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Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA
Before: SRI RAJPAL YADAV & DR. MANISH BORAD
order
: February 22nd, 2024 ORDER
Per Manish Borad, Accountant Member:
This appeal filed by the Revenue pertaining to the Assessment Year (in short ‘AY’) 2012-13 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the ‘Act’) by the Commissioner of Income Tax (Appeals)-NFAC, Delhi I.T.A. No.: 700/KOL/2023 Assessment Year: 2012-13 M/s. Digvijay Vinimay Pvt. Ltd. [in short ld. 'CIT(A)'] dated 23.03.2023 which is arising out of the assessment order framed u/s 143(3) of the Act dated 25.03.2015.
Registry has informed that the appeal filed by the Revenue is time barred by 50 days. Condonation application has been filed by the Revenue stating as follows: “In this case, date of filing of appeal before Hon hie ITAT has already been expired (i.e. 04.06.2023). Due to the following reasons delay for filing 2nd appeal has been made for the A.Y.2012-13: (i) On 06.04.2022: Appeal Order received from o/o PCIT-2, Kolkata (ii) On 09.05.2023: ASR send to O/o PCIT-2, Kolkata through Proper Channel (iii) On 11.05.2023: For making some clarifications letter received from o/o JCIT, Range- 5, Kolkata (iv) On 17.05.2023: After making necessary corrections, ASR has been further sent To the PCIT-2, Kolkata through Proper Channel (v) On 24.05.2023: Received copy of letter from the o/o JCIT, Range-5, Kolkata regarding sending of ASR to the o/o PCIT-2, Kolkata (vi) On 05.06.2023: For making corrections of draft ground of appeal, letter received from o/o PCIT-2, Kolkata (vii) On 06.06.2023: After making necessary corrections of draft ground of appeal has been further sent to the o/o PCIT-2, Kolkata through Proper Channel (viii) On 10.07.2023: Certificates for filing appeal u/s 253 of the IT Act has been received from o/o PCIT-2, Kolkata Kindly condone the said delay for filing 2nd Appeal.” 2.1. Considering the condonation application and the reasons stated therein, we are satisfied that the Revenue was prevented for reasonable cause from filing the instant appeal within statutory time limit. We, therefore, condone the delay and admit the appeal for adjudication on merits.
I.T.A. No.: 700/KOL/2023 Assessment Year: 2012-13 M/s. Digvijay Vinimay Pvt. Ltd. 3. The Revenue is in appeal before the Tribunal raising the following grounds of appeal: “1. For that on the facts and in the circumstances of the case and in law, the Ld. NAFC was not justified in deleting the addition of Rs.2,45,00,000/- u/s 68 of the IT Act when the credit in the particular account books is a fresh credit for which assessee failed to establish the Identity, Creditworthiness of shareholders and the genuineness of transaction. There is a change in the shareholding patter when compared from the preceding year with the year under consideration to demonstrate that these are bogus transactions where such companies resort to shifting of shareholding at regular intervals from person to person. Assessee has failed to produce the directors of the shareholder company before the AO which also demonstrate that the impugned transaction is a bogus transaction.
2. For that on the facts and in the circumstances of the case and in law, the Ld. NAFC is failed to appreciate the principle which has been laid down by the Hon’ble Supreme Court in the case of Pr.CIT(Central)- 1, Kolkata vs NRA Iron & Steel Pvt. Ltd. (412 ITR 161) wherein it is suggested that the Assessing Officer is duty bound to investigate the creditworthiness of the creditor/subscriber, verify the identity of the subscribers and ascertain whether the transaction is genuine or these are bogus, entries of name lenders . In facts of the case, in spite of best efforts made by the assessing officer, he could not verify the same as there was no response from the companies to whom shares were allotted during the course of assessment proceedings. Thus, the decisions of the Ld. NAFC is erroneous in holding that the raised share capital was not the assessee’s own income.
3. For that on the facts and in the circumstances of the case and in law, the Ld. NAFC has not appreciated the ratio of decision of Apex Court in the case of Pr.CIT(Central)-1, Kolkata vs NRA Iron & Steel Pvt. Ltd. (412 ITR 161) wherein it is suggested that “ the assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the A.O., failure of which, would justify addition of the said amount to the income of the assessee . In the facts and under the circumstances of the instant case, the assessee company has failed to do so other than submission of mere statements of various kinds. Thus, the decision of the Ld. NAFC is erroneous in holding that the raised share capital was not the assessee’s own income.
I.T.A. No.: 700/KOL/2023 Assessment Year: 2012-13 M/s. Digvijay Vinimay Pvt. Ltd.
4. Revenue shall always crave for adding or altering any ground on or before the date of hearing.”
The facts in brief are that the assessee is a private limited company engaged in business. Income of Rs. 1,16,230/- declared in the return e-filed for AY 2012-13 furnished on 28.08.2012. Return was taken up for scrutiny and during the course of assessment proceedings, the Assessing Officer (in short ld. 'AO') noticed that the assessee has received share capital and share premium totalling to Rs. 2.45 Crore (share capital of Rs. 4.90 Lakh and share premium of Rs. 2,40,10,000/-). The assessee was asked to explain the nature and source. The assessee filed the copies of memorandum of association, Form 2 & 5 filed with the Registrar of Companies for raising share capital, PAN card, bank statement and balance sheets. Ld. AO observed that the share applicant companies have no track record or asset base and are merely zero balance sheet company with no visible future prospect justifying the high premium per share and which defies all commercial and financial prudence and logic. Thereafter, ld. AO referring to the decision of this Tribunal in the case of Bisakha Sales Pvt. Ltd. vs. CIT reported in [2014] 52 taxmann.com 305 (Kolkata- Trib.) and also considering the fact that earning per share of the company is zero and also summons u/s 131 of the Act were not complied, completed the assessment making additions u/s 68 of the Act at Rs. 2.45 Crore. Income assessed at Rs. 2,46,16,230/-.
Aggrieved, the assessee preferred appeal before ld. CIT(A) and furnished various details to explain the nature and source of the alleged sum. Ld. CIT(A), taking note of the various details and also considering the fact that the assessee company is a non-banking Page 4 of 11 I.T.A. No.: 700/KOL/2023 Assessment Year: 2012-13 M/s. Digvijay Vinimay Pvt. Ltd. finance company and engaged in lending money against interest and also considering the remand report wherein remarks were given in favour of the assessee, deleted the impugned addition.
Aggrieved, the Revenue is now in appeal before this Tribunal. Ld. D/R submitted that the alleged share applicant companies are jama-kharchi and accommodation entry providers not having any regular business activity and are merely used as conduit for rotation of money in order to provide accommodation entries and thus, the alleged transaction is not genuine and the creditworthiness of the share applicant companies is not proved.
On the other hand, ld. Counsel for the assessee heavily relied on the finding of ld. CIT(A) and also took us through a paperbook containing 109 pages providing details of each and every share applicant and the source of funds utilized for making investment in the assessee company. Reference was also made to the remand report issued by the AO.
We have heard rival contentions and perused the records placed before us. Addition u/s 68 of the Act at Rs. 2.45 Crore deleted by ld. CIT(A) is in challenge before us by the Revenue. The assessee which is a non-banking finance company registered with the Reserve Bank of India by Certificate No. N.05.06863 dated 20.07.2010 received share capital and share premium to the tune of Rs. 2.45 Crore. Compete evidences were filed during the course of assessment proceedings to explain the nature and source of the alleged sum. Summons u/s 131 of the Act were partly complied and two of the investor companies appeared and their statements were recorded. Though, the AO made addition u/s 68 of the Act Page 5 of 11 I.T.A. No.: 700/KOL/2023 Assessment Year: 2012-13 M/s. Digvijay Vinimay Pvt. Ltd. but during the course of remand proceedings carried out on the direction of ld. CIT(A) remand report under Rule 46A of the Income Tax Rules, 1962 was issued on 24.04.2017 and the relevant extract of the said report which supports the claim of ld. Counsel for the assessee that identity and creditworthiness of the share applicants and genuineness of the transaction is proved is reproduced below: “In order to ascertain the identity creditworthiness and genuineness of transactions director of assessee company has been examined and cross verified with statement of accounts available in respective assessment folder and paper book for the purpose of preparation of Remand Report. Sri Parashmal Banthia director of M/s Digvijay Vinimay Private Limited said that allotment of equity shares were made on the basis of demand of the investor companies. Assessee company being a NBFC and engaged in lending money against interest was in need of fund to increase financial activity. Whatever, offered by investor companies was received and applied in lending against interest. He filed ITR of all investor companies for the AY 2016-17 and also scrutiny assessment order of two investor companies to substantiate that all are genuine companies which file return of income regularly. Identity, creditworthiness and genuineness of transactions on the basis of information contained in paper book verified. On examination of statement of accounts maintained by investor companies it was found that • Capital of most of the investor companies were huge and applied in investment in quoted and unquoted, loans and advance and share trading. • Documentary evidences in support of sources of fund in the case of investor companies found m paper book with address particulars. Major sources were sale of shares, recovery of loan given, refund of share application money given earlier and capital • Investor companies during FY 2011-12 made investments in more than one company.
I.T.A. No.: 700/KOL/2023 Assessment Year: 2012-13 M/s. Digvijay Vinimay Pvt. Ltd. • Payments in the case of all investor companies found made through banking channel • On verification of statement of bank accounts in the case of investor companies reference of deposit of cash and immediate withdrawal/transfer was not found. • Investor companies maintained books of accounts and audited by CA. • Investor companies were registered companies and PAN holders. Documentary evidence of ITR filed for AY 2012-13 and report to ROC found enclosed in paper book. On circumstances as stated above no infirmity in the matter related to standard set for mode of financial transactions, Creditworthiness of investors, genuineness of transactions found.”
We further, notice that when the AO in the remand proceeding was satisfied, based on the said report, ld. CIT(A) deleted the impugned addition observing as follows: “6.5. Ground 3 relates to addition made by the learned AO by addition of the entire share application money received as unaccounted cash credit under section 68 of the Income Tax Act. 6.6. The learned AO carried out addition of Rs.2,45,00,000/- on account of unexplained cash credit. The appellant had received share premium of Rs.2,45,00,000/- and in order to adjudicate the genuineness of transaction and creditworthiness of share applicants the learned AO called for supporting documentation. However, the appellant could not submit the same in entirety and therefore the said money was treated as unexplained cash credit and added to total income of the appellant. 6.7. The appellant submitted that it had received share application money from twelve shareholders to allot 49000 shares of Rs.10/- each and premium of Rs.490/-per share. 6.8. The remand report submitted under rule 46A in the case of appellant states that notice under section 133(6) issued to 11 out of 12 investors and compliance was received in most of the cases. 6.9. Summon under section 131 issued to all investor companies by Post. In compliance of summon directors of two investor companies Page 7 of 11 I.T.A. No.: 700/KOL/2023 Assessment Year: 2012-13 M/s. Digvijay Vinimay Pvt. Ltd. appeared and statement recorded. In other cases most of the investor companies sought further time for personal appearances. No fresh summons issued against application for grant of adjournment. 6.10. The learned AO verified receipt of Rs.2.45crores against issue of 49,000 equity shares to 12 private companies during financial year 2011-12 as claimed by the appellant verified with documents available in paper book. No difference could be noticed by the learned AO. 6.11. On perusal of the balance sheet, the learned AO has made the observation that 91% of the capital was applied in the assets other than investment in equity shares" The appellant was also engaged in the business of share trading and reported interest income against unsecured loans provided. No fresh investment in unquoted shares were made during the year. 6.12. In order to ascertain the identity, creditworthiness and genuineness of transactions, director of assessee company was examined and cross verified with statement of accounts available in respective assessment folder and paper book for preparation of remand report. 6.13. The director of the appellant company stated that allotment of equity shares were made on the basis of demand of investor companies. Appellant company being a NBFC and engaged in lending money against interest was a need of fund to increase the financial activity and that offer by the investor companies was received and applied in lending against the interest. 6.14. The director filed ITR of all investor companies for assessment year 2016-17 and also scrutiny assessment order of two investor companies to substantiate that all are genuine companies which file return of income regularly. 6.15. The learned AO has established in the remand report that identity, creditworthiness and genuineness of the transaction on basis of information contained in the paper book has been verified. 6.16. In view of the above it is observed that the appellant has discharged its primary onus of substantiating the genuineness of the transaction. 6.17. Having regard to above the nature of transaction is very well established as share application money and therefore the same I.T.A. No.: 700/KOL/2023 Assessment Year: 2012-13 M/s. Digvijay Vinimay Pvt. Ltd. cannot be considered as unexplained cash credit as per section 68 of I.T. Act. Therefore the addition of Rs.2,45,00,000/- carried out learned AO is deleted 6.18. Accordingly, Ground 3 of the appellant is allowed.”
Going through the above finding of ld. CIT(A), considering the remand report given by the AO and also on perusal of the documents placed before us, we fail to find any infirmity in the finding of ld. CIT(A) who has examined the facts of the case in order to come to a conclusion that a genuine transaction of investment was carried out by the alleged share applicants in the equity of the assessee company and the identity of the share applicants is not in doubt as they are all private limited companies duly registered with Ministry of Corporate Affairs and creditworthiness of the transactions is supported by the fact that they have been routed through banking channel and source of the alleged sum is from the financial liquidity available with the investor companies having sufficient net worth to make the investment in the equity share capital of the assessee company. Thus, the alleged transaction is not fit to be covered under the provisions of Section 68 of the Act.
We place reliance on the decisions of various Hon'ble Courts as follows: a) Hon'ble Jurisdictional High Court in the case of PCIT vs. Sreeleathers [2022] 448 ITR 332 (Calcutta). b) Hon'ble Supreme Court in the case of CIT vs. Lovely Exports Ltd. (2008) 216 CTR 195 (SC). c) Hon'ble Madhya Pradesh High Court in the case of PCIT vs. Chain House International (P) Ltd. [2018] 98 taxmann.com 47 (Madhya Pradesh).
I.T.A. No.: 700/KOL/2023 Assessment Year: 2012-13 M/s. Digvijay Vinimay Pvt. Ltd. d) Hon'ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure (P) Ltd. 80 taxmann.com 272 (Bombay).
Respectfully following the ratio laid down by the Hon'ble Courts in the judgments referred herein above deciding in favour of the assessee(s) and on considering the facts of the instant case, we are inclined to hold that all the necessary documentary evidences have been placed on record which are sufficient enough to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction and the assessee has successfully discharged its onus of explaining the source of alleged sum. Thus, we fail to find any infirmity in the finding of ld. CIT(A) deleting the impugned addition made u/s 68 of the Act and thus, dismiss all the grounds of appeal
raised by the Revenue.