DCIT, CIRCLE - 8, KOLKATA, KOLKATA vs. M/S. ZIMKELE COMMODEAL PVT. LTD., KOLKATA

ORDER Per Shri M. Balaganesh, AM:

This appeal by revenue is arising out of order of CIT(A)-VIII, Kolkata vide appeal No. 432/CIT(A)-VIII/08-09/Kol dated 11.04.2011. Assessment was framed by DCIT, Circle-8, Kolkata u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2006-07 vide his order dated 26.12.2008.

Name of share applicant Share Application money received Ekta Commodities Supply (P) Ltd. 15,00,000/- Index Commodities Dealer (P) Ltd. 15,00,000/- Rameswar Retailers (P) Ltd. 20,00,000/- Ishunand Trading (P) Ltd. 15,00,000/- Unicon Merchants (P) Ltd. 15,00,000/- Jemco Vanijya (P) Ltd. 25,00,000/- Doyen Marketing (P) Ltd. 15,00,000/- Everlike Computers (P) Ltd. 3,75,000/- Total: Rs.1,23,75,000/-

Zimkele Commodeal Pvt. Ltd. AY 2006-07 The assessee produced the following details before the ld AO to justify the receipt of share application money as genuine in nature :- (a) Name and address of the share applicant (b) Income tax return acknowledgement of share applicant for the Asst Year 2006-07 (c ) Audited financial statements for the year ended 31.3.2006 for each of the share applicants. (d) Copy of the bank statements of share applicants from where the payments were made to the assessee company. (e) Copy of certificate of incorporation of share applicants (f) Confirmation from the share applicants in detailed letter form containing the necessary documents filed with ROC proving the existence of the share applicant companies. (g) Source for share applicants for making payment of share application money to the assessee with reference to their bank statements. (h) PAN and income tax assessment particulars of share applicants.

3.1. The ld AO sought to verify the genuineness of the said transactions and observed that detailed enquiry was carried out and it was found that share application monies received by the assessee was nothing but assessee’s own unaccounted money which was brought to the books using banking channel in the form of share capital. The ld AO observed as under:- “(i) The concerns which applied for allotment of shares for the assessee-company are paper company/jamakharchi company. On enquiry carried out by this office, it is found that these concerns were not found at their address. (ii) Enquiry was carried out at the neighborhood of the addresses of the share applicant but nobody was aware of existence of any such-company. Further, no signboard was there. (iii) On perusal of bank statement of 'share applicant', it was found that huge show that huge amount of cheque is credited every day but the same is transferred out / to other concerns on the very same date or at the most on the next day. In other words, although cheques worth crores of rupees are deposited in the account of share applicants every day, there is hardly any closing balance at the end of each day. (iv) Just before debit of share application money in the bank account of applicant, there is credit of money in the bank account of the applicant from some other concern. (v) The bank account statement of parties who transferred money in account of share applicant, were examined and it was found that money has come to the account of such parties from some other concerns. These intermediary companies through which the money has been routed to the bank account of assessee are typical paper/jamakharchi companies. Their bank accounts show that huge amount of cheque is credited every day but the same is transferred out to other concerns on the very same day or at the most on the next day. In other words, although cheques worth crores of rupees are deposited in the account of intermediary concerns every day but there is hardly any closing balance at the end of each day. Further these intermediary concerns are not found exit at their address with bank.”

Zimkele Commodeal Pvt. Ltd. AY 2006-07 3.2. In view of above, it was held that share application money of Rs.1,23,75,000/- received by the assessee was nothing but assessee's own unaccounted money. Accordingly, it was added to the total income of the assessee.

The assessee reiterated the documents filed before the ld AO in addition to filing the supporting evidences with respect to proof of addresss, declaration from the shareholders for investment in share application money made with the assessee and allotment advice as regards allotment of shares, copy of trade licence of share applicants, among others. The assessee also placed reliance on the decision of the Hon’ble Supreme Court in the case of CIT vs Lovely Exports (P) Ltd reported in (2008) 216 CTR (SC) 195 and decision of the Hon’ble Calcutta High Court in the case of CIT vs Roseberry Mercantile (P) Ltd in ITAT No. 241 of 2010 and G.A. No. 3296 of 2010 dated 10.01.2011 in support of its contentions. The ld CITA duly appreciating the submissions of the assessee together with supporting evidences on record and respectfully following the judicial precedents supra, deleted the addition made u/s 68 of the Act. Aggrieved, the revenue is in appeal before us on the following grounds:-

Zimkele Commodeal Pvt. Ltd. AY 2006-07 “1 That on the facts and circumstances of the case and in law, the Ld CIT(A) erred in deleting the addition of Rs. 1,23,75,000/- made by the Assessing Officer as unexplained cash credit under section 68 of the Income-tax Act, 1961 for the assessment year 2006-07.

2. That on the facts and circumstances of the case and in law, the Ld CIT(A) committed gross error in not exercising powers conferred upon him under section 250(4) of the Income-tax, Act, 1961. 3 That on the facts and circumstances of the case and in law, the Ld CIT(A) committed gross error in placing undue reliance upon the decision of the Hon'ble Supreme Court in the case of CIT Vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195 even when it was established by the Assessing Officer that the identities of the alleged share applicants are not verifiable.”

(a) CIT vs Korlay Trading Co. Ltd reported in (1998) 232 ITR 820 (Cal) (b) CIT vs Maithan International reported in (2015) 375 ITR 123 (Cal) (c ) CIT vs Nova Promoters and Finlease (P) Ltd reported in (2012) 342 ITR 169 (Del) (d) CIT vs Navodaya Castles Pvt Ltd reported in (2014) 367 ITR 306 (Del) (e) CIT vs Active Traders (P) Ltd reported in (1995) 214 ITR 583 (Cal) (f) CIT vs Nivedan Vanijya Niyojan Ltd reported in (2003) 263 ITR 623 (Cal) (g) Bisakha Sales (P) Ltd vs CIT reported in (2015) 152 ITD 750 (Kol Trib) (h) Subhalakshmi Vanijya (P) Ltd vs CIT reported in (2015) 155 ITD 171 (Kol Trib)

He argued that the decision of the Hon’ble Supreme Court in the case of Lovely Exports was rendered in the context of a Public Limited Company and whereas in the instant case, the assessee is a private limited company.

Zimkele Commodeal Pvt. Ltd. AY 2006-07 that the ld AO had placed reliance on the report of the Inspector of Income Tax which was never furnished to the assessee for its rebuttal. In the instant case, all the three ingredients of cash credit were duly proved by the assessee including the source of source though the same is not required to be proved by the assessee as per law. He placed reliance on the following decisions in support of his contentions:-

(a) Bear Bull Distributors (P) Ltd vs ITO in dated 24.12.2008 (Kolkata Trib) (b) DCIT vs Howrah Gases Ltd in ITA No. 270/Kol/2009 dated 23.4.2009 (Kolkata Trib) (c ) DCIT vs Shaw Aromatics Pvt Ltd in ITA No. 2003/Kol/2009 dated 19.11.2010 (Kolkata Trib) (d) DCIT vs Nikita Metals Pvt Ltd in ITA No. 525/Kol/2010 dated 29.10.2010 (Kolkata Trib) (e) ITO vs Roseberry Mercantile (P) Ltd in ITA No. 2119/Kol/2009 dated 18.5.2010 (Kolkata Trib) (f) CIT vs Roseberry Mercantile (P) Ltd in GA No. 3296 of 2010 in ITAT No. 241 of 2010 dated 10.1.2011 (Hon’ble Calcutta High Court) (g) CIT vs Lovely Exports (P) Ltd reported in (2008) 216 CTR (SC) 195 (h) ITO vs Harshwardhan Gems Pvt Ltd in ITA No. 1070 & 1337/Kol/2010 dated 3.2.2016 (Kolkata Trib) (i) Prabhu Dhan Infrastructure Pvt Ltd vs DCIT in ITA No. 1908/Kol/2012 dated 20.1.2016 (Kolkata Trib) (j) ACIT vs Kunj Alloys Pvt Ltd in ITA No. 239 & 257/CTK/2007 dated 27.11.2015 (Kolkata Trib) (k) ACIT vs Global Mercantile (P) Ltd reported in (2016) 157 ITD 924 (Kolkata Trib) (l) CIT vs Nishan Indo Commerce Ltd in ITA No. 52/2001 dated 2.12.2013 (Hon’ble Calcutta High Court) (m) CIT vs Anshika Investment Pvt Ltd in ITA No. 467/2014 dated 16.4.2015 (Hon’ble Delhi High Court) (n) ACIT vs Sri Rakesh Bhartia in ITA No. 428/Kol/2012 dated 29.2.2016 (Kolkata Trib) (o) Mihir Kanti Hazra vs ITO in ITA No. 19/Kol/2013 dated 10.9.2014 (Kolkata Trib) (p) ITO vs Gold Mohur Profiles Ltd reported in (2015) 45 CCH 344 dated 18.12.2015 (Delhi Trib) (q) Kainya & Associates Pvt Ltd vs DCIT reported in (2015) 45 CCH 0021 dated 10.8.2015 (Mumbai Trib) (r ) CIT vs Mitul Krishna Kapoor in ITA No. 333 of 2009 dated 9.6.2016 (Hon’ble Calcutta High Court) (s) CIT vs Divine Leasing & Finance Ltd reported in (2008) 299 ITR 268 (Hon’ble Delhi High Court)

The ld AR also distinguished the case laws relied upon by the ld DR and argued that they are factually distinguishable and are not relevant to the facts of the instant case.

Zimkele Commodeal Pvt. Ltd. AY 2006-07 7. We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee containing the complete details of all the share applicants as detailed supra. We find that the assessee was in receipt of share capital including share premium during the asst year under appeal as under:- Sl. Name & Address PAN No. No. of Share Share Total Cheque No. & Bank Name No. shares Capital Premium amount Date allotted 1. Ekta Commodities Suppl. AABCE2985L 30000 300,000.00 1,200,000.00 1,500,000.00 Chq. No.092540 O.B.C R. N. (P) Ltd., 29A, Weston Date 13/10/2005 Mukherjee Road Street, 3rd floor, Kolkata- 700012 2. Index Commodities AABCI2190K 30000 300,000.00 1,200,000.00 1,500,000.00 Chq. No.092496 O.B.C R. N. Dealer (P) Ltd. 29A, Date-13/10/2005 Mukherjee Road Weston Street, 3rd floor, Kolkata-700012.

3. Rameswar Retailers (P) AACCR6236J 40000 400,000.00 1,600,000.00 2,000,000.00 Chq. No.094295 O.B.C R. N. Ltd. 33, C. R. Avenue, 9th Date-17/11/2005 Mukherjee Road Floor, R. No.909, Kolkata-700012 4. Ishunand Trading (P) Ltd. AABCI1195A 30000 300,000.00 1,200,000.00 1,500,000.00 Chq No.125775 IDBI Brabourne 29A, Weston Street, 3rd Date-17/11/2005 Road Branch floor, Kolkata-700 012 5. Unicon Merchants (P) AAACU6553H 30000 300,000.00 1,200,000.00 1,500,000.00 Ch No. 169727 IDBI Brabourne Ltd., VIP Enclave, A1 date-17/11/2005 Road Branch Block Flat No.302, Baguiati, Kolkata-700059 6. Jemco Vanijya (P) Ltd. 4, AAACJ7895F 50000 500,000.00 2,000,000.00 2,500,000.00 Ch. No.104641 ABN Amro G.C. Avenue, 5th floor, date-16/11/2005 Bank Brabourne Kolkata-700013. Road Branch 7. Doyen Marketing (P) Ltd. AAACD8812G 30000 300,000.00 1,200,000.00 1,500,000.00 Ch.No.004023 Centurian Bank 23B, N. s. Road, 2nd floor, Date-17/11/2005 India Exchange Room No. 8B, Kolkata- Place Brach 700001 8. Everlike computers (P) AAACE5392C 7500 75,000.00 300,000.00 375,000.00 Ch. No.264987 Centurian Bank Ltd., 27, Brabourne Road, Date-22/06/2004 India Exchange 3rd floor, Kolkata-700 001 Place Branch.

7.1. It is not in dispute that the assessee had furnished the following documents relating to the share applicants before the lower authorities :- (a) Name and address of the share applicants (b) Income tax return acknowledgement of share applicants for the Asst Year 2006-07 (c ) Audited financial statements for the year ended 31.3.2006 for each of the share applicants. (d) Copy of the bank statements of share applicants from where the payments were made to the assessee company. (e) Copy of certificate of incorporation of share applicants. (f) Confirmation from the share applicants in detailed letter form containing the necessary documents filed with ROC proving the existence of the share applicant companies. (g) Source for share applicants for making payment of share application money to the assessee with reference to their bank statements.

Zimkele Commodeal Pvt. Ltd. AY 2006-07 (h) PAN and income tax assessment particulars of share applicants. (i) Supporting evidences with respect to proof of addresss (j) Declaration from the shareholders for investment in share application money made with the assessee (k) Allotment advice as regards allotment of shares (l) Copy of trade licence of share applicants 7.2. It is not in dispute that in the balance sheets of share applicants, the amounts paid to assessee was duly reflected under the head ‘Investments’ which could be evident from the relevant pages of the paper book filed by the assessee. We find from the bank statements of the share applicants on the relevant dates of making investments in share capital with the assessee company, that they had sufficient bank balances in their kitty and hence creditworthiness of those parties were proved beyond doubt. All the share applicants are assessed to income tax and had regularly filed their income tax and ROC returns. Hence, the identity of the share applicants was duly proved. All the share applicants had made investments in share capital with the assessee company through account payee cheques from their disclosed bank accounts with sufficient sources which were duly explained. Hence, the genuineness of the transactions was also proved in the instant case. We find that the assessee had even proved the source of source of share applicants in the instant case which are quite evident from the confirmations filed by them before the ld AO which are forming part of the records and the paper book. The share applicants had duly explained that they had liquidated their existing investments in shares of certain companies for which the proceeds were received by cheques and got deposited in their regular bank account. From the said bank account, account payee cheques were issued to the assessee company towards investment in share capital by them. Hence the source of source for share applicants also is explained in the instant case by the assessee though it is not required to be proved by the assessee as per law. We find that none of the documents pertaining to the share applicants which were filed before the ld AO were found to be ingenuine or non creditworthy by the ld AO. We find that the ld AO had made a wild allegation that these share applicant companies are mere paper companies without bringing any cogent material and evidences on record. We find that the ld AO had not brought any material or evidence on record which would indicate that the share applicants are mere benamidars / fictitious persons or Zimkele Commodeal Pvt. Ltd. AY 2006-07 that any part of the share capital represented the assessee’s own income from undisclosed sources.

7.3. Now it would be relevant to deal with the various case laws relied upon by the ld DR on the impugned issue. We find that in the case of CIT vs Korlay Trading Co. Ltd reported in (1998) 232 ITR 820 (Cal), Only PAN was filed in this case and no other details were filed and hence the Hon’ble High Court held that the assessee had not discharged its primary onus in full by proving the other ingredients of section 68 of the Act. In the instant case, the entire details of the share applicants were filed together with their creditworthiness and source of source were proved and hence the decision relied upon is not applicable to the facts of the instant case. Similarly in CIT vs Nivedan Vanijya Niyojan Ltd reported in (2003) 263 ITR 623 (Cal) relied upon by the ld DR , the main ingredients of section 68 of the Act namely the identity of the subscribers, genuineness of transactions and creditworthiness of subscribers were not proved by the assessee in that case. Whereas, in the instant case, all the three ingredients were proved by the assessee beyond any doubt and hence the said decision relied upon by the ld DR is factually distinguishable from the instant case.

7.4. With regard to CIT vs Active Traders (P) Ltd reported in (1995) 214 ITR 583 (Cal), CIT vs Maithan International reported in (2015) 375 ITR 123 (Cal), Subhalakshmi Vanijya (P) Ltd vs CIT reported in (2015) 155 ITD 171 (Kol Trib), Bisakha Sales (P) Ltd vs CIT reported in (2015) 152 ITD 750 (Kol Trib) relied upon by the ld DR, we find that all these decisions were rendered in the context of validity of revisionary jurisdiction u/s 263 of the Act and are factually distinguishable from the instant case. With regard to reliance placed on CIT vs Nova Promoters and Finlease (P) Ltd reported in (2012) 342 ITR 169 (Del ) is concerned, we find that in that case, there was an information about the existence of accommodation entry providers and their modus operandi in which the assessee was also found to be involved and enquiries were conducted and evidences were brought on record against that assessee. But in the instant case, no such factual findings with cogent evidence were brought on record by the ld AO except making a bald statement that the share applicant companies are paper companies and hence the said decision is factually distinguishable from the instant case. With regard to reliance placed on CIT vs Navodaya Castles Pvt Ltd reported in (2014) 367 ITR 306 (Del), the Hon’ble Delhi High Court had Zimkele Commodeal Pvt. Ltd. AY 2006-07 only remanded the matter back to the Tribunal for fresh adjudication in as much as the tribunal had only reproduced the order of the Commissioner (Appeals) and the co-ordinate bench decision relied upon by the tribunal was overturned by the Hon’ble Delhi High Court. Hence the ratio laid down thereon cannot be made applicable to the facts of the instant case.

7.5. We find that the assessee had given the complete details about the share applicants clearly establishing their identity, creditworthiness and genuineness of transaction proved beyond doubt and had duly discharged its onus in full. We find that the issue is squarely covered by the co-ordinate bench decision of this tribunal in the case of ACIT vs Global Mercantile (P) Ltd reported in (2016) 157 ITD 924 (Kolkata Trib) which had rendered the decision after duly considering the decisions of the Hon’ble Supreme Court in the case of CIT vs Lovely Exports (P) Ltd reported in (2008) 216 CTR (SC) 195 and decision of Hon’ble Jurisdictional High Court in the case of CIT vs Roseberry Mercantile (P) Ltd in GA No. 3296 of 2010 in ITAT No. 241 of 2010 dated 10.1.2011 . Infact the issue is squarely covered by the decision of the Hon’ble Calcutta High Court in the case of CIT vs Roseberry Mercantile (P) Ltd supra wherein the questions raised before their lordships and decision rendered thereon is as under:—

"On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT(A) ought to have held that the assessee had not established the genuineness of the transaction." Held After hearing the learned counsel for the appellant and after going through the decision of the Supreme Court in the case of CIT v. M/s Lovely Exports Pvt Ltd, we are at one with the tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed."

7.7. We find that the issue is also covered by another Jurisdictional High Court decision in the case of CIT vs Mitul Krishna Kapoor in of 2009 dated 9.6.2016) wherein the question raised and the decision rendered thereon are reproduced below:- "Whether on the facts and in the circumstances of the case the Learned Tribunal is justified in law in confirming the order of C.I.T.(Appeals) in deleting the addition of Rs.33,90,000/- and Rs.72,57,686/- made under Section 68 of the Income Tax Act, 1961?" Addition of a sum of Rs.33.90 lakhs was made on the basis that the assessee had allegedly taken loan from the corpus fund, which the assessee has denied.

Zimkele Commodeal Pvt. Ltd. AY 2006-07

The assessing officer proceeded to add this sum of Rs.33.90 under section 68. C.I.T.(A) has clearly held that there is no knowledge as to what the corpus fund is. The C.I.T. also opined that there was no material on the basis of which the aforesaid addition could be made and on that basis the C.I.T. deleted the addition. The learned Tribunal concurred with such finding of the C.I.T.(A). As regards other sum of Rs.72,57,686/- is concerned, the addition was found altogether unmeritorious because "all these amounts are paid by cheque out of accounted fund in the regular books of accounts. A copy of the confirmation along with the bank statement in respect of the assessee's accounts with Bharat Overseas Bank is filed, duly confirmed by Shri A E Medhora on behalf of M/s. Novrojee & Co. A copy of the bank account disclosed and the regular books of accounts were filed before the Ld.CIT(A) which were also made available before the AO. Based on these submissions, the ld.CIT(A) has deleted the same." The facts and circumstances of the case, we are sorry to say, depict clear abuse of power of the assessing officer. We were inclined to impose exemplary costs upon the revenue but refrained from doing so because notice of this appeal has not been given to the respondent. No one has appeared. The question formulated in this case is answered in the affirmative and against the revenue.

The appeal is, therefore, dismissed.”

7.8. We also find that the issue under appeal is also covered by the decision of the Hon’ble Delhi High Court in the case of CIT vs Divine Leasing & Finance Ltd reported in (2008) 299 ITR 268 and also various other decisions relied upon by the ld AR which are not considered here for the sake of brevity.

7.9 In view of the aforesaid findings and respectfully following the decisions of Hon’ble Apex Court supra ; Hon’ble Jurisdictional High Court (supra) and co-ordinate bench decisions of various tribunals, we find no infirmity in the order of the Learned CIT(A) and accordingly, the grounds raised by the revenue are dismissed.