INCOME TAX OFFICER, WARD 4(1), RAIPUR vs. AVIRAL FINANCE PRIVATE LIMITED,, RAIPUR

आदेश / O R D E R

PER ARUN KHODPIA, ACCOUNTANT MEMBER:

2. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs.3,26,00,000/- by ignoring the facts as brought on record by the AO that the assessee company failed to prove the genuineness and creditworthiness of the share subscribers as per the parameters of the legal provisions u/s 68 of the Act?" 3. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition, thereby not considering and not distinguishing the findings of the AO which is well supported by the ratio of the judgment of Hon'ble Gujurat High Court in the case of Pavan kumar M Sanghvi Vs ITO (2018) 404 ITR 601 (Guj), wherein it is mentioned that it is also settled legal position that the onus of the assessee, of explaining nature and source of credit, does not get discharged merely by filing confirmatory letters, or demonstrating that the transactions are done through the banking channels or even by filing the income tax assessment particulars' ?" 4. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition which is contrary to the ratio of the decisions in CIT Vs Precision Finance Pvt Ltd 1994 2008 ITR 465, wherein it was held that it is for the assessee to prove the identity of the creditors, the creditworthiness and genuineness of the transaction and mere furnishing of particulars is not enough?" 5. "Whether on points of law and on facts & circumstances of the case, the Ld. CITIA) was justified in deleting the addition which is contrary to the ratio of the decisions of Hon'ble Supreme Court in the case of A Govindarajulu Mudaliar Vs CIT (1958) 34 ITR 807 (SC), CIT Vs M. Ganapathi Mudaliar (1964) 53 ITR 623 (SC), which clearly states that where the assessee failed to prove satisfactorily the source and nature of a credit entry in his books, and it is held that the relevant amount is the income of the assessee, it is not necessary for the Department to locate its exact source?" 6. “Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition, thereby without considering and distinguishing the ratio of the judgment of the cases such as Rameshwar Prasad Bagla 68 ITR 653 (Allahabad) & Homi Vs CIT 41 ITR 135, 142 by (Supreme Court) wherein it is stated that the totality of circumstances 3 :: must be considered in a case of circumstantial evidence & the totality of the circumstances has to be taken into consideration and the combined effect of all those circumstances is determinative of the question as to whether or not a particular act is proved ?" 7. "Whether on points of law and on facts & circumstances of the case, the Ld. CITIA) was justified in deleting the addition made by the AO and giving a decision in favour of the assessee and against the revenue, thereby giving a finding against the ratio of the settled law of the Hon'ble Bombay High Court in the case of Sanjay Bimalchand Jain, Nagpur (1.TA. No. 18/2017 dated 10.04.2017. Bombay High Court, Nagpur Bench) wherein it is stated that since there is no economic or financial justification for the investment in the shares, the transaction has all the ingredients of attracting the rigors of Section 68 of the IT Act ? 8. “Whether on points of law and on points of facts & circumstances of the case, the Ld. CIT(A) having concurrent powers of the AO u/s 250(4) of the Act, was Justified in deleting the addition of Rs. 3,26,00,000/- made by the AO in the absence of satisfaction of parameters prescribed u/s 68 of the Act?" 9. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) has violated the due provisions of law under Rule 46A of the IT Rules by accepting additional evidences, without giving an opportunity to the Assessing Officer while deleting the addition of Rs. 3,26,00,000/- made by AO on account of unexplained cash credit?". 10. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT (A) was justified by giving a finding which is contrary to the evidence on record, as the Ld. CIT(A) has accepted the identity, creditworthiness of the entities investing in the share capital and share premiums of the assessee company as genuine, a finding which is factually incorrect, thereby rendering the decision, which is perverse?" 11 "Whether on points of law and facts & circumstances of the case, the Ld. CIT(A) was justified in giving a decision in favour of the assessee and against the revenue though there is no nexus between the conclusion of fact and primary fact upon which without conclusion is based?"

4 :: 12. "The order of the Id. CIT(A) is erroneous both in law and on facts". 13 "Any other ground that may be adduced at the time of hearing".

5 :: S. Name of the Amount of Amount of Amount No. of Date of No. share holder share appropriate attributed shares allotment (S/Shri/Smt.) application towards share towards share allotted capital premium 1. Premlata 31,00,000 15,50,000/- 15,50,000/- 15500 16.09.2016 Golechha 2. Avani Golechha 22,00,000 11,00,000/- 11,00,000/- 11000 16.09.2016 3. Vivek Golechha 25,00,000 12,50,000/- 12,50,000/- 12500 16.09.2016 (HUF) 4. Ankush Golechha 34,80,000 17,40,000/- 17,40,000/- 17400 16.09.2016 5. Praksh Golechha 36,00,000 18,00,000/- 18,00,000/- 18000 16.09.2016 6. Prakash 35,00,000 17,50,000/- 17,50,000/- 17500 16.09.2016 Golechha, Karta 7. Ankush 44,00,000 22,00,000/- 22,00,000/- 22000 16.09.2016 Golechha, Karta 8. Gunjan Golechha 28,00,000 14,00,000/- 14,00,000/- 14000 16.09.2016 9. Vivek Golechha 25,00,000 12,50,000/- 12,50,000/- 15000 16.09.2016 10. Mahalaxmi 25,00,000 12,50,000/- 12,50,000/- 12000 16.09.2016 Moulds Pvt. Ltd.

12. Gurudev Fintrade 28,00,000 14,00,000/- 14,00,000/- 14000 16.09.2016 Pvt. Ltd.

It has been stated by Smt. Avani Golechha that she has subscribed to 11000 shares of face value of Rs. 100 and premium of Rs. 100/- total investment being Rs. 22,00,000/-. It was observed from the bank statement, that identical amount have been credited to her bank account just before the date of payment to Aviral Finance Pvt. Ltd. The shareholder was asked to explain about the same. In her reply vide statement dated 03.12.2019 has simply stated that the entire amount is received from M/s ALV Enterprises, a partnership firm in which she is a partner.

7 :: 3) In the case of Shri Vivek Golecha (HUF):

It has been stated by Shri Vivek Golechha that he has made investment in shares of Aviral Finance Pvt. Ltd., and has subscribed 12500 shares of face value of Rs. 100 and premium of Rs. 100/-. The total investment being Rs. 25,00,000/-. In this case Shri Vivek Golechha Karta has stated that the investment in shares was made out of opening balance of Rs. 45,26,602/-. The confirmations in respect of which has also been submitted.

4) In the case of Ankush Golechha S/o Shri Prakash Chandra Golechha:

In this case, Shri Ankush Golechha, has stated that he has subscribed to 17400 shares of face value of Rs. 100 and premium of Rs. 100/- . He has stated that R 34,80,000/- has been invested out of opening balance of Rs. 10894446/- with Aviral Finance Pvt. Ltd. 5) In the case of Shri Prakash Chandra Golechha :

Shri Prakash Chandra Golechha has stated in his statement that he has subscribed 18000 shares and total investment has been made of Rs. 36,00000/-. And that transactions have been made by cheque and that sum of Rs. 3,00,000/ was received from Mahalaxmi Moulds Pvt. Ltd., and Rs. 29,91,818/- from ALV Enterprises.

6) In the case of Prakash Chandra Golechha, Karta of Prakash Chandra Golechha HUF.

Shri Prakash Chandra Golechha has stated that he has made investment of Rs. 30,86,314/- in Aviral Finance Ltd. It was observed that identical amount of subscription has been credited to the bank account just before the date of payment to Aviral Finance. Regarding this issue, Shri Prakash Chandra Golechňa, has stated that sum of Rs. 30,86,314/- is received from M/s ALV Enterprises is a family concern having all family members as partners as unsecured loan through bank.

7) In the case of Shri Ankush Golechha (HUF) Karta of Ankush Golechha.

Shri Ankush Golechha has stated that total investment in shares of Rs. 44 lakhs has been made during the year From the bank statement produced it was observed that identical amount of subscription has been credited to the bank account just before the date of payment to Aviral Finance, Regarding this point. Shri Ankush Golechha has stated that the sum is received from ALV Enterprises as unsecured loan.

8) In the case of Smt. Gunjan Golechha, W/o Shri Ankush Golechha It was observed that identical amount of subscription has been credited to the bank account just before the date of payment to Aviral Finance. Regarding this issue, Smt. Gunjan Golechha has stated that the sum is received from ALV Enterprises.

9) In the case of Shri Vivek Golechha It was stated by Shri Vivek Golecha that the amount of subscription totalling to Rs. 30,00,000/- on 15000 shares has been made out of fund received from Aviral Finance Pvt. Ltd as repayment of loan.

10) The statement of Director Shri Vivek Golechha, of Pentacle Consulting Services Pvt. Ltd., Gurudev Fintrade Pvt. Ltd., and Hamilton Traders Pvt. Ltd. and Mahalaxmi Moulds Pvt. Ltd. was recorded. He has stated that the companies have been liquidated and were operated from Nalghar Chowk, Raipur. Regarding the source of investment by these companies, Shri Vivek Golechha stated that earlier the money was lent to the assessee company (earlier Golechha Trade and Management Pvt. Ltd., which was received back and further invested in Assessee Company.

The Inspector of this office, was deputed for enquiry and service of summons. He has submitted his report on 14.11.2019. The report reveals that there was no sign board of the companies at the premises at Nalghar Chowk, Raipur except names on the wall at outer place depicting the names of all the companies. There were no employees in the said companies. Summonses were 9 :: served to Ankush Golecha. It may not be out of place to mention here that the companies Gurudev Fintrade Pvt. Ltd., Hamilton Traders Pvt. Ltd., Pentacle Consulting Services Pvt .Ltd are all under liquidation. Mahalaxmi Moulds Pvt. Ltd., Raipur: Total Income as declared in return of income for the year under consideration is Nil. It is observed that the Key Management personnel are all members of Golechha family. From the bank statement, it is observed that there are cash deposits and payment by RTGS. The assessee is involved in the business of Manufacturing and Trading activity.

Pentacle Consulting Service Pvt. Ltd., Raipur Total Income as declared in return for the asstt. year 2017-18 Rs 31,800/-, it is observed that the promoters. shareholders are all members of Golechha Family. From the bank statement, it is noticed that there is a meagre amount of cash balance and before the date of transfer to the assessee company the said amount was deposited. The company is involved in the business of providing consulting services.

Gurudev Fintrade Pvt. Ltd: Total income as per return declared for asstt. year 2017-18 is Rs. 72,340/-. Key management persons are members of Golechha Family. The company is involved in the business of providing consulting services.

Hamilton Traders Pvt. Ltd. Total income declared for asstt. year 2017-18 is 72,450/-. Key management personnel are mostly members of Golechha family. The company is involved in the business of providing consulting services.”

12 :: Learned AO observed that, however, Shri Vivek Golechha and Shri Ankush Golechha invested the funds in assessee Company out of funds received from Aviral Finance Pvt. Ltd invested earlier in Assessee Company which is received back in this year, therefore, the investment from above two person is accepted and no addition is made on this account. Finally, out of the total share application along with premium introduced during the year for Rs.3,85,80,000/-, an amount of Rs.3,26,00,000/- was treated as unexplained cash credit under Section 68 of the Act and have been added to the total income of the assessee.

7. At the outset, Learned CIT-DR reiterated the facts of the case and submitted that the Learned CIT(A) has grossly erred in deciding 13 :: the issue in hand ignoring the facts brought on record by the AO that assessee company was failed to prove the genuineness and creditworthiness of the share subscribers as obligatory by the provision of Section 68 of the Act. It is further submitted that the findings of the AO are well supported by the ratio of judgment in the case of Pavankumar M. Sanghvi v. ITO (2018) 404 ITR 601 (Gujarat) wherein Hon’ble Gujarat High Court has held that it is also a settled legal position that the onus of the assessee, of explaining nature and source of credit, does not get discharged merely by filing confirmatory letters, or demonstrating that the transactions are done through the banking channels or even by filing the income tax assessment particulars. Thus, the deletion of addition by the Learned CIT(A) was unjustified. Learned CIT-D.R. drew our attention to various case laws referred to by the Department in the grounds of appeal and has argued that if the Learned CIT(A) was not satisfied with the enquiries made by the AO, the Learned CIT(A) having concurrent powers with that of the AO under Section 250(4) of the Act. He himself could have made the necessary enquiries so as to arrive at a logical conclusion on the issue, however, Learned CIT(A) has only confined his findings to the submissions of assessee and has deleted the addition on the basis of observation that the Assessing Officer failed to bring on record any adverse finding against the appellant that the issue of 14 :: share capital is a sham transaction. Learned CIT-D.R. also mentioned that as per order of Learned CIT(A), it seems that certain additional evidence were also produced by the assessee before CIT(A) but those documents were not confronted to Learned AO for his rebuttal. This was clearly violation of Rule 46A of the IT Rules, therefore, on this count also the order of Learned CIT(A) is liable to be set aside. The order of Learned CIT(A) was misplaced with respect to appreciation of the facts wherein there was no nexus between the conclusion of the primary facts upon which the final finding was based. Ld CITDR further submitted that order or finding of Ld CIT(A) was totally based on the Judgments of Hon’ble Apex Court in the case of Lovely Export P. Ltd. reported in [2009] 319 ITR (St.) 5, where in the pre-amended section 68 was dealt with, whereas the case of the assessee for the AY 2017-18 is squarely covered by the provisions of post amended section 68, Ld CIT(A) has not touched the provisions brought into by insertion of 1st proviso to section 68, thus was bad in law. With such submissions, Learned CIT-D.R. submitted that under such facts and circumstances, the order of Learned CIT(A) is to be termed as perverse and the same needs to be reversed and the addition made by the Learned AO should be directed to be maintained.

15 :: 8. In rebuttal, Learned AR of the assessee submitted that the addition of Rs.3,26,00,000/- made by the Learned Assessing Officer should be for Rs.3,20,00,000/- only since there was an error in Item No.9 and Item No.13 i.e. Share Capital receipt from Mr. Ankush Golechha and M/s Mahalaxmi Moulds Pvt. Ltd. for Rs.5,00,000/- and Rs.1,00,000/- respectively. Learned AR further drew our attention to a chart submitted showing source of investments up to 4 layers i.e. 1st main source, 2nd source of 1st source, 3rd source of 2nd source and 4th source of 3rd source, from where the funds were sprung, from 4th source to the main source. It was the submission of Learned AR that the documents pertaining to the main source and source of source were submitted before the Learned Assessing Officer, the same were examined by him, however, she was dissatisfied from the explanations offered and contentions made by the assessee. Learned AO has made the disallowance with the observation that the investor company has meagre income. It was also the observation of the Learned AO that the Bank statement of M/s ALV Enterprises i.e. the 2nd source, who has transferred the funds to the Share subscribers, reveals that the money is being rotated among the family members and no any credit or debit appears to prove the identity, genuineness and creditworthiness of the share applicants as well as transactions. It is also discernible from the assessment order that documents were 16 :: also examined by Learned Assessing Officer, however, Learned AO has summerly rejected the contentions of assessee without bringing on any cogent reason or material on record so as to dislodge the contentions of the assessee. According to Ld AR, the Learned CIT(A) has correctly examined the issue and observed that assessee company has submitted all the documentary evidence before the Assessing Officer in order to prove the identity, creditworthiness of share subscriber and genuineness of the transactions. With respect to transactions by the family members with the assessee company and source of source, Learned CIT(A) has observed that ALV Enterprises is a firm which was promoted with an intention to pool in the resources of the family under a single entity so as to decide the best course of action for management of these funds. The Bank statement of ALV Enterprises shows that funds are transacted only with the family members who have either invested or withdraw from the firm. It is therefore, submitted that there was no comment by Learned AO with respect to the funds rotated by the family members through the ALV Enterprises treating the same as bogus with any material on record thus such contentions deserve dismissal. With respect to the contentions of Learned Assessing Officer that the name of ALV Enterprises was not found at the premises. Learned CIT(A) has categorically mentioned that the Inspector who visited the premises 17 :: at Nalghar Chowk missed to verify name of the firm which is also prominently displayed along with the other companies and entities. When the partners of firm are real entities and transactions regarding pooling of funds from known persons, not any obscured, unidentified entities are taking place and it has well identified office, then it is not correct to conclude that M/s. ALV Enterprises is bogus firm. With the aforesaid submissions Learned AR prayed that AO has decided the issue with preconceived mindset and has drawn a negative inference under her own surmises, therefore additions made in the order by Learned AO are rightly struck down by Learned CIT(A), by deleting the same and by allowing the appeal of the assessee, thus, the order of the Learned CIT(A) which is very judicious, thoughtfully drafted after much deliberation, with proper consideration of the facts and circumstances of the case, is undoubtedly sustainable.

19 :: 11. To understand the provision of Section 68 better reproducing hereunder the provision of Section 68 after amendment w.e.f 01.04.2013, which is applicable in the instant case since the relevant assessment year of the present case is A.Y. 2017-18: “22. In section 68 of the Income-tax Act, the following provisos shall be inserted with effect from the 1st day of April, 2013, namely:— "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."

13. On perusal of the assessment order, it is coming out that the Assessing Officer has verified the documents pertaining to the share subscriptions and also with respect to ALV Enterprises i.e. the source of source. With respect to source of source, Assessing Officer was found to be not convinced / dissatisfied, thus, the addition was made. Learned CIT(A) has only observed that the source of source M/s. ALV Enterprises is not a bogus firm however, there was no examination pertaining to the onus cast upon the investors / share subscriber by virtue of first proviso to Section 68 which is applicable with effect from 1st April 2013, which is very much in force for relevant assessment year. Learned CIT(A) also relying upon the judgment in the case of 23 :: Venkateshwar Ispat (P.) Ltd. (supra) by the Jurisdictional High Court of Chhattisgarh has deleted the addition wherein Hon’ble High Court had religiously followed the law laid down by the Hon’ble Apex Court in the case of Lovely Exports (Supra), which was pronounced by the Apex Court under the facts and circumstances considering the provisions of pre-amended Section 68, thus the same cannot be relied upon post amendment in section 68. This contention of ours is further fortified by the order of Hon’ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure Pvt. Ltd. (2017) 394 ITR 680 (Bombay High Court), the findings of the Hon’ble Bombay High Court in the said case are as under: e. We find that the proviso to section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore, it is not open to give it retrospective effect, by proceeding on the basis that the addition of 24 :: the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P.) Ltd. (supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit.

(Emphasis supplied by us)

16. With respect to Ground No.9 of the Revenue pertaining to violation of Rule 46(A) by the Learned CIT(A) in accepting of additional evidence without giving an opportunity to the Ld AO of being heard while deleting the addition. Since, the Revenue has not brought on record as to what are the evidences which were not before 28 :: the Learned Assessing Officer but were additionally submitted before the Learned CIT(A), we do not find any merit in this contention of Revenue and therefore dismissed the same.