DCIT, PATIALA vs. M/S SANGRUR AGRO LTD., SANGRUR

Per Sanjay Garg, Judicial Member: The present appeals have been preferred by the Revenue

against the separate orders dated 05.02.2016 of the Commissioner of

Income Tax(Appeals)-5, Ludhiana [hereinafter referred to as CIT(A)]

agitating the action of CIT(A) in deleting the penalty levied u/s

271(1)(c) of the Income-tax Act, 1961 (in short 'the Act').

ITA Nos. 429 & 430-Chd-2016- Sangrur Industrial Corpn Ltd & Sangrur Agro Ltd, Sangrur

2 2. The brief facts relating to the issue under consideration are that

the Assessing officer during assessment proceedings noted that there

was increase in the share capital of the assessee company during the

year by a sum of Rs. 47,65,600/-. Further, the ‘Securities Premium

Account’ had been shown at Rs. 6,67,18,400/- against nil amount

during the preceding year. He, therefore, asked the assessee to

furnish details of share capital account and the security premium

account. The assessee furnished the required details and stated that

476560 numbers of shares of the face value of Rs. 10 each were

allotted during the year under consideration at a premium of Rs.

140/- per share. A list of shareholders with other details was also

furnished.

The Assessing officer considered the details submitted by the

assessee and confirmations received from the shareholders and asked

to assessee to produce the persons involved. The assessee produced

some of the persons on random basis from whom confirmations were

received, and their statements were recorded. Documentary evidence

in the form of identity cards, voter cards etc. were also produced.

The Assessing officer, however, noted that though the confirmations

were received in most of the cases, however, no reply was received

in some of the cases as listed by the Assessing officer in the

assessment order. On being asked to explain why the addition be

not made in respect of the persons from whom the confirmations were

not received, the assessee explained as under:- “it is submitted that in response to your show-cause regarding our onus to prove identity, capacity and genuineness of Share Capital, we hereby submits that :-

ITA Nos. 429 & 430-Chd-2016- Sangrur Industrial Corpn Ltd & Sangrur Agro Ltd, Sangrur

3 i) Our company is a Public Limited Company duly registered under the Indian Companies Act, 1956. ii) The capital base of our company is very wide. iii) No amount of Shares Capital has received in Cash but all the Share Capital has been received by Account payee Bank Draft. iv) The complete list of shareholders alongwith their name, Father’s name & Complete Address has already intimated to your goodself.

So, in this way, all the necessary ingredients of identity, capacity & genuineness has proved. Further, Hon’ble Supreme Curt in the case of Lovely Exports Ltd. Vs. Union of India 216 CTR 196 has held that ‘if the Share Application Money is received from alleged bogus shareholders, whose names are given to Assessing officer, then department is free to reopen their individual asst. in accordance with law, but it cannot be regarded as undisclosed income of the assessee.

Similarly, in the case of CIT Vs. Steller Investment Ltd. (2000) 167 CTR (SC) 287 has held that even if the subscribers to be increased Share Capital of assessee company were in genuine, the amount could not be regarded as undisclosed income of the assessee company.

In view of the above facts, it is abundantly clear that we have discharge our preliminary onus regarding capacity, genuineness and identify of the shareholders hence it is requested that no adverse view may kindly be taken to the matter.”

and added a sum of Rs. 37,09,950/- on account of unexplained share

capital u/s 68 of the I.T. Act and also initiated penalty proceedings

u/s 271(1)(c) of the Act and levied the impugned penalty.

ITA Nos. 429 & 430-Chd-2016- Sangrur Industrial Corpn Ltd & Sangrur Agro Ltd, Sangrur

4 4. The Ld. CIT(A), however, deleted the penalty so levied by the

Assessing officer, observing as under:-

“4. The facts of the case, the basis of penalty imposed by the A.O. and the arguments of the AR during the appellate proceedings have been considered. The AO has levied the penalty u/s 271(l)(c) on account that assessee company has concealed the particulars of its income and has furnished inaccurate particulars of the income because the assessee company failed to prove the identity, genuineness and credit worthiness of some of the persons who had purchased shares of the assessee company. On the other hand, the AR contended that as is evident from the assessment order itself the addition has been made on the basis of presumption and assumptions but no positive evidence has been brought on record to prove otherwise. It is a matter of record that a search operation was carried out at the premises of the assessee company and during search operation no documentary evidence in the form of Share Certificate pertaining to these persons have been found to suggest that these share money pertains to the assessee company. The AR further argued that as stated during assessment proceedings, the assessee company is a 'public limited company' and most of the share capital has been received by account payee bank drafts. The details of the particulars of these share holders were provided to the Ld. AO during assessment proceedings and the assessee's onus was discharged. There is a possibility that some of the letters meant for these share holders might not have reached to them because of numerous reasons such as shifting of their establishment, non availability due to certain reason at the given address etc. Since the assessee has already discharged its onus and as such the assessee's case is covered by the decision of the honorable Supreme Court in the case of Lovely Exports Limited Vs Union of India 216 CTR196 and penalty is not attracted,

4.1 The assessee Company is a public limited company with large number of shareholders and the share capital was received through banking channels. The assessee has given documents about the identity of the share holders, as such no case of concealment of income is made out simply because addition under section 68 has not been

ITA Nos. 429 & 430-Chd-2016- Sangrur Industrial Corpn Ltd & Sangrur Agro Ltd, Sangrur

5 challenged and, therefore, penalty under section 271(l)(c) is not leviable. Thus considering the facts and circumstances of the case and the judicial pronouncements referred by the AR, the penalty imposed u/s 2711cc in this case is held to be unjustified and is therefore, directed to be deleted.”

assessee before us has submitted that assessee had furnished all the

details regarding the share capital receipt which was cross checked

by the Assessing officer and the assessee had been able to prove the

source of deposits of about 95% of the amount. The assessee,

however, could not provide confirmation only of 5% of the share

allocation money received during the year. He submitted that the

above facts show that the assessee discharged the primary burden of

proving the source of deposits / share application money. It was also

explained to the Assessing officer that the assessee was public

limited company with large number of shareholders and the share

capital was received through banking channels. There was possibility

that some of the letters sent to these persons for confirmations might

not have reached to them because of numerous reasons such as

shifting of their establishment, non- availability on a certain date etc.

and that it was not a case of furnishing of inaccurate particulars of

income or concealment of income but just a case of insufficiency of

evidence in respect of some of the shareholders.

We find merit in the above contention raised by the Ld.

Counsel for the assessee. We do not find any reason to interfere in

the order of the CIT(A) on this issue.

The appeal of the Revenue is therefore, dismissed.

ITA Nos. 429 & 430-Chd-2016- Sangrur Industrial Corpn Ltd & Sangrur Agro Ltd, Sangrur

ITA No. 430/Chd/2016 (Assessment year: 2008-09) 6. Both the Ld. representatives for the parties submitted that the facts and issue involved in both the appeals are identical in nature and that the findings arrived at in the case of DCIT Vs. Sangrur Industrial Corporation Ltd in ITA No. 429/Chd/2016, can well be applied in this case also.

Order pronounced in the Open Court on 18.06.2018.

Sd/- Sd/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 18.06.2018 Rkk

Copy to: • The Appellant • The Respondent • The CIT • The CIT(A) • The DR