THE INCOME TAX OFFICER WARD 1(1), RAIPUR (CG) vs. M GODRIWALA PLSTICS PVT LTD, RAIPUR (CG)

The present appeal filed by the department is directed against the order passed by the CIT(Appeals)-1, Raipur, dated 01.02.2016, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 30.03.2015 for assessment year 2012-13. Before us the department has assailed the impugned order on the following grounds of appeal:

Succinctly stated, the assesee company which is engaged in the business of manufacturing of molded plastic furniture and household plastic goods had e-filed its return of income for the assessment year 2012-13 on 20.08.2012, declaring an income of Rs.2,27,346/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act.

During the course of the assessment proceedings, it was observed by the A.O that the assessee had claimed to have received an amount of Rs.2.95 crore towards share capital and share premium from M/s. Reward Tie-up, a Kolkata based company. On a perusal of the records, it was observed by the A.O that the shareholding of M/s. Reward Tie-up Pvt. Ltd. was with two companies, viz. (i) M/s. Godriwala Real Estate P. Ltd. and (ii) M/s. Godriwala International P. Ltd., sister concerns of the assessee company that had purchased the shares of the aforementioned company from the original subscribers in the year 2010. Statement of Shri Satish Thorani, director of the assessee company was recorded by the AO u/s. 131(1) of the Act. Observing, that Shri Satish Thorani (supra) was also one of the director of the share subscriber company, viz. M/s Reward Tie-up Pvt. Ltd, the AO called upon him to provide details of the credits appearing in the bank account of the aforementioned company from where the subscription of the shares of the assessee company was sourced. However, as Shri. Satish Thorani (supra) failed to come forth with the necessary details, therefore, the A.O holding a conviction that the nature and source of the share capital of the assessee company was not proved, thus, held the aforesaid amount of Rs.2.95 crore as an unexplained cash credit u/s.68 of the Act.

Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). Observing, that Shri Satish Thorani (supra) had furnished the requisite details as were called for by the A.O in the course of the assessment proceedings, the CIT(Appeals) was not persuaded to accept the claim of the A.O that he had failed to furnish the requisite details before him. It was observed by the CIT (Appeals) that not only the share holding pattern of the assessee company was filed in the course of the assessment proceedings, but also the details of the shareholders of the subscriber company i.e. M/s. Reward Tie-up Pvt. Ltd. was furnished by the assessee with the A.O. Apart from that, it was noticed by the CIT(Appeals) that the names of the companies with which M/s. Reward Tie-up had entered into transactions, viz. (i) M/s. Frontier Tradecom Pvt. Ltd.; and (ii) M/s. M.M Real Pvt. Ltd was also provided to the A.O. Also, it was observed by the CIT(Appeals) that the assessee company had during the course of the assessment proceedings furnished with the A.O certain documentary evidences to substantiate the authenticity of its claim of having received share capital from the aforementioned subscriber company, viz. confirmation of account, PAN No., full postal addresses, copies of return of income, bank statement and balance sheet of the aforesaid share subscriber company, viz. Reward Tie-up Pvt. Ltd. It was observed by the CIT(Appeals) that though the “1st proviso” to Section 68 of the Act which obligates an assessee company to explain the “nature” and “source” of the 5 ITO-1(1) Vs. M/s. Godriwala Plastics Pvt. Ltd. ITA No. 122/RPR/2016 share capital or share premium or share application in the hands of a resident person against whose name it is found credited in its books of account was made available on the statute vide the Finance (Act), 2012 w.e.f. 01.04.2013 and was not applicable to the year under consideration i.e A.Y.2012-13, but despite that the assessee company had duly explained the source out of which the aforesaid share subscriber company, viz. M/s. Reward Tie-up Pvt. Ltd. had made the investment towards share capital/premium. It was, thus, observed by the CIT(Appeals) that the assessee company had not only discharged the primary onus that was cast upon it but had also gone a step further and despite there being no legal obligation cast upon it had also explained the source of source of the subscriber company. On the basis of his aforesaid observations and drawing support from certain judicial pronouncements the CIT(appeals) was of the view that now when the assessee company had duly discharged the onus that was cast upon it as regards proving the identity and creditworthiness of the share subscriber and also the genuineness of the transaction of receipt of share application money, therefore, the amount received by it towards share capital/premium of Rs.2.95 crore could not have been assessed by the AO as an unexplained cash credit u/s.68 of the Act. For the sake of clarity the relevant observations of the CIT(Appeals) are culled out as under:

At question no. 25 names of companies with which M/s Reward Tie-up Pvt Ltd had transactions was confirmed. There is noquestion which was not replied, and all details/information were provided which were asked in the course of the statement. Further the AO has also provided point-wise reply and details to the AO vide letter dated 21/10/2014. This reply runs from page 1 to 26. At point No.7 of this letter the appellant has furnished confirmation accounts in respect of share application, name, PAN, full postal address, ward number, ITR, bank account and balance sheet of share holders. Going one step back the appellant has also explained source of money that M/s Reward Tie-up Pvt Ltd out of which the payment was made to the appellant. As per bank account of M/s Reward Tie-up Pvt Ltd Rs. 25 lakhs was paid to appellant on 09/07/2011. This was out of RTGS received on the same date from M/s Frontier Tradecom Pvt Ltd.. Next a total of Rs. 180 lakhs was received by M/s Reward Tie-up Pvt Ltd from another company M/s M.M. Real Pvt Ltd on 12/07/2001 which was paid to appellant company. The appellant has discharged not only its onus by furnishing the documents mentioned above but also explain source of money received by M/s Reward Tie-up Pvt Ltd from other companies. As per the proviso to Sec. 68 inserted w.e.f. 01/04/2013 the appellant has to satisfy the AO about the source of money in the hands of subscribers of the company. Although this amendment is not applicable for the AY under consideration, still at the instance of the AO these were explained. There is nothing on record to show that after the discharge of onus of the assessee any enquiry has been made by the AO to establishthat some or all of the money in the hands of M/s Reward Tie-up Pvt Ltd is not explained. As per Hon'ble Supreme Court in the case of M/s Lovely Export Pvt. Ltd., 216 CTR 195 if the share application money in the hands of appellant is found to be bogus, the department is free to re-open the individual assessment of shareholders. Hon'ble Bilaspur High Court has held in the case of Jagdamba Sponge Pvt Ltd 130 TTJ 494 held that appellant company having produced Income tax assessment particulars of its share applicants before the A.O, the burden cast upon it to prove the identity and genuineness is discharged and no addition u/s 68 can be made. As per a recent judgment of Hon'ble Delhi High Court in the case of CIT Vs Vriandvan Farms Pvt , Ltd , ITA No. 72/2015 dared 12/08/2015 it has been held thatwhere revenue has not doubted the identity of share applicants, entire details of the share applicants were made available to the AO including their PAN Nos, confirmations, bank statements, balance sheets and Profit & loss account and the certificate of incorporation etc. and the AO has not undertaken any investigation of the 7 ITO-1(1) Vs. M/s. Godriwala Plastics Pvt. Ltd. ITA No. 122/RPR/2016

We have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. After giving a thoughtful consideration to the issue in hand, we find that as observed by the CIT(Appeals), and rightly so, now when the assessee company had duly discharged the primary onus that was cast upon it as regards proving the identity and creditworthiness of the share subscriber a/w. genuineness of the transaction, therefore, there was no justification on the part of the A.O to have dubbed the aforesaid amount of Rs.2.95 crore that was received by the assessee company as share capital and share premium as an unexplained cash credit u/s.68 of the Act. At this stage, we may herein observe that though the “first proviso” to section 68 of the Act had been made available on the statute vide the Finance (Act), 2012 w.e.f. 01.04.2013 and is applicable prospectively from 01.04.2014 and thus, was not applicable to the case of the assessee before us, however, the latter in order to dispel all doubts as regards the genuineness of its claim of having received the share capital and share premium from the aforementioned subscriber company viz. M/s.Reward Tie-up Pvt. Ltd. (supra) had even explained the source of source, i.e., the 8 ITO-1(1) Vs. M/s. Godriwala Plastics Pvt. Ltd. ITA No. 122/RPR/2016 source out of which the share subscriber company had made the investment in question. On a perusal of the bank accounts of the aforesaid share subscriber company, viz. M/s.Reward Tie-up Pvt. Ltd.(supra) to which our attention was drawn by the Ld. Authorized Representative (for short ‘AR’) for the assessee, we find that it had made the investment in the assessee company out of the amounts which were received by it from two companies, viz. (i) M/s. Frontier Tradecom Pvt. Ltd.; and (ii) M/s. M.M Real Pvt. Ltd. and not out of any cash deposits in its bank accounts. In absence of any such material having been placed on record which would evidence that the amount received by the aforesaid share subscriber company, viz. M/s. Reward Tie-up Pvt. Ltd was in turn sourced out of amount that was received by it from companies which were involved in facilitating providing of accommodation entries, we are unable to persuade ourselves to subscribe to the unsubstantiated view of the A.O that the amount in question was an unexplained cash credit u/s.68 of the Act. Apart from that, we find that the assessee in order to discharge the primary onus that was cast upon it as regards proving the authenticity of the aforesaid transaction in question had placed on record substantial documentary evidences, viz. copies of the return of income, copy of tax audit report, confirmations, copies of bank statement, copy of return of allotment of shares, copy of share certificates and copy of certificate of incorporation of the share subscriber company viz. M/s. Reward Tie-up

In the result, the appeal filed by the revenue being devoid and bereft of any merit is dismissed in terms of our aforesaid observations.