ITO3(1), INDORE vs. K. K. PATEL FINANCE LTD. , MORENA

आदेश / O R D E R

Per B.M. Biyani, A.M.:

“1. Whether on the facts and in circumstances of the case, the CIT(A) erred in deleting addition of Rs. 20,19,50,000/- received by the assessee as share

K.K. Patel Finance Ltd. Assessment year 2009-10 capital and premium thereupon from shareholders whose existence could not be established by the assessee.

2. Whether on the facts and in circumstances of the case, the CIT(A) erred in deleting addition of Rs. 20,19,50,000/- received by the assessee as share capital and premium thereupon only on the basis of the fact that transactions were through banking channels, while the Hon'ble Apex Court have categorically held repeatedly that notwithstanding such transactions identity and creditworthiness of the alleged investors and genuineness of transactions are to be established to the satisfaction of the AO.”

2. When the case was called, none appeared on behalf of assessee nor any adjournment application filed. On perusal of case-records, it is found that the appeal relates to AY 2009-10 and the case has been fixed for hearing on multiple occasions but there is no representation from assessee.

Ld. DR pointed out that it’s a departmental-appeal and it can be decided on the basis of material held on record and after hearing him. Accordingly, the hearing is proceeded and the case is being disposed of by this order.

3. Ld. DR appearing for the revenue very humbly submits that the present appeal is delayed by 2 years, 6 months and 21 days. He submits that the revenue has filed an application for condonation of delay supported by an affidavit. The affidavit explaining the reason of delay is scanned below:

K.K. Patel Finance Ltd. Assessment year 2009-10

K.K. Patel Finance Ltd. Assessment year 2009-10 . Ld. DR submits that the precise reason causing delay in filing appeal, as averred in the affidavit, is the change of officers in the department and the transfer of records in-between Kolkata office and Indore office. However, as soon as the matter came to the knowledge, adequate steps were taken for filing of appeal. Referring to last para of affidavit, Ld. DR also prays that this is the only case where such situation has occurred but otherwise it has never occurred. Ld. DR made a humble prayer to accept this scenario as a reasonable cause. Ld. DR very humbly submits that there is no deliberate lethargy, negligence or mala fide intention in making delay; it is purely due to the reasons explained in the affidavit. He prayed to take a judicious view and condone the delay. We have considered the explanation of revenue and observe that the original assessment-order was passed by ACIT, Circle-5(1), Indore; the first-appeal was filed by assessee to CIT(A)-10, Kolkata; and the present-appeal is filed by assessee to ITAT, Indore. Thus, the things have moved from one location to another on the part of assessee and furthermore

K.K. Patel Finance Ltd. Assessment year 2009-10 there are changes in the officers of department too; hence the delay has occurred. In absence of any contrary fact or material on record to negate the explanation given by revenue, we agree that the revenue has a reasonable cause for delay in filing appeal. Placing reliance on the decision of Hon’ble Supreme Court in Collector, Land Acquisition Vs Mst. Katiji and others 1987 AIR 1353, 1987 2 SCC 387, we take a judicious view; condone delay and proceed with this appeal.

5. The sole controversy involved in the present-appeal is the addition of Rs. 20,19,50,000/- made by AO u/s 68 in respect of share application money received by assessee.

6. During assessment-proceeding, Ld. AO found that the assessee- company has received share-application money of Rs. 3,88,00,000/- from M/s Trimurti Finvest Ltd, Rs. 11,56,50,000/- from M/s Purvi Finvest Ltd. and Rs. 4,75,00,000/- from M/s East West Finvest Ltd [all three companies shall hereafter be to as “Investor companies”]; thus aggregating to Rs. 20,19,50,000/-. When the AO confronted the assessee to prove the ingredients of section 68, the assessee made submissions with documentary evidences. But on verification of same, the AO was not convinced. Hence, the AO treated the share-application money as ingenuine and made addition. The observations made by AO in this regard are extracted below:

“4. Addition u/s 68 of the IT Act. :- 4.1 It is also seen that during the year under consideration, the assessee has taken share application money from various applicants. The assessee was asked to explain the genuineness of share application money. The assessee furnished explanation about the genuineness of share application money and took support of the decision of Apex Court in the case of Lovely Exports. In support of its contentions about share application money, the company filed affidavits of the directors of M/s Trimurthi Finvest, Purvi Finvest and East West Finvest Ltd. 2.2 So far as the matter of share application money is concerned, it is seen that the assessee has received share application money from following companies during the year:

K.K. Patel Finance Ltd. Assessment year 2009-10 1.Trimuthi Finvest Ltd.

3. East West Finvest Ltd. From the copy of Bank statement of Trimuthi Finvest Ltd., Purvi Finvest Ltd. and East West Finvest Ltd., it is noticed that there are so many transactions with the assessee company for giving amount and receiving back the amount in respect of which no application has been furnished. Some example are that the assessee has received Rs. 9,00,000/- on 23.06.2008 and Rs. 15,00,000/- on 25.06.2008 from M/s Trimurti Finvest Ltd. The same has not been reflected in the books of M/s K.K. Patel Finance Ltd. in share application money account. Further, even as per share. applications, the assessee has received application for premium of Rs. 495/- and in some other cases for Rs. 90/- but no share has been allotted to the applicant company and the money received in the form of share application money has been returned back to that company in next year. There is no reason for such treatment of the alleged share application money. The details of share application money and allotment is as under :-

Opening share Share application Share allotted application money received money during the year M/s. Trimurti Finvest NIL 3,88,00,000/- NIL Ltd. M/s. Purvi Finvest 2,11,00,000/- 11,56,50,000/- NIL Ltd. M/s. East West NIL 4,75,00,000/- NIL Finvest Ltd.

In view of above table it is clear that there was opening balance of share application money amounting to Rs. 2,11,00,000/- in the case of M/s Purvi Finvest and further amount of Rs. 11,56,50,000/- was received during the year but no shares has been allotted. The same is the position in respect of other two companies. It is, therefore, clear from the above facts that the assessee has company has taken money of these three companies for its own use in the garb of share application money which is as good as a cash credit and the assessee is under obligation to discharge the onus cast u/s 68 on it in respect of each credit in the account. The share application money account in respect of all the applicant companies is a simple loan account and the assessee cannot take shelter of the Apex court's decision in the case M/s Lovely Exports, which speaks of actual share allotments, and not merely deposit and refund of sham share application money. It is further claimed that once the aforesaid three facts viz. identity of the creditor, his capacity to advance loan and genuineness of the transaction are established then the onus shifts on the department. It has been prayed that the explanation of the assessee be accepted and addition may not be made to the assessee's income u/s 68. The assessee in its contentions has more than once stated that the assessee has discharged its onus prima-facie by proving identity of lender, capacity of the lender and the genuineness of the transactions with the documents submitted

K.K. Patel Finance Ltd. Assessment year 2009-10 along with the written reply and is entitled to the benefits of various decisions quoted by it in its support. But the facts available on record do not support the contentions of the assessee in full. It is a fact that the assessee has taken loans from above three companies connected with Lunkad group. All the three creditor companies were found entangled in financial irregularities along with Lunkad Group of companies during survey findings of Lunkad Group. The assessee has not been able to prove that its loan transactions in the garb of share application money with the creditor companies involved in financial irregularities in connivance with the Lunkad Group of companies, are "genuine". In The Law Lexicon, 1989 Vol.1, the word "genuine" has been defined as "not spurious or counterfeit" or as explained in the dictionary "belonging to, derived from or descended from the original source or stock authentic, typical: pure"- Beharilal v Jagannath, AIR 1959 Pat. 490 at 495. Ordinarily counterfeiting involves the idea of an exact imitation; but for the purpose of the Indian Penal Code there can be counterfeiting even though the imitation is not exact and there are differences in detail between the original and the imitation so long as the resemblance is so close that deception may thereby be practiced. The assessee company has tried to give colour of genuine share application activities to counterfeiting loan activities of creditor companies having close proximity with the clandestine financial activities of Lunkad Group of companies, as revealed during survey operations of the latter. The assessee has not brought anything on record to rebut the survey findings in the case of Lunkad group and its close proximity with the creditor group of companies. Obviously, money has been introduced in the books of the assessee company in the shape of loan. Hence it is the duty of the assessee to discharge its part of onus cast u/s 68 of the IT Act by cumulatively establishing: (i) the identity of the depositor, (ii) the capacity of the depositor to make deposit and (iii) the genuineness of the transaction. It is only then that the assessee can be said to have discharged his part of onus cast u/s.68, as has been held in the time-tested judgment in the case of Shankar Industries v Addl. CIT (1978) 114 ITR 689 (Cal.). Though, the assessee company has made an attempt to discharge his part of onus with the help of copies of affidavits, share application forms etc. of creditors, still all the above three ingredients of a genuine cash credit are not fulfilled. The type of documents furnished by the assessee are self serving and can be made by any one. The Apex Court judgment in the case of CIT v Durgaprasad More, [1971] 82 ITR 540 at 545(SC),(supra) deserves appreciation in this behalf. The receipt of share application money in the case of the assessee is not genuine it is rather artificial and accordingly the assessee cannot escape from the application of Mc Dowel & Co. doctrine. Such transactions have no financial or economic propriety either. In the result, the Apex Court judgments in the cases of CWT v Arvind Narottamdas (1988) 173 ITR 479 (SC) and Union of India v Playworld Electronics Pvt Ltd (1990) 184 ITR 308 (SC) do not help

K.K. Patel Finance Ltd. Assessment year 2009-10 the assessee's case as it has no propriety except tax-evasion. Further, all the three companies have not given the schedules of Balance Sheets, therefore it is not clear whether these amounts are appearing in their balance sheet as share application in assets side. All these companies are showing huge losses and have no capacity to make such huge payments from their own sources to the assessee company. The credits appearing in respective share application money accounts of all the three applicant companies are as under:

Name of applicant Share application money received during the year M/s. Trimurti Finvest Ltd. 3,88,00,000/- M/s. Purvi Finvest Ltd. 11,56,50,000/- M/s East West Finvest Ltd. 4,75,00,000/- Total 20,19,50,000/-

As such the credit of Rs.20,19,50,000/- are added to the total income of the assesse as income from other sources and penalty proceedings are initiated for furnishing in particulars of income.” 7. During first-appeal, the assessee again made a detailed submission to CIT(A), which is re-produced by Ld. CIT(A) in Para No. 8 of the appeal-order. The Ld. CIT(A), after considering such submission and the evidences filed by assessee, deleted the addition by observing and holding thus:

“09. Decision: 1. I have carefully considered the action of the Ld. AO in making the impugned addition of Rs.20,19,50,000/-, which has been challenged in this ground. This ground of appeal is against the issue that whether the sum of Rs.20,19,50,000/- received by the assessee towards share capital towards share premium can be considered unexplained cash credit u/s 68 of the Act.

2. The Ld. AO observed that during the relevant Assessment Year, the appellant-company has received share capital from three private limited companies. The assesse has received the share application money from M/s. Purvi Finvest Pvt Ltd of Rs.11,56,50,000 and from M/s. East West Finvest Ltd of Rs.4,75,00,000/-. There has been no share allotment and no such K.K. Patel Finance Ltd. Assessment year 2009-10 treatment as share application money. In the case of M/s. Trimurthi Finvest Ltd there is a receipt of Rs.3,88,00,000/- by the assessee company but nothing reflects in the books of account of the assessee-company in share application money account. Further, the Ld. AO has observed that the assessee has received application for premium of Rs.495/- and in some other cases for Rs.90/- but no share has been allotted to the applicant-company and the money received in the form of share application money has been returned back in the next year. There is no reason for the treatment of the share application money.

K.K. Patel Finance Ltd. Assessment year 2009-10 c. The Appellant Company discharged its initial onus of proving the identity of the shareholder, genuineness of the transaction and the creditworthiness of these share applicant companies by furnishing the names and complete addresses of each of the shareholders, PAN details, bank account details of the Appellant Company and also the shareholder companies. The details and documents furnished of all three share applicant companies are as follows: i. Share Application Forms ii. Copy of Bank accounts iii. Affidavit of Shareholder company iv. Form No. 32 filed by share Applicant Co. v. Certificate of Incorporation of Business vi. ITR acknowledgments for A. Y. 2009-10 vil. Relevant portion of audited Balance Sheet viii. Ledger account of shareholder in the books of Appellant Co. ix. IT assessment order of the shareholder companies u/s 143(3) for AY 2009- 10 d. The Appellant Company submits that the aforesaid documents were more than enough to prove the identity of the shareholder companies. The genuineness of the transaction is proved as the entire share application money is received by account payee cheques and that the shareholder companies have furnished the Affidavits swearing in all the transactions relating to payment of share application to the Appellant Company were made by each of them by account payee cheques. The creditworthiness, although not required to be proved by the Appellant Company, yet from the audited accounts of the companies it would be found that they had huge turnover and huge capital and reserves. On the contrary, the assessments of three of these shareholder companies were made under section 143(3) of the Act and the investments made in the appellant company was not rejected by the Assessing Officer of these investee companies. Here we refer to the judgment of Hon'ble Calcutta High Court in the case of CIT vs. Dataware Pvt. Ltd. in ITAT No. 263 of 2011. A copy of the said judgment is enclosed for ready reference. In this case the Hon'ble Jurisdictional High Court held and observed as under: In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an Income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into K.K. Patel Finance Ltd. Assessment year 2009-10 the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the Identity of the creditor and the genuineness of transaction through account payee cheque has been established. e. The Appellant Company submits that in the instant case also there is nothing on record to show that the returns of the shareholder companies of the Appellant Company were rejected by the Assessing Officer of the said shareholder companies. On the other hand the assessment orders in respect of the all the three companies were completed under section 143(3) of the Act accepting their transactions of Investment in the Appellant Company. Therefore the AO was not justifled in adding the aforesaid sum of money received by the Appellant Company on issue of shares at a premium of Rs.90 and Rs. 495 each. The addition of Rs. 20,19,50,000/- was made by the AO in disregard of the judgments of Apex Court in the case of Lovely Exports P. Ltd and also that of Calcutta High Court in the case of Dataware P. Ltd. The Appellant Company would like to add that the insertion of the Proviso to sec. 68 were made applicable with effect from the assessment year 2013-14 and does not apply to the present case before your Honour."

8. It is observed that the Ld. AO in his order has stated that assessee company has taken money of these three companies for its own use in the garb of the share application money which is as good as a cash credit and the assessee is under the obligation to discharge the onus cast u/s 68 on it in respect of each credit in the account. The Ld. AO has further opined that the share application money account in respect of all the applicant companies is a simple loan account and the assessee cannot take shelter of the Hon'ble Apex Court's decision in the case of Lovely Exports, which speaks of actual share allotments, and not merely deposit and refund of sham share application money. It is further claimed that once the aforesaid three facts viz identity of the creditor, his capacity to advance loan and genuineness of the transaction are established then the onus shifts on the department. It has been prayed that the explanation of the assessee be accepted and addition may not be made to the assessee's Income u/s 68. The Ld. AO stated that the assessee has not been able to prove that its loan transactions in the garb of share application money with the creditor companies involved in financial irregularities in connivance with the Lunkad Group of companies, are "genuine". The AO has not disputed the fact that the money is received from the share applicant companies but has raised question as to whether it is in the form of loan or not. In my considered view of the matter, the undisputed fact emerges that the money has undisputedly been received from the three share applicants and thus, it cannot be treated as undisclosed income of the assessee.

9. It is further observed that the assessee has received the share application money from M/s. Purvi Finvest Pvt Ltd, M/s. Trimurthi Finvest Ltd and M/s. East West Finvest Ltd but no treatment has been shown in the share application money account. The Ld. AO has overlooked the portion of money returned by the assessee-company during the relevant Assessment Year and has rather made an addition of the total amount of the share application money received. Therefore, it appears that the Ld. AO did not act judiciously and discriminate while making the impugned addition. It is observed that the corporate share applicants are registered under the Companies Act, 1956 and are in the records of the Registrar of the Companies functioning under Ministry of Corporate Affairs, Government of India and the individuals are having Permanent Account Numbers along with the acknowledgment of submissions of their return of income and furnished audited balance sheet and financial statements of the three share applicant companies which is my humble opinion proven their identity without any doubt. It is observed that each of the share applicants maintained bank accounts and copies of their bank accounts from which they made payments to the appellant for subscribing to the shares issued to them. The share applicants has not denied to have subscribed to the shares of the assessee company and that such transactions were duly recorded in their books of accounts as well as their audited balance sheet. These facts in my opinion clearly prove the genuineness of the transactions. It K.K. Patel Finance Ltd. Assessment year 2009-10 is further observed that the sources of the funds of the share applicants are explained as well as their sources were also explained. The facts furnished on record by the assessee company, clearly proves their sources of funds, and their capacity for making such payments and accordingly, the criteria of their creditworthiness is proved. The AO has not found any defect and/or deficiency in the sources of fund explained by the share applicants. It is also observed that the return of allotment as well as the annual return of the three share applicant companies for the A.Y. 2009-10 filed by the Appellant with the Registrar of the Companies, Ministry of Corporate Affairs, further categorically proves the fact of allotment of shares. The Assessee in its response has filed the Assessment order of all the three share applicant companies for the A.Y. 2009-10 completed under section 143(3) of the Act and there is no addition in regard to share application.

12. Therefore, considering the totality of the facts and circumstances of the case I find substance in the argument of the Ld. A.R that the appellant has made its case that the identity of the share applicants is established beyond K.K. Patel Finance Ltd. Assessment year 2009-10 doubt and on enquiries made by the AO there is no adverse finding reached on this aspect. Admittedly all the share applicants are existing assesses under the act which establish the Identity and authenticity of the share applicants, about the genuineness of the transactions there is no any adverse finding in the assessment order which is distinct to the facts brought on record by the appellant during the course of assessment proceeding. The creditworthiness of the share applicants as regards their subscription to the share capital is proved by submission of their return, audited annual accounts, their bank statement as depicted hereinabove. The net worth of such subscribers is in excess of the amount invested by each of them as explained hereinabove. The Assessment orders passed during the assessment of the share applicants under section 143(3) of the Act has mentioned above. The undisputed fact, that the money is received from the share applicants. The addition made by AO is based on extraneous parameters not germane for deciding the issue. The Ld. AO had not dealt with the issue with the required judiciousness and consistency in relation to the documentary evidence adduced during the course of the assessment proceedings by the appellant and the replies of the share applicants in respect of the share capital, On these grounds, it is my considered view that no adverse inference that such share applications monies received is unaccounted cash credit was called for. Therefore, I am inclined to accept the arguments tendered by the Ld. A.R of the appellant in this respect.

K.K. Patel Finance Ltd. Assessment year 2009-10 v. Certificate of Incorporation of Business vi. ITR acknowledgments for A.Y. 2009-10 vil. Relevant portion of audited Balance Sheet viii. Ledger account of shareholder in the books of Appellant Co. ix. IT assessment order of the shareholder companies u/s 143(3) for AY 2009-10 We find that the revenue has not raised any ground to negate or contradict this fact claimed by assessee and also accepted by Ld. CIT(A). On a careful reading of assessment-order, we find that the AO has also talked at least about these documents having been filed by assessee, namely (i) affidavits of the directors of investor-companies; (ii) bank statements of the investor- companies; (iii) share application forms, etc. In fact, at one place the AO has made a heighted remark also “The type of documents furnished by assessee are self-serving and can be made by anyone”. This shows that the assessee has filed document to AO. Being so, we do not find any merit in the contention of Ld. DR that the assessee has not filed any evidence to AO.

10. Having said so, we now go to the vital findings made by Ld. CIT(A) wherein he has dealt with the findings of AO as under:

(i) Ld. CIT(A) has observed that in the course of assessment-proceeding, the assessee produced books of account, filed copies of audited accounts, filed full details of the investors who had subscribed to the share capital. The AO has not raised any dispute or question on the receipt of money from those investors. (Para 9.7 of CIT(A)’s order).

(ii) Ld. CIT(A) observed that the AO has not disputed the fact that the money is received from investor-companies but has raised question as to whether it is a loan or not. (Para 9.8 of CIT(A)’s order).

(iii) Ld. CIT(A) observed that the share applicants are registered under the Companies Act, 1956 and are in the records of the Registrar of the Companies functioning under Ministry of Corporate Affairs, Government of India and they are having Permanent Account

K.K. Patel Finance Ltd. Assessment year 2009-10 Numbers along with the acknowledgment of submissions of their return of income and furnished audited balance sheet and financial statements which proves identity. The share applicants have maintained bank accounts and copies of their bank accounts from which they made payments to the assessee for subscribing to the shares issued to them have been filed. The share applicants have not denied to have subscribed to the shares of the assessee and that such transactions were duly recorded in their books of accounts as well as their audited balance sheet. These facts clearly prove the genuineness of the transactions. It is further observed that the sources of the funds of the share applicants are explained as well as their sources were also explained. The facts furnished on record by the assessee- company clearly proved their sources of funds, and their capacity for making such payments and accordingly, the criteria of their creditworthiness is proved. The AO has not found any defect and/or deficiency in the sources of fund explained by the share applicants. It is also observed that the return of allotment as well as the annual return of the three share applicant companies for the A.Y. 2009-10 filed by the Appellant with the Registrar of the Companies, Ministry of Corporate Affairs, further categorically proves the fact of allotment of shares. The assessee has filed the Assessment order of all the three share applicant companies for the A.Y. 2009-10 completed u/s 143(3) of the Act and there is no addition in regard to share application. (Para 9.9 of CIT(A)’s order).

(iv) Ld. CIT(A) has finally observed that the burden which lay on the assessee u/s 68 has been duly discharged by it and nothing further remains to be proved by it on the issue. There is no evidence on record to show that the identities of the share applicants are not proved and / or that the introduction of share capitals are not proved and /or that the introduction of share capital by them was not genuine and/or

K.K. Patel Finance Ltd. Assessment year 2009-10 the source of investment was not fully explained to the satisfaction of the AO. (Para 9.10 of CIT(A)’s order).

11. Clearly, therefore, it is discernible that the Ld. CIT(A) has dealt with each and every aspect of the issue and concluded that the assessee has discharged the burden cast upon it u/s 68. The Ld. DR could not show us any reason to interfere with these findings. Therefore, we are inclined to hold that in such a situation, the Ld. CIT(A) has rightly reversed the action of AO and deleted the addition. We subscribe to his view and uphold the deletion. The revenue fails in this appeal.

Order pronounced as per Rule 34 of I.T.A.T. Rules, 1963 on 28/04/2023. Order pronounced in the open court on ….../……/2023.