ITO, NEW DELHI vs. M/S. RANCURE INVESTMENT PVT. LTD., DELHI

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ITA 6099/DEL/2013Status: DisposedITAT Delhi30 December 2016AY 2009-108 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the assessee had discharged its initial burden under Section 68 by submitting confirmations, IT returns, bank statements, and affidavits of all 17 parties. Since the assessee expressed inability to produce the directors, the AO issued notices under Section 133(6), which were complied with by the creditors, thus negating the need for the assessee to produce them. The Tribunal found no infirmity in the CIT(A)'s decision that merely because cash was deposited in the bank accounts of other parties/shareholders prior to issuing cheques to the assessee company, it could not be concluded that they were not creditworthy. The creditworthiness is not solely determined by cash deposits or nominal income shown in returns; it is also governed by investments and balance sheet size. The assessee had provided a detailed chart showing fund availability with these companies, and the AO had not produced evidence that the invested amounts were not owned by these companies or belonged to the assessee. The Tribunal agreed with the CIT(A) that in the absence of evidence suggesting the transactions were not genuine, the AO could not treat the invested amount as the assessee's income under Section 68. The Revenue's grounds of appeal were dismissed.

What were the facts?

The Income Tax Appellate Tribunal (ITAT) heard an appeal by the Revenue against an order of the CIT(A) dated August 16, 2013. The CIT(A) had deleted an addition of Rs. 5,20,00,000 made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, concerning the allotment of shares. The assessee, M/s Rancure Investments Pvt Ltd., a private limited company engaged in providing finances, had filed its return for AY 2009-10. During assessment, the AO found that the assessee allotted shares worth Rs. 5.20 crores (Rs. 1.30 crores as share capital and Rs. 3.90 crores as share premium) to 17 private limited companies. The AO made the addition after observing cash deposits in the shareholders' bank accounts prior to issuing cheques for share application money and noting nominal incomes in the shareholders' annual reports, doubting their creditworthiness and the genuineness of the transactions. The AO's assessment order dated December 30, 2011, increased the assessed income from Rs. 14,58,068 to Rs. 5,34,58,068.

What were the issues?

1. Whether the CIT(A) erred in deleting the addition of Rs. 5,20,00,000 made under Section 68 of the Income Tax Act, 1961, by not appreciating that the applicant companies for shares lacked financial capability and creditworthiness. 2. Whether the CIT(A) erred in not appreciating the AO's findings from enquiries regarding the creditworthiness of the share applicant companies. Assessee's Contentions: The assessee argued that it had discharged its initial onus by furnishing confirmations, bank statements, Income Tax Returns, affidavits from the 17 shareholder companies, and Form No. 2 (Return of Allotment) filed with the Registrar of Companies. The AO had issued notices under Section 133(6) to all 17 parties, which were positively responded to with confirmations, ITRs, PAN copies, bank statements, balance sheets, and certificates of incorporation. The assessee contended that sufficient funds were available with the depositors as per their balance sheets, and additional evidence submitted before the CIT(A) under Rule 46A, including charts showing fund availability and assessment orders under Section 143(3) for these companies, remained unrebutted. The assessee also argued that the AO's examination of the source of the source for only six parties out of seventeen, and quantifying cash deposits at Rs. 1,10,50,000 out of Rs. 5,20,00,000, was insufficient to reject the entire amount. Reliance was placed on CIT vs. Value Capital Services Ltd. (307 ITR 334 (Del)). Revenue's Contentions: The Revenue contended that the AO made the addition because money was deposited in the bank accounts of the shareholders immediately before issuing cheques, and these shareholders had very low incomes. The Revenue supported the AO's order.

Which sections of the Income-tax Act were involved?

Section 68,Section 133(6),Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI

Before: SHRI H.S. SIDHUAND

1.

This appeal is preferred by the Revenue against the order of the Ld. CIT(A)-XVIII, New Delhi vide order dated 16.8.2013 wherein he has deleted the addition of Rs. 5,20,00,000/- made by the AO to the returned income of the assessee by applying the provisions of Section 68 of the I.T. Act, 1961 for allotment of shares vide order dated 30.12.2011.

2.

The Revenue has only raised the following two grounds both are with respect to the above subject matter which read as under:-

1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the additions made u/s. 68 of the Act amounting to Rs.

5,20,00,000/- without appreciating the fact that shares applicant companies did not possess financial capability and creditworthiness.

2. On the fact and in the circumstances of the case, the Ld. CIT(A) has erred in not appreciating the findings of the AO coming out of enquiries

conducted during the assessment proceedings regarding creditworthiness of the above share applicants.

3.

The brief facts of the case are that the assessee is a Private Limited Company engaged in the business of providing finances. For the year under consideration, it filed its return of income on 29.9.2009 showing income of Rs. 14,58,068/-. During the course of assessment proceedings, it was found that Assessee has allotted shares to 17 share holders who were Private Limited Companies amounting to Rs. 5.20 crores divided between share capital of Rs. 1.30 crores and share premium of Rs. 3.90 crores. The total share allotted to the companies was equity share of Rs. 10/- each with a premium of Rs. 30 per share.

During the course of assessment proceedings, assessee submitted confirmation of the Share Holders, their Bank Statements, the Income Tax Return of the Companies, Affidavit of the Companies and Form No. 2 being Return of Allotment filed with the Registrar of Companies for allotment of shares. Therefore, according to assessee, it has discharged initial onus cast upon him. However, the AO asked the assessee to produce the Directors of the Company which assessee did not responded. Therefore, the AO issued notice u/s. 133(6) to all 17 parties, which were replied by them to the AO by submitting confirmations, Income Tax Returns, Bank Statements, Balance Sheets and Certificate of Incorporation of those companies. However, the AO on scrutiny of the Bank accounts of the share holders noted that before the cheques issued for Share Application Money by the Companies, there is a deposit of cash in the bank account of the share holders and further the Annual Reports of these Companies was showing nominal income of Rs. 8,000/- to Rs. 10,000/- ranging up to few Lakhs of Rupees. Therefore, he doubted the creditworthiness of the Companies and genuineness of the transactions. The return of income was assessed u/s. 143(3) of the I.T. Act at Rs. 14,58,068/- to Rs. 5,34,58,068/- vide order dated 30.12.2011. The assessee challenged the order before the Ld. First Appellate Authority who deleted the addition and, therefore, the Revenue is in appeal before us.

4.

Ld. DR submitted that the AO has made the addition as immediately before issuing of the cheques the money is deposited in the Bank Account of the shareholders and they are having very low income. He vehemently supported the order of the AO.

5.

On the other hand, Ld. AR of the submitted that assessee received share capital + share premium of Rs. 5.20 crores during the year from 17 parties for which assessee furnished during assessment proceedings Bank statement of parties, Income tax returns of parties , Confirmations , Form - 2 being Return of Allotment being filed to ROC and Affidavits of parties . He further submitted that AO issued notices u/s 133(6) to all 17 parties and notices stood served, positive replies received consisting of confirmation, ITR, Pan copy, Bank A/c statement, Balance Sheets, certificate of Incorporation, etc. he further submitted that as per the balance sheets, sufficient funds were available with the depositors. The AO called the bank statements of such third parties who had given the funds to such shareholders which funds were received by the assessee as share capital / premium. Such information was called for only in respect of six parties out of total 17 parties as per details on Pg. 4 of the AO, and that too in respect of part amount. From such bank statements, the AO held that cash was deposited in one bank account of some entity, then cheque was issued to second party, the said second party issued cheque to the shareholder and the shareholder issued the said amount to assessee as share capital / premium. ,. He referred to the Table on Pg. 4 of the Assessment order.

He submitted that In appeal before CIT (A), additional evidences were given U/r 46A which included chart-showing availability of funds with such companies vis-a-vis investments and orders U/s 143(3) for such companies, thus showing the creditworthiness, which remained un- rebutted, by the AO during the course of remand proceedings. Hence, when notices U/s 133(6) stood served and were responded positively by the shareholders, wherein no discrepancy was pointed out, the onus of the assessee stands fully discharged. He therefore submitted that, on the basis of enquiry done at asstt. stage as well as at appeal's stage, all the ingredients of sec. 68 stands fully satisfied. He further submitted that When there is no negative information on record, no notice U/s. 133 (6) received back un-served, all notices u/s. 133 (6) stood positively responded providing the requisite information(s), no discrepancy pointed out in such documents, the onus of the assessee stands discharged and there remains no cause for asking the assessee to produce the parties. Under these facts, non-production of director is at the Asstt. stage cannot be viewed adversely. He further submitted that The AO also never adventured, to directly call such parties. He further submitted that It is also not a case, where there is a finding or material to suggest that the money has come back to assessee. He further submitted that the information collected by the AO in respect of the source of the source is only for 6 parties out of total 17 parties and on the basis of 6 parties, claim for total 17 parties cannot be rejected.

Further, the amount, as per the AO which was deposited in cash has been quantified by the AO only Rs.1,10,50,000/- while, the amount under consideration is Rs. 5,20,00,000/- The AO cannot take a adverse view for total Rs. 5,20,00,000/- . Hence, he submitted that There could not be any dispute that the source of the source of the 3rd 14th earlier stage cannot be examined and no adverse view for the same can be taken. He further relied up on the decision of hon Delhi High court in CIT VS. VALUE CAPITAL SERVICES LTD. 307ITR 334 (DEL.) amongst other.

6.

We have carefully considered the rival contentions and also perused the orders of the revenue authorities. It is evident that assessee has submitted the confirmations, copies of Income Tax Returns, Bank Statements and Affidavit of all the parties, which are listed in Form No. 2, filed with the Registrar of Companies, before the AO, therefore, he has discharged initial burden cast upon the assessee, as per the provisions of Section 68 of the I.T. Act, 1961. As assessee has expressed its inability to produce the parties, the AO issued notice u/s. 133(6) to all the 17 shareholders who responded by confirming the transactions, therefore now it cannot be found fault with the assessee for non- production of the creditors. Ld. AO had two options of verifying the correctness of the claim of the assessee by exercising powers u/s 131 or 133(6) of the act and he has chosen provision of section 133(6) of the act, which is complied with by the creditors. The main reason for making the addition was that the shareholders have deposited cash in some other bank account , which have come to the depositors with banking channel, and then transferred to assessee. Therefore, the genuineness of the transactions was doubted. The assessee has produced before the Ld. CIT(A) a Chart showing the availability of funds with these companies and also these companies were assessed u/s. 143(3) of the I.T. Act. In view of this, Ld. CIT(A) has correctly held that merely because the cash was deposited in the bank account of the other parties/ shareholders date prior to the issue of cheque to the assessee company, it cannot be said that they are not creditworthy.

The creditworthiness neither gets enhanced nor gets reduced by the simple reason of depositing cash into the bank account before issue of cheques. In case of regular assesses who are assessed u/s. 143(3) of the I.T. Act, it is also not the case of the AO that cash was not available with these companies and, therefore, deposit made by these companies are not out of their own funds. In the absence of such finding backed with the evidence, we find no infirmity in the order of the Ld. CIT(A) with respect to his decision. Further, merely because those companies who are having income of Rs. 8,000/- to Rs. 10,000/- as per their returns of income and which goes up to few lacs of rupees, the AO had doubted the creditworthiness of these companies.

However, when the assessee has submitted detailed Chart of funds available with these companies, it cannot be said not creditworthy merely because return of income shows small income. The creditworthiness is further governed by the amount of investments and the size of the balance sheets of those companies. In the present case, the assessee has shown that these companies were having capacity to deposit money with the appellant. In the present case, the AO has not pointed out any evidence which shows that amount invested by these companies were not owned by these companies and the money belong to the assessee. Needless to say that when the assessee has furnished the confirmations, Income Tax Returns, Bank Statements of Borrowers, it cannot be said, without brining into additional evidences which even remotely suggests that the transactions are ingenuine, ld. AO cannot say that the amount invested by the depositors is income of the assessee under section 68 of the I.T. Act. Further, the LD DR could not point out before us and infirmity in the order of the ld CIT (A) in deleting the addition. Further, we also do not find any infirmity in the order of the Ld. CIT(A) in deleting the additions of Rs. 5.20 Crores with respect to 17 companies to whom the share were issued. In the result, both the grounds of appeal of the revenue are dismissed.

7.

In the result, Appeal of the Revenue is dismissed.

Order pronounced in the Open Court on 30/12/2016.

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