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Income Tax Appellate Tribunal, DELHI BENCH: C: NEW DELHI
Before: SHRI CHANDRA MOHAN GARG & M.BALAGANESH
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C: NEW DELHI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER AND M.BALAGANESH, ACCOUNTANT MEMBER ITA No.809/Del/2021 Assessment Year: 2016-17 The DCIT, Central Circle-30, New Delhi M/s. J H Jewellers LLP, 13, Sunder Nagar Market, Kasturba vs. Nagar, South East, Delhi 110003 PAN AACFJ 3285 G (Appellant) (Respondent) For Revenue: Shri Waseem Arshad, CIT(DR) For Assessee: Shri U.N Marwah, CA Shri Parveen Goel, Adv. Date of Hearing : 23.08.2023 Date of Pronouncement : 13.10.2023 ORDER PER CHANDRA MOHAN GARG, J.M. This appeal has been filed against the order CIT(A)-30, New Delhi dated 25.03.2021 for A.Y. 2016-17. 2. The grounds have been raised by the Revenue are as follows:- 1. The CIT(A) has erred in law and on the facts in deleting the Rs.11,24,76,000/- additions of Rs. 32,50,00,000/- made u/s 68 of the IT Act 1961. 2. The CIT(A) has erred in law and on the facts of the case considering that as per the balance sheet of these companies as on 31.03.2016, the said fund were available in the balance sheet of all the four companies under the head "Cash and Cash Equivalents" as on 31.03.2015 which are now reflected in current investment in i.e. investment as capital in the appellant firm as on31.03.2016. Further, relying on the submission of the assessee that the said four companies introduced funds in the AY 2008-09, the case of Maharaja Tie UP, Dynamic Enclave and Shivshakti Commercial Pt Ltd were assessed w/s 147 of the Act for A.Y. 2008-09 accepting the share capital/share premium.
The Ld. CIT(A) has totally ignored the fact that assessment of M/s Shiv Shakti Commercial Pvt. Ltd. was reopened due to escapement of brokerage income of Rs. 20,750/-. Secondly, the case of the dynamic Enclave Pvt. Ltd. was reopened on the basis
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of escapement of commission income of Rs. 39,334/-. It is noted in the para-2 of the assessment order in the case of M/s Dynamic Enclave Pvt. Ltd. that company has no furniture and fixtures, and no expense on account of rent, telephone expense, and electricity expense. These are typical nature of shell company. Thirdly, during the course of assessment in the case of M/s Maharaja Tie up Pvt. Ltd., only on the test check basis notice us 133(6) of the I.T. Act was issued to different share holder. The Ld. CIT(A) has noted in para 9.10 of the appeal order that in all the 4 companies the infusion of funds happened in F.Y. 2007-08. The Ld. CIT(A) has failed to appreciate the fact that all the above 3 companies except M/s Gangaur Management Consultant Pvt. Ltd. were incorporated in F.Y. 2007-08 and defying all financial logic, they have received huge share premium in F.Y. 2007-08. During the course of assessment proceedings of AY.2013-14 us 147 of the Income Tax Act in the case of M/s J. H. Jewels Pvt. Ltd, commission us 131(1)(d) of the Act was issued to Investigation Wing Kolkata, it has been found that all the companies which become share holders in 3 companies in F.Y.2007-08 did not have creditworthiness to advance huge amount of funds and they were merely shell companies. 4. The Ld. CIT(A) has erred in law or facts by holding in para 9.10 of the appeal order that genuineness of the transaction has been through details of cheque and bank statement. The Ld. CIT (A) failed to appreciate the fact that in the case of PCIT vs Bikram Singh, the Delhi High Court has held that even if a transaction is made through cheque, it cannot be presumed to be genuine. Mere submission of PAN Card of creditor does not establish the authenticity of a huge transaction particularly when the IT does not inspire such confidence. Mere submission of ID proof and the fact that the transactions were through the banking channel, does not establish the genuineness of transactions.
The ld. CIT(DR), supporting the action of the Assessing Officer, submitted that the CIT(A) has erred in law and on the facts in deleting additions of Rs. 32,50,00,000/- made u/s 68 of the IT Act 1961. Drawing our attention towards page 2 or 3 & 4 of assessment order the ld. CIT(DR) submitted that the three partners Shri Anil Sankhwal, Mrs. Preeti Sankhwal and Shri Amil Sankhwal were having total 90% share on the contribution of approximately total 7 to 8 crores capital whereas the other four impugned partners against the capital contribution of Rs. 32.50 crores were getting profit share of 2.5% each totaling to 10% of profit which is clearly disproportionate therefore the Assessing Officer was right in treating the capital contribution in the hands of assessee as unexplained cash credit u/s. 68 of I.T Act 1961 (for short the ‘Act’). He further submitted that the said four new four partners were not found existed at the address given by the assessee and on perusal of the financial statement it was
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clear that they were not having sufficient financial capacity to invest or contribute such huge amount against only 10% of profit share in the assessee partnership firm.
Further drawing our attention towards page 26 & 27 of assessment order the ld. CIT(DR) submitted that the Assessing Officer properly examined identity, creditworthiness of capital contributing partners and genuineness of transaction which was not found to be sustainable and as per judgment of Hon’ble jurisdictional High Court of Delhi in the case of PCIT vs. Vikram Singh in ITA No. 55/2017 even if a transaction of loan is made through cheque it cannot be presumed to be genuine in absence any agreement, scrutiny and interest payment and mere submission PAN no. and address does not sufficient to establish above necessary elements and authenticity of huge loan transaction particularly when the return of income does not inspire such conference. The ld. CIT(DR) also took us through para 9 and 9.1 of first appellate order and submitted that the registered offices of said four capital contributing partner companies were shifted from Kolkata to Delhi on 20.01.2015 for the reason best known to the management of such companies or assessee but without any reason which also creates suspicion on the creditworthiness of such companies as the said companies till AY 2016-17 were filing return of income from Kolkata address. The ld. CIT(DR) also pointed out that it is not a case of partnership firm but present assessee is a LLP entity therefore case laws relied by the assessee are not applicable in the present case therefore ld. CIT(A) was not correct in accepting the explanation of assessee and deleting the addition.
Further drawing our attention towards para 9.2 & 9.3 of first appellate order the ld. CIT(DR) submitted that the ld. CIT(A) granted relief to the assessee by considering irrelevant facts and circumstances and by considering non applicable legal preposition as the case law relied by him were pertaining to a case of partnership firm whereas present case pertains to a LLP firm. The ld. CIT(DR) also submitted that the copies of audited financial statements of said four companies available at pages 64 to 67 reveals that there was no real business activities by said entities and the analysis made by the ld. CIT(A) in paras 9.6 to 9.11 has been based on wrong interpretation of facts and law 3
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thus the same is not sustainable. He further pointed out that the assessee has failed to establish genuineness of transaction of capital contribution by the said four companies and their creditworthiness therefore addition made by the Assessing Officer may kindly be uphold as per various judgments including judgment of Hon’ble Supreme Court in the case of PCIT vs. NRA Iron & Steel P Ltd. arising out of SLP(Civil) No. 29855 of 2018 dated 05.03.2019. The ld. CIT(DR) has also placed reliance on the judgments of Hon’ble High Court of Delhi in the case of CIT vs Nipun Builders & Developers P Ltd. 350 ITR 407 (Del) and in the case of CIT vs Frostair (P) Ltd. reported as 210 Taxmann 221 (Del) and submitted that the conclusion of ld. CIT(A) deleting the addition may kindly be set aside by restoring that of the Assessing Officer.
Replying to the above, the ld. Assessee Representative (AR) submitted that the case laws relied by the ld. CIT(DR) pertains to the cases where the issue was of identity, capacity and creditworthiness of share holders/share application money and premium contributors and genuineness of transaction of receipt of share capital and premium by those assessee company but in the present case such issue is not for adjudication. He further submitted that in the present case, the issue for adjudication is pertaining to the genuineness of capital contribution by the partners in a LLP firm therefore prepositions relied by the ld. CIT(DR) are not applicable to the present case having different and distinct facts and circumstances.
The ld. AR controverting the conclusion drawn by the Assessing Officer while making addition and supporting the observations and findings of the Assessing Officer submitted written submissions, which are as follows:- Identity of the company: That the reference to a commission in Kolkata and Report of Inspector is incorrect and not reliable for the reason : i) Registered office of the companies had shifted to 7/1, 2nd Floor, Sarvpriya Vihar, New Delhi on 17.12.2014 & thereafter on 14.10.2017 to 6/30, Shanti Niketan, New Delhi. Thus on date of commission and Report the Regd. Office was at Sarvpriya Vihar, New Delhi & not at Kolkata. (refer ROC filing at Page No.76-80, 99- 103) ii) Further in case Maharaja Tie Up Pvt Ltd & Dynamic Enclave Pvt Ltd at Sarvpriya Vihar, 133A was also conducted on 27.06.2016, yet notice for commission was for verification of Registered office was issued on 15.11.2016, ie after survey and facts being in knowledge of AO. 4
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(iii) That prior to framing the impugned asstt. Order Dt 31.12.2018, AO had issued notices u/s142(1)/143(2) to Dynamic Enclave Put Ltd & Maharaja Tie Up Pvt Ltd at 6/30, Shanti Niketan, New Delhi. 3. All cos have been assessed to tax even by the same AO for AY 2017-18; Copies of Orders for AY 2008-09 filed. Orders for AY 2017-18 attached herewith. Creditworthiness:- The Net worth of the Companies is established by Audited Financials for AY 2016-17 of all 4 Cos having large Reserves. (i) Maharaja Tie Up - Refer Pgs [69-74]- Pg 73-FDR Rs 15.22 Crores redeemed with interest at Rs 15.57Cr on 03.09.2015/Bank Statement Pg 75/;-Invested Rs 15.57 Cr as capital (ii) Dynamic Enclave Refer Pgs 91-98 had FDR f Rs 8.04 Cr IPg95]-redeemed with interest at Rs 8.20 on05.09.15/ bank Statement Pg 90/, Invested as capital Rs 8.21 Cr; (iii) Gangaur management Refer Pgs 113-119-FDR Rs 21 Lakhs Pg 117; redeemed & invested Rs 21 lakhs on 5.09.2015 ; (iv) Shiv Shakti Refer Pg 128-135. FDR Rs 8.36 Cr Pg 132; Redeemed and Invested Rs 8.51 Cr on 5.09.2015; Bank Statement Pg 136 The balance Sheets of all cos reflect large FDR's as at 31.3.2015 which were encashed and invested in capital of Firm; Genuineness:- We have gone through the case law relied by the Ld.AO in light of facts of present case and find that the facts of case before Hon'ble Delhi HC are entirely different from facts of present case. The Hon'ble Delhi HC, has considered the fact that the individuals, who advanced loans had no financial strength to lend such huge sum of money to the assessee, that too, without any collateral security without interest and without a lender agreement. Under these facts, Hon'ble Court held that mere establishing of their identity and the fact that amounts have been t/f through cheque payment does not by itself mean that the transactions are genuine. The Appellant has furnished all evidences being (i) Audited B/s (ii) Bank Statements; (iii) ITR's (iv) Asstt. Orders accepting share Capital ; Further the assessee has not received loans but has become partner in the appellant firm, therefore, case law relied upon by the Ld.AO cannot be applicable to the facts of the present case.
The ld. AR reiterating the written synopsis/submission submitted that the judgments of Hon’ble Supreme Court and Hon’ble High Courts including judgment of Hon’ble Apex Court in the case of PCIT vs. Vaisnodevi Reoils & Solvex reported as (2018) 96 taxmann.com 469 (SC) it was held that where Assessing Officer made addition to assessee-firm’s income under section 68 in respect capital introduced by one partner of firm, in view of fact that amount received by assessee-firm had been duly reflected in books of account maintained by concerned partner and he had also confirmed such contribution, impugned addition was to be set aside. The ld. AR
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precisely reiterating above submissions submitted that the assessee had submitted all documentary evidence under its command establishing the identity, creditworthiness of capital contributing partner companies and genuineness of transaction of capital contribution, which was routed through banking channel. Therefore no addition can be made in the hands of partnership firm when the amount of capital contribution received by the assessee firm had been duly recorded and reflected in the books of accounts of firm and concerned partner.
The ld. AR submitted that the offices of capital contributing companies were shifted from Kolkata to Delhi and all four companies informed the Assessing Officer about change of address but the Assessing Officer issued notices to the old address despite having noticed the fact that the registered offices have been changed from Kolkata to Delhi and all four companies were filing returns of income mentioning the new address of Delhi therefore the Assessing Officer was not justified in alleging that the notices issued to the four entities were returned unserved by the postal authorities and spot verification at Kolkata reveals that no physical evidence was found at their given addresses when the Assessing Officer despite having knowledge of new Delhi addresses issued notices to the Kolkata addresses. The ld. AR submitted that the assessee submitted all relevant documentary evidences pertaining to all four capital contributing companies available at pages 65 to 140 of assessee paper book which contains copy of ITR for AY 2016-17 copy of audited financial statements as on 31.03.2008 & 31.03.2016, copy of bank statements reflecting source of capital contribution, copy of certificate of change of registered office and copy of assessment order for AY 2008-09. The ld. AR submitted that as per section 2(23) clause (i) of the Act “firm” shall have the meaning assigned to it in the Indian Partnership Act 1932 and shall also include a limited liability partnership defined in the LLP Act 2008 therefore contention of ld. CIT(DR) and case laws relied by him are not applicable to the present assessee being a LLP entity. 10. Supporting the conclusion drawn by the ld. CIT(A) the ld. AR submitted that the investment/capital contribution by all four companies have been fully explained by the
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assessee by way of submitting relevant documentary evidences before the authorities below as well as before the Tribunal therefore identity and creditworthiness of contributing partners and genuineness of transaction has been established though it is not required in the present case as and when the partnership firm/LLP-Assessee has submitted confirmation of the capital contributing partner companies alongwith documentary evidences establishing the source of capital contribution by submitting names, addresses, copies of ITR and financial statements of contributing partner companies supported by bank account statements, then no addition u/s. 68 or any other provision of the Act can be made in the hands of present assessee and if the Assessing Officer wish to make further enquiry as a perfectionist then he is entitled and empowered to do so in the cases of capital contributing partners companies not in the case of present assessee LLP firm. Therefore, conclusion drawn by the ld. CIT(A) may kindly be upheld.
On careful consideration of above rival submissions, first of all, we find it appropriate to reproduce the relevant observations and findings of ld. CIT(A) which have been challenged by the revenue in this appeal. Relevant paras 9.6 to 9.11 of first appellate order are as follows:-
9.1 The AO while making the addition has observed that in the post search investigations, commission of enquiry under section 131(1)(d) of the Act were issued, wherein it was reported that upon visit of the Inspector at the registered offices of the above companies in Kolkata no physical office were found at the address. Thereby AO concluded that they were shell companies formed for providing accommodation entries. As per the appellant the registered office of the above companies had been shifted from Kolkata to Delhi on 20.01.2015. It has been pointed out by the appellant that a Survey u/s 133A of the Act was conducted at the registered office of Maharaja Tie Up Pvt. Ltd. and Dynamic Enclave Pvt. Ltd. at 7/1, 2nd Floor, Sarvapriya Vihar, New Delhi on 27.06.2016. Further, it is seen from the assessment order that the appellant had submitted the new registered office address for the year regarding all the above four companies as 6/30, Shanti Niketan, New Delhi.
9.2 After going through the documentary evidences as submitted by the assessee before the Assessing Officer to substantiate these transactions, I find that the assessee had furnished following documents with respect to all the investor /lender entities: — • Copy of confirmation of Accounts by investor
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• Copy of Bank Statement of investor confirming that source was thru encashment of FDR • Copy of ITR Acknowledgement of each investor • Copy of Audited financial statements of all investor • Copy of the assessment order accepting the security premium received by the investor being source of source of the capital contribution received by the appellant 9.3 The appellant has further contended that no addition can be made under section 68 where the assessee had duly established the identity, creditworthiness, and genuineness of the person with respect to the credit entry appearing in the books of the accounts. The appellant has also submitted that in view of Supreme Court decision and other judicial Authorities, the Capital Introduced by a Partner cannot be added in the hands of the firm. In case the Investment is from the undisclosed sources, addition is to be made in hands of the Partner. The appellant has relied on the following judgements:- (i) Allahabad High Court in the case of Kesharwani Sheetalaya Sahsaonv VsCIT|2020] 116 taxmann.com 382 (Allahabad), that "In the case at hand, the partners have shown the agricultural income in their personal returns of the past years which had been accepted by the department as such. The partners are all identifiable and separately assessed to tax. The source of investment having been explained, in the event the Assessing Officer was not satisfied the addition could have been considered in the hands of the partners and not in the hands of the firm. The burden of proving the source of the credits having been sufficiently explained the addition could not have been made in the hands of the firm in the facts of the present case" (ii) PCITv. Vaishnodevi Refoils & Solvex 2018] 96 taxmann.com 469 (SC) Section 68 of the Act - Cash credit- AY2010-11 , AO made addition to income of assessee-firm us. 68on account of capital introduction by one partner of firm. He was of view that creditworthiness of partner who introduced capital had not been proved. High Court in impugned order noted that amount received by assessee-firm had been duly reflected in books of account maintained by concerned partner and that assessee had furnished details with regard to source of capital introduced in firm and concerned partner had also confirmed such contribution and concluded that assessee had duly discharged onus cast upon it. Further, court noted that if AO was not convinced about creditworthiness of partner who had made capital contribution, inquiry had to be made at end of partner and not against firm - Whether SLP against said decision was to be dismissed - Held, yes Para 2] [In favour of assessee] (iii) Kailash Chand Agarwal v. ITO, Ward-3, Bharatpur [2017] 88 taxmann.com 540 (Raj Section 68 of the Income-tax Act, 1961 - Cash credit (Firm, in case of) - Where assessee-firm had received cash credits as capital of partners and in regard to source of such capital contribution, it had given enough evidences in shape of entries in books of account of firm as well as partners for those capital contributions, onus cast upon assessee in regard to capital contributions made by partners as per section 68 was duly discharged [In favour of assessee] (iv) CIT v. M. Venkateswara Rao [2015] 57 taxmann.com 373 (Andhra Pradesh and Telangana)
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Section 68, of the Income-tax Act, 1961 Whether contribution made by partners to capital of assessee-firm would constitute very substratum for business of firm and it is difficult to treat pooling of such capital, as credit; It is only when entries are made during course of business that can be subjected to scrutiny under section 68- Held, yes - Whether partnership firm is not required to explain source of income for partners regarding amount contributed by them towards capital of firm - Held, yes Paras 8 & 10] (v) Commissioner of Income Tax - I, Patna v. Anurag Rice Mills [2017] 88 taxmann.com 420 (Patna HC) Partner's had brought in the said amount to be included as capital to the firm. Evidently, it is for the partner to explain the source of the said funds and it was not open to the Assessing Officer to have treated the said amount as income of the firm as there was no business of the firm to carry forward such income, and it was not in dispute that the amounts had been brought in by the partners into the firm. In the said circumstances, if at all the assessments had to be made, they may be of the partners of the firm and not the firm itself and such amounts could not have been treated as income of the firm by relying upon section 68. 9.4 It would be of relevance to refer to the Balance sheets of the four companies which have become partners in the appellant as at 31st March 2016 which are reproduced as under:-
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On the analysis of the above balance sheets of all the four companies, it is observed that in all the four companies contributing capital to the appellant i.e. Maharaja Tie Up Ltd, Dynamic Enclave Pvt. Ltd., Gangaur Management Pvt. Ltd., Shivshakti Commerical Pvt. Ltd. there was no fresh infusion of funds in the A.Y. 2016-17. The said funds were available in the balance sheet of all the four companies under the head "Cash and Cash Equivalents" as on 31.03.2015 which are now reflected in current investment in i.e. investment as capital in the appellant firm as on 31.03.2016. 9.5 Further, it is a fact that in the said four companies there was introduction of funds in the AY 2008-09. As mentioned above, the case of Maharaja Tie Up Ltd was assessed u/s 147 of the Act for AY 2008-09 ,accepting the share capital and premium of Rs. 15,34,00,000/-. The case of Dynamic Enclave Pvt. Ltd. was assessed u/s 147 of the Act for AY 2008-09 accepting the share capital / share premium of 2,02,625 shares at the rate of Rs. 10 per share with a premium of Rs. 390 per share and the case of Shivshakti Commerical Pvt. Ltd. was assessed 16
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u/s 147 of the Act for AY 2008-09 accepting the share capital of Rs. 22,15,000/- and share premium of Rs. 8,24,85,000/-. In view of the above facts, it is seen that the said four. companies were having sufficient funds to contribute as capital in the appellant and thus there is no doubt about the creditworthiness of the said four companies. For ready reference the copies of the assessment order of Maharaja Tie Up Limited, for A.Y. 2008-09, assessment order of Dynamic Enclave Pvt Ltd. for A.Y. 2008-09 and copy of assessment order of Shivshakti Commercial Pvt. Ltd. A.Y. 2008-09 is reproduced as below:
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9.6 During the course of appellate proceedings, the appellant has filed the details of the said four partners which are as below: (i) For Dynamic Enclave Pvt Ltd the appellant has submitted : (a) Genuineness Of Transaction :- • Bank Statements indicating the payment made of Rs.8,21,00,000 in support of capital contribution made by the company. Particulars of cheque paid is as under: - Chg No.332965 dated 03.09.2015 drawn on HDFC Bank, Sunder Nagar of Rs. 1,00,000/-; - Chg No.332966 dated 03.09.2015 drawn on HDFC Bank, Sunder Nagar of Rs.8,20,00,000/-paid out of proceeds of encashment of FDR; • Copy of bank Statement with HDFC Bank reflecting the credit in the account of the appellant. • Copy of the LLP Agreement dated 18.08.2015 executed for admission of four new partners. • Confirmed copy of ledger account of partner's capital account • Copy of Asstt. order u/s 143(3) for AY 2008-09 in which the share capital/ Share premium was received ; b) Identity of the person Dynamic Enclave Pvt Ltd. is private limited company presently having its registered office at 6/30, Shanti Niketan, New Delhi having PAN: AACCD7617D. The identity is also established from the MCA site of Govt. of India. Thus, the identity of the person thru whom cheques received stands established. AO has conducted survey at the aforesaid address; (c) creditworthiness of the Creditor
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• Audited Financial Statements for the financial year ending 31.03.2016. The financials depict substantial reserves, share of Profit from the Firm and the investment as partner in JH Jewels LLP ; • Copy of ITRV for AY 2016-17 • Evidence of encashment of FDR's from where capital introduced in Firm; (d) Source of Capital Contribution • Share premium of Rs 7,90,23,750 was received by Dynamic Enclave Pvt. Ltd. in AY 2008-09 from its then shareholders which was duly examined and accepted by the Income Tax Officer, Ward 9(1), Kolkata during the course of re-assessment proceedings under section 147 r.w.s 143(3) of the Income Tax Act 1961. Copy of assessment order passed under section 147 r.w.s 143(3) has been submitted. • Share premium was utilized for making investments in the shares of various unlisted companies and stock of food grain. In support thereof copy of Audited Balance Sheet as at 31.03.2008 has been filed. • In AY 2012-13, Dynamic Enclave disposed off the aforesaid investment in the Shares of Unlisted Companies for Rs.8,04,86,500/. Upon realization of the funds from transfer of shares of unlisted companies and stock, Dynamic Enclave granted loan of Rs 8,65,00,000 on various dates in AY 2013-14 to JH Jewels Pvt. Ltd. • In AY 2015-16, loan was repaid by JH Jewels Pvt. Ltd. and Dynamic enclave made fixed deposits from the sums so received • In AY 2016-17, the Capital of Rs 8.21 Cr was contributed in JH Jewels LLP from encashment of FDR's upon becoming partner in the appellant firm. (ii) For Gangaur Management Pvt Ltd the appellant has submitted: (a) Genuineness Of Transaction :- • Bank Statements indicating the payment made of Rs.21,00,000 in support of capital contribution made by the company. Particulars of cheque paid is as under: - Chq No.305284 dated 03.09.2015 drawn on HDFC Bank, Sunder Nagar of Rs. 1,00,000/-; - Chq No.305285 dated 03.09.2015 drawn on HDFC Bank, Sunder Nagar of Rs.20,00,000/-The Payments were made after encashment of FDR's. • Copy of bank Statement with HDFC Bank reflecting the credit in the account of the appellant. • Copy of the LLP Agreement dated 18.08.2015 executed for admission of four new partners. • Confirmed copy of ledger account of partners ' capital account. (b) Identity of the person • Gangaur Management Consultant Pvt. Ltd. is private limited company having its registered office at 6/30, Shanti Niketan, New Delhi having PAN: AADCG7784P. Thus the identity of the person thru whom cheques received stands established. 24
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(c) Creditworthiness of the Creditor • Audited Financial Statements for the financial year ending 31.03.2016. There are sufficient reserves of the company to enable it to make payment towards Capital in JH Jewels LLP. The Company had earlier given Loans in AY 2013-14 to JH Jewels Pvt Ltd; Upon repayment Co. Invested in FDR's. • Copy of ITRV for AY 2016-17. (d) Source of Capital Contribution • Share premium of Rs 31,35,000 was received by Gangaur Management Consultant Pvt. Ltd. in AY 2011-12 from its then shareholders which was duly accepted by the Income Tax Department. • Share premium was utilized for making investments in the shares of various unlisted companies. In support thereof copy of Audited Balance Sheet as at 31.03.2011 was filed. • In the AY 2013-14, Gangaur Management Consultants Pvt. Ltd disposed off the aforesaid investment in the Shares of Unlisted Companies. Upon realization of the funds from transfer of shares of unlisted companies and granted loan of Rs 21,50,000 on various dates in AY 2014-15 to JH Jewels Pvt. Ltd • In AY 2015-16, loan was repaid by JH Jewels Pvt. Ltd. and Gangaur Management made fixed deposits from the sums so received. • In AY 2016-17, the FDR's were matured and Gangaur Management Consultant Pvt Ltd became partner in the appellant firm and made capital contribution of Rs.21,00,000/ - (iii) For Maharaja Tie Up Pvt Ltd the appellant has submitted: (a) Genuineness Of Transaction :- • Bank Statements indicating the payment made of Rs. 15,57,00,000/- in support of capital contribution. Particulars of cheque paid is as under: - Cha No.404094 dated 03.09.2015 drawn on HDFC Bank, Sunder Nagar of Rs. 1,00,000/; - Cha No.404095 dated 03.09.2015 drawn on HDFC Bank, Sunder Nagar of Rs. 15,56,00,000/-. The said amounts were paid out of encashment of FDR's with Banks. • Copy of bank Statement with HDFC Bank reflecting the credit in the account of the appellant. • Copy of the LLP Agreement dated 18.08.2015 executed for admission of four new partners.\ • Confirmed copy of ledger account of partners' capital account. (b) Identity of the person • Maharaja Tie - UP Put Ltd. is private limited company having its registered office at 6/30, Shanti Niketan, New Delhi having PAN: AAFCO733J. Thus the identity of the person thru whom cheques received stands established. (c) Creditworthiness of the Creditor
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• Audited Financial Statements for the financial year ending 31.03.2016. There are sufficient Reserves in the Balance Sheet to enable payment of the impugned amount as Capital contribution in the firm. • Copy of ITRV for AY 2016-17. • Copy of Asstt. Order accepting the share Capital / Premium. (d) Source of Capital Contribution • The Company issued share capital of Rs 77,65,000/ at a share premium of Rs.14,65,35,000/- in AY 2008-09 from its then shareholders which was duly examined and accepted by the Income Tax Officer, Ward 9(1), Kolkata during the course of re-assessment proceedings under section 147 r.w.s 143(3) of the Income Tax Act 1961. Copy of assessment order passed under section 147 r.w.s 143(3) was submitted. • Share premium was utilized for making investments in the shares of various unlisted companies and stock of food grain. In support thereof copy of Audited Balance Sheet as at 31.03.2008. • In AY 2011-12, Maharaja Tie Up Put. Ltd. sold its stock of Equity shares of various companies and booked revenue of Rs. 15,10,10,000/-in its Profit & Loss A/c. Upon realization of the revenue Maharaja Tie Up Put. Ltd. granted loan of Rs. 15,22,00,000/- on various dates in A.Y. 2011-12 to J H Jewels Put Ltd • Maharaja Tie Up Put. Ltd. disposed off the aforesaid investment in the Shares of Unlisted Companies Upon realization of the funds from transfer of shares of unlisted companies and stock, Dynamic Enclave granted loan of Rs 8,65,00,000 on various dates in AY 2013-14 to JH Jewels Put. Ltd • In AY 2015-16, loan was repaid by JH Jewels Put. Ltd. and Maharaja Tie Up made fixed deposits from the sums so received In AY 2016-17, the FDR's were matured and Maharaja Tie Up Put Ltd became partner in the appellant firm and made capital contribution of Rs. 15.57Cr. (iv) For Shivshakti Commercial Pvt. Ltd. the appellant has submitted: (a) Genuineness Of Transaction :- • Bank Statements indicating the payment made of Rs.8,51,00,000 in support of capital contribution made by the company. Particulars of cheque paid is as under: - Chq No.341640 dated 03.09.2015 drawn on HDFC Bank, Sunder Nagar of Rs. 1,00,000/-; - Chq No.341641 dated 03.09.2015 drawn on HDFC Bank, Sunder Nagar of Rs.8,50,00,000/-. The said amounts were paid out of encashment of FDR's with Banks. Evidence thereof enclosed. • Copy of bank Statement with HDFC Bank reflecting the credit in the account of the assessee • Copy of the LLP Agreement dated 18.08.2015 executed for admission of four new partners. • Confirmed copy of ledger account of partners' capital account. (b) Identity of the person 26
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• Shivshakti Commercial Pvt Ltd. is private limited company having its registered office at 6/30, Shanti Niketan, New Delhi having PAN: AALCS3074J. Thus the identity of the person thru whom cheques received stands established. (c) Creditworthiness of the Creditor • Audited Financial Statements for the financial year ending 31.03.2016. There are sufficient Reserves in the Balance Sheet to enable payment of the impugned amount as Capital contribution in the firm. • Copy of ITRV for AY 2016-17. (d) Source of Capital Contribution • Share premium of Rs 8,24,85,000 was received by Shivshakti Commercials Pvt. Ltd. in AY 2008-09 from its then shareholders which was duly examined and accepted by the Income Tax Officer, Ward 11(4), Kolkata during the course of re-assessment proceedings under section 147 r.w.s 143(3) of the Income Tax Act 1961. Copy of assessment order passed under section 147 r.w.s 143(3) was submitted. • Share premium was utilized for making investments in the shares of various unlisted companies and stock of food grain. In support thereof copy of Audited Balance Sheet as at 31.03.2010. • In the AY 2012-13, Shivshakti Commercials disposed off the aforesaid investment in the Shares of Unlisted Companies for Rs.8,37,00,000/. Upon realization of the funds from transfer of shares of unlisted companies and stock, Shivshakti Commercials granted loan of Rs 8,00,0,000 on various dates in AY 2012-13 to JH Jewels Pvt. Ltd. • In AY 2015-16, loan was repaid by JH Jewels Pvt. Ltd. and Shivshakti Commercials made fixed deposits from the sums so received • In AY 2016-17, the Fds were matured and Shivshakti Commercials Pvt. Ltd. became partner in the appellant firm and made capital contribution of Rs.8.51Cr. 9.7 Regarding the taking over of the above four companies by the appellant group, it is seen that J H Jewels Pvt. Ltd. bought 24,500 shares of Gangaur Management Consultants Pvt. Ltd. (Gangaur) on 27.04.2012 at book value price of INR 128.5 and 2,000 shares were purchases by Mr. Amit Sankhwal at the book value of INR 128.5 per share. In the AY 2012-13, after acquisition of shares of Gangaur:-Dynamic Enclave disposed off the aforesaid investment in the shares of unlisted companies for Rs. 8,04,86,500/-. Upon realization of the funds from transfer of shares of unlisted companies, Dynamic Enclave granted loan of Rs. 8,65,00,000/- on various dates in AY 2012-13 to JH Jewels Pvt Ltd. In the AY 2012-13, after acquisition of shares by J H Jewels Pvt. Ltd. of Gangaur:- Shivshakti Commercial disposed the aforesaid investment in the shares of unlisted companies for Rs. 8,37,00,000/-. Upon realization of the funds from transfer of shares of unlisted companies etc. Shivshakti Commercial Pvt. Ltd. granted loan of Rs. 8,00,01,000/- on various dates in AY 2012-13 to JH Jewels Pvt. Ltd. 27
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In AY 2011-12, Maharaja Tie Up Pvt. Ltd. sold its stock of equity shares of various companies and books revenue of Rs. 15,10,10,000/- in its profit and loss account. Upon realization of the revenue Maharaja Tie Up Pvt. Ltd. granted loan of Rs. 15,22,00,000/- on various dates in AY 2011-12 to J H Jewels Pvt. Ltd. 9.8 It is a fact that these four Companies became partners in the appellate Firm in AY 2016-17 and have been regularly assessed to Tax. During the A.Y. 2011-12 & 2014-15 these Companies had given loans to JH Jewels Pvt Ltd, a group Company. Further In AY 2015-16, the loans were repaid by JH Jewels Pvt. Ltd. and the companies made fixed deposits from the sums so received. In AY 2016- 17, these companies contributed capital in JH Jewels LLP from encashment of FDR's, upon becoming partner in the appellant firm. Thus the assessee has duly explained the source of the capital contributed by these companies and has not merely stated that the transactions has been undertaken through banking channel. In order to answer the issues raised in the present appeal it would be necessary to refer to the provisions contained under Section 68 of the Act. In terms of section 68 the assessee is to submit an explanation about the nature and source of the sum which has been credited. The explanation furnished by the assessee is to be satisfactory and the creditworthiness is to be proved by showing that it had sufficient balance in its accounts to explain the source and the credits in the books of accounts of the assessee. The assessee would be required to explain the source of credit in the books of accounts but not the source of the source i.e. source of the creditor. 9.9 It has been further observed that the genuineness of the transactions has been proved and the appellant has duly explained the deposit. The perusal of its bank statement shows that all the funds have been transferred to the assessee through banking channels and there was no immediate cash deposit in the accounts of the above four companies before transfer of funds to the assessee. The Audited financial accounts of these Companies reflect substantial reserves and current assets. The transactions on becoming Partners and contribution as Fixed/ Current Capital including share of profit from the Firm have been reflected in its financial statements of each of the Partners and the Appellant Firm. 9.10 Thus, it is seen that the appellant has furnished complete details regarding the capital receipt from the four companies. The genuineness of the transaction has been proved through the details of cheques and the bank statements. Confirmed copies of the ledger account of the partners capital account have been filed. The identity of the partners has been proved through their PANs and ROC data. The creditworthiness of the partners has been furnished through audited financial statements for the financial year ending 31.03.2016. Also the source of capital contribution for each of the four companies has been duly submitted. The flow of funds has also been submitted. In all the above four companies the infusion of funds was in the FY 2007-08. Also, as discussed above the above four companies were taken over by the appellant group in the AY 2012-13 and AY 28
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2013-14. Thus, the said four companies inducted by the appellant as partners are the group companies and were not the companies from the outside. In the impugned case, the assessee has submitted all the evidences including the confirmation of the Partners contributing Capital. This is not a case where the creditors have not given confirmations rather they have duly confirmed to giving capital contribution to the assessee through banking channels. The assessee has also submitted copies of bank accounts. The investors have not deposited cash into bank account. The assessee has duly discharged the onus with regard to identity of the partners, creditworthiness of the partners and genuineness of transactions with all supporting evidences. 9.11 In view of the above, the sources of Investment made by the partners as their capital contribution in the appellant firm stand fully explained. I further hold that in law also the addition is not sustainable in the hands of the appellant in view of the judicial pronouncements as relied upon by the appellant. Accordingly, the addition of Rs 32,50,00,000/-is hereby deleted. These grounds of appeal are allowed. 12. From the basis taken by the Assessing Officer, observations of ld. CIT(A) deleting the addition first of all we note that the sole controversy in the present case is that the Assessing Officer disputed and did not accepted the claim of assessee declaring receipt of capital contribution from four partner companies by alleging that the assessee failed to establish identity and creditworthiness of capital contributing companies and genuineness of transaction and mere submission of ID proof and the fact that the transactions were routed through from banking channel do not establish, identity and creditworthiness of capital contributor and genuineness of transaction.
We are in agreement with the contention of ld. AR that in para 9.3 of assessment order the Assessing Officer has referred and relied on the judgment of Hon’ble Delhi High Court in the case of PCIT vs. Vikram Singh in ITA no. 55/2017 which pertains to issue of genuineness of loan transaction and in the present case the issue is of capital contribution. Therefore, the Assessing Officer has adjudicated the issue by considering the irrelevant preposition of law. Further, on respectful and vigilant perusal of case laws relied by the ld. CIT(DR) in the cases of PCIT vs. NRA Iron & Steel P Ltd. (supra) and the judgments of Hon’ble High Court of Delhi in the case of CIT vs Nipun Builders & Developers P Ltd. 350 ITR 407 (Del) and in the case of CIT vs Frostair (P) Ltd. reported as 210 Taxmann 221 (Del), we respectfully note that all the said 29
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preposition pertains to the controversy wherein assessee company received share capital and premium contribution which was disputed by the tax authorities and Assessing Officer made addition u/s. 68 of the Act and the courts rendered judgments in the favour of Revenue by observing that since the appellant company could not establish identity, capacity and creditworthiness of share capital and premium contribution and genuineness of transaction therefore addition is sustainable. But since the facts and circumstances of the present case shows that the sole controversy in the present case is that the assessee being LLP entity received capital contribution from four partner companies therefore prepositions relied by the ld. CIT(DR) are not applicable to the present case having distinct and dissimilar factual matrix of the issue. Therefore, benefit of said preposition is not available for the Revenue as the same are clarity having distinct & dissimilar facts and position.
In the present case, the preposition rendered by Hon’ble Apex Court in the case of PCIT vs. Vaishnodevi Refoils & Solvex (supra) applies wherein upholding the order of Hon’ble High Court uphold the preposition that where Assessing Officer made addition to assessee-firm’s income under section 68 in respect capital introduced by one partner of firm, in view of fact that amount received by assessee-firm had been duly reflected in books of account maintained by concerned partner and he had also confirmed such contribution, impugned addition was to be set aside. From the first appellate order we note that the ld. CIT(A) in para 9.1 noted that the registered offices of all four companies had been shifted from Kolkata to Delhi on 20.01.2015 and as per CIT(DR) and documentary evidence shows that the ROC was informed about change of address from Kolkata to Delhi on 17.12.2014 which appears to be correct. After considering the documentary evidences filed by the assessee before the Assessing Officer the ld. CIT(A) noted that the assessee has filed copies of confirmations of account, bank statement confirming that source was encashment of FDR, copy of ITR acknowledgment, audited financial statements and copies of assessment order accepting the share capital and premium received by the capital contributing company during AY 2008-09 and contribution of capital to the present LLP assessee during AY 2016-17. In view of above
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observations of ld. CIT(A) based on preposition rendered by Hon’ble Supreme Court in the case of PCIT vs Vaishnodevi Refoils & Solvex (supra) the contention of assessee was rightly found to be sustainable by the ld. CIT(A) that the capital introduce by a partner cannot be added in the hands of firm when the partners has confirmed the capital contribution and assessee has submitted all documentary evidence showing identity, creditworthiness of contributing partner and genuineness of transaction. The Ld. CIT(DR) however, contended that the said preposition relied by the Ld. CIT(A) is hot applicable to the present case of LLP entity by the could not controvert the factual and legal position that as per clause (i) of section 2(23) of the Act. The partnership firm shall include LLP entity and thus similar to partnership for the purposed of the application of the Act and relevant legal position.
The Hon’ble High Court of Allahabad in the case of Kesharwani Sheetalays Sahsaon vs. CIT reported as 116 taxmann.com 382 (All.) as relied by the ld. AR, has held that where assessee-firm had shown credits of certain amount from its partners, since partners of assessee were all identifiable and separately assessed to tax and they had shown sufficient agricultural income in their personal returns of past years which had been accepted by department as such, source of investment, as capital contribution by those partners in assessee firm having been explained, no addition could be made in hands of firm on account of such credits. In the present case, undisputedly, the assessee in addition to confirmations from all capital contributing companies has also submitted relevant documentary evidences showing their identity, capacity and creditworthiness to contribute capital to the assessee LLP firm. The copies of audited financial accounts and return of income of all four capital contributing companies AY 2008-09 and 2016-17 and other documentary evidences as discussed above (paper book page no. 65 to 140) cumulatively reveals and establish that the said four companies received amount as share capital during AY 2008-09 and the same was invested in FDR’s and during FY 2015-16 pertaining to AY 2016-17 the FDR’s were encashed/redeemed and the capital contribution was made out of said redeemed amount of FDR’s to the present assessee company.
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So far as non service of notice on Kolkata addresses are concerned the registered offices of all four companies were shifted from Kolkata to New Delhi on 17.12.2014and subsequent to that the Department on 27.06.2016 conducted survey u/s. 133A of the Act on two companies i.e. Maharaja Tie Up P Ltd & Dynamic Enclave P Ltd. and the Assessing Officer issued notices for verification of registered office on 15.11.2016 to the address of Kolkata Office despite the knowledge of change of address to Delhi therefore such ground cannot be taken to alleged that the existence of capital contributing companies is doubtful and thus they are non existing entities particularly when all for capital contributing companies during A.Y. 2016-17 were being assessed to tax in Delhi on the PAN numbers supplied to the Assessing Officer by the assessee.
In view of foregoing discussion, we reach a logical conclusion that the ld. CIT(A) was quite correct and justified in holding that the sources of investment and capital contribution made by all four capital contributing companies/partners in the appellant LLP firm has been properly and fully explained. Therefore we are unable to see any ambiguity perversity or any other valid reason to interfere with the findings arrived by ld. CIT(A) and thus, we uphold the same. Consequently, grounds of Revenue being devoid of merits are dismissed.
In the result, the appeal of Revenue is dismissed. Order pronounced in the open court on 13.10.2023. Sd/- Sd/- (M.BALAGANESH) (CHANDRA MOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 13th October, 2023 NV/- Copy forwarded to : 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR 32
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// By Order //
Asstt. Registrar, ITAT, New Delhi