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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: SHRI SANJAY GARG, HON’BLE & DR. MANISH BORAD, HON’BLE
O R D E R
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The above captioned appeal is directed at the instance of the revenue against the order of the Commissioner of Income Tax (Appeals), Kolkata – 7, (hereinafter the “ld. CIT(A)”) dt. 23/09/2023, passed u/s 250 of the Income Tax Act, 1961 (“the Act”) for the Assessment Year 2009-10.
The Registry has pointed out that there is a delay of 36 days in filing the present appeal by the revenue. Petition for condonation of delay is placed on record explaining the reasons. On perusing the same, we are convinced that the revenue was prevented by sufficient cause from filing this appeal in time. Accordingly, we condone the delay and proceed to admit the appeal for hearing.
The revenue has raised the following grounds of appeal:-
Assessment Year: 2009-10 M/s. Express Tradelink Pvt. Ltd. “1. That on the facts and in the circumstances of the case, Ld, CIT(A) was justified in the deleting the addition of Rs. 7 15,50,000/- made by the Assessing Officer on account of share capital and premium in the course assessment in absence of identity of the creditors, genuineness and creditworthiness of the entire transactions.
2. That on the facts and in the circumstances of the case, Ld. CIT(A) was justified in the deleting the addition of Rs. 26,50,000/- made by the Assessing Officer where no personal attendance was made by any director of the share allottee companies during the course of assessment proceedings and as such identity & creditworthiness of the creditors and genuineness of transactions could not be verified.
3. That on the facts, the principles which has been laid down by the Hon'ble Supreme Court in the case of Pr. CIT(Central)-l, Kolkata vs NRA Iron & Steel Pvt. Ltd(412 ITR 161) suggests 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 case, the assessee company has failed to do so other than submission of mere statements of various kinds. Thus, the decision of the Ld. CIT(A) is erroneous in holding that the raised share capital was not the assessee's own income.
That on the facts, the he 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) also suggests that the Assessing Officer is duty bound to investigate the creditworthiness of the creditor /subscriber, verify the identity of the subscribes, and ascertain whether the transaction is genuine, or these are bogus entries of name lenders,. In the 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 share were allotted on private placement basis. Thus, the decision of the Ld. CIT(A) is erroneous in holding that the raised share capital was not the assessee's own income.
5. That on the facts, the principles which has been laid down by the Hon'ble Supreme Court in the case of Pr. CIT(Central)-l, Kolkata vs NRA Iron & Steel Pvt. Ltd. (412 ITR 161) also suggests that if the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lacked credit-worthiness. Then the genuineness of the transactions would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section of the act, In the facts of the case, the Ld. CIT(A) completely ignored this aspect, thus he has erred in giving relief to the assessee.
6. That on the facts of the present case, clearly the Assessee Company failed to discharge the onus required under section 68 of the Act, the Assessing Officer was justified in adding back the amounts to the income of the Assessee and the Ld. CIT(A) has erred in allowing relief to the assessee.
7. That on the facts, the In absence of verification, Ld. CIT(A) should have remanded the matter to A.O. for fresh verification. Thus, he has violated the provisions of Rule 46A of the I, T. Rules 8. That on the facts, the appellant craves to add, alter, amend, delete or substitute any of the grounds and/or take additional grounds before or at any time of hearing of this appeal.”
4. Facts in brief are that the assessee is a private limited company and is engaged in the business of share dealing and investments. Loss of Rs.
Assessment Year: 2009-10 M/s. Express Tradelink Pvt. Ltd. 20,434/- declared in the income tax return for Assessment Year 2009-10 on 21/09/2009, which was duly processed u/s 143(1) of the Act. Subsequently, the assessment was reopened by the Assessing Officer by issuing notice u/s 148 of the Act, as the Assessing Officer observed that certain expenses were not disallowed/certain income had not been disclosed u/s 147/143(3) of the Act on 30/06/2011 determining the total income of the assessee at Rs.24,029/-. Thereafter, the ld. CIT, Kolkata –II, found that the Assessing Officer has not conducted proper inquiries regarding the identity and creditworthiness of the shareholders and the re-assessment order was passed mechanically and without application of mind. The ld. CIT, Kolkata-II, invoking jurisdiction u/s 263 of the Act and vide order dt. 21/03/2014, set aside the order u/s 148 of the Act as being erroneous and prejudicial to the interest of the revenue and gave directions to conduct proper enquiry and verification and thereafter pass a speaking order. Subsequently, the Assessing Officer in light of the order passed u/s 263 of the Act, issued notice u/s 142(1) of the Act but assessee did not comply. Further, notices u/s 131 were issued to the directors of the assessment company but none appeared. Finally the Assessing Officer framed a best judgment order u/s 144 of the Act on the basis of material available on record. The ld. Assessing Officer made detailed observation that the share applicant companies are jamakharchi companies engaged in the activity of providing accommodation entries. The ld. Assessing Officer on examining the financial statements of the share subscribers noticed that they have no reasonable sources to purchase shares of the assessee company and in order to examine the said transactions it is the assessee who knows the intricacies of its account to prove its claim of share Assessment Year: 2009-10 M/s. Express Tradelink Pvt. Ltd. capital/application money. As there was no personal appearance, therefore, the ld. Assessing Officer concluded the assessment referring to various decisions and observing that the alleged transactions of receiving share capital and share premium are in the nature of accommodation entries and is mere rotation of funds and the share subscribing companies are paper/shell companies. He thus held that the assessee failed to explain the sum of Rs. Rs. 7,26,50,000/- received towards share capital and share premium and added the said sum u/s 68 of the Act. The Assessing Officer made further addition of Rs.42,450/- on account of undisclosed income and disallowance u/s 14A of the Act of Rs.20,434/-. The assessment was completed u/s 144/263/143(3)/147 of the Act vide order dt. 02/03/2015, assessing the total income of the assessee at 4.1. Aggrieved the assessee preferred appeal before the ld. CIT(A) challenging only the addition made u/s 68 of the Act by the Assessing Officer on account of unexplained share application money amounting to Rs. 7,26,50,000/- and filed complete details of the share subscribers, their net worth as on the date of applying for the shares, complete details to prove the identity, creditworthiness of the share applicants and genuineness of the transactions, replies filed by the share subscriber companies to the summons issued u/s 131 of the Act and also contended that all the documents filed before the Assessing Officer are sufficient enough to explain the nature and source of the allege sum and even the source of source has been proved by giving the details and the ld. Assessing Officer has not indicated any discrepancies in these details. Various judgments were relied on by the assessee including that of the Hon’ble Bombay High Court in the case of CIT vs. M/s. Gagandeep Assessment Year: 2009-10 M/s. Express Tradelink Pvt. Ltd. Infrastructure Pvt. Ltd. [2017] 80 taxmann.com 272 (Bombay); the judgment of the Hon’ble Supreme Court in the case of CIT vs. Lovely Exports P. Ltd., and other case-laws. 4.2. The ld. CIT(A) based on the facts stated by the assessee with sufficient documentary evidence in support of the claim of the nature and source being explained for the alleged transactions and also taking support from the various judicial decisions again sent all these documents filed by the assessee to ld. Assessing Officer to issue a remand report even when these details were already filed before the Assessing Officer. In the remand proceedings, the ld. Assessing Officer accepted that the Assessing Officer obtained all these details from the investment companies when summons issued u/s 131 of the Act and again no discrepancies were observed in the documents filed with regard to the share subscriber companies. The ld. CIT(A) considering these details and also the facts that all the share subscribers had sufficient net worth to cover up the investments made in the equity capital of the assessee company and also giving a finding that judgment of the Hon’ble Supreme Court in the case of PCIT vs. NRA Iron & Steel (P) Ltd. reported in [2019] 103 taxmann.com 48(SC) is not applicable on the facts of the case decided in favour of the assessee by deleting the impugned addition u/s 68 of the Act.
Aggrieved, the revenue is now in appeal before this Tribunal.
The ld. CIT D/R submitted that the ld. Assessing Officer has examined the facts of the case extensively and financial statements of the share applicants were also scrutinised and came to a plausible conclusion. He vehemently argued supporting the order of the ld. Assessing Officer and stated that merely filing paper documents cannot be treated as a 6 Assessment Year: 2009-10 M/s. Express Tradelink Pvt. Ltd. compliance to explain the nature and source of the alleged sum. Surrounding circumstances which includes the meagre income offered by the share subscribers, no regular business activity carried out by the assessee company as well as by the share subscribers and the typical nature of flow of funds in the bank statement indicates that share subscribing companies are engaged in rotation of funds for providing accommodation entries and they are jamakharchi or shell/paper companies and, therefore, the ld. Assessing Officer has rightly added the sum in the hands of the assessee. The Ld. D/R has further relied upon the decision of the Hon’ble Supreme Court in the case of PCIT vs. NRA Iron & Steel (P) Ltd. reported in [2019] 103 taxmann.com 48(SC).
On the other hand, the ld. Counsel for the assessee apart from referring to the detailed written submissions and paper book containing 166 pages again asserted the fact that the assessee company which is engaged in the business of share dealing and investment, issued equity shares along with share premium to various share applicants and all these share subscribing companies are regularly assessed to tax, transactions being carried out through banking channels, most of these concerns have passed through scrutiny proceedings and have been assessed u/s 143(3) of the Act for Assessment Year 2012-13 itself and replied to summons issued u/s 131 of the Act providing details to the Assessing Officer. He thus claimed that assessee has explained the nature and source of the share application money received during the year and has discharged the primary onus casted upon it u/s 68 of the Act and even the source of source has also been explained. Therefore, the ld. CIT(A) has rightly deleted the addition u/s 68 of the Act.
Assessment Year: 2009-10 M/s. Express Tradelink Pvt. Ltd.
We have heard rival contentions and perused the material placed before us and carefully gone through the decisions referred and relied by both the sides.
The sole effective ground raised by the revenue is against the finding of ld. CIT(A) deleting the addition u/s 68 of the Act made for alleged unexplained share application money in the form of share capital and share premium amounting to Rs.7,26,50,000/-. During the year, the assessee company received share capital including share premium of Rs.7,26,50,000/- from 9 share subscribers who are body corporate entities. A chart depicting the amount invested by each of the share subscribers and the reserves and surplus available with the companies as on 31/03/2009 is extracted below :- Name of share subscriber Amounts in Reserve & Surplus as on Amount invested with the appellant 31.03.2009 Ayushman Tradecomm P. Ltd. 3,19,19,874/- 45,00,000/- Bluewater Vincom P. Ltd. 6,67,87,874/- 98,00,000/- Broadline Commercial P. Ltd. 7,04,92,500/- 65,00,000/- Nischal Share & Stock P. Ltd. 8,95,20,000/- 1,04,00,000/- Panchmukhi Suppliers Pvt. Ltd. 8,80,80,000/- 94,00,000/- Paras Barter P. Ltd. 9,73,14,000/- 80,00,000/- Silvershine Tradecom P. Ltd. 8,40,45,000/- 74,00,000/- SJR Auto Financers P. Ltd. 27,30,94,603/- 83,00,000/- Utsav Nirman P. Ltd. 6,14,42,148/- 82,50,000/-
We further observe that during the course of assessment as well as appellate proceedings before the ld. CIT(A), the assessee has complied and has filed all the details, evidences and relevant documents which are necessary to prove the identity and creditworthiness of the share applicants and genuineness of the transactions. Though these details have been filed in the paper book for each of the share subscriber but the same can be summarized as filing of the copy of PAN card, share application form, allotment advices, relevant bank statements, ITRs for Assessment Assessment Year: 2009-10 M/s. Express Tradelink Pvt. Ltd. Year 2011-12, audited financial statement, source of funds i.e., the immediate source of fund which has been utilised by alleged share applicants to apply for the equity shares of the company. Assessee has also filed copy of the summons issued u/s 131 of the Act during the course of assessment proceedings and reply of each of the share subscribing companies sent directly to the Assessing Officer and again provided necessary details before the ld. CIT(A). The ld. Counsel for the assessee also referred to the assessment orders u/s 143(3) of the Act in the case of various share subscribing companies which have been passed through scrutiny proceedings for the very same Assessment Years and the alleged transactions have been examined by the concerned Assessing Officer. Perusal of these details which have been filed in the paper book containing 166 pages indicates that whatever documents which the assessee needs to file in order to explain the identity and creditworthiness of the share applicants and genuineness of the transactions have been filed and thereby the primary onus casted upon the assessee by virtue of Section 68 of the Act has been discharged and consequently the burden shifted over to the Assessing Officer to prove the contrary which the ld. Assessing Officer failed.
We further observe that the ld. CIT(A) has made a thorough examination of all these facts and also referred to various judicial pronouncements adjudicating similar type of issues and we find it necessary to go through the relevant finding of the ld. CIT(A):- “5. I have considered the issue in the assessment order and the remand report framed by the AO in light of the arguments made by the appellant. The short issue for my consideration is that whether the share application monies along with premium in the aggregate of `7,26,50,000/- disclosed by the appellant invites the 9 Assessment Year: 2009-10 M/s. Express Tradelink Pvt. Ltd. mischief of the provisions of s. 68 of the Act or not. The provisions of s. 68 of the Act deal with cash credit which reads as under: “68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.” According to this section, if identity, creditworthiness of the creditor and genuineness of the transaction are not proved and the explanation offered by the assessee is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as income of the assessee of that previous year. In the instant case, it is observed that the addition was made with the predetermined mindset that share application monies received by the appellant is not genuine as identity and creditworthiness of the shareholders were bogus in nature as if they did not exist and the transactions were an eyewash only for converting its black money into white without paying any tax to the revenue. In the instant case, the appellant had raised share capital in the aggregate sum of `7,26,00,000/- by issuing equity shares of 2,90,200 were allotted to 9 share subscribers with the face value of `10 each at a premium of `240 per share. In the instant case, it is found that all the nine share applicants are body corporates who had subscribed to the aforesaid share capital raised by the appellant and all the payments were made by each of them through a/c payee cheques drawn on their respective bankers. Each of the nine share subscribers are regularly assessed to income tax and the investments made by each of them are duly and fully reflected in their audited books of accounts as well as their income tax return. The appellant had duly filed its return of total income u/s 139(1) of the Act in respect of the assessment year 2009-10. In the course of the appellate proceedings, the appellant in response had produced its audited books of accounts, filed copies of its audited annual accounts including various details and other documents as desired by the AO. The details and documents so produced were remanded to the AO which included, inter alia, full details of each of the nine share applicants, who had subscribed to the aggregate share capital as well as share premium money raised by the appellant during the assessment year under appeal which was categorically admitted by him in the remand report. The AO, on receipt of the aforesaid details from the appellant did not pursue the matter further. He solely doubted the genuineness of the said share capital and the creditworthiness of the share applicants in the teeth of the cast iron evidence to the contrary on mere presumption and added the sum of `7,26,50,000/- in respect of the share capital to the total income of the appellant in respect of the assessment year under appeal.
6. It is observed that the corporate share applicants are registered under the Companies Act, 1956 and are on the records of