para no 3.1 above, however the assessee did not file any details. The assessee has not submitted any evidence to show as to how Ms. Rashna Fali Press earning meager income of Rs.5,03,220/- could advance a huge sum of Rs.6,64,32,910/- as share application money to the assessee. This proves that though the onus was on the assessee to prove the creditworthiness of Ms. Rashna Fali Press, the assessee was unable to do so. In fact the assessee did not give any explanation as to why it was not submitting any details/evidence regarding credit worthiness of M/s Rashna Fali Press. Merely receiving payment through banking channel does not reflect the true nature of transaction. The assessee's claim that it has received the share application money by banking channel therefore it is genuine cannot be accepted as correct. It is for the assessee to prove the true nature of transaction. Mere payment my cheque through banking channel does not explain the true nature of transaction. The Hon'ble Calcutta High Court decision in case of M/s.Precision Finance Pvt. Ltd. wherein it was held that it is not sufficient for an assessee to disclose that credits in their books had been received through banking channels; the identity as well as credit worthiness of the creditor must nevertheless be proved. In the said order it was reported that "mere payments by account payee cheque is not sacrosanct nor can make a non genuine transaction genuine." In view of these facts, the assessee has failed to explain as to the correct nature of transaction and creditworthiness of the creditor.
In view of the above facts and discussion, it is clear that the assessee has not discharged its onus to prove that the sum credited in its books of account amounting to Rs.6,64,32,910/- towards share application money, as the burden to prove the same was on the assessee and the explanation offered by the assessee is not satisfactory as discussed above and therefore the sum credited in the books of accounts amounting to Rs.6,64,32,910/- is added to the total income u/s 68 of the I.T. Act.
Upon the assessee’s appeal, the ld. Commissioner of Income Tax (Appeals) noted that the assessee has submitted additional evidence which were admitted and sent back to the Assessing Officer for verification. The assessee’s rejoinder on the remand report of the Assessing Officer was also obtained by the ld. Commissioner of Income Tax (Appeals). The ld. Commissioner of Income Tax (Appeals) noted that in (A.Y. 2010-11) M/s. Spartacus Farms Pvt. Ltd. the additional evidence, the assessee has submitted a statement from a CA firm in UAE. The ld. Commissioner of Income Tax (Appeals) was of the opinion that there is no requirement of submitting balance sheet and profit and loss account in UAE.
Hence, the ld. Commissioner of Income Tax (Appeals) placed emphasis on the said CA certificate that Ms. Rashna Fali Press had net worth of 50 US Million Dollars.
This he considered sufficiently discharged the onus of creditworthiness of Ms. Rachna Fali Press. He further noted that it has been submitted that Ms. Rachna Fali Press was maintaining bank account with HDFC and Dubai Commercial Bank. He also noted that the amount was received as share application money which was confirmed from FIRC certificate. Hence, the ld. Commissioner of Income Tax (Appeals) held that the assessee has discharged the onus and he set aside the order of the Assessing Officer and deleted the addition.
8. Against this order, the Revenue is in appeal before us.
We have heard the counsel and perused the records. The ld. Departmental Representative submitted that the assessee company has received advance of Rs.6.64 crores towards share application money from Ms. Rashna Fali Press. He submitted that the said person is said to be a non residential Indian resident in Dubai. The ld. Departmental Representative submitted that as noted by the Assessing Officer, the address of the said person is not backed by proper evidence. He submitted that the said person has shown meager income of Rs.5,03,220/-. Hence, he submitted that the (A.Y. 2010-11) M/s. Spartacus Farms Pvt. Ltd. Assessing Officer has rightly observed that the said person has no creditworthiness to grant an advance of Rs.6.64 crores. He further submitted that no balance sheet and profit and loss account was submitted. Hence, he submitted that there is no basis for justification of creditworthiness of the said person. Hence, he submitted that the order of the Assessing Officer be restored.
Per contra, the ld. Counsel of the assessee submitted that the assessee has discharged the onus by submitting the CA certificate from UAE. He submitted that the ld. Commissioner of Income Tax (Appeals) has rightly appreciated the matter. The transaction has been through banking channel. Hence, he pleaded that the case laws relied upon and referred by the ld. Commissioner of Income Tax (Appeals) also supports the case of the assessee. Hence, he pleaded that the order of the ld. Commissioner of Income Tax (Appeals) should be sustained.
We have carefully considered the submission and perused the record. We find that in this case, the assessee company has received share application money of Rs.6.64 crores from Ms. Rashna Fali Press, UAE based NRI. The Indian address of the said person is in Colaba, Mumbai. The address abroad as noted by the Assessing Officer in her confirmation letter was of PO Box at Dubai. In correspondence with R.B.I. the address shown was Taj Palace Hotel, Apt 1054, Al Rigga Road, P.O. Box 4221, Deira Dubai. Thus, the Assessing Officer has found that there is no proper evidence as to the permanent address of the resident/office of Ms. Rachna Fall Press
(A.Y. 2010-11) M/s. Spartacus Farms Pvt. Ltd. in Dubai. The above detail duly corroborates the finding of the Assessing Officer in this regard. Furthermore, the return of income of Ms. Rachna Fall Press shows a meager income of Rs.5,03,220/-. This meager income by no stretch of imagination justifies her creditworthiness to grant advance of Rs.6.64 crores for share application money. No capital account, balance sheet, bank statement, etc. has been submitted in support of her creditworthiness. The assessee before the Assessing Officer has clearly stated that there is no requirement for proving the creditworthiness of the said person to grant Rs.6.64 crores as share application money. It was only before the ld. Commissioner of Income Tax (Appeals) that a statement from a consultant was given providing the net worth of US Dollar 50 million. Great emphasis has been given by the ld. Counsel of the assessee and the ld. Commissioner of Income Tax (Appeals) towards the said certificate given by the consulting firm which reads as under:
DATE: 26/01/2013
To Ms. Rashna Fall Press Add: Taj Palace Apartments Dubai : United Arab Emirates
This is to confirm we have known you (Ms Rashna Pali Press) for the 5 years and are familiar with your finances.
Based on the information available with us we hereby certify that your net worth as on 31st January 2013 was in excess of USD 50,000,000 (United States Dollars Fifty million).
The letter was issued at your request without any responsibility we have towards the rights of others. With kind regards, Yours sincerely,
(A.Y. 2010-11) M/s. Spartacus Farms Pvt. Ltd. Sd/- International Auditing & Consulting Center
By no stretch of imagination, the above can be said to be an evidence of creditworthiness of Ms. Rachna Fall Press to grant an advance of Rs.6.64 crores. No balance sheet or capital account of the said person has been submitted. The said certificate only shows that based on the information available, her net worth is US Dollar 50 million. What is the said information has not at all been specified. It is well known that Dubai/UAE has no financial regulatory network. Hence, the credence to such a vague certificate devoid of any detail cannot be given. Another evidence given by the ld. Counsel of the assessee is following account confirmation from Abu Dhabi Commercial Bank, which reads as under:
Dear Sir,
Subject: Account Conduct Confirmation CID NO : 421726
This is to confirm that Ms. Rashna Pali Press has been maintaining an account relationship with Abu Dhabi Commercial Bank since November 22, 2006 and till date the conduct of her accounts have been satisfactory.
This certificate is issued as per our client's request and is without any risk or responsibility on the part of the Bank or any of its officers.
How maintenance of account with a bank confirms the creditworthiness of the said person to grant share application of Rs.6.64 crores is beyond our comprehension.
None prevented the assessee from obtaining the statement of financial accounts/balance sheet which could have given undeniable evidence of her creditworthiness. The assessee has also not furnished the bank statement of said
(A.Y. 2010-11) M/s. Spartacus Farms Pvt. Ltd. person. Reluctance on the part of the assessee and the said person to give proper evidence of the creditworthiness and also the failure to submit the copy of the bank statement clearly proves that the assessee has not discharged the onus of proving the creditworthiness. It is clear that the said Ms. Rashna Fali Press has not given proper details to justify the creditworthiness to grant the said advance of Rs.6.64 crores.
The decision of Hon’ble Apex Court in the case of Lovely Exports (supra) relied upon by the ld. Counsel of the assessee and the ld. Commissioner of Income Tax (Appeals) was rendered on the totally different facts. Those were cases of corporate Indian entities granting share application, which is not at all the case here.
The decision of Hon’ble Apex Court in the case of CIT vs. Smt. P. K. Noorjahan [1999] 237 ITR 570 (SC) relied upon by the ld. Commissioner of Income Tax (Appeals) is also not applicable. The said case law by no stretch of imagination lays down that the Assessing Officer should accept the creditworthiness when there is clear lack of evidence in this regard. The ld. Commissioner of Income Tax (Appeals) emphasis that there is no requirement of preparation of balance sheet and profit and loss account in UAE by no stretch of imagination can prevent the Assessing Officer for asking for the same which are the basic requirement for proving the creditworthiness. It is the lack of such regulatory provision that UAE was classified into black list of tax haven jurisdictions by Organisation for Economic Co-operation and Development (OECD). Hence, this cannot be the reason to grant relief out of the (A.Y. 2010-11) M/s. Spartacus Farms Pvt. Ltd. way to the assessee. Thus, the assessee has failed to prove the creditworthiness in this transaction. The Hon’ble Apex Court in Kale Khan Mohammad Hanif vs. CIT [1963] 50 ITR 1 (SC) has expounded that the onus is on the assessee to establish the onus of providing the source of a sum of money found to have been received by him. Similarly, the Hon’ble Apex Court in CIT vs. P. Mohankala [2007] 161 Taxman 169 (SC) also reiterated that the burden is on the assessee to prove regarding the sum credited in his bank account is not its income. The Hon'ble Bombay High Court in Orient Traing Co. Ltd. vs. CIT [1963] 49 ITR 723 (Bom) has held that if the credit entry is in the books of the assessee which stands in the name of assessee’s wife, children or any other relative or friend, the burden lies on the assessee to explain satisfactorily the nature and source of the entry. In the background of the aforesaid discussion and precedent, we set aside the order of the ld. Commissioner of Income Tax (Appeals) and restore that of the Assessing Officer.
In the result, the Revenue’s appeal is allowed. प�रणामतः राज�व क� अपील �वीकृत क� जाती है । Order pronounced in the open court on 13.02.2018