ACIT, NEW DELHI vs. M/S. BRINDAVAN AGENCIES PVT. LTD., NEW DELHI

ACIT, Circle-5(1), vs. M/s Brindavan Agencies Pvt. Ltd. New Delhi AB-16, Community Centre, Room No. 390, CR Building, Safdarjung Enclave, New Delhi New Delhi (PAN AAACB3167C) [Appellant] [Respondent] Revenue by : Sh. Prakash Dube, Sr. DR. Assessee by : Sh. Raj Kr. Gupta, CA ORDER

PER H.S. SIDHU, JUDICIAL MEMBER,

The ACIT, Circle 5(1), New Delhi is hereby filing appeal in the above mentioned case before the ITAT, New Delhi on the following grounds of appeal.

1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 2,00,00,000/- as unexplained cash credit u/s. 68 of the I.T. Act, 1961 without appreciating the fact that the AO has judiciously perused all the facts and grounds as well as trustworthiness, creditworthiness and genuineness of the four companies from which the assesee company had received the money and later on which had been found that they were not having any financial worth of their own.

2. The brief facts of the case are that assessee filed its return of income digitally on 21.9.2012 declaring an income of Rs. 1,32,57,610/- in the computation of income. The AO selected the case of the assessee for scrutiny and issued notice u/s. 143(2) of the Income Tax Act (in short “Act”) on 6.8.2013. The AO issued notice u/s. 143(2) of the Act on 15.11.2014 alongwith a questionnaire dated 15.11.2012 calling upon the assessee to file pending details as per questionnaire dated 12.92.2014, justify share premium received, and specifically informing the assessee that no personal appearance of Authorised Representative was requested to file the details on 25.11.2014. In response to the same, the AR of the assessee filed all the documentary evidences as required by the AO in the notice which was examined by the AO and lastly not agreed with the averments made by the Assessee and finally made the addition u/s. 68 of the Act amounting to Rs. 2 crore and also disallow non business expenses and adhoc disallowance amounting to Rs. 1,94,364/- and Rs. 1 lakh respectively and completed the assessment u/s. 143(3) of the Act vide order dated 23.3.2015. Aggrieved by the assessment order, assessee filed the appeal before the Ld. CIT(A) who vide its impugned order dated 22.6.2016 has partly allowed the appeal filed by the assessee and deleted the addition of Rs. 2 crores made by the AO on account of share capital and share premium. Now aggrieved with the impugned order dated 22.6.2016, the Revenue is in appeal before the Tribunal.

3. At the time of hearing, Ld. DR relied upon the assessment order and stated that Ld. CIT(A) has not properly appreciated the enquiry/ investigation made by the AO on the documentary evidences filed by the assessee and wrongly deleted the addition in dispute. He further stated that Ld. CIT(A) has wrongly deleted the addition of Rs. 2 crore as unexplained cash credit u/s. 68 of the Act without appreciating that the facts that the AO has judiciously perused all the facts and ground as well as trustworthiness, creditworthiness and genuineness of the four companies from which the assessee company had received the money and later on which had been found that they were not having any financial worth of their own. He requested that the impugned order may be cancelled and the assessment order may be upheld by accepting the appeal filed by the Revenue.

“3.2.1 I have gone through the assessment order and the submissions of the appellant alongwith its paperbook filed at the time of hearing. In my opinion the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Oasis Hospitalities Pvt. Ltd. [2011J 198 Taxman 247 (Delhi) dated 31ST January, 2011 has dealt with the issue of share application money at length and after examining the various judgments, has settled certain parameters to decide an issue like this. After analyzing the provisions of the Companies Act, Section 68 of the I T Act and the judgments delivered in the cases of CIT vs. Divine Leasing & Finance Ltd. 299 ITR 268 (Del), CIT vs. Sophia Finance Ltd. (1994) 205 ITR 98 (Del) (FB), CIT vs. Dolphin Canpack Ltd. 283 ITR 190, CIT vs. Lovely Exports Pvt. Ltd. 216 CTR 195, it was held that the initial burden is upon the assessee to explain the nature and source of share application money received by it. The Court further observed that in case the investor / shareholder is an individual, some documents will have to be filed or the said shareholder will have to be produced before the assessing officer to prove his identity. If the creditor / subscriber is a company then details in the form of resolution or PAN identity, etc can be furnished. As regards the genuineness of the transaction to be demonstrated, the Court held that by showing that the assessee had in fact received money from the said shareholder and the money came from the corpus of that very shareholder, the genuineness was duly established. The Division Bench also held that when the money is received by cheque and is transacted through banking or other undisputable channel, the genuineness of the transaction would be proved. Other documents showing the genuineness of the transaction could be copies of the shareholders' register, share application forms, share transfer register, etc. As far as creditworthiness or the financial strength of the creditor or subscriber is concerned, that can be proved by producing bank statement of the creditor / subscriber showing that it had sufficient balance in its account to enable it to 5 subscribe to the share capital. Once these documents are produced, the assessee would have satisfactorily discharged the onus placed upon him. Thereafter it is for the assessing officer to scrutinize the same and in case he has any doubt about the veracity of these documents, to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspect, there has to be some reason and material for the assessing officer and he cannot go into the realm of suspicion. After analyzing the above facts, the Court referred to the judgment of the High Court in the case of CfT vs. Creative World Telefilms Ltd. [2011J 15 taxmann.com 183 (Bom.) and held that once the documents like PAN or bank account details were given by the assessee, the onus shifts upon the assessing officer and it is upto him to reach the shareholders and the assessing officer cannot burden the assessee merely on the ground that summons issued to the investors were returned. Thereafter the Court referred to the judgment of Delhi High Court in the case of CIT vs. Value Capital Services (P) Ltd. 307 ITR 334 (Delhi) whereby it was observed that additional burden was on the department to show that even if the applicants did not have the means to make the investment, the investment made by them actually emanated from the coffers of the assessee to enable it to be treated as the undisclosed income of the 6 assessee. After laying down the above principles, the Court dismissed the appeal filed by the Revenue where the applicants were companies despite the fact that the assessing officer had received information from the Investigation Wing whereby it was found that these investor companies were engaged in the business of providing accommodation entries.

3.2.2 Now applying the above judgment to the facts of this case, it is seen that the appellant has filed sufficient documents e.g. Permanent Account Numbers, bank statements, etc. to establish the identities of the four share applicants. The copies of the bank statements of the share subscribers wherein the transactions are reflected as well as the fact that they are assessed to income tax, alongwith copies of their final accounts wherein investments made by them in the appellant company are not only shown but constitute a small portion of their total investments, establish the creditworthiness of the parties concerned. The incomes of the four shareholders for the year under appeal may have been meagre, as pointed out by the Assessing Officer, but creditworthiness of a party is not gauged merely from income of a particular year. The balance sheets of the four shareholders companies reveal that they had ample share capital to invest in the appellant company. In fact, the Income Tax scrutiny assessments of all four share subscribers were completed in March, 2015, a few days after the finalization of the impugned assessment order and in three of the four cases, the returns filed by them have been accepted, thereby implying that the Assessing Officer of those three companies have accepted the fact of their investment in the appellant company. In the fourth case, namely that of Purus Builders Pvt. Ltd., the share capital and premium of Rs. 8.74 crores received by the company during the year (out of which it had made investment of Rs.50 lacs in the shares of the appellant company) have been treated as its income. Once the investment in the appellant has been held to have been made out of the share subscriber's income, the same amount cannot again be taxed in the appellant’s hands. As regards the genuineness of the transactions, since the share capital/ share premium was paid for vide cheque and form no. 2 of allotment of shares was also filed by the appellant, this aspect also stands proved. On going through the assessment order, it is seen that the assessing officer has not been able to rebut or find any discrepancy in the documents submitted by the appellant. If that be the case, the assessing officer cannot make addition under Section 68 in the hands of the appellant company for flimsy reasons like confirmations of the shareholders being similarly worded, their 8 bank accounts being in the same bank branch, their replies to the A.O's notices coming through the same post office, etc. The appellant company has been able to prove its case and in case the appellant has failed to produce the Directors of the shareholders companies, as held by the jurisdictional High Court in the case cited above, the assessing officer cannot shift the burden on the appellant company. In case the assessing officer had any doubt about the shareholders, nothing stopped him from taking appropriate action or proceeding against these shareholders. It is a case where the appellant has been able to meet the requirements to justify its case. If the notices issued by the A.O. to the share subscribers were not complied with or came back unserved, this could not be held against the appellant, which had discharged the initial onus which lay upon it by proving the identity and capacity of the share applicants and the genuineness of the transactions. This principle has been laid down in the case of CIT. vs. Orissa Corporation Pvt. Ltd., [1986J 159 ITR 78 (SC), wherein it was held as follows:-

"In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so- called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises."

3.2.3 Then, as held by the Hon'ble Delhi High Court in the case of CIT vs. Value Capital Services Pvt. Ltd. in "there is an additional burden cast on the revenue to prove that the investment made by the share applicants actually emanated from the coffers of the assessee, so that the amount was to be treated as undisclosed income. As observed by the ld. CIT(A), in the present case, the AO did not bring anything on record to the effect that the investment made by the share applicant had come actually from the coffers of the assessee company only." Accordingly, I hereby direct the assessing officer to delete the addition of Rs. 2 crores made by the AO on account of share capital and share premium. In my view, this addition was not warranted. This ground of appeal is allowed.” 4.1 We have gone through the aforesaid findings given by the Ld. CIT(A) who has deleted the addition in dispute after relying upon various decision of the Hon’ble High Courts as well as on the basis of various documentary evidences filed by the assessee for substantiating the claim in dispute. It is also a fact that assessee has filed all the necessary documents as required for substantiating its claim u/s. 68 of the Act. Therefore, we are of the considered view that assessee has discharged its initial onus which lay upon it by proving the identity and capacity of the share applicants and the genuineness of the transactions. It cannot be said that such a conclusion was unreasonable or perverse or passed on no evidence. Ld. CIT(A) has also relied upon the decision of the Hon’ble Supreme Court of India in the case of CIT vs. Orissa Corporation Pvt. Ltd. (1986) 159 ITR

78. (SC). Hence, respectfully following the decision of the Hon’ble Supreme Court of India in the case of CIT vs. Orissa Corporation Pvt. Ltd. (Supra), Ld. CIT(A) has deleted the addition in dispute, therefore, we are of the view that no interference is called for in the 11 well reasoned order passed in the case of the assesseee, accordingly the same is upheld and the appeal filed by the Revenue is dismissed.

The order is pronounced on 23.12.2020.