ITO 9(2)(2), MUMBAI vs. KAMVIT CHEMICALS P. LTD, MUMBAI

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ITA 8642/MUM/2010Status: DisposedITAT Mumbai22 April 2016AY 2006-076 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the assessee had discharged the onus of proving the genuineness of the unsecured loans and share capital introductions with sufficient documentary evidence. The AO had not collected any evidence to rebut the assessee's submissions.

What were the facts?

The assessee filed a NIL return for AY 2006-07. The AO made additions for unsecured loans and share capital, treating them as unexplained cash credits under Section 68. The CIT(A) deleted these additions, holding that the assessee had established the identity, capacity, and genuineness of the transactions.

What were the issues?

Whether the assessee had sufficiently proved the identity, capacity, and genuineness of the creditors for unsecured loans and share capital contributions to avoid additions under Section 68.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI

Before: SHRI G.S.PANNU (AM) & SHRI RAM LAL NEGI (JM)

For Appellant: Ms. Radha Katyal Narang
For Respondent: Shri. Nitesh Joshi
Hearing: 12/04/2016Pronounced: 22/04/2016

PER RAM LAL NEGI, JM

1.

This appeal has been preferred by the revenue against the impugned order dated 15/10/2010 passed by the Ld. CIT(Appeals)-20, Mumbai, for the Asst. year 2006-07.

2.

Brief facts of the case are that the assessee being engaged in the business of manufacture of cobalt, nickel and copper sulphate, filed NIL return for the relevant assessment year. After scrutiny of the return, the AO assessed the total income of the assessee at Rs. 94,84,500/-, by making addition of unsecured loan to the tune of Rs. 23,14,500/- and share capital contribution received to the extent of Rs. 71,70,000/-, treating the said amounts as unexplained cash credit u/s 68 of the Income Tax Act (in short ‘the Act’) on the ground that the assessee has failed to discharge the onus of filing confirmation of unsecured loans from the creditors and to prove genuineness of the share capital contribution received. The assessee challenged the assessment order before the CIT(A). The CIT(A) after hearing the assessee in the light of the material placed before him allowed the appeal holding that the appellant has established the identity of the creditors, their financial capacity and the genuineness of the transactions. Aggrieved by the said order the revenue has preferred the present appeal on the following effective grounds:-

“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the amount of Rs. 23,14,500/- stated to be unsecured loans received from Shri. VIttal D. Shetty & Smt. Kamala D. Shetty, but actually representing unexplained cash credit u/s 68 of the I.T.Act, 1961 as the assessee was not able to establish the identity of the lenders, their financial capacity and the genuineness of the transaction inspite of sufficient opportunities given.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting aggregate amount of Rs. 41,70,000/- representing share application money received from Shri. Harish Shetty, Smt. Babita Shetty, Shri. Vimal D. Shetty, Smt. Kamala Shetty, Shri. K.S. Murlidharan, Smt. Hema Kurup & Shri. Rajesh Tamboli, disregarding the fact that the assessee failed to prove the identity of the creditors, their financial capacity and the genuineness of the transactions, and that the above credits consequently represent unexplained cash credits within the meaning of Section 68 of the I.T.Act, 1961.

3.

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the additions made u/s 68 on the ground that the business of the assessee has not commenced and that the assessee has no source of income, ignoring the fact that once the credits in the books of accounts has been shown to be unexplained, the only permissible inference is that they are unexplained cash credits and that the revenue is not required to identify the precise source from which the unexplained credits were derived, having established the assessee’s version to be untenable.”

3. Before us, the Ld. DR relying on the assessment order submitted that since the assessee has failed to discharge the onus of proving identity, creditworthiness and capacity of the creditors/contributors, the Assessing Officer has rightly made the additions in question. The findings of the Ld. CIT(A) is not based on the evidence on record, therefore, the impugned order passed by the Ld. CIT(A) is liable to set aside. On the other hand the Ld. AR submitted that the CIT(A) has rightly deleted the addition made by the AO. The creditors have produced the relevant documents as asked by the AO during assessment proceedings, to prove the genuineness of transactions in question. The order passed by the Ld. CIT(A) is in accordance with the law laid down by the Hon’ble jurisdictional High court in CIT v. Tania Investments P. Ltd.,322 ITR 394 (Bom.) and there is no scope for further interference.

4.

We have heard the rival submissions and also perused the material placed on record including the orders of the authorities below in the light of the contentions of the parties. The Ld. CIT(A) has allowed the appeal of the assessee holding as under:-

“7. I have considered the issues. In all the case, the creditors are identified, they have made payments through banking channels. All are PAN holders. Except Shri. Vittal Shetty and Smt. Kamla Shetty, the others are Income tax assessees and have filed returns of income. All have explained source of their investments. In other words, the appellant has explained source of their investments. In other words, the appellant has explained the source of source. If the AO had doubt that the appellant company had not proved the creditworthiness of the creditors had doubt with regard to the capacity of the creditors, no one prevented him to verify the capacity of the creditors. In my opinion, in view of the facts discussed above there was no further need on the part of the appellant to prove the capacity of the creditors (see CIT vs. Tania Investments P. Ltd., 322 ITR 394 (Bom)). AN important feature noted in this case is that this is the first year that the appellant has filed return of income. Admittedly, the factory has not been set up and the business has not commenced. The appellant has no source of income. In these circumstances, it cannot be suggested that the share application money or the unsecured loan represented undisclosed or unaccounted income of the appellant. In sum, the appellant has established the identity of the creditors, their capacity and the genuineness of the transactions. The additions made of Rs. 71,70,000 and Rs. 23,14,500 as unexplained credits are deleted.”

5.

In our considered view the findings of the Ld. CIT(A) are based on evidence on record. We have noticed that Shri. Harish Shetty who is one of the directors of the company has filed copies of bank pass book and copy of return of income to prove contributed Rs. 15,00,000/- towards share application money and source thereof. Smt. Babita Shetty, wife of Shri. Harish Shetty who has contributed Rs. 9,33,000/- towards share application money has proved the source of money by filling copy of bank passbook, return of income and other related documents. Smt. Kamla Shetty, mother of Sh. Harish Shetty has stated that she and her husband Vittal Shetty sold their shares and jewellery to provide additional funds by way of loans aggregating to Rs. 23,14,500/- during the period from April, 2005 to October 2005 in order to help their son. Since they did not have taxable income, they were not required to file their return. However, she produced copies of statements of bank accounts and statements showing profit on sale on jewellary to prove the transactions. Shri. K.S. Murlidharan and Sh. Rajesh Tamboli who have contributed Rs. 5 lakh each have explained their sources and also submitted the relevant documents to prove the transactions. As pointed out by the Ld. CIT(A), M/s Glider Holdings Ltd., M/s. Mansi Securities and Commercials Ltd., M/s Krez Hotels and Reality Ltd. and M/s Seatrans Dam Shipping P. Ltd have also proved the contributions made by the said companies by producing documentary evidence.

6.

Hence, we are of the considered view that the assessee has properly explained the sources of the amount of unsecured loans and share capital introduced. The assessee has discharged the onus of proving the genuineness of the transactions in question and the AO has not collected any evidence to rebut the same. The documents on record are sufficient to conclude that the transactions in question are genuine. There is no legal infirmity in the order passed by the Ld. CIT(A) and the appeal of the assessee has rightly been allowed. We, therefore, dismiss all the grounds of appeal filed by the revenue being devoid of merit and confirm order dt.15/10/2010 passed by the Ld. CIT(A).

7.

In the result, appeal filed by the revenue for the Assessment year 2006-07 is dismissed. Order pronounced in the open court 22nd April, 2016.

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