KALSHA BUILDERS P.LTD,NAVI MUMBAI vs. ACIT 6(2), MUMBAI

These are appeals filed by the assessee against the order of CIT(A) for the assessment year 2009-10 and 20110-11 in the matter of order passed u/s.143(3) of the I.T Act.

In both the years common grievance of assessee relates to addition made u/s.68 in respect of share application money received during the years under consideration.

Rival contentions have been heard and record perused.

Facts in brief are that assessee is a Builder and Developer. Information was received by AO from the investigation wing of income tax department vide letter Dt.12/09 /2011. As per this information, a search action was 2 & 1808-2015 M/s. Kalsha Builders Pvt . Ltd., conducted at the premises of One M/s. Mahasagar Securities Pvt. Ltd. In the concerned search action, it was found that the company was floated by one Mr. Mukesh Choksi. In addition to this company, Mr. Mukesh choksi also floated many more companies, having same registered address. As per report Mr. Mukesh Choksi accepted that he used to give accommodation entries to various persons through his various companies.

During the course of scrutiny assessment AO asked about the same, assessee submitted the copies of cheques received and also the PAN details, return of income copies of the various parties which had introduced share capital in the Kalsha Builders Pvt. Ltd. The names and PAN Number of the companies introducing share capital are as follows, 1. Alliance Intermediaries Pvt. Ltd. PAN: AACCA9750E 2. Buniyad chemicals Pvt .Ltd. PAN: AABCB6954G 3. Coldstar Finvest Pvt. Ltd. PAN:. AABCG3811 B 4. Kaycee Shares Broking Pvt. Ltd. PAN: AACCJ(7839A 5. Mihir Agencies Pvt. Ltd. PAN: AAGFM0890D/ AABCH7898H 6. Alpha Chemie trade agencies Pvt. Ltd., PAN: AAGFA0609P/ AAECA6031C 6. AO stated that All six companies are part of Maha sagar securities Pvt. Ltd. i.e. owned by Mr. Mukesh Choksi, as appearing in the report received from investigation wing. This means, that assessee i.e. Kalsha Builders Pvt Ltd. has taken accommodation entry from Mr. Mukesh Choksi, in the 3 & 1808-2015 M/s. Kalsha Builders Pvt . Ltd., form of share application money. The AO further observed that ITAT Mumbai, vide its decision No. "I.T.A. No.4912/Mum/2005" has confirmed the fact that above mentioned companies, owned by Shri Mukesh Choksi, have income from commission received for giving accommodation entries. Thus, it again proves that these companies were only involved in giving accommodation entries and had no other funds of its own. In view of these observations, the AO made addition u/s.68 in both the years under consideration.

By the impugned order CIT(A) confirmed the action of the AO against which assessee is in further appeal before us.

Learned AR placed on record the decision of Mumbai Income-tax Appellate Tribunal dated 30.06.2015 in the case of ACIT vs M/s Krishna Sheet Processors Pvt Ltd (ITA Nos 546/Mum/2013 & 7465/Mum/2012). In the above case the share capital of the company were subscribed by the 12 Companies out of which following 4 companies of Shri Mukesh Choksi Group are as under: Sr.No. Name of Company 1 Alliance Intermediaries Pvt Ltd 2 Mahasagar Securities Pvt Ltd 3 Mihir Agencies Pvt Ltd 4 Kaycee Share Broking Pvt Ltd

Out of the above the three Companies mentioned at serial no 1, 3, and 4 from whom the assessee company has received the "share application 4 & 1808-2015 M/s. Kalsha Builders Pvt . Ltd., money. In respect of above mentioned four parties the AO alleged that these are companies floated by Shri Mukesh Choksi and were engaged in bogus share capital introduction.

The Hon'ble Mumbai ITAT has given its decision in respect of the above mentioned parties at para 6, page no 5 to 6 of the order as follows: “6. We have heard the rival submissions and given a thoughtful consideration to the orders of the authorities below and with the assistance of the Ld. Counsel, we have considered the relevant documentary evidences brought on record and referred to before us. The undisputed facts are that out of six companies viz., M/ s. Kaycee share Broking Pvt. Ltd., M/ s. Mihir Agencies Put. Ltd. M/ s. Alliance Intermediateries & Network Pvt. Ltd.,M/ s. Mahasaqar Securities Pvt. Ltd., belong to Shri Mukesh Choksi group. The only reason for making the addition was that during the course of search operation Shri Mukesh Choksi admitted that he is a name lendor and arranging profits/loss/ share application money to various persons. Except for this, there is nothing on record brought by the AO to justify the addition. It is also an undisputed fact that transactions with these companies have been done through account payee cheque, respective bank statement have been brought on record before us. Even if we consider the statement of Shri Mukesh Choksi recorded u/s. 132(4) of the Act and also subsequently u/s. 131 of the Act, we do not find any reference to the assessee company, nowhere Shri Mukesh Choksi has said that he has arranged share capital for the assessee company. Merely because Shri Mukesh Choksi is indulged in clandestine activities would not make the transactions with the assessee company non genuine. The transactions have been done through account payee cheque and it is not a case of the Revenue authorities that prior to issuing the cheques the applicants have deposited cash in their respective bank account. The Hon'ble Supreme Court in the case of Lovely Export Pvt. Ltd. 216 C1R 195 has held 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 reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of the assessee company.

Out of the above, the Companies mentioned at serial no 1 and 2 are those from whom the assessee company has received the share application money.

Decision of the Mumbai Income tax Appellate Tribunal dated 28th September 2015 in the following cases: - ITO Vs Deep Darshan Properties Pvt Ltd AY 2006-07 & 2007-08 & 2118/Mum/2014 - ITO Vs Aajivan Computers Pvt Ltd AY 2006-07- ITA No 2160/Mum/2014 - ITO Vs Karamveer Real Estate Pvt Ltd AY 2006-07-ITA no 2116/Mum/2014 - ITO Vs Dignity Securities Trading Pvt Ltd AY 2006-07 - ITA no 2157/Mum/2014 - ITO Vs Blue Hill Properties Pvt Ltd AY 2006-07 - ITA no 2119/Mum/2014 16. Decision of the Mumbai Income tax Appellate Tribunal dated 28th September 2015 was also relied by learned AR and contended that The ITAT in the case 2117 & 2118/Mum/2014 on similar addition made under section 68 of the Act for share application money made by following Companies owned by Mukesh Choksi 1) Sonal Cosmetics (Export) Ltd 2) Gabriel Investment Pvt Ltd 3) Jaihind Synthetics Ltd 4) Sonal Silichem Ltd 5) Mihir Agencies Pvt Ltd

Out of the above the Company mentioned at serial no 5 from whom the assessee company has received the share application money.

The ITAT held as follows: "The above decision of ITAT, Jaipur Bench also related to Mr. Mukesh Choksi's case of investment in share application. The ratio of Charti Syntex Ltd. (ITA nos 172 & 1731 Jp/2010) makes it clear that if a share holder has invested the money and if assessee receives such money as share application money and assessee during assessment proceedings provides the details like name and address of corporate entity, PAN no., ROC no., then this may be referred to the concerned Assessing Officer for proceedings against such share holders instead of adding the amount u/s.68 of the Act in the hands of assessee company. This view has been upheld by Hon'ble Bombay High Court in case of CIT vs. Creative World Telefilms Ltd. (2011) 333 ITR 100 (Bom) by observing as under: "If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department can always proceed against them and if necessary reopen their individual assessments. Held, dismissing the appeal, that there was no dispute that the assessee had given the details of names and addresses of the share holders, their PANI GIR numbers and had also given the cheque numbers, name of the bankers. The Assessing Officer ought to have found out their details through PAN cards, bank accounts details or from their bankers so as to reach the share holders. Thus, the view taken by the Tribunal could not be faulted. " Further Hon'ble Supreme Court in the case of Lovely Exports 6 DTR 308 (SC) has held as under: "If the share application money is received by the assessee company from alleged bogus share holders who's name are given to the AO then the department is free to proceed to reopen their individual assessments in accordance with law but it cannot be regarded as undisclosed income of assessee company." 6. Coming back to the facts of the present case, it is seen that investment in the capital share of the assessee company was made by five companies. These companies exist on the records of ROC. All these companies are assessed with the Income Tax 9 & 1808-2015 M/s. Kalsha Builders Pvt . Ltd., Department, therefore, these exist on the record of Income Tax Department. The assessee company also filed before the Aa Form No.5 and 2 and PAN No. and address of all these share holders, thereby establishing identity and all these companies. Further payment was received by the assessee company through banking channels. The investment has been reflected by these share holders companies in the respective balance sheets. Thus, creditworthiness of these share holders was also established. It is noted from the record that following evidence have been furnished by the assessee with respect to each of the share holders. - Memorandum and Article of Association - Copy of ROC Form No.-2 (alongwith details of share application and share allotment) - Copy of Audited Balance Sheet full set. - Copy of the Confirmation letter - Copy of PAN Card and - Copy of IT acknowledgment evidences filing of return - Copy of Balance Sheet. In our considered view, the assessee has discharged its primary onus by establishing identity and creditworthiness of the share holders. The transactions stood confirmed also, on the basis of confirmation letters of all these share holders. The AO doubted the genuineness by relying upon some statements which were not recorded by the Assessing Officer. The statements relied by Id. Assessing Officer were not tested in the assessment proceedings conducted by the Assessing Officer. No opportunity of cross examination was provided by the Assessing Officer to the assessee before using these statements against the Assessing Officer. Following submissions have been made before us, in support of the claim made by the assessee:· (i) The share application form. is the confirmation of the share applicant. The share allotment in compliance of Companies Act 1956 in Form NO.2 is factually evident of the share capital. (ii) Funds of the share capital subscription are through banking channel and reflected in the bank statement. (iii) The allotments of the shares are recorded in the minutes of the company which are kept in accordance with the applicable provisions of the Companies Act 1956. (iv) All shares subscription of the company are duly incurred by corporate entities having Income Tax Permanent Account 10 & 1808-2015 M/s. Kalsha Builders Pvt . Ltd., Number and are filing returns of income and are duly assessed and thus, identity of the shareholders is also established. (v) Applicant's name is not mentioned in any of the statement of Mr. C. Choksi Group recorded by the IT Department. In view of these peculiar facts and circumstances, we find that the assessee discharged its onus as per law, as stipulated section 68 of the Act. On the other hand, the Assessing Officer was not in position to controvert the factual material and documentary evidences placed by the assessee and he could not bring anything contrary on record to negate the documentary evidences furnished by the assessee. In view of the peculiar facts and circumstances of this case, order of ld. CIT(A) is upheld. Appeal filed by the Revenue is dismissed.”

On the other hand, learned DR relied on the order of the lower authorities and contended that there was definite information from the investigation wing of income tax department according to which assessee is in respect of accommodation entry through the companies owned by Shri Mukesh Choksi alleged to be engaged in providing accommodation entries.

Our attention was also invited to the statement of Shri Mukesh Chokshi, owner of all these companies, where he replied that his business was of giving accommodation entries. As per learned DR from the statement of Shri Mukesh Chokshi it is very much clear that he used to give accommodation entries only and these companies did not have any funds to introduce share capital in other concerns.

We had also deliberated on the judicial pronouncements relied on by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us in the context of factual matrix of the instant case. We found that in the A.Y.2009-10 learned AO has made addition for the share application money amounting to Rs 2,50,00,000/- received by the assessee from the following companies which were allegedly a part of Mahasagar Securities Pvt. Ltd., owned by one Mr. Mukesh Choksi who was alleged to provide accommodation entries as per inquiry conducted by the Investigation Wing in the case of Mahasagar Securities Pvt. Ltd. Name of Company No of Shares Amount Alliance Intermediaries Pvt. 600 75,00,000 Ltd., Goldstar Finvest Pvt. Ltd., 200 25,00,000 Buniyad Chemicals Pvt. 200 25,00,000 Ltd., Kayee Share Broking Pvt. 200 75,00,000 Ltd., 15 & 1808-2015 M/s. Kalsha Builders Pvt . Ltd., Mihir Agencies Pvt. Ltd., 600 25,00,000 Alpha Chemie Agencies 200 25,00,000 Pvt. Ltd., 2000 2,50,00,000 23. The shares were issued at face value of Rs.100/ - and premium of Rs.19,900 / - per share. The share premium was decided after obtaining a share valuation report from E. A. Patil & Associates, Chartered Accountants valuing the shares at Rs 20,260 per share. 24. We also found that the equity shares were issued on following terms: Sr. No. Particulars Amount in Rs. (i) On application (towards 10,000/- premium of Rs.9,950/- and towards equity shares of Rs.50/-) (ii) On call made on 2,500/- 28.11.2008 (iii) On call made in June 2009 2,500/- (iv) On call made in October 5,000/- 2009 Total 20,000/- 25. The AO has discussed the addition at para 5 of his assessment order. The CIT(A) has also discussed the issue at para 5.1 to 5.3 of his appeal order, wherein he has affirmed the addition made by the AO. 26. In the assessment year 2010-11, assessee has challenged the addition made by Ld AO of Rs 50,25,000/- being amount received by the assessee towards share capital under section 68 of the Act. 27. From the record we found that during AY 2010-11 the assessee company received call money in the month of June 2009 on the above shares amounting to Rs.50,00,000/- from the following parties. Sr. Particulars No.of shares PAN No. Call Money No. allotted received in June 2009 i. Alliance 600 AACCA9750E 15,00,000/- Intermediaries & Network Pvt. Ltd., ii. Goldstar Finvest (P) 200 AABCG3811B 5,00,000/- 16 ITA No.7643-2013 & 1808-2015 M/s. Kalsha Builders Pvt . Ltd., Ltd., iii. Buniyad Chemicals 200 AABCB6954G 5,00,000/- Ltd., iv Kaycee Shares 200 AACCK7839A 5,00,000/- Broking Pvt. Ltd., v Mihir Agencies Pvt. 600 AAGFM0809D 15,00,000/- Ltd., vi Alpha Chemetrade 200 AAGFA0609P 5,00,000/- Agencies Pvt. Ltd., Total 2000 50,00,000/-

Since there was a failure to pay the last call money of Rs 5,000/- per share by all the shareholders as stated above, the shares in question were forfeited.

As per the decision relied on by learned AR as reproduced above, the assessee has filed all the documentary evidence in support of share capital so received. In all these decisions, additions were made by AO on account of share subscription made by the group concerns of Shri Mukesh Choksi, on the plea that same was bogus and not genuine. 30. As can be observed from the above decisions, additions made under section 68 for share application money introduced by the following companies owned by Mr Mukesh Choksi were deleted: i. Alliance Intermediaries Pvt Ltd ii. Kaycee Shares Broking Pvt Ltd iii. Mihir Agencies Pvt Ltd iv. Alpha Chemie Trade Agencies Pvt Ltd

The above parties are common applicants in the assessee's case also and have submitted all relevant details as discussed above to discharge 17 & 1808-2015 M/s. Kalsha Builders Pvt . Ltd., its onus of proving the identity of share applicants, genuineness of transaction & credit worthiness of shareholders.

From the record we found that to establish identity of share holders, the assessee has filed following documents. a) Certificate of incorporation b) PAN Identity of the shareholder c) CIN Identity of the shareholder d) Copy of IT return filed by the shareholder 33. To substantiate genuineness of transaction, assessee has filed following documents. a) Copies of bank pay orders issued by the new shareholders towards application money and first call money. b) Copies of the share application form. c) Copies of the resolution passed by the Board of Directors to apply for allotment of shares & returns for share allotment as filed with the ROC. d) Confirmations & declaration from the shareholder parties from whom the share application & call money was received stating that they have purchased the shares. 34. In support of creditworthiness of share holders, the assessee has filed following documents. a) Copy of the bank statements of the shareholder companies for the relevant period in which sums towards share application money & first call were received by the assessee. b) Copies of IT Returns filed by them 35. From the record we also found that AO has also issued notice u/s.133(6) to these parties. In response to information sought for u/s. 133(6), it was replied by them that it was not possible for them to give any information since their accounting data had been seized by the Income Tax Department on 25.11.2009 in light of the search & seizure action conducted on them. Thus the above parties had responded to the AO and the Department was free to proceed to reopen their individual assessments in accordance with law. Once the identity of the share holder have been established, even if there is a case of bogus share capital, it cannot be added in the hands of company unless any adverse evidence is on record as per verdict of Hon’ble Supreme Court in the case of Lovely Exports (supra). In the absence of any efforts on the Revenue's part it cannot be regarded as undisclosed income of assessee company. 36. We also found that vide letter dated 16/12/2011, the assessee requested AO to furnish material in respect of such evidence collected by him with a request to provide for cross examination of Shri Mukesh Choksi. However, the AO did not furnish the material on the basis of which he had come to this adverse conclusion nor was an opportunity, afforded to the assessee to cross examine Shri Mukesh Choksi in this regard. 37. We also found that the AO had never forwarded the material collected from the shareholders by the investigation wing, for the assessee's 19 & 1808-2015 M/s. Kalsha Builders Pvt . Ltd., rebuttal including the opportunity called for by the assessee for cross examination of Shri. Mukesh Choksi. We also found that statement given by Shri. Mukesh Choksi, reproduced by the AO in Para 5 of the Assessment Order is too general and does not particularly mention about shareholding in the assessee company. Hon’ble Bombay High Court in the case of H.R. Mehta vs ACIT (387 ITR 561) for addition made under section 68 towards loan amount in hands of assessee on basis that no confirmation letter had been obtained from lender nor any other verifiable evidence in respect of loan transaction had been rued. The Hon'ble Bombay High Court held that: "17. In our view in the light of the fact that the monies were advanced apparently by the account payee cheque and was repaid vide account payee cheque the least that the revenue should have done was to grant an opportunity to the assessee to meet the case against him by providing the material sought to be used against assessee in arriving before passing the order of reassessment. This not having been done, the denial of such opportunity goes to root of the matter and strikes at the very foundation of the reassessment and therefore renders the orders passed by the CIT (A) and the Tribunal vulnerable. In our view the assessee was bound to be provided with the material used against him apart from being permitting him to cross examine the deponents. Despite the request dated 15th February, 1996 seeking an opportunity to cross examine the deponent and furnish the assessee with copies of statement and disclose material, these were denied to him. In this view of the matter we are inclined to allow the appeal on this very issue."

Now coming to the decision relied on by AO in the case of Namichand Kothari – 264 ITR 254, Guwahati High Court, we found that the aforesaid decision is in favour of the assessee. The AO has quoted from the following para which itself stands in favour of the assessee:

On the basis of documentary evidence placed on record we found that the assessee has discharged the onus cast upon by proving the identity, genuineness and creditworthiness-of the parties from whom it had received share application money.

It was also argued by learned AR that Assessing Officer has made the addition merely on the basis of information received from the Investigation Wing in respect of search took place on Mahasagar Securities Pvt Ltd which was floated by Shri Mukesh Choksi. The AO has neither submitted the details of the information received and the copy of the statement recorded of Shri Mukesh Choksi to the Assessee nor allowed the assessee to cross examine. The AO has not proved that the investment actually emanated from the coffers of the assessee so as to enable it to be treated as undisclosed income of the assessee and in absence of such findings, addition u/s.68 is not warranted.

Our attention was also invited by learned AR to the fact that share premium was decided after obtaining a share valuation report from E. A. Patil & Associates, Chartered Accountants.

Reliance was placed by learned AR on the decision in the case of ACIT vs M/s Gagandeep Infrastructure Pvt Ltd bearing ITA No.5784/MUM/2011 ( 2014-TIOL-656-ITAT-MUM) wherein it has been held as under: “Whether no addition can be made under section 68 for huge share premium received by the assessee as it is a prerogative of the Board of Directors of the company to decide the premium amount and it is the wisdom of the share holders whether they want to subscribe to such a heavy premium and the Revenue authorities cannot question the charging of such huge premium without any bar from any legislated law of the land - Whether once the initial burden of proof as rested upon the assessee has been successfully discharged by the assessee even if it is held that excess premium has been charged, it does not become income as it is a capital receipt.”

Now coming to the decision relied by learned CIT(A) in the case of Durga Prasad More 82 ITR 540, the facts and decision of the case of Durga Prasad More was rendered under the provisions of the erstwhile Indian Income-tax Act, 1922 and the moot question in that case was "whether on a proper interpretation of the deed of conveyance and the deed of settlement the Tribunal is right in holding that the house property 22 & 1808-2015 M/s. Kalsha Builders Pvt . Ltd., being premises Nos. 46A and 468, Wellesley Street, Calcutta, is not trust property?" Since the above case was given on complete different facts and circumstances and the issue involved therein not being related to the case at hand of the Appellant, the ratio of the said decision cannot be applied to the case of the appellant especially when there are direct judgements available on the issue of addition made under section 68 of the Income tax Act, 1961.

CIT(A) has also relied on decision of Hon’ble Supreme Court in case of Sumati Dayal vs. CIT 214 ITR 801. The facts of which was as under:- [a) The appellant's knowledge of racing is very meagre; b) A jackpot is a stake of five events in a single day and one can believe a regular and experienced punter clearing a Jackpot occasionally but the claim to the appellant to have won a number of jackpots in three or four seasons not merely at one place but at three different centres namely Madras, Bangalore and Hyderabad appears, prima facie, to be wildand contrary to the statistical theories and experience of the frequencies and probabilities; c) The appellant's books does not show any drawings on race days or on the immediately preceding days for the purchase of the jackpot combination tickets, which entitled sizeable amounts varying generally between Rs. 2,000 to Rs. 3,000. The drawings recorded in the books cannot be eo- related to the various racing events at which the appellant made the alleged winnings; d) While the appellant's capital account was credited with the gross amounts of the race winnings, there were no debits either for expenses and purchase of tickets or for losses; and e) In view of the exceptional luck claimed to have been enjoyed by the appellant, her loss of interest in races from 23 & 1808-2015 M/s. Kalsha Builders Pvt . Ltd., 1972 assumes significance. Winnings in racing became liable to income-tax from 1-04-1972 but one would not give up an activity yielding or likely to yield a large income merely because the income would suffer tax. The position would be different; however, if the claim of winnings in the races was false and what was passed off as such winnings really represented the appellant's taxable income from some undisclosed sources.

After carefully going through the decision of Hon’ble Supreme Court, we found that in the case of Sumati Dayal (supra), the surrounding circumstances available were against the assessee on which the rule of human probabilities can be applied. However, in the present case, ratio of this decision cannot be applied since facts in this case are completely different from the facts of the assessee's case. Furthermore, how the said facts can be relevant for assuming that share application money received from share applicant is assessee's own money and also in this case revenue has not produced any evidence to establish the same.

Decision of Delhi High Court in case of Nova Promoters & Finlease (P) Ltd., 342 ITR 169 was also relied on by CIT(A). We found that the ratio of this case cannot be applied in the present case of assessee since, in the case of assessee neither any statement was given by third party to the Investigation Wing in which they have mentioned specifically that assessee was involved in the arrangement nor AO has proved specific involvement of the assessee in the arrangement of introduction of own money in the garb of share application money.