ITO, NEW DELHI vs. M/S. GREENLAND FINANCE AND LEASING PVT. LTD., NEW DELHI

Assessees by : Dr. G. S. Grewal, C. A.; Department by : Shri Amrit Lal, Sr. D. R.; Date of Hearing : 24.04.2017 Date of Pronouncement : 09.06.2017 O R D E R. PER I. C. SUDHIR, J. M. :

The Revenue has impugned first appellate order on the following grounds :-

“ 1. Ld. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs.40,00,000/- by observing that the Assessing Officer was not justified in making addition under section 68 of the I. T. Act being unexplained credits;

2. Ld. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs.20,53,190/- ignoring the fact that the additions were made by the Assessing Officer on the basis of failure to discharge its onus by the assessee to prove about the genuineness of the transactions and creditworthiness of the creditors. ”

3.1 In support of the ground the ld. Sr. DR has placed reliance on the assessment order with this submission that cash were deposited before clearance of cheques and share applicants were not produced before the Assessing Officer for verification of the claim of the assessee. The assessee thus could not establish the genuineness of the receipt of the share application money. The onus was upon the assessee to establish the same to which the assessee has thoroughly failed to. The assessee also failed to explain the deposits made before the clearance of cheques. He placed reliance on the decisions of Hon’ble High Court of Delhi in the cases of CIT Vs. Divine Leasing & Finance Ltd. and Nova Promoters (2012) 206 Taxman.207 (Del.).

3.2 The ld. AR, on the other hand, tried to justify the first appellate order on the issue. He submitted that the assessee had discharged its primary onus to establish the genuineness of the claimed allotment of 4,50,000 equity shares of Rs.10/- each to 17 parties and receipt of money of Rs.45,00,000/- by furnishing sufficient documents in support of identity and creditworthiness of the share holders as well as genuineness of the transactions. To establish the identity of the share holders, the assessee has furnished copies of PANs, of the allottees, copy of pass port along with the share application forms containing complete particulars. As far as the creditworthiness of investors is concerned, the assessee had produced bank statements of investors along with their Income Tax returns. Regarding the genuineness of the transactions, it was submitted by the assessee that all the transactions have taken place through banking channels and copies of share application forms and return of allotment of shares were also filed by the assessee before the Assessing Officer. The onus was thereafter shifted upon the Assessing Officer to discredit the evidences filed before him by the assessee to establish the genuineness of the claimed transactions. The Assessing Officer, on the other hand, could not bring any evidence top p[rove that the e3 evidences submitted by the assessee are not genuine or had no creditworthiness when the assessee produced above-mentioned documents. The ld. AR submitted that the ld. CIT (A) has deleted the addition in question after considering the cases of the parties in detail and has passed comprehensive and reasoned order. He placed reliance on the following decisions :-

(i) CIT Vs. Nova Promoters & Finlease (P) Ltd. (2012) 206 Taxman 207 (Del.); (ii) CIT Vs. Dwarkadhish Investment (P) Ltd. (2010) 194 Taxman 43 (Del.); (iii) CIT Vs. Gangour Investment Ltd. (2009) 179 Taxman 1 (Del.); (iv) CIT Vs. Kamdhenu Steel & Alloys Ltd. (2014) 361 ITR 220 (Del.); (v) CIT Vs. Value Capital Services Ltd. (2008)

307 ITR 334 (Del.); (vi) CIT Vs. Pradeep Gupta 207 CTR 115 (Del.); (vii) CIT Vs. P. Mohanakala (2007)

291 ITR 278.

3.3 The ld. AR contended further that proviso to section 68 of the Act has been introduced by the Finance Act, 2012 with effect from 1.04.2013 and thus it would be effective only from assessment year 2013-14 onward and not for the subject assessment year. In support the ld. AR has placed reliance on the recent decision dated 20.03.2017 of Hon’ble Bombay High Court in the case of Gagandeep Infrastructure Pvt. Ltd., of 2014, a copy whereof has been made available.

3.4 Having gone through the above cited decisions, we find that the initial burden of proof lies on the assessee, yet once he proves identity of creditors / share applicants by either furnishing their PAN or Income Tax assessment numbers and shows genuineness of transaction by showing money in his books either by account payee cheque or by draft or any mode then onus of proof would shift to Revenue and just because creditors / share applicants could not be found at address given, it would not give Revenue right to invoke section 68 [CIT Vs. Dwarkadheesh Investment (P.) Ltd. (supra)]. Once assessee has primarily discharged its burden of proving identity of share holders, genuineness of transaction and creditworthiness of share holders, Revenue cannot invoke section 68 without any additional material to support such move [CIT Vs. Kamdhenu Steels & Alloy Ltd. (supra)]. When we examine facts of the present case in view of the above ratio laid down in the cited decisions, we note that by filing PANs of all the allottees except for Shri Mahendra and Rangan where copy of pass port was filed and further copies of share application forms containing complete particulars, the assessee had discharged its primary onus to establish the identity of the share holders / investors. By demonstrating that the money was received by cheque and was transmitted through banking channels and further by filing copies of share application forms and returns of allotment of shares, the assessee had discharged its primary onus to establish genuineness of the transaction. As far as creditworthiness or financial strength of the investors is concerned, the assessee had produced the bank statements of the subscribers showing that they had sufficient balance in its accounts to enable it to subscribe to the share capital and all the allottees are assessed under the Income Tax Act and in support their Income Tax returns were filed. Thus, the assessee had discharged its primary onus to establish the creditworthiness of the share applicants as well. The onus was thereafter shifted upon the Revenue to discredit those evidences to establish its allegation of accommodation entries regarding the transactions in question. The ld. CIT (Appeals) has passed a comprehensive and reasoned order on the issue. For a ready reference, para No. 9, 9.1 to 9.14 of the first appellate order are being reproduced hereunder :-

“ 9. I have considered the observations of the AO as contained in the assessment order, submissions of the appellant, facts on records and the judicial pronouncements on the issue.

9.1 The appellant during the year had received share application money of Rs.45,00,000 from 17 different persons. During the course of assessment proceedings the AO has received various documentary evidence, like Confirmation from the investor company, its acknowledgement of return, PAN, Certificate of Incorporation, affidavit for payment of Share Application Money, which supported the identity of the investor company and also established genuineness of the share capital money transaction.

However, the above evidences were disregarded by the AO and it was held that identity and creditworthiness of the party and genuineness of the transaction was not proved.

9.2 From the perusal of the assessment order it is seen that :

• AO has not brought any material on record which can prove that this money was appellant's own undisclosed income • AO has just relied on the information received from the Investigation wing without verifying the facts and that too information was only for Dinnath Luhariwala Spinning Mills Ltd. • AO has no information and had not brought any evidence about other shareholders holding that they are not genuine and had no credit worthiness, especially when the appellate has given the proof of their filing Income Tax return regularly.

9.3 With regard to the various evidences submitted by the appellant, during the course of assessment proceedings, AO disregarded the said evidences and has emphasized that identity and creditworthiness was not proved and held that the amount of Rs.45,00,000 received as share application money from the said investor company cannot be treated as genuine and is only an accommodation entry.

9.4 The appellant has cited various other case laws also in its submissions wherein it has been held that the Share Capital issued cannot be treated as undisclosed income of the appellant and cannot be added under Section 68 of the Income Tax Act. The facts of the cases cited by the appellant are identical with that of the instant case. Further, the reliance is also placed on following decisions of Apex Court :- 1 CIT Vs. Orissa Corporation 159 ITR 78 9SC); 2 Divine Leasing and Finance Ltd. 299 ITR 268.

9.5 The appellant in its submission has also relied upon the latest judgment of the Apex Court in the case of CIT v. Lovely Export 299 ITR 268 (SC) which has confirmed the order of the Delhi High Court. It has been held by the Hon'ble Court that once the identify of the share holders have been established, even if there is a case of bogus share capital, it cannot be added in the hands of the company unless any adverse evidence is not on record. In the instant case, the appellant has provided evidence in the form of PAN, ROC details, copy of IT return filed and copy of confirmation and affidavit to establish the genuineness of the transaction.

9.6 There are plethora of judgments of various judicial authorities, including Hon'ble Apex Court and also the jurisdictional High Court wherein it has been held that in case of money received towards share capital, only the identity of the shareholders needs to be proved. Once identity of the shareholders is established and it is proved that the money did in fact come from them, it is not for the assessee to prove as to how the shareholders came to be in possession of the money.

9.7 In a recent judgment dated 30/01/2009 Hon'ble Delhi High Court in the case Of CIT vs. Gangour Investment Ltd. (Income Tax Act No. 34/2007) has held that Revenue can make addition under Section 68 of the Act only if the assessee is unable to explain the credits appearing in its books of accounts. In the said case the appellant has duly explained the said credit entries in the form of various documentary evidence. The said documentary evidence contained details, which set out not only the identity of the subscribers, but also gave information, with respect to their address, as well as, PAN, Assessment particulars etc. Based on these facts, the Hon'ble Delhi Court dismissed the appeal of revenue.

9.8 In yet another decision as to the correctness of treating share application money on par with cash credit, the Hon'ble Delhi High Court in CIT vs. Value Capital Services P. Ltd. (2008) 307 ITR 334 (Delhi) found after referring to the two of the decisions of the Delhi High Court on the subject that in respect of share capital amounts, they cannot be assessed in the hands of the company, unless the Department is able to show that the amount received towards share capital actually emanated from the coffers of the assessee company.

9.9 Hon'ble Delhi High Court in the case of CIT vs. Pradeep Gupta 207 CTR 115, which has also been relied upon by the Delhi ITAT in the recent judgment in the case of Babita Gupta wherein it is held that in the facts of the case before us it may be seen that from the very beginning Ld AO had shifted entire burden upon the assessee and no material was brought by him to prove his allegation that the impugned amount represented assessee company's undisclosed income. Therefore, on this ground alone the entire addition deserves to be deleted and may kindly be held so.

9.10 In view of the factual position as well as the judicial pronouncement on the subject, discussed above, I am of the considered view that the appellant has discharged the initial onus of establishing the bona-fides of the transactions and the AO was not justified in ignoring various evidences provided to him by the appellant. Nothing adverse has been brought on record by the AO to establish that the amount of share application money received by the appellant from the said parties represents its own undisclosed income.

If there was doubt about the source of investment, then additions should have been made in the case of investor and not in the hands of the appellant company. The appellant has relied upon the decision of Hon'ble Supreme Court in CIT Vs DIVINE LEASING & FINANCE LTD. (CC 375/2008) dated 21/01/2008 wherein it was held -

" We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee-Company from alleged bogus shareholders, whose names are given to the AO, then the Department, is free to proceed to re-open their individual assessments in accordance with law."

9.11 Reliance in this regard is also placed on the decision of Hon'ble Delhi High Court in the case of CIT vs. M/s Pondy

Metal and Rolling Mill Pvt. Ltd. (Delhi) (ITA No. 788/2006) dated 19.02.2007, wherein the Hon'ble Court concurred with the findings of the Appellate Tribunal, Delhi Bench 'F' that once the identity of the investor has been manifest and is proved, the investment cannot be said to be the undisclosed income of the assessee. At best, the amount could be added in the hands of the investor but it certainly could not be treated as undisclosed income of the Assessee. The appeal filed against the said decision, was dismissed by the Hon'ble Supreme Court in C.C. 12860/2007 dated 08/01/2008.

9.12 In the light of the above discussion, I am inclined to agree with the arguments and evidences provided by the appellant to substantiate that the transaction regarding share application money received by it from 16 individuals amounting to Rs.40, 00,000 who are regularly assessed to tax and are regularly filing their return of income (proof for even AY 2011- 12) is on record was genuine transactions and the same was not accommodation entry. I also do not find any evidence collected by the AO which could prove otherwise. Accordingly, the AO was not justified in treating 40 lacs of share application money received from 16 individuals by the appellant as its undisclosed income.

9.13 However in case of Dina Nath Luhariwala Spinning Mills P Ltd the facts are slightly different from the other shareholders, as in that case the investigation has been conducted by the investigation wing of Income Tax .and the found and established that Dina Nath Luhariwala Spinning Mills P Ltd only a entry provider there is not genuineness of the transaction and the company own funds has been routed thru that company. Thus the identity of the company itself is in question. The judgments cited by the appellant including Lovely Export (supra) is not applicable in that case.

9.14 Respectfully followed the apex court judgment in case of Lovely Export, out of the addition of Rs. 45,00,000 in respect of share capital under section 68 of the Income Tax Act, Rs.40,00,000 except the share capital of Rs. 5,00,000 received from DINA NATH LUHARIWALA SPINNING MILLS PVT LTD is therefore deleted. And share capital of Rs. 5,00,000 received form DINA NATH LUHARIWALA SPINNING MILLS PVT LTD is confirmed under section 68 of the Income Tax Act. ”

3.5 We thus find that the Revenue has failed to discharge its onus in discrediting the evidences filed by the assessee, as discussed above, to establish the identity and creditworthiness of the share applicants as well as genuineness of the transactions in question. The ld. CIT (Appeals), therefore, has rightly accepted the claimed transactions as genuine in view of the ratio laid down in the above cited decisions. The first appellate order on the issue is accordingly upheld. Ground No. 1 is thus rejected.

4.1 In support of the ground the ld. Sr. DR has basically placed reliance on the assessment order. He submitted that the assessee throughout has not been able to establish identity and creditworthiness of the creditors as well as genuineness of the transaction. Ignoring this material fact of the case, the ld. CIT (Appeals) has erred in deleting the addition.

4.2 The ld. AR, on the other hand, tried to justify the first appellate order. He submitted that assessee had taken unsecured loan of Rs.20,53,290/- from 7 parties and in support of its claim the assessee had discharged its primary onus by furnishing their confirmations with Income Tax particulars, PANs, bank statements before the Assessing Officer. The onus was accordingly shifted upon the Assessing Officer to discredit those evidences. In absence of such exercise by the Assessing Officer, the ld. CIT (Appeals) has rightly deleted the addition. The ld. AR adopted similar decisions as cited by him hereinabove in support of ground No. 1.

4.3 Having gone through the orders of the authorities below, we find that the assessee had taken unsecured loan of Rs.17,03,290/- from 5 different persons and loan of Rs.3,50,000/- was taken for purchasing of vehicle from 2 parties. In compliance of the requirement raised by the Assessing Officer, the assessee had furnished confirmations of the creditors with their Income Tax particulars, their PANs, and their bank statements. The Assessing Officer was not satisfied with the explanation of the assessee and added the entire amount of Rs.20,53,190/- towards unsecured loans as unexplained credit under section 68 of the Act.

4.4 The ld. CIT (Appeals) has, however, deleted the addition with this finding that the assessee was able to establish identity and creditworthiness of the parties as well as genuineness of the transaction. The relevant para No. 11 of the first appellate order is being reproduced hereunder for a ready reference :-

“ 11. I have considered the submissions of the appellant and case law cited and have perused the assessment order and considered the evidence and facts available on record. I find that – Soaltee Finance and leasing Ltd (Rs.10.48.290)

The lender is company and is in the business of leasing and finance. The lender company is receiving payments in cash from parties and those receipts are being deposited in the bank. The lender company had given loan by cheque from its bank account where there are numbers of transactions including cheques, transfer and cash deposits. Even if the cash is being regularly deposited it does not established that these cash are being deposited for the loan. Further the company is income tax assessee and its PAN number and copy of acknowledgment of income tax return filed is on record. The lender company balance sheet as on 31.03.2003 is on record and showing that it has net worth of Rs. 1.20 Crore.

Mr. Bairang lal Goel (Rs.2.50.000)

The lender seems to have the practice of depositing and withdrawing the cash from the bank. Cash was deposited on 8th Jan, 11th Jan , 25th Jan 2003 and withdrawn from the same account on 4th Jan , 7th Jan, and 8th Jan 2003 and loan of Rs 2,50,000 paid on 09th Jan 2003 and there after also there is deposit of cash of Rs. 1,60,000 in bank account. Further the lender is an income tax assessee and his PAN number and copy of acknowledgment of income tax return filed is on record. The lender is having capital of Rs. 35.41 Lac and in his statement of affairs duly includes, this loan of Rs 2,50,000.

Angoori Devi (Rs.2.00.000) :

There is no cash transaction in bank statement filed by the appellant which is on record. The lender is an income tax assessee and her PAN number and copy of acknowledgment of income tax return filed are on record. The lender is having capital of Rs.23,16,000 and this loan has been square-up during the year.

Ms. Kavita Goel (Rs.1.05,000) :

There are no cash transactions in bank statement filed by the Appellant which is on record . The lender is an income tax assessee and her PAN number and copy of acknowledgment of income tax return filed are on record. The lender having capital of Rs.6,73,000 and out of that Loan Rs. 1,00,000 has been returned during the year.

I. P. Goel HUF (Rs.1,00.000) :

The lender have deposited and withdrawn cash from the bank. Cash has been deposited on 9th Oct 2002 and withdrawn the cash from the same account on 23th Sept, 1st Oct and 7th Oct. The loan of Rs 1,00,000 is paid on 31 10.2002. The lender is an income tax assessee and their PAN number and copy of acknowledgment of income tax return filed are on record. The lender having capital of Rs. 27,70,000 and in their statement of affairs duly includes this loan of Rs 1,00,000.

The considering the above facts and documents place on record, in my humble opinion the Appellant has proved the identity, genuineness and creditworthiness of the lenders and therefore the addition of Rs. 17,03,190 of unsecured loan under section 68 of the Income Tax Act is hereby deleted.

Prakash Transport (Rs.2,00,000) :

The appellant had taken advance with the loan proposal and loan proposal was not approved and therefore the advance has been returned back to them in the same year. The copy of loan application, copy of acknowledgment of income tax return filed and balance sheet of the Prakash Transport is on record.

Raiinder Singh (Rs.1.50.000) :

The appellant had taken advance with the loan proposal and loan proposal was not approved and therefore the advance has been returned back to them in the same year. The copy of loan application, copy of acknowledgment of income tax return filed of Mr Rajinder Singh is on record.

The above facts and documents on record clearly establishes that the Rs. 2,00,000 from Prakash Transport and Rs.1,50,000 from Rajinder Singh are only an regular business advance and is not in the nature of unsecured loan. The appellant has proved the identity, and genuineness of transaction and therefore the addition of Rs.3,50,000 under section 68 of the Income Tax Act hereby deleted. ”

4.5 The first appellate order on the issue is comprehensive and reasoned one as it is based on the finding of the ld. CIT (Appeals) that the assessee had discharged its onus to establish the genuineness of the claimed unsecured loan of Rs.20,53,190/-. We are thus not inclined to interfere therewith. The same is upheld. Ground No. 2 is accordingly rejected.