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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: Shri M. Balaganesh, & Shri S.S. Vishwanethra Ravi,
ORDER SHRI M.BALAGANESH, AM
This appeal of the assessee arises out of the order of the Learned CIT(A), VIII, Kolkata in Appeal No. 148/CIT(A)-VIII/Kol/11-12 dated 27-07-2012 against the order of assessment framed by the Learned AO for the Asst Year 2009-10 u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
The only issue to be decided in this appeal is as to whether the share application money received by the assessee company from seven share applicants in the sum of Rs. 1,25,49,980/- could be brought to tax in the facts and circumstances of the case.
The brief facts of this issue is that the assessee is a public limited company engaged in the business of manufacture and trading of Industrial Couplings, Spares, Telecommunication and Transmission Line Towers and Parts. The Learned AO observed that during the assessment year under appeal, the assessee company issued fresh shares to the following parties at face value of Rs 10 each per share :-
--------------------------------------------------------------------------------------------- Sl.No. Name of the Share No. of Shares Total amount recd. Applicant Issued including premium (in Rs.) -------------------------------------------------------------------------------------------- 1 Trinton Vinimoy Pvt Ltd 2,70,000 27,00,000/- 2 Annunoday Dealcom Pvt Ltd 2,70,000 27,00,000/- 3 Deva Merchants Pvt Ltd 93,748 9,37,480/- 4 Ankur Tie-up Pvt Ltd 70,000 7,00,000/- 5 Rose Valley Merchants Pvt Ltd 11,250 1,12,500/- 6 Kushal Khemka 11,995 1,19,950/- 7 Nalanda Vanijya Pvt Ltd 2,70,000 27,00,000/- 8 Safal Vyapar Pvt Ltd 2,70,000 27,00,000/- 9 Saroj Kabra 28,000 2,80,000/-
TOTAL :- 1,29,49,930/- The Learned AO accepted the identity and creditworthiness of Mr.Kushal Khemka and Smt.Saroj Kabra and made no addition for the amounts received from them. In respect of amounts received from 7 corporate entities, the Learned AO doubted the creditworthiness of the parties. The total share capital received from these seven corporate entities amounted to Rs. 1,25,49,980/-. The assessee had duly furnished the documents in respect of all the seven share applicants before the Learned AO.
The Learned AO observed that all the seven applicant companies were having paid up capital of Rs. 1,00,000/- and have meager income but have invested in assessee company’s shares by taking money from some other companies who has directly given cheques in the name of the assessee company on behalf of applicant companies. According to Learned AO, the share applicants have no creditworthiness to make the investment. He observed that it is not understandable as to why other company would make the payment of share application money on behalf of such a share applicant having almost no net worth and having no business activity or having no business connection with the payer company. He observed that the assessee had not furnished the copy of share applications or share applicant’s bank account details. Based on the above observations, he concluded that the seven share applicants do not have sufficient creditworthiness to make investment in shares of assessee company . He observed that none of them had carried on any significant business activity and none of them have any business connection with the payer of the money on their behalf. Accordingly, he concluded that preponderance of probability would suggest that all these share applicants are mere paper companies used by the assessee as conduits to bring its own undisclosed money in the form of share capital. Accordingly, he brought the entire share capital received from seven corporates to the tune of Rs. 1,25,49,980/- as unexplained cash credit u/s 68 of the Act.
4. On first appeal, the assessee reiterated the submissions made before the Learned AO and produced the same documents and evidences that were produced before the Learned AO. The Learned CIT(A) held that it is not the case of the assessee that M/s Premium Agro Exports Ltd and M/s Agarpara Jute Mills Ltd have issued the cheques to seven share applicants and the seven share applicants in turn had issued their respective cheques to the assessee company towards investment in shares. Based on this observation, he invoked the provisions of section 3 of Benami Transactions (Prohibition) Act, 1988 and held that the assessee had violated the said provisions and upheld the addition made by the Learned AO by reiterating the observations of the Learned AO. Aggrieved, the assessee is in appeal before us on the following grounds:- 1) For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the addition of Rs. 1,25,49,980/- made by the A.O. on account of unexplained cash credit U/s 68 of the Income Tax Act when in fact, such sum represents share application money received from seven share applicant companies.
2) For that on the facts and in the circumstances of the case, the action of the Ld. CIT(A) in confirming Rs. 1,25,49,980/- as appellant's undisclosed income U/s 68 of the Income Tax Act is highly arbitrary, unjustified and unwarranted.
3) For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the treatment of share application money by the Ld. A.D. as income of the appellant by wrongly invoking section 68 of the Income Tax Act based on conjectures, suspicion and surmises.
4) That the Ld. CIT(A) erred in holding that the transactions of share application are in violation of the provision of the Benami Transaction (Prohibition) Act, 1988.
5) That the appellant craves leave to add, alter or delete all or any of the grounds of appeal.
5. The Learned AR argued that the entire details from whom the monies were received through share capital were furnished by the assessee before the lower authorities as follows :-
a) Audited Balance Sheets of seven share applicant companies as on 31.3.2009. b) IT Return acknowledgements for Asst Year 2009-10 of seven share applicants. c) Confirmation from the share applicants explaining the fact that the cheque was issued by M/s Premium Agro Exports Ltd or Agarpala Jute Mills Ltd , as the case may be, on their behalf, to Wellman Wacoma Limited towards purchase of shares. d) Relevant page of Bank Statements of M/s Premium Agro Exports Ltd and M/s Agarpala Jute Mills Ltd. e) Confirmation from M/s Premium Agro Exports Ltd and M/s Agarpala Jute Mills Ltd explaining the fact that they had advanced monies to Wellman Wacoma Limited (assessee herein) towards purchase of shares on behalf of the seven share applicant companies, as the case may be.
Apart from this, pursuant to the details called for by the Bench during the course of previous hearings, he had furnished a supplementary paper book and also stated that the same has been duly certified as such and referred to the relevant pages of the paper book. He argued that the assessee had proved the source of source of source in the instant case. He argued that sources of money cannot be termed as assessee’s own money introduced in the garb of share application because all such issuer of cheques are manufacturing companies having high volume of business and turnover and there is no iota of evidence or lead that would suggest that assessee’s undisclosed income came through banking account of such issuer of cheques. He argued that the doubts raised by the Learned AO as to no creditworthiness are nothing but his surmises and conjectures. The sources of fund are fully identified. The seven share applicant company’s paid up capital alone cannot be the criterion for judging the creditworthiness. The amount received from two jute companies were duly reflected as current liabilities in the seven share applicants audited annual accounts. The Learned AR also referred to the relevant page of the paper book containing the list of directors in all the seven share applicant companies and the list of directors in two jute mill companies to prove the fact that Jute Mill companies and seven share applicant companies are having common directors. Hence he argued that there is nothing wrong for the jute mill company to pay the monies directly to the assessee company towards purchase of shares on behalf of its sister concerns. He further argued that the Learned CITA had wrongly invoked the provisions of section 3 of Benami Transactions (Prohibition) Act, 1988 to the facts of the instant case. He argued that no examination was carried out by the Learned CITA to prove that the subject mentioned transactions are benami transactions. He argued that the Learned CIT(A) simply reiterated the observations of the Learned AO in his appellate order. He argued that the assessee in the instant case had proved all the three ingredients of section 68 of the Act viz identity of the share applicants, creditworthiness of share applicants and genuineness of the transactions. He also placed reliance on the following decisions in support of his contentions:-
(i) Decision of Hon’ble Delhi High Court in the case of CIT vs Vrindavan Farms (P) Ltd in , 72/2015 and 84/2015 dated 12.8.2015 (ii) Decision of co-ordinate bench of this tribunal in the case of ITO vs Cygnus Developers (I) P Ltd in ITA No. 282/Kol/2012 dated 2.3.2016.
6. The Learned DR argued that the assessee had not proved the creditworthiness of the seven share applicants. He assailed the details filed in respect of the seven share applicants on several folds – that the seven share applicants are having the same addresss ; having same auditors and directors ; that all the cheques were issued on 25.8.2008 and 27.8.2008 on behalf of the share applicants ; that Confirmation has been signed on the same day i.e 7.3.2013 by all the seven share applicants ; that no break up of other advances under liabilities side of the balance sheet of seven share applicants is given by the assessee ; that no business activity at all is carried on in these seven share applicants during the asst year under appeal ; that no prudent businessman would invest in these type of companies. He further argued that the supplementary paper book containing various details of source of source of funds and the details of common directors etc were not filed by the assessee before the lower authorities and it has been filed only before this tribunal for the first time and hence the same cannot be taken into account by this tribunal. He further placed reliance on the following decisions in support of his contentions :- (a) Decision of the co-ordinate bench of this tribunal in the case of Subhlakshmi Vanijya (P) Ltd vs CIT reported in (2015) 60 taxmann.com 60 (Kolkata – Trib.) dated 30.7.2015.
(b) Decision of the co-ordinate bench of this tribunal in the case of Bisakha Sales (P) Ltd vs CIT reported in (2015) 52 taxmann.com 305 (Kolkata – Trib.) dated 19.9.2014.
(c ) Decision of the Hon’ble Delhi High Court in the case of Riddhi Promoters (P) Ltd vs CIT reported in 377 ITR 641 (Del), (d) Decision of the Hon’ble Calcutta High Court in the case of CIT vs Maithan International reported in (2015) 375 ITR 123 (Cal)
(e) Decision of the Hon’ble Apex Court in the case of Navodaya Castle (P) Ltd vs CIT reported in (2015) 56 taxmann.com 18 (SC)
We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee initially and later another paper book dated 29.4.2015 which was filed in response to the details called for by the Bench during the course of previous hearings.
7.1 During the relevant previous year the assessee company made fresh issue of shares to the 9 parties at face value of shares i.e. Rs.10 each aggregating to Rs.1,29,49,930. Out of it the A.O. accepted the share applications of 2 individuals namely Kushal Khemka and Saroj Kabra and made addition of the balance amount of Rs.,125,49,980 being the aggregate amount of share applications by 7 share applicant companies. The details of share application amount, Cheque No., Bank's name etc. are as under: a) Deva Merchants P Ltd. [PAN AACCD4311L] By Cheque No. 824600 dated 25.8.2008 drawn on Syndicate Bank, Camac Street Br. (Audited B/S at pg 45-50; Copy of ITR Ack pg 51, Certificate reg share investment at pg 52, Bank Statement of Agarpara at pg 53 and certificate regarding payment by Agarpara at page 54 of paper book) Rs.9,37,480 b) Ankur Tie up P Ltd. [PAN AAFCA3294G] By Cheque No 824599 dated22.8.2008 drawn on Syndicate Bank, Camac Street Br. (Audited B/S at pg 55-63; Certificate reg. share investment at pg 64, Bank Statement of Agarpara at pg 65 and certificate regarding payment by Agarpara at page 66 of paper book) Rs. 7,00,000 c) Rosevalley Merchants P Ltd. [PAN AABCR3695Q] (Audited B/S at pg 67-72; Copy of ITR Ack pg 73, Certificate reg share investment at pg 74, Bank Statement of Agarpara at pg 75 and certificate regarding payment by Agarpara at page 76 of paper book) Rs.1,12,500 d) Triton Vinimay P Ltd. [PAN AACCT7004J] By Cheque No. 033175 dated 25.8.2008 drawn on IDBI Bank, Park Street Branch (Audited B/S at pg 25-30; Copy of ITR Ack pg 31, Certificate reg share investment at pg 32, Bank Statement of Premium Agro at pg 33 and certificate regarding payment by Premium Agro at page 34 of paper book) Rs. 27,00,000 e) Arunoday Dealcom P Ltd. [PAN AAFCA0607F] By Cheque No. 033176 dated 25.8.2008 drawn on IDBI Bank, Park Street Branch (Audited B/S at pg 35-40; Copy of ITR Ack pg 41, Certificate reg share investment at pg 42, Bank Statement of Premium Agro at pg 43 and certificate regarding payment by Premium Agro at page 44 of paper book) Rs. 27,00,000 f) Nalanda Vanijya P Ltd. [PAN AACCN3532F] By Cheque No. 809487 dated 25.8.2008. drawn on Oriental Bank of Commerce, Gariahat Branch (Audited B/S at pg 77-82; Copy of ITR Ack pg 83, Certificate reg share investment at pg 84, Bank Statement of Premium Agro at pg 85 and certificate regarding payment by Premium Agro at page 86 of paper book) Rs. 27,00,000 g) Safal Vyapar P Ltd. [PAN AAKCS1261N] By Cheque No. 809496 dated 27.8.2008. drawn on Oriental Bank of Commerce, Gariahat Branch (Audited B/S at pg 87-92; Copy of ITR Ack pg 93, Certificate reg share investment at pg 94, Bank Statement of Premium Agro at pg 95 and certificate regarding payment by Premium Agro at page 96 of paper book) Rs.27,00,000 ------------------- Rs.1,25,49,980 --------------------
7.2 The addition of the above amount of share applications has been made u/s 68 in respect of share applications from the above 7 parties, who are all companies registered under the Companies Act, 1956 and assessed to Income tax. The Return of allotment of shares amounting to Rs. 1,29,49,930/- was duly filed in Form No. 2 with the Registrar of Companies on 5.9.2008 (Copy at pages 20 to 23 of paper book).
7.3. The assessee had submitted copies of its Audited Annual Accounts (page 1 to 18 of paper book), IT Acknowledgements, Certificate for investment from applicant companies along with certificate/confirmation and bank statement of the companies from whose bank account cheques were issued in favour of assessee in respect of all of the aforesaid share applicants before Id. A.O. in course of assessment proceedings.
7.4. We find that the Cheques were issued by Agarpara Jute Mills Ltd. and Premium Agro Exports Ltd. on behalf of the 3 share applicants and 4 share applicants respectively. Relevant details are given hereinbelow :-
Amounts given by Agarpara Jute Mills Ltd. PAN AACCA4864H 7.4.1 A sum aggregating to Rs. 17,49,980/- for and on behalf of Deva Merchants P Ltd. Rs.9,37,480/- ; Ankur Tie up P Ltd. Rs. 7,00,000/- and Rosevalley Merchants P Ltd. Rs.1,12,500/-. All payments were made by A/c Payee Cheques in favour of the assessee company. Details of Cheque No., date and Bank's name are mentioned above and therefore not being repeated.
7.4.2 Agarpara Jute Mills Ltd. is a Jute manufacturing company having its factory at 28, BT Road, Kamarhati, Kolkata 700058 and assessed under PAN AACCA4864H. The copy of Annual Report also comprising Profit & Loss a/c, Balance Sheet and relevant details were submitted during assessment proceedings and the copy of the same is appearing at page 118 to 139 of the paper book.
7.4.3. The turnover of finished goods of this company for the year ended 31.3.2009 was Rs. 64.51 crores and the income for the year amounted to Rs.70.07 Lakhs after tax (copy of Profit & Loss account at page 126A).
7.4.4. The company had issued confirmation in writing mentioning Cheque No., date, Bank's name etc. in respect of the 3 cheques issued by it on behalf of Deva Merchants P Ltd. for Rs.9,37,480 (copy at page 54); Ankur Tie up P Ltd. Rs. 7,00,000/- (copy at page 66); and Rosevalley Merchants P Ltd. Rs.1,12,500 (copy at page 76). These confirmations were furnished in course of assessment proceedings.
7.4.5. The amount given by the said company Agarpara Jute Mills Ltd. on behalf of the said 3 share applicants is duly shown by Agarpara Jute Mills Ltd. in list of Loans & Advances. Copy at page 138-139 of paper book.
7.4.6. The copy of Bank Statement of the said company with Syndicate Bank, Camac Street Branch was also furnished in course of assessment proceedings. The copy of the bank statement is appearing at page 53 of the paper book. The immediate source was by clearing of cheques received by the company in its normal business namely realization from trade debtors. The said company is running a Jute Mill and has sale turnover of finished goods of Rs.64.51 crore and having sundry debtors of Rs. 14.15 crore for the year ended 31.3.2009.”
7.4.7. The amounts which were paid by Agarpara Jute Mills Ltd. on behalf of 3 share applicant companies is duly included in the amount of advances received in the case of the said 3 companies under the head current liabilities. We find that the ld. A.O. is factually incorrect in observing in para 4 (i) at page 3 and also at other paras of his order that the share applicant had no borrowed fund by way of secured or unsecured loan in its Balance Sheet. The borrowed funds have been reflected under the head current liabilities.
7.4.8. The amount of investment in shares of the assessee company by the said 3 companies is also included in the amount of share investment in their respective balance sheet.
7.5. Amounts given by Premium Agro Export Ltd. PAN AACCP6412C
7.5.1 A sum aggregating to Rs. 1.08 Crore for and on behalf of Triton Vinimay P Ltd., Arunoday Dealcom P Ltd.; Nalanda Vanijya P Ltd.; Safal Vyapar P Ltd. of Rs. 27 Lakhs each totalling Rs. 1.08 crore. All payments were made by A/c Payee Cheques in favour of the assessee company. Details of Cheque No., date and Bank's name are mentioned hereinabove and therefore not being repeated.
7.5.2 Premium Agro Export Ltd. runs a Jute Mill at Ali Hyder Road, Titagarh, North 24 Parganas (WB) and assessed under PAN AACCP6412C. The copy of Annual Report also comprising Profit & Loss a/c, Balance Sheet and relevant details were submitted during assessment proceedings and the copy of the same is appearing at page 100 to 117 of the paper book.
7.5.3. The turnover of goods of this company for the year ended 31.3.2009 was Rs. 42.91 crores. However there was loss during the year (copy of Profit & Loss account at page 107).
7.5.4. The company had issued confirmation in writing mentioning Cheque No., date, Bank's name etc. in respect of the 4 cheques of Rs.27 Lakhs each issued by it regarding share application amount for Triton Vinimay P Ltd. (copy of certificate at page 34); Arunoday Dealcom P Ltd.Rs.27 Lakhs (copy of certificate at page 44); Nalanda Vanijya P Ltd. (copy of certificate at page 84); and Safal Vyapar P Ltd. (copy of certificate at page 94). These confirmations were furnished in course of assessment proceedings.
7.5.5. The amount given by the said company Premium Agro Export Ltd. on behalf of the four share applicants is duly shown in list of Loans & Advances. Copy at page 116 of paper book.
7.5.6. The copy of Bank Statements of the said company Premium Agro Export Ltd. was also furnished in course of assessment proceedings. The copy of the bank statement with IDBI Bank, Park Street Branch is appearing at page 33 ( showing payments made on behalf of the said Triton and Arunodaya) and copy of the bank statement with Oriental Bank of Commerce, Gariahat Branch at page 85 (showing payments made on behalf of said Nalanda and Safal Vyapar) of the paper book. The immediate source was by clearing of cheques received by the company in its normal business namely realization from trade debtors. The said company is running a Jute Mill and has sale turnover of Rs.42.91 crores and having sundry debtors of Rs. 8.92 crores for the year ended 31.3.2009.
7.5.7. The Profit & Loss account and Balance Sheet etc. together with PAN / copy of acknowledge of filing IT Returns of the share applicant company were also furnished in course of assessment proceedings. The copy of the same are appearing in paper book: Triton Vinimay P Ltd. (at page 26 to 30, ack of IT Return at page 31); Arunoday Dealcom P Ltd. (at page 36 to 40, ack of IT Return at page 41); Nalanda Vanijya P Ltd. ((at page 78 to 82, ack of IT Return at page 83); and Safal Vyapar P Ltd. (at page 88 to 92, ack of IT Return at page
93). The amounts which were paid by Premium Agro Export Ltd. on behalf of the said four share applicant companies is duly included in the amount of advances received in the case of the said four companies. The investment in shares of the assessee company by the said four companies is also included in the amount of share investment in their respective balance sheet.
7.6. We find that the assessee had filed the following documents :- a) Audited Balance Sheets of seven share applicant companies as on 31.3.2009. b) IT Return acknowledgements for Asst Year 2009-10 of seven share applicants. c) Confirmation from the share applicants explaining the fact that the cheque was issued by M/s Premium Agro Exports Ltd or Agarpala Jute Mills Ltd , as the case may be, on their behalf, to Wellman Wacoma Limited towards purchase of shares. d) Relevant page of Bank Statements of M/s Premium Agro Exports Ltd and M/s Agarpala Jute Mills Ltd. e) Confirmation from M/s Premium Agro Exports Ltd and M/s Agarpala Jute Mills Ltd explaining the fact that they had advanced monies to Wellman Wacoma Limited (assessee herein) towards purchase of shares on behalf of the seven share applicant companies, as the case may be. f) Asst Orders u/s 143(3) of the act for AY 2009-10 for Premium Agro Exports Ltd dated 26.12.2011 and for Agarpala Jute Mills Ltd u/s 153C/153A/143(3) of the act for AY 2009-10. g) Relevant pages of Bank Statements of the assessee 7.7. We find that the following documents were filed by the assessee before us by way of supplementary paper book which were called for by the Bench during the course of previous hearings :-
Details of Directors of seven share applicant companies , Agartala Jute Mills Ltd, Premium Agro Exports Ltd and the assessee company together with the details of companies having common directors. (pages 1 to 125 of paper book dated 29.4.15) 2. Detailed source of funds in the hands of Premium Agro Exports Ltd for advancing the amount to the share applicant companies. (pages 126 to 137 of paper book dated 29.4.15). Relevant bank statements with IDBI Bank was already filed in paper book 2. 3. Detailed source of funds in the hands of Agarpara Jute Mills Ltd for advancing the amount to the share applicant companies. (pages 138 to 285 of paper book dated 29.4.15) 4. Detailed source of funds in the hands of Premium Agro Exports Ltd for advancing the amount to the share applicant companies. (pages 286 to 289 of paper book dated 29.4.15). Relevant bank statements with Oriental Bank of Commerce was already filed in paper book 2. 5. Detailed source of utilization of funds by the assessee company vide pages 290 to 348 of paper book dated 29.4.15.
We find that this paper book is duly certified by stating that the same has been filed as requisitioned in the course of hearing. The same is taken on record for the purpose of adjudication of the impugned issue.
7.8. It would be relevant to reproduce the provisions of section 68 at this juncture:- Cash credits. 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 :
Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.
We find from the aforesaid provision, that the duty cast on the assessee is to explain the nature and source of credit found in his books. In the instant case, the credit is in the form of receipt of share capital from seven share applicants. The nature of receipt towards share capital is well established from the entries passed in the respective balance sheets of the companies as share capital and investments. Hence the nature of receipt is proved by the assessee beyond doubt. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e identity of share applicants, genuineness of transactions and creditworthiness of share applicants. In the instant case, we find that the identity of share applicants is proved beyond doubt by the assessee by furnishing the name, address, PAN of share applicants together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of share applicants, the Learned AO himself states that the seven share applicants had invested in assessee company’s shares by taking money from some other companies who has directly given cheques in the name of the assessee company on behalf of applicant companies. These transactions are also duly reflected in the balance sheets of the seven share applicants by debiting the investment in share capital of assessee company by corresponding credit to the loan creditors who had advanced monies on behalf of share applicants. Hence the source of the share applicants for making investment in share capital of assessee company is by way of borrowings from two jute companies. By this, the creditworthiness of the share applicants is also proved beyond doubt. Third ingredient is genuineness of the transactions. We find that the two jute companies had paid the monies directly to the assessee company by account payee cheques out of sufficient bank balances available in their bank accounts on behalf of the share applicants. We also find from the paper book that the assessee has even proved the source of those two jute companies represented by way of sale proceeds getting deposited into their bank accounts which in turn has been used by them to advance monies to assessee company on behalf of share applicants. Hence the source of source of source is proved by the assessee in the instant case though the same is not required to be done by the assessee as per law. We find that the share applicants have not denied the fact of making investment in share capital in assessee company. The two lending jute companies M/s Agarpara Jute Mills Ltd and M/s Premium Agro Export Ltd have also confirmed the payments which are duly corroborated with their respective bank statements and all the payments are by account payee cheques. Shares have been issued to the seven share applicant companies at face value by the assessee company. We find that the entire addition has been made by the Learned AO based upon suspicion, surmises and conjectures and not upon proper evaluation and appraisal of the evidences and documents filed before him. We place reliance on the decision of the Hon’ble Apex Court in this regard in the case of Dhakeshwari Cotton Mills Ltd vs CIT reported in 26 ITR 775 (SC) wherein it has been held that no addition can be made without material and on mere suspicion.
7.9. We also find that the case laws relied upon by the Learned AR are well founded:- (i) Decision of Hon’ble Delhi High Court in the case of CIT vs Vrindavan Farms (P) Ltd in , 72/2015 and 84/2015 dated 12.8.2015
“3. Ms. Suruchi Aggarwal, learned Senior Standing counsel for the Appellant, relied upon the decision of this Court in CIT v. Nova Promoters & Finlease Ltd. 342 ITR 169 and urged that the Assessing Officer (AO) was not required to "point to the source from which the money was received by the Assessee". On the other hand, it was incumbent upon the Assessee to offer a satisfactory explanation regarding nature and source of the funds. The ITAT has in the impugned order noticed that in the present case the Revenue has not doubted the identity of the share applicants. The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their Income- Tax- Returns. The entire details of the share applicants were made available to the AO by the Assessee. This included their PAN numbers, confirmations, their bank statements, their balance sheets and profit and loss accounts and the certificates of incorporation etc. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the above documents submitted to him. It has been righty commented by the IT AT that without doubting the documents, the AO completed the assessment only on the presumption that low return of income was sufficient to doubt the credit worthiness of the share holders .
The Court is of the view that the Assessee by produced sufficient documentation discharged its initial onus of showing the genuineness and creditworthiness of the share applicants. It was incumbent to the AO to have undertaken some inquiry and investigation before coming to a conclusion on the issue of creditworthiness. In para 39 of the decision in Nova Promoters (supra), the Court has taken note of a situation where the complete particulars of the share applicants are furnished to the AO and the AO fails to conduct an inquiry. The Court has observed that in that event no addition can be made in the hands 0 r the Assessee under Section 68 of the Act and it will be open to the Revenue to move against the share applicants in accordance with law.
In the facts and circumstances of the present appeals, the Court is satisfied that no substantial question of law arises. The appeals are dismissed.”
(ii) Decision of co-ordinate bench of this tribunal in the case of ITO vs Cygnus Developers (I) P Ltd in dated 2.3.2016.
6. On appeal by the assessee the CIT(A) deleted the addition made by the AO observing as follows "6) I have considered the submission of the appellant and perused the assessment order. I have also gone through the details and documents filed by the appellant company in the course of assessment: proceedings vide letter dt.3-10-2007. On careful consideration of the facts and in law 1 am of the opinion that the AO was not justified in making, the addition aggregating to Rs.54,00,000/- u/ s.68 of the Act being the amount of share application money by holding that the appellant company has failed to prove the identity, and credit worthiness of. The creditors as well as the genuineness of transactions. It is observed that all the three share applicant companies i.e. M/s. Shree Shyam Trexim Pvt. Ltd., M/ s Navalco Commodities Pvt. Ltd. and M/ s. Jewellock Trexim Pvt. Ltd. had filed their confirmations wherein each of them confirmed that they had applied for shares of the appellant -company. All the three companies provided- the cheque number, copy of bank statements and their PAN. It is observed' that these companies also filed, copies of their return of income and financial statements for as well as copy of their assessment order u/s.143(3) of the LT Act for AY.2005-06. In the case of M/s. Jewellock Trexim Pvt. Ltd. the assessment for AY.2005-06 was completed by the ITO, Ward 9(3), Kolkata and the assessments in the case of M/s. Navalco Commodities Pvt. Ltd. and M/s. Shree Shyam Trexim Pvt. Ltd. for A.Y.2005-06 and AY.2004-05 respectively were completed by the ITO, Ward 9(4), Kolkata. Under the circumstances, I am of the opinion that the AO was not justified in holding that the share applicant companies were not in existence. The assessment orders were completed on the address as provided by the appellant company in the course of assessment proceedings. It is not known as to how the AO's inspector had reported that the aforesaid companies were not in existence at the given address. Since the appellant company had provided sufficient documentary evidences in support of its claim of receipt of share application money, I am of the opinion that the no addition u/ s.68 could be made in the hands of appellant company. On going through the various judicial pronouncements relied upon by the appellant, it is observed that the view taken as above is also supported by them. In view of above the AO is directed to delete the addition of Rs.54,00,000/ -. The ground Nos. 2 and 3 are allowed,"
7. Aggrieved by the order of CIT{A) the revenue is in appeal before the Tribunal.
8. We have heard the submissions of the learned DR, who relied on the order of AO. The learned counsel for the assessee relied on the order of CIT(A) and further drew our attention to the decision of Hon'ble Allahabad High Court in the case of CIT vs Raj Kumar Agarwal vide dated 17.11.2009 wherein the Hon'ble Allahabad High Court took a view that non production of the director of a Public Limited company which is regularly assessed to Income tax having PAN, on the ground that the identity of the investor is not proved cannot be sustained. Attention was also to the similar ruling of the ITAT Kolkata bench in the case of ITO vs Devinder Singh Shant in vide order dated 17.04.2009.
We have considered the rival submissions., We are of the view that order of CIT(A) does not call for any interference. It may be seen from the grounds of appeal
raised by the revenue that the revenue disputed only the proof of identity of the share holder. In this regard it is seen that for AY.2004
05. Shree Shyam Trexim Pvt. Ltd., was assessed by ITO, Ward-9(4), Kolkata and the order of assessment u/s/143(3) dated 25.01.2006 is placed in the paper book. Similarly Navalco Commodities Pvt. Ltd., was assessed to tax u/s 143(3) for AY.2005-06 by ITO, Ward- 9(4), Kolkata by order dated 20.03.2007. Similarly Jewellock Trexim Pvt. Ltd was assessed to tax forAY.2005-06 by the very same ITO- Ward- 9(3), Kolkata assessing the Assessee. In the light of the above factual position which is not disputed by the revenue, it cannot be said that the identity of the share applicants remained not proved by the assessee. The decision of the Hon'ble Allahabad High Court as well as ITAT Kolkata Bench on which reliance was placed by the learned counsel for the assessee also supports the view that for non production of directors of the investor company for examination by the AO it cannot be held that the identity of a limited company has not been established. For the reasons given above we uphold the order of CIT(A) and dismiss the appeal of the revenue.”
7.10. We find that the case laws relied upon by the Learned DR are not applicable to the facts of the instant case. The decision relied by Learned DR on the co-ordinate bench of this tribunal in the case of Subhlakshmi Vanijya (P) Ltd vs CIT reported in (2015) 60 taxmann.com 60 (Kolkata – Trib.) dated 30.7.2015 is totally on different issues. In that case, this tribunal decided the validity of invoking revisionary jurisdiction u/s 263 of the Act by the Learned CIT and whether adequate enquiries were made by the Learned AO in the facts and circumstances of that case. In fact this tribunal had specifically framed certain questions to be answered by them and had duly replied by them in the order. The questions raised by them are as below:-
(i) Whether the provisions of section 68 can be attracted if share capital with premium is not properly explained by the assessee company ?
(ii) Whether insertion of proviso to section 68 by the Finance Act, 2012 with effect from 1-4-2013 empowering the Assessing Officer to examine the genuineness of the share capital in the case of a company in which public are not substantially interested, is prospective ?
(iii) Whether the enquiry conducted by the Assessing Officer in facts and circumstances of the case can be considered as a proper enquiry ?
(iv) Whether Commissioner can set aside the assessment order and direct the Assessing Officer to conduct a thorough enquiry, thereby interfering with the jurisdiction of the Assessing Officer conferred on him in terms of section 142(1) and 143(2) of the Act?
(v) Whether inadequate inquiry conducted by the Assessing Officer empowers the Commissioner to revise the assessment order ?
(vi) Whether the order of the Commissioner was based on irrelevant consideration and was he supposed to point out specifically where the Assessing Officer went wrong in not properly examining the issue of share capital ?
(vii) If the Assessing Officer has taken a possible view, can still the revision be ordered ?
(viii) Issue of non-service of show cause notice under section 263.
(ix) Whether order under section 263 is barred by limitation ?
(x) Effect of order passed under section 263 in the case of amalgamating company after amalgamation
(xi) Whether order under section 263 becomes invalid for being passed on a closed day ?
(xii) Whether the order under section 263 can be declared as a nullity for the notice having not been signed by the Commissioner ?
Hence from the above, it could be seen that this tribunal never had an occasion to look into the merits of the addition proposed to be made towards share capital in the facts and circumstances of that case and no decision was rendered thereon on merits of the issue. Various case laws were analysed by this tribunal only in the context of validity of revisionary jurisdiction u/s 263 of the Act to consider whether the order passed by the Learned CIT is erroneous in so far as it is prejudicial to the interests of the revenue and nothing more. Hence the case law relied upon by the Learned DR is not applicable to the facts of the instant case. The same ratio will be equally applicable for another tribunal decision relied upon by the Learned DR in the case of Bisakha Sales (P) Ltd vs CIT reported in (2014) 52 taxmann.com 305 (Kolkata – Trib.) dated 19.9.2014. Similar is the case with reliance placed by the Learned DR on the Hon’ble Calcutta High Court in the case of CIT vs Maithan International reported in (2015) 375 ITR 123 (Cal).
7.11. Now coming to another decision relied upon by the Learned DR rendered by the Hon’ble Delhi High Court in the case of Riddhi Promoters (P) Ltd vs CIT reported in 377 ITR 641 (Del), in that case, the issue involved is as to whether an addition towards share application money could be made merely on the fact of proving the identity of the creditor by the assessee ignoring the other ingredients of genuineness of transactions and creditworthiness of the share applicant who has advanced the amounts. Held in the facts and circumstances of that case, that the creditworthiness of the share applicants had to be seen in the context of the assertion made by them or the materials presented before the AO at the relevant time. The materials on records disclosed that some information from at least two individuals indicated that the money had not been given by them. In view of the fact that concurrently the lower authorities held against the assessee and given the intensive factual nature of the evidence, no substantial question of law arises. The appeal is accordingly dismissed.
In the instant case, the assessee had indeed proved the identity of the share applicants, creditworthiness of share applicants and genuineness of transactions beyond doubt by explaining firstly the source , secondly the source of source and thirdly the source of source of source. Moreover, the seven share applicants had duly confirmed the fact of making investment in share capital in the assessee company and the two jute companies had also confirmed the fact of having made the payments to the assessee company on behalf of the seven share applicants. Hence the decision relied upon by the Learned DR on the aforesaid decision is not applicable to the facts of the instant case.
7.12. With regard to the case relied upon by the Learned DR on the decision of the Hon’ble Apex Court in the case of Navodaya Castle (P) Ltd vs CIT reported in (2015) 56 taxmann.com 18 (SC) is concerned, we find that the issue before the Hon’ble Apex Court was whether an addition towards cash credit u/s 68 of the Act could be made in the event of assessee filing certificate of incorporation , PAN for the purpose of identification of subscriber company especially when there was material to show that subscriber was a paper company and not a genuine investor. In these circumstances, the special leave petition filed by the assessee was dismissed by the Hon’ble Apex Court. Whereas, in the instant case, there is no material that is brought on record to prove that the seven share applicants were paper companies except merely making a wild allegation based on surmise and conjecture. Hence the facts of that case are distinguishable from the facts of the instant case before us.
In these facts and circumstances and respectfully following the judicial precedents relied upon hereinabove in favour of the assessee, there is no need to treat the receipt of share capital from seven share applicants as unexplained u/s 68 of the Act.
7.13. We find that the Learned CIT(A) had applied the provisions of Benami Transactions (Prohibition) Act, 1988 as under:- “Section 3- Prohibition of benami transactions (1) No person shall enter into any benami transaction. (2) Nothing in sub-section (1) shall apply to the purchase of property by any person in the name of his wife or unmarried daughter and it shall be presumed, unless the contrary is proved, that the said property had been purchased for the benefit of the wife or the unmarried daughter.
(3) Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both. (4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, an offence under this section shall be non-cognizable and bailable.”
We find that the Learned CIT(A) had not brought any material or evidence on record to prove as to how he has reached to a conclusion that the subject mentioned transactions would fall within the ambit of Benami Transactions (Prohibition) Act, 1988. On the contrary, the evidences filed by the assessee are staring on us and the same cannot be brushed aside or swept under the carpet. Moreover, it is well settled that it is the duty of the person to prove that the subject mentioned transactions are Benami Transactions by adducing proper legal evidences because he is the person who is asserting the said allegation. We would like to place reliance on the following decisions in support of our proposition :-
(a) Decision of the Hon’ble Supreme Court in the case of P. Satyanarayan Murty vs State of Andhrapradesh reported in (1992) 4 SCC 39 dated 22.7.1992
Though it is not necessary to cite all those decisions, it will suffice to refer to the rule laid down by Bhagwati, J. , as he then was in Krishnanand Agnihotri vs State of M.P. . In that case, it was contended that the amounts lying in fixed deposit in the name of one Shanti Devi was an asset belonging to the appellant and that Shanti Devi was a benamidar of the appellant. The learned Judge speaking for the Bench has disposed of that contention holding thus:
It is well settled that the burden of showing that a particular transaction is benami and the owner is not the real owner always rests on the person asserting it to be so and this burden has to be strictly discharged by adducing legal evidence of a definite character which would either directly prove the fact of benami or establish circumstances unerringly and reasonably raising an inference of that fact. The essence of benami is the intention of the parties and not unoften, such intention is shrouded in a thick veil which cannot be easily pierced through. But such difficulties do not relieve the person asserting the transaction to be benami of the serious onus that rests on him nor justify the acceptance of mere conjectures or surmises as a substitute for proof.
(b) It was also held by the Hon’ble Supreme Court in the case of Jaydayal Poddar (Deceased) through L.R.s and Another vs Mst.Bibi Hazra and Others in Civil Appeal No. 1759 of 1967 dated 19.10.1973 reported in (1974) 1 SCC 3 that :-
It is well settled that the burden of showing that a particular transaction is benami and the owner is not the real owner always rests on the person asserting it to be so and this burden has to be strictly discharged by adducing legal evidence of a definite character which would either directly prove the fact of benami or establish circumstances unerringly and reasonably raising an inference of that fact. The essence of benami is the intention of the parties and not unoften, such intention is shrouded in a thick veil which cannot be easily pierced through. But such difficulties do not relieve the person asserting the transaction to be benami of the serious onus that rests on him nor justify the acceptance of mere conjectures or surmises as a substitute for proof. The reason is that a deed is a solemn document prepared and executed after considerable deliberation, and the peson expressly shown as the purchaser or transferee in the deed, starts with the initial presumption in his favour that the apparent state of affairs is the real state of affairs. Though the question, whether a particular sale is benami or not, is largely one of fact, and for determining this question, no absolute formulae or acid test, uniformly applicable in all situations, can be laid down ; yet in weighing the probabilities and for gathering the relevant indicia, the Courts are usually guided by these circumstances : (1) the source from which the purchase money came ; (2) the nature and possession of the property , after the purchase ; (3) motive, if any, for giving the transaction a benami colour ; (4) the position of the parties and the relationship, if any, between the claimant and the alleged benamidar; (5) the custody of the title-deeds after the sale and (6) the conduct of the parties concerned in dealing with the property after the sale.
7. The above indicia are not exhaustive and their efficacy varies according to the facts of each case. Nevertheless No.1, viz., the source whence the purchase money came, is by far the most important test for determining whether the sale standing in the name of one person, is in reality for the benefit of another.
Respectfully following the aforesaid judicial precedents of Hon’ble Apex Court , we hold that the Learned CIT(A) dismissing the plea of the assessee, on the ground that the transactions of receipt of share capital from seven share applicants are in violation of provisions of Benami Transactions (Prohibition) Act, 1988, is not justified and unwarranted.
8. Hence the addition made u/s 68 of the Act deserves to be deleted in the facts and circumstances of the case. Accordingly, the grounds raised by the assessee are allowed.