ITO 9(2)(2), MUMBAI vs. KENNIGTON FABRICS P. LTD, MUMBAI

The present appeal filed by the revenue is directed against the order passed by the Commissioner of Income Tax (Appeals)-20, Mumbai, dated 28.09.2010, which in itself arises from the order passed by the A.O under Sec. 144 r.w.s 147 of the Income-tax act, 1961 (for short ‘Act’), dated 30.09.2009. The revenue has assailed the 2 ITO vs. Kennington Fabric P. Ltd. order of the CIT(A) by raising before us the following grounds of appeal: “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 67,45,000/- which represents the amount of unexplained cash credit taxed u/s 68 of the I.T Act, 1961, without appreciating the fact that the assessee has not satisfactorily discharged the primary onus of proving the identity of the creditors, their creditworthiness and the genuineness of the transaction.

Briefly stated, the facts of the case are that the assessee company which is engaged in the business of manufacturing of grey cloth had filed its return of income for A.Y 2004-05 on 06.10.2004, 3 ITO vs. Kennington Fabric P. Ltd. declaring total income of Rs. 60,490/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the assessment was framed under Sec. 143(3) on 03.11.2006 and the returned income of the assessee was accepted.

The A.O while framing the regular assessment observed that the assessee had received share application money to the tune of Rs. 67,45,000/- from various parties. The A.O in order to verify the factual position issued notices under Sec. 133(6) to the aforesaid parties. In response, the counsel for the assessee, viz. M/s S. Kumar & A. Kumar, Chartered accountants, vide their letter dated. 14.09.2006 (filed with the A.O on 15.09.2006) placed on record the documents and details of shares application money alongwith the copies of returns of income, capital accounts and balance sheets of the following share applicants: S.No. Particulars Amount 1. Mrs. Ranjana Rungta Rs. 18,65,000/- 2. Mr. Mahendra Rungta Rs. 14,00,000/- 3. Mr. Ankush Rungta Rs. 10,00,000/- 4. Mr. Bharat Rungta Rs. 15,00,000/- The A.O observed that a perusal of the capital accounts of the aforesaid parties revealed that they had made investments towards share application money with the assessee company. The A.O having no reason to doubt the veracity of the aforesaid documents accepted the same and concluded the assessment on 03.11.2006. However, prior to culminating the assessment, the A.O on 12.10.2006 intimated the fact as regards the investments made by the aforesaid parties to the A.O’s having the jurisdiction over their respective cases.

That as on 01.06.2007 the Inspector attached with the ITO-Ward 2(2), Thane, furnished with the A.O the acknowledged copy of return of income, computation of total income and balance sheet of one of the share applicant, viz. Sh. Bharat Kumar Rungta. That to the utter surprise of the A.O the balance sheet did not reveal any investment made by Sh. Bharat Kumar Rungta by way of share application money with the assessee company. That on the basis of the aforesaid facts the A.O procured the balance sheets and capital accounts of the remaining three parties, viz. (i). Mrs. Ranjana Rungta; (ii). Mr. Mahendra Rungta; and (iii). Mr. Ankush Rungta from their respective A.O’s with whom they were being assessed. That a perusal of the balance sheets and capital accounts of the aforesaid persons also did not reveal any investment made by them towards share application money with the assessee company. That in the backdrop of the facts as had so emerged, the A.O cross verified the aforesaid details gathered by him, as against those which were filed with him at the time of framing of assessment in the case of the assessee. The A.O observed that the assessee in order to suit its requirement and to establish that the share application money was received from the aforementioned parties and the transactions were genuine, had manipulated the accounts and had during the course of the assessment proceedings furnished fabricated statements before him. Still further, Sh. Bharat Kumar Rungta (supra) in his statement which was recorded by the A.O on 06.06.2007 denied having any knowledge of investment madewith the assessee company.

That on the basis of the aforesaid information the case of the assessee was reopened and a Notice u/s 148 was issued on 19.12.2008. The A.O on the basis of information in respect of the persons from whom the assessee had during the course of framing of 5 ITO vs. Kennington Fabric P. Ltd. the assessment claimed to have received share application money, as under:-

Aggrieved, the assessee carried the matter in appeal before the CIT(A). The assessee submitted before the CIT(A) that as the main director of the assessee company, viz. Sh. Rajiv Tulsiyan during the course of the assessment proceedings was not available in India, therefore, the requisite details as regards the source of the share application money could not be furnished with the A.O. The assessee further disowned the reply that was placed on record by its earlier counsel, viz. Sh. Sashi Agarwal, Chartered accountant, as regards the details of the persons from whom share application money was stated to have been received by the assessee company during the year under consideration, viz. A.Y. 2004-05. Rather, the assessee expressing its unawareness as regards the said details and the reason for furnishing 6 ITO vs. Kennington Fabric P. Ltd. of such wrong information by its earlier counsel, viz. Sh. Sashi Agarwal, distanced itself from the same. The assessee submitted before the CIT(A) that the share application money of Rs. 67,45,000/- was received from only one person, viz. Shri. Shashinath Ramnagina Tiwari, Proprietor of M/s Dhanlaxmi Industries. The assessee in order to fortify its aforesaid claim submitted that the share application money was received through bank and was thereafter refunded in the subsequent year through bank. The assessee in order to remove any scope of doubt as regards the genuineness of the aforesaid transaction, submitted with the CIT(A) the confirmation of the share applicant, bank statements of its own and that of the share applicant, copy of PAN card of Shri. Shashinath Ramnagina Tiwari, Sales tax registration certificate of M/s Dhanlakshmi Industries and the copy of its audited accounts for the subsequent year. The CIT(A) being of the view that as the A.O had not afforded sufficient opportunity to the assessee to furnish relevant evidence as regards the issue under consideration, coupled with the fact that the director of the assessee company, viz. Sh. Rajiv Tulsiyan during the course of the assessment proceedings was not available in India, therefore, admitted the additional evidence and called upon the A.O to furnish its report as regards the same.

The A.O in his remand report submitted before the CIT(A) that the assessee had placed on record the resolution passed by the board of directors as regards the share application money, copy of return of income of Shri. Shashinath Ramnagina Tiwari and the copy of the bank statement supporting the transaction of receipt of share application money from the said person. However, it was submitted by the A.O that all his efforts to summon Shri. Shashinath Ramnagina Tiwari had gone in vain. The A.O further objected to the shifting stand as regards the source of the share application money submitted by the 7 ITO vs. Kennington Fabric P. Ltd. assessee for the first time in the course of the appellate proceedings. The assessee in its rejoinder submitted that the managing director of the assessee company, viz. Sh. Rajiv Tulsiyan had furnished with the A.O his ‘Affidavit’ in support of his statement recorded under Sec. 131 of the Act. That as regards the non-production of Sh. Sashi Agarwal, C.A (the earlier counsel of the assessee), it was submitted by the assessee that as he was removed from the job and was no longer associated with it, therefore, his present whereabouts were not to the knowledge of the assessee. However, the assessee submitted that the address and telephone number of Sh. Sashi Agarwal, as available with it, was furnished with the A.O during the course of the remand proceedings. Similarly, it was submitted that as the assessee had refunded the share application money to Shri. Shashinath Ramnagina Tiwari during the period 2004-05, therefore, it was no more in touch with him. The assessee however submitted that as the copy of the return of income, PAN Number, bank statement and Sales tax registration certificate of the proprietary concern, viz. Dhanlakshmi Industries of Sh. Shashinath Ramnagina Tiwari was furnished with the A.O, therefore, the onus cast upon it was duly discharged. That as regards the objection of the A.O that the name of the share applicant, viz. Shri Shashinath Ramnagina Tiwari did not find any mention in the audit report, it was submitted by the assessee that as per the format prescribed under Sec. 211(3C) of the Companies Act, there was no obligation on the assessee of mentioning the name of either the shareholder or the share applicant in the audit report. The assessee in the backdrop of the aforesaid facts submitted that the onus cast upon it as regards establishing the identity and creditworthiness of Shri Shashinath Ramnagina Tiwari was duly discharged.

The CIT(A) after deliberating on the contentions of the assessee though observed that the reason as to why wrong details of the share 8 ITO vs. Kennington Fabric P. Ltd. applicants was furnished by the earlier counsel, viz. Sh. Sashi Agarwal, C.A was beyond comprehension, but however, took cognizance of the fact that the assessee had deposed that the furnishing of the said wrong details by the counsel was not to its knowledge. The CIT(A) noticed that the transactions purportedly in the name of 8 alleged share applicants did not find place in the duly audited books of account of the assessee. The CIT(A) observed that on the contrary the assessee had claimed that the share application money of Rs. 67,45,000/- was received through banking channel from a single individual, viz. Shri Shashinath Ramnagina Tiwari, and the said transaction was recorded in its books of account. The CIT(A) observed that the a perusal of the records revealed that the share application money of Rs. 67,45,000/- was received by the assessee company through interbank transfers with Vijaya Bank on various dates during the period 22.09.2003 to 05.03.2004. The CIT(A) further took cognizance of the resolution passed by the board of directors of the assessee company on 12.09.2003, which authorised the assessee company to accept the share application money from Shri Shashinath Ramnagina Tiwari. The CIT(A) observed that it could safely be concluded that the furnishing of wrong particulars by its earlier counsel, viz. Sh. Sashi Agarwal was not to the knowledge of the assessee.

The CIT(A) after deliberating on the aforesaid facts did find favour with the contentions of the assessee. The CIT(A) observed that the assessee in order to drive home its explanation as regards the source of the share application money of Rs. 67,45,000/- so received by it, had placed on record irrefutable documentary evidence in support thereof, viz. (i). the boards resolution authorizing acceptance of share application money from Shri Shashinath Ramnagina Tiwari; (ii). that amount of share application money was received by way of 9 ITO vs. Kennington Fabric P. Ltd. interbank transfer of funds from current accounts maintained with Vijaya bank, Bhuleshwar branch, Mumbai; (iii). that Shri Shashinath Ramnagina Tiwari who is holding PAN ACTPT7537J had confirmed the transaction; (iv). the assessee had placed on record the return of income for A.Y 2004-05 that was filed by Shri Shashinath Ramnagina Tiwari for the year under consideration with the ITO 15(2)(1), Mumbai; (v). that Shri Shashinath Ramnagina Tiwari had disclosed the fact of payment of share application money to the assessee company in his return of income; (vi). the entire share application money was refunded to Shri Shashinath Ramnagina Tiwari in the next year again by way of interbank transfer; and (vii). the audited financial statements of the assessee for the F.Y. 2004-05 disclosed the reduced share application money. The CIT(A) being persuaded by the aforesaid facts concluded that as the assessee had duly discharged the onus cast upon it and had established beyond doubt that the amount of share application money was received from Shri Shashinath Ramnagina Tiwari, therefore, deleted the addition of Rs. 67,45,000/- made by the A.O and allowed the appeal.

The revenue being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. The ld. Departmental representative (for short ‘D.R’) taking us through the facts of the case, drew our attention to Page 2 – Para 4 of the assessment order. The ld. D.R further took us through the order of the CIT(A) and submitted that he had wrongly deleted the addition made by the A.O. The ld. D.R in support of his contention relied on the judgment of the Hon’ble High Court of Calcutta in the case of CIT Vs. Precision Finance Pvt. Ltd. (1994) 208 ITR 465 (Cal) and that of the Hon’ble High Court of Delhi in the case of CIT Vs. Jansampark Advertising and Marketing (P) Ltd. (2015) 375 ITR 373 (Del). Per contra, the ld. Authorised representative (for short ‘A.R’) for the assessee relied on the order of 10 ITO vs. Kennington Fabric P. Ltd. the CIT(A). It was submitted by the ld. A.R that the CIT(A) duly appreciating the fact that the assessee had established beyond doubt that the amount of share application money of Rs. 67,45,000/- was received from Shri Shashinath Ramnagina Tiwari, had therefore rightly deleted the addition made by the A.O. The ld. A.R submitted that as the appeal of the revenue was devoid of any merit, therefore, the same may be dismissed.

We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the present appeal has been sought to adjudicate as to whether the CIT(A) is right in law and facts of the case in concluding that the amount of Rs. 67,45,000/- received by way of share application money by the assessee could not be characterised as an unexplained cash credit within the meaning of Section 68 of the Act. We have deliberated on the facts of the case and have given a thoughtful consideration to the issue before us. We find that it remains as a matter of fact borne from the records that as the explanation of the assessee as regards the source of the share application of Rs. 67,45,000/- was found to be false, on the basis of information gathered by the A.O after the earlier assessment proceedings had culminated into an order under Sec. 143(3), dated. 03.11.2006, therefore, the case of the assessee was validly reopened under Sec. 147 of the Act.

We are of the considered view that though an assessee cannot be permitted to distance himself from the explanation and material furnished by his duly authorised counsel before the revenue authorities, but in the present case we find ourselves to be in agreement with the view taken by the CIT(A) that the assessee had been able to show that the explanation of its earlier counsel, viz. Sh.

We have deliberated at length on the aforesaid facts and find ourselves to be in agreement with the view taken by the CIT(A) that the false explanation as regards the source of the share application money of Rs. 67,45,000/- that was tendered by the earlier counsel, viz. Sh.

We find that the aforesaid documents which were in the nature of an additional evidence were rightly admitted by the CIT(A) for the reason that the A.O had not afforded sufficient opportunity to the assessee to furnish relevant evidence as regards the issue under consideration. We find that the A.O in his remand report had doubted the veracity of the transaction under consideration for the reason that despite directions the assessee had failed to produce before him Shri. Shashinath Ramnagina Tiwari and its earlier counsel, viz. Sh. Sashi Agrawal. We find substantial force in the contention of the assessee that as Sh. Sashi Agarwal, C.A (the earlier counsel of the assessee) was removed by the assessee from the job and was no longer 13 ITO vs. Kennington Fabric P. Ltd. associated with the assessee, therefore, his present whereabouts were not to the knowledge of the assessee. We however find that the assessee had during the course of the remand proceedings furnished with the A.O the address and telephone number of Sh. Sashi Agarwal, as available with him. We are also persuaded to accept the claim of the assessee that as the share application money was refunded to Shri Shashinath Ramnagina Tiwari during the period 2004-05, therefore, it was no more in touch with him. We find that the assessee in order to substantiate the genuineness and veracity of the aforesaid transaction had placed on record irrefutable documentary evidence in support thereof, viz. (i). the boards resolution authorizing acceptance of share application money from Shri Shashinath Ramnagina Tiwari; (ii). that amount of share application money was received by way of interbank transfer of funds from current accounts maintained with Vijaya bank, Bhuleshwar branch, Mumbai; (iii). that Shri Shashinath Ramnagina Tiwari who is holding PAN ACTPT7537J had confirmed the transaction; (iv). the assessee had placed on record the return of income for A.Y 2004-05 that was filed by Shri Shashinath Ramnagina Tiwari for the year under consideration with the ITO 15(2)(1), Mumbai; (v). that Shri Shashinath Ramnagina Tiwari had disclosed the fact of payment of share application money to the assessee company in his return of income; (vi). the entire share application money was refunded to Shri Shashinath Ramnagina Tiwari in the next year again by way of interbank transfer; and (vii). the audited financial statements of the assessee for the F.Y. 2004-05 disclosed the reduced share application money amount. We have given a thoughtful consideration to the contentions advanced by the aforesaid representatives for both the parties in the backdrop of the orders of the lower authorities and the material produced before us. We are of the considered view that as the assessee had duly discharged the onus 14 ITO vs. Kennington Fabric P. Ltd. cast upon it and established beyond doubt that the amount of share application money was received from Shri Shashinath Ramnagina Tiwari, therefore, the CIT(A) had rightly struck down the addition of Rs. 67,45,000/- made by the A.O by treating the same as an unexplained cash credit in the hands of the assessee.

Before parting, we may herein observe that the judicial pronouncements relied upon by the ld. D.R are distinguishable on facts. We find that in the case of CIT Vs. Precision Finance Pvt. Ltd. (1994) 2008 465 (Cal) the assessee despite being afforded opportunity for a period of 7½ years had failed to substantiate the genuineness of the loan transactions under consideration. Still further, the verifications made by the inspector of income-tax revealed that except for in two cases, in all the remaining cases neither their records were available, nor the said parties were available at the addresses provided by the assessee. We are of the considered view that it was in the backdrop of the aforesaid facts that the High Court had concluded that if the identity of the creditors had not been established, the question of proving the genuineness of the transactions or the creditworthiness of the creditors could not arise at all. We find that the Hon’ble High Court while dislodging the order of the Tribunal observed that merely because the transactions were through the bank account, it could not be presumed that the same were genuine. We are of the considered view that as in the case before us the assessee had duly established beyond doubt that the share application money of Rs. 67,45,000/- was received from Shri. Shashinath Ramnagina Tiwari, therefore, the reliance placed by the ld. D.R on the aforesaid judgment, which as observed by us hereinabove is distinguishable on facts would not assist the case of the revenue. Similarly, the judgment of the Hon’ble High Court of Delhi in the case of CIT Vs. Jansampark Advertising and Marketing (P) Ltd. (2015) 375 ITR 373 (Del) relied 15 ITO vs. Kennington Fabric P. Ltd. upon by the ld. D.R is also found to be distinguishable on facts. We find that the Hon’ble High Court in the said case had observed that due to doubts as to the genuineness of some of the parties persisting on account of non-delivery of the summons issued to them under Sec. 131, the initial burden on the assessee to adduce proof of identity cannot be treated as discharged. We are of the considered view that as the assessee in the case before us had duly discharged the onus and proved to the hilt that the share application money of Rs. 67,45,000/- was received from Shri. Shashinath Ramnagina Tiwari, therefore, the facts of the case before us are distinguishable as against those involved in the aforesaid case relied upon by the revenue.

We thus finding ourselves persuaded to be in agreement with the view taken by the CIT(A) and finding no infirmity in the deletion of the addition of Rs. 67,45,000/- by him, therefore, uphold his order.

The appeal of the revenue is dismissed.