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Income Tax Appellate Tribunal, DELHI BENCH “G” DELHI
Before: SHRI CHANDRA MOHAN GARG & SHRI PRADIP KUMAR KEDIA
The captioned appeal has been filed by the Revenue against the order of the Commissioner of Income Tax (Appeals), Faridabad (‘CIT(A)’ in short) dated 07.09.2018 arising from the assessment order dated 30.12.2017 passed by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2015-16.
The grounds of appeal raised by the Revenue read as under:
“1. Whether on the facts and circumstances of the case, ld. CIT(A), Faridabad is right in deleting the addition made amounting to Rs.2,24,99,910/- by observing that the company has established source of share premium and capital during the F.Y. 2014-15 as company was found to be non-existent at the address given by the assessee. The genuineness and creditworthiness of the subscribing company in this case remained unproved.”
Briefly stated, the assessee filed return of income declaring loss of Rs.47,55,183/- for Assessment Year 2015-16 in question. The return filed by the assessee was subjected to scrutiny assessment. In the course of the scrutiny assessment, the Assessing Officer inter alia noted that the assessee-company has allotted preference share capital of Rs.52,77,760/- to various shareholders during the year and collected a premium of Rs.13,72,21,760/- thereon. The list of impugned share capital allotted during the year to various parties is tabulated hereunder:
Particulars No. of Nominal Premium Share Share Total shares amount per share capital premium per share
Swapan 3,70,370 10 260 37,03,700 9,62,96,200 9,99,99,900 Mahal Builders Pvt. Ltd.
Pleasant 83,333 10 260 8,33,330 2,16,66,580 2,24,99,910 Vyapaar P. Ltd. 18,518 10 260 1,85,180 ,48,14,680, 49,99,860 Siyona 37,037 10 260 3,70,370 96,29,620 99,99,990 Construction Pvt. Ltd.
Sumitra 18,518 10 260 1,85,180 48,14,680 49,99,860 Builders & Developers Pvt. Ltd.
Capital 5,27,776 52,77,760 13,72,21,760 14,24,99,520 Introduced During the year
Total (A+B) 5,27,776 52,77,760 13,72,21,760 14,24,99,520
4. The shares were issued at a face value of Rs.10/- each at a premium of Rs.260/- per share to different shareholders. A show cause notice was issued to the assessee seeking explanation on identity, creditworthiness and genuineness of transaction of the aforesaid amount. In response thereto, the assessee filed replies giving documentary evidences concerning the various shareholders to whom the shares were allotted during the year. The Assessing Officer however claimed that in respect of shares allotted to namely, Pleasant Vyapaar Pvt. Ltd. to whom 83333 shares of Rs.10/- each were allotted at a premium of Rs.260/- per share resulting in flow of Rs. 2,24,99,910/- by way of subscription, the onus which lays upon the assessee under Section 68 of the Act was not discharged. The Assessing Officer accordingly invoked the provisions of Section 68 of the Act and proceeded to make addition of Rs.2,24,99,910/- in the hands of the assessee as unexplained credit/receipt. The income was accordingly assessed at Rs.1,77,44,730/- as against the return loss of Rs.47,55,183/- filed by the assessee.
Aggrieved, the assessee preferred appeal before the CIT(A) and vehemently contested the additions so made. A detailed submission were filed as recorded in paragraph 6 of the first appellate order and documentary evidences were placed to justify the bona fides of the aforesaid receipts on the touchstone of Section 68 of the Act. On appraisal of facts, the CIT(A) found that the parameters pertaining to identity and creditworthiness of the shareholders, genuineness of the transactions has been adequately proved by the assessee-company. The CIT(A) also noted that even the ‘source of source’ has been established by the assessee-company by way of realization of fixed deposit by the source of source namely, Dhoomketu Pvt. Ltd. The entire trail of money culminating of the share capital of the assessee-company was perused by the CIT(A) to derive the satisfaction on the bona fides of the credit receipt. The CIT(A) accordingly reversed the action of the Assessing Officer and deleted the addition made under Section 68 of the Act. The relevant operative paragraph of the order of the CIT(A) is reproduced hereunder:
“7. I have perused the submissions of the appellant and the order of the AO. 1ne relevant facts are that the appellant company has received a sum of Rs.14,24,99,520/- as share capital including the share premium during the year. A show cause notice for adding the entire amount was issued by the A0 on 22.10.2017 (refer to para 3 of the assessment order). The appellant submitted its reply on 26.12.2017 and the same has been reproduced from page 3 to page 7 of the assessment order. A perusal of the reply of the appellant as reproduced in the assessment order reveals that the appellant has not only furnished the complete details of the entities from whom the share capital has been received but also the source of the source of the entire funds received by the appellant company. In total the entire share capital have been received from five companies and the chart of the same is available at page 7 of the assessment order. The AO has accepted the contention of the appellant in respect of four companies (totaling Rs. 11,99,99,610/-) and has added an amount of Rs.2,24,99,910/- pertaining to the amount of share capital / premium received from M/s Pleasant Vyapaar P Ltd. (PVPL). The basic issue that needs adjudication is on account of this addition of Rs.2,24,99,910/- made by the AO u/s 68 of the Act.
The reasons for making the addition have been discussed by the Assessing Officer at page 8 of the assessment order and the same is reproduced as below: "Field enquiry was conducted by IT, Sh. Subhash Chander visited the oddresses being provided by the assessee and it was found that one of the company M/s Pleasant Vyapaor Pvt. Ltd. does not exist on the address provided by the assessee company. Summons u/s 131 of the Act was also issued to the above parties but none of the party appeared before the under signed but only reply received from these parties. No reply received from M/s Pleasant Vyapaar Pvt. Ltd. and no confirmation has been submitted by the assessee in respect of Dhoomketu Marketing Pvt. Ltd. from whom the funds were transferred to Pleasant Vyapaar Pvt. In view of this, it becomes crystal clear that Ms Pleasant Vyapaar Pvt. Ltd. exists only on paper and not on horizon of reality. The findings like non-existence of company on given address, no reply to the summon under section 131 of the Act prove the above facts."
At this juncture the relevant part of the appellant's submissions before me are reproduced below: “....On page 8 of assessment order, mentions have been made about show cause notice U/s 142(1) dated 22.12.2017 requiring the appellant to furnish the details of the subscribers to the share capital of the appellant company and that summon were issued to five companies on 15.12.2017 and in response the written reply has been submitted by the investor companies except from M/s Pleasant Vyaapar Pvt. Ltd. The Ld. AO is wrong in mentioning that the reply has not been submitted by M/s Pleasant Vyaapar Pvt. Ltd. The fact is that the authorized representative has visited the office twice with reply but Ld. AO has refused to entertain the reply in respect of that particular investor company. As per the show-cause notice, the appellant was required to explain as to why the capital received from them should not be added to the income u/s.
Looking the fact that very limited time has been granted, the appellant filed the requisite details of all five companies, from whom capital was received. The details contained their bank statements for the relevant period, acknowledgement of the return of income, annual accounts, and the sources of their funds for investing in the appellant company. Thus, the ultimate source of money was also there on the record. The evidences as required under section 68 were produced by way of evidence filed by the appellant and the evidence filed by the share holders of the appellant. 2.2 It may kindly be seen that effective hearing on the issue of the evidence regarding share capital started on 22.12.2017 and the appellant was given time only up to 26.12.2016. In this short period the appellant filed sufficient evidence to discharge the onus cast on it by providing the identity and capacity of the subscribers and genuineness of the transactions, which were carried out through banking channels. However, against the tenor of voluminous evidence filed by the appellant and its shareholders, the Id. A.O. made unwarranted and huge addition of Rs.2,24,99,910/-. It is submitted that thought the time allowed to the appellant was grossly insufficient, yet the appellant supplied all the evidence in its possession and its shareholders (investors) and filed sufficient eyidence to prove genuineness of capital. The lack of adequate opportunity amounts to the violation of principle of natural justice. The Ld. A.O. hurriedly passed the order without considering the evidence of share-holders properly. Therefore, in view of gross violation of this principle, it is requested the assessment order may be held to be bad in law. ……… 3.1 The facts in this regard are that in the course of hearing, the appellant filed, vide letter dated 17.10.2017 & 12.11.2017, various details in respect of increase in capital. These details are: (a) copy confirmation of accounts, (b) return of allotment of shares filed with ROC, (c) working of share premium in the light of rule 11UA, and, (d) list of shareholders, proof of the identity, evidence of their credit worthiness, copies of their ITs, bank statements as per the query raised by A.O. The ld. AO has issued notice u/s. 133(6) to M/s. Pleasant Vyapar Pvt Ltd and other investor companies by email and also send it through speed post on the local office of the Ms Pleasant Vyapaar Pvt Ltd. at D- 15, Basement, Pamposh Enclave, New Delhi, which was duly received. M/s. Pleasant Vyapar Pvt Ltd has given all the information's called u/s 133(6) through email and also send the replies by courier which was received by the Id AO office on 04.12.2017. After considering these details the Id. AO., vide order sheet entry dated 22.12.2017, informed the appellant about the enquiries conducted by him with the investor/shareholders. Pending these enquiries, the appellant was also required to show cause as to why provision of section 68 may not be invoked as the assessee proved identity, genuineness and credit worthiness of the above contributors. The assessee was given time of four days only and the case was adjourned to 26.12.2017. The ld. AO has issued summon Us 131 of the Act to M/s. Pleasant Vyapar Pvt Ltd. and other investor companies for the personal deposition. M/s. Pleasant Vyapar Pvt Ltd has duly authorized Mr. Pankaj, Chartered Accountant, to produce before the ld. AO against the summon issued, since the registered office of the M/s. Pleasant Vyapaar Pvt Ltd is situated in Kolkata. The Id AO on 22.12.2017 and 29.12.2017 has refused to accept reply of M/s. Pleasant Vyapar Pvt Ltd. from Mr Pankaj. However the replies given by the other investor companies against Summon issued to them u/s. 131 were duly accepted from Mr. Pankaj. He misinterpreted the facts of the case, assumed facts which are non- existent on record and having quoted the contents of the various cases and judgments in the order made an addition by holding that the Share Capital /Premium amounting to Rs. 2,24,99,910/- received from M/s. Pleasant Vyapar Pvt. Ltd is bogus. 3.5 The onus on assessee under proviso to section 68 will be similar to the onus under the main provision. This stands discharged in the case of appellant on filing of the details of the source of source by the shareholders of the appellant. The entire details of the share applicants i.e M/s. Pleasant Vyapar Private limited were made available to the ld. AO by the appellant. These included the: -
1. 1. The company has been registered with the Registrar of Companies vide CIN - U51109WB1994PTC062056 on 03.03.1994 2. Confirmation of Accounts.
3. Income Tax Return.
4. Return of Allotment (PAS 3) filed with Registrar of Company 5. Bank Statements 6. PAN.
7. Annual accounts for the 3 years.
8. Source of Funds. 9.Source of Source. The AO asked the assessee to file confirmation and other documents of the share applicants in order to prove identity, creditworthiness and genuineness of the transaction. The assessee admittedly produced several documentary evidence before the A in order to prove the above ingredients of section 68 of the Act i.e. the assessee furnished address of the share applicants, CIN No., Incorporation date of company, PAN, Authorized capital, paid up capital, names of Directors, certificate issued by Registrar of Companies and return filed before ROC, , copy of acknowledgement of filing of income tax return for AY under reference audited accounts for the three years. The AO did not verify any of these documentary evidences in order to find out the truth in the matter. The appellant also submitted the source of funds of M/s Pleasant VyaparPvt It received from Ms DhoomketuPt Ltd. The annual accounts, copies of bank statements, PAN, & ITR-V of M/s. DhoomketuPvt Ltd are also submitted before the Ld AO. In respect of genuineness of transaction, we have to state that against the funds provided by M/ Pleasant VyapaarPt Ltd the company has allotted shares to the company along with other four allottee and proper return of such allotment has been filed with Registrar of Companies (RoC). The allotment of share capital during the course of normal business scenario to an investing company which has the genuine identity and capacity should be considered as normal business activity and beyond doubt. Thus, the AO failed to make any inquiry on these documentary evidences which are part of Revenue record as well. These documents clearly showing that the M/s. Pleasant Vyapaar Pvt. Ltd. had sufficient funds for investing in the Appellant company. The Ld. AO had not undertaken any investigation of the veracity of the documents submitted to him. The Ld. AO without doubting the documents completed the assessment on the presumption that M/s. Pleasant Vyapaar Pvt. Ltd is paper company and does not exist at all. The Appellant by producing sufficient documents discharged its initial onus of showing the genuineness and creditworthiness of the share applicant. The addition made by the Id. AO only on the ground that M/s. Pleasant Vyapar Pvt. Ltd is paper company. The Ld. AO has not explained how M/s Pleasant Vyapar Pvt. Ltd is not existing and is a fictitious company. The Ld AO totally ignored the followings: -
1. 1. Notice U/s 133(6) to M/s Pleasant Vyapar Pvt. Ltd at its email and also served on its local address i.e D-15, Pumposh Enclave, New Delhi.
2. The annual accounts for the 3 years of M/s Pleasant Vyapar Put. Ltd 3. The registered office of M/s Pleasant Vyapar Pvt. Ltd is in Kolkatta. Hence, not considering all these submission & documents and ignoring the above stated facts, simply non-filing of confirmation of M/s Dhoomketu without specifically seeking it either U/S 133(6) or U/s 131(1) and making high pitched addition is really harsh on appellant.
However, in terms of the decision Supreme Court discussed above, this onus stands restricted to furnishing the name and the address of the companies which are the source of the source. This has already been done. Accordingly, it is requested that the addition made by the A.0. may be deleted. 3.6 It has been submitted earlier that there are some errors, contradictions etc. in the assessment order, which shows that the order was passed without properly applying mind to the facts of the case and with a pre-disposed mind. These are briefly discussed there under: - I. It is stated that no details furnished in respect of Pleasant VyaparPt Ltd. but its sources of fund have been mentioned (Pg. no. 8) II. that the confirmation from Ms Dhoomketu Pvt Ltd. the company that has extended the funds to M Pleasant Vyapar Pvt Ltd has not been furnished. It is to submit in this respect that this has confirmation has never been asked for by the department. III Page 8 contains inspectors' reports in respect of Pleasant Vyapar Pvt. Ltd. The gist of the reports is that the address of this party is non- existent. From the content of the reports, it will be clear that their contents are contradictory and only a perfunctory enquiry was made. It is also clarified that the enquiry was made at local address furnished and not at its registered address. As mentioned earlier notice Us 133(6) & 131(1) issued by the Id AO were duly served by the postal authorities on this address. IV. The Id AO has issued notice Us 133(6) to M/s. Pleasant Vyapar Pvt Ltd by email and also send it through speed post on the local office of the company at D-15, Basement, Pamposh Enclave, New Delhi, which was duly received. M/s. Pleasant Vyapar Pvt Ltd has given all the information's called Us 133(6) through email and also send the replies by courier which was received by the Id AO office on 04.12.2017. V. Thereafter the Id AO has issued summon Us 131 of the Act to M/. Pleasant VyaparPt Ltd. and other investor companies for the personal deposition. M/s. Pleasant Vyapar Pvt Ltd has duly authorized Mr. Pankaj, Chartered Accountant, to produce before the Id AO against the Summon issued, since the registered office of the M/s Pleasant VyapaarPt Ltd is situated in Kolkatta. The Id AO on 22.12.2017 and 29.12.2017 has refused to accept reply of M/s. Pleasant VyoparPut Ltd. from Mr Pankaj. However, the replies given by the other investor companies against Summon issued to them U/s 131 were duly accepted from MR. Pankaj.
Having reproduced the relevant parts of the assessment order and the submissions of the appellant it is time of analyze the facts of the case. As evident from the extract of the assessment order reproduced earlier, the only reason on account of which the addition has been made by the AO, is based on the AO's observations that the company in question i.e. M/s Pleasant Vyapaar Pvt. Ltd. does not exist at its given address and is thus a paper company. The AO as per the assessment order has arrived at this conclusion based on the field visit made by the Inspector (as per which the company was not found at the given address) and on the basis that the summons issued us 131 by the AO remained uncomplied.
The reply of the appellant on this particular issue during the course of assessment proceedings has also been reproduced in the assessment order itself at page 5 of the order and the same is reproduced below for the sake of clarity: 5. In the case of Pleasant Vyapaar Private Limited, it is clear from the chart itself that the amount invested Rs. 225 Lacs is received by the investor company from Dhoomketu Marketing Put. Ltd. and ultimate source of the Dhoomketu is the amount received from the maturity of Fixed Deposits of Rs.224 lacs on 26/08/2014. Please find attached herewith the bank statement and balance sheet of Dhoomketu which shows that the source of the funds is maturity from Fixed deposits. Please also find attached herewith the balance sheet of Pleasant Vyaapar for last three years which clearly proves the creditworthiness of the investor company. You have given in you show cause notice that this company does not exist on the address (D-15, Basement, Pamposh Enclave, GK Part-1, New Delhi) given by us. In this regard we submit that there is a small office on this address which is maintained in Delhi for expansion of business in Delhi. It has taken a small space in this office on sharing basis. Even the notice under section 133(6) sent by you on this address was delivered by speed post; evidence of the delivery is enclosed herewith. And registered office of the company is situated at Unit No. ESNT 4A 0301, Building/ Block No.4A, Third Floor, Ecospace, Business Park, New Town, Kolkata and Head Office situated at 396, Ground Floor, Swadha Plaza, Jessore road, Kokata. All the business activities ore going on these two addresses situated in Kolkata. These both the addresses can be confirmed from the records of ROC and income tax. …… From the above explanations, it is clearly proves that all the transactions of shore capital ore genuine and were made by proper banking channel only. There is no involvement of cash at any stage in the whole process of transactions. Creditworthiness of the investor companies are clearly proved from the above mentioned explanation and documents. Major amount of the capital is from ultimate source of Amtek Auto which is a well known listed company having huge business of auto parts with a turnover of Approx. 4000 crores. All these explanation and documents roves the identity, creditworthiness and genuineness of transactions which are necessary for the satisfaction of section 68 of the Income Tax Act, 1961.”
12. As evident from above the registered office of the company in question is at Kolkata and a small office on sharing basis is being maintained by PVPL in Delhi. The fact that notice u/s 133(6) was sent to the PVPL and the same has been received by PVPL and the evidence for delivery of notice at the Delhi address was furnished before the AO is evident from the above. These facts are a part of the assessment order and have not been controverted by the AO in the assessment order.
13. During the course of appellate proceedings, the appellant has reiterated all these above facts before me. In fact the Ld. AR has furnished the copy of the courier receipt issued by "Trackon Couriers Pvt. Ltd." issued on 29.11.2017, from PVPL to ACIT, Income Tax Faridabad and the same is placed on record. Moreover, the appellant has also furnished the email details of the email received from the AO calling for information us 133(6) and the details of the emails sent by PVPL wherein information called for by the AO u/s. 133(6) have been replied to by PVPL. These emails are also placed on record. Besides this a perusal of the assessment order itself reveals that the entire details of the funds received not only by PVPL but also the source of the source have been furnished before the AO and the same is evident from the chart reproduced by the AO on page 8 of the assessment order. Similar submissions have been made before me and I find that the appellant has furnished not only the complete financial records of pVPl but also the source of the funds received by PVPL from M/s Dhoomketu Pvt. Ltd. The funds received by PVPL from M/s Dhoomketu Pvt. Ltd. is on account of the maturity of an FDR amounting to Rs.2.25 Cr. and the same has been transferred to PVPL and from the same funds the share capital-has been advanced to the appellant company. This fact has also been reproduced by the AO at page 8 of the assessment order (refer to the chart on page 8 of the assessment order.
In addition to all these facts it is pertinent to mention that the following details have been furnished by the appellant before me as well as before the AO during the course of assessment proceedings.
The company Registration No. with the Registrar of Companies vide CIN - U51109WB1994PTC062056 granted on 03.03.1994 2. Confirmation of Accounts.
3. Income Tax Return.
Return of Allotment (PAS 3) filed with Registrar of Company 5. Bank Statements 6. PAN.
Annual accounts for the 3 years.
8. Source of the Funds. 9.Source of the Source.
15. In addition to the above the appellant vide it's letter dated 06.09.2018 has also furnished the assessment order u/s 143(3) of M/s Dhoomketu Marketing Pvt. Ltd. (DMPL) for Asstt. Year 2014-15 to establish the fact that M/s DMPL is a bonafide and legitimate company. The certified and confirmed copy of account of M/s DMPL has also been furnished, to explain the source of the source.
Thus, after considering the entire evidence submitted by the appellant before me I find that the appellant has more than sufficiently discharged its onus as envisaged under the provisions of section 68. The AO has observed at page 13 of the assessment order that the appellant company has been unable to prove the creditworthiness, genuineness and the identity of the creditor and hence the addition u/s 68 has been made by the AO. In this context, it will be relevant to reproduce the financials of the PUPL as submitted by the appellant vide letter dated Nil, submitted via email on 27.02.2018; "The appellant company has received the share application money from M/s Pleasant Vyaapar Pvt. Ltd. of Rs. 2,25,00,000 on 26.082014 through proper banking channel. M/s Pleasant Vyaapar Pvt Ltd. is having net worth of Rs. 55.80 crores as on 31.03.2015 and of Rs. 55.71 crores on 31.03.2014. It can be observed from the audited financial statement of M/s Pleasant Vyaapar Pvt. Ltd. that it has cash & bank balance of Rs. 4,04,17,136.00 (as per schedule 5 of financial statement) and owning real estate and having FDRs. The company is in existence since 1994 and doing statutory compliances with various Government Authorities since inception. The company is regularly assessed by the income-tax department. In respect of source of source, the amount that has been given as share application money to the appellant company by Ms Pleasant Vyaapar Pvt. Ltd. has been given out of the funds received by it from M/s Dhoomketu Marketing Pvt. Ltd. through banking channel. M/ Dhoomketu Marketing Pvt. Ltd. is having net worth of Rs. 25.49 crores as on 31.03.2015 and of Rs. 25.47 crores on 31.03.2014. It can be observed from the audited financial statement of M/ Pleasant Vyaapar Pvt. Ltd. that it has cash & bank balance of Rs. Approx. 240 lacs (as per schedule 8 of financial statement). The company is in existence since long and filing its tax return with the department regularly and getting assessed every year. All the document in support of the above has already placed before the ld. AO and your honour with detailed written submission filed on 19.02.2018."
I find that all the three parameters pertaining to the creditworthiness, genuineness and identity have been adequately proved by the appellant company. The source of the source has also been furnished by the appellant company and the same is emanating from an FD. It is not one of those cases where the source of the source leads to a cash deposit and thus become doubtful. It is also not the case of an established entry operator providing entries in lieu of cash receipts. The bank account of the appellant company as well as the company from whom (PVPL) have also been furnished and nothing suspicious is noticed therein. The source of the source, emanating from the redeeming of FDR is reflected in the bank account of PVPL and M/s Dhoomketu Pvt. Ltd. To sum up, the entire trail of the money culminating in the share capital of the appellant company has been furnished from the very source to the end by the Ld. AR. Thus, considering the entire facts I find that the addition needs to be deleted and hence deleted. This ground of the appellant is allowed.”
Aggrieved by the relief granted by the CIT(A) to assessee, the Revenue filed appeal before the Tribunal.
7. The ld. DR for the Revenue relied upon the action taken by the Assessing Officer and contended that the CIT(A) has misdirected himself in law in failing to appreciate the observations of the Assessing Officer that the onus which lay upon the assessee under Section 68 of the Act has not been discharged. It was further submitted that adequate details were not furnished in respect of PVPL. The confirmation of the source of source, i.e., M/s. Dhoomketu Pvt. Ltd. who had extended the funds to the subscriber namely PVPL has not been furnished and the summons issued under Section 131 to the subscriber company for personal deposition was not complied with. The ld. DR thus submitted that in the absence of proper evidence, the Assessing Officer was justified in holding that the onus placed upon the assessee under Section 68 of the Act was not discharged and consequently the Assessing Officer was fully justified in making additions on account of unexplained credit under Section 68 of the Act in respect of shares subscription in relation to PVPL. The ld. DR thus urged for reversal of the action of the CIT(A) and restoration of the order of the Assessing Officer.
8. The ld. counsel for the assessee, on the other hand, made wide ranging observation to support and defend the action of the CIT(A). The broad submissions on behalf of the assessee are;
(i) The assessee has attracted as many as five parties to subscribe to the share capital of the company. The shares were issued at a face value of Rs.10/- each at a premium of Rs.260/- per share to all the parties. The Assessing Officer has found the subscription received at a premium of Rs.260/- per share to all the parties to his satisfaction except the share subscription received from M/s. PVPL. The veracity of the share premium charged at Rs.260/- per share is thus not in question and has received the endorsement of the Assessing Officer himself.
(ii) the assessment order is marred with major controversies.
(a) It is stated in the assessment order that no details were furnished in respect of PVPL but the source of fund has been mentioned at page no.8 of the assessment order itself.
(b) The claim of the Assessing Officer that the confirmation from Dhoomketu Pvt. Ltd., i.e., company which has extended funds to PVPL for subscription in the assessee company has not been furnished is wholly unjustified as such confirmation was never asked by the Assessing Officer.
(c) The allegation in the inspector’s report that the company was not found at the address is a result of perfunctory enquiry. The inspector report is based on some enquiries at a local address instead of registered address.
(d) The Assessing Officer omitted to take into account that in response to notice issued under Section 133(6) to PVPL by e-mail, PVPL has given all the information called for under Section 133(6) through e-mail. The replies were also sent by courier which was received by the office of the Assessing Officer on 04.12.2017. The Assessing Officer has not taken cognizance of such facts while forming an adverse opinion.
(e) In response to summons issued under Section 131 to PVPL and other investors companies for personal attendance, PVPL has authorized Mr. Pankaj, Chartered Accountant to appear before the Assessing Officer in Delhi since the registered office of PVPL is situated in Kolkata. The Assessing Officer on 22.12.2017 and 29.12.2017 has however refused to accept the replies on behalf of the PVPL from Mr. Pankaj while accepting the replies concerning other investor companies.
(f) The limited scrutiny of the return initially proposed was converted into fully fledged scrutiny with the approval of the Pr.CIT dated 18.12.2017. However, the assessment was completed without any reasonable opportunity in gross infringement of guidelines prescribed by the Department and the assessment order was passed hurriedly on 30.12.2017 disregarding all relevant evidences.
9. The ld. counsel submitted that, on its part, the assessee has submitted multiple evidences such as registration of the subscriber company way back on 03.03.1994; IT return of the subscriber company; confirmation of the account; return of allotment of shares; bank statement; audited accounts of the subscriber company for last three years; source of funds and last but not the least; the source of source of funds. The assessee company received subscription from PVPL which company in turn received funds from M/s. Dhoomketu Marketing Pvt. Ltd. M/s. Dhoomketu Pvt. Ltd. realized the fixed deposit of Rs.224 lakhs possessed by it which was the source of funds to PVPL. Both PVPL and Dhoomketu Marketing Pvt. Ltd. are having substantial net worth of Rs.55.80 crore and Rs.25.49 crore respectively as on 31.03.2015. Even the cash and bank balances were approximate of Rs.4.04 crores were held by the subscriber company PVPL. The subscriber company is assessed regularly by the Income Tax Department over a long horizon of 20 years. The ld. counsel for the assessee thus submitted that the CIT(A) could not have rejected the tell-tale evidences to come to a wrong full conclusion and has rightly reversed the arbitrary decision taken by the Assessing Officer. The ld. counsel thus submitted that no interference with the order of the CIT(A) is called for.
10. We have carefully considered the rival submissions and perused the orders of the authorities below and case law cited at bar.
11. The Assessing Officer, in the instant case, has disputed the identity, creditworthiness and genuineness of the transaction in relation to preference share capital infused in the company along with premium associated thereon. Consequently, the Assessing Officer has treated the receipt towards share capital and share premium is at Rs.2,24,99,910/- received from PVPL as unexplained credit with the aid of Section 68 of the Act. In the first appeal, the CIT(A) however reversed the action of the Assessing Officer after detailed examination of nuances of the factual matrix.
The controversy involved is essentially factual in nature. Thus to address the issue, we proceed to examine the facts involved in objective manner and appreciate these facts in the light of the various judicial precedents holding the field. To being with, it is noticed that the assessee has claimed that as many as five investors have subscribed to the share capital to the assessee during the year at the identical share premium as tabulated in earlier paragraphs.
12. The Assessing Officer has accepted the subscription in respect of four investors but however has disputed the subscription in relation to one investor namely, PVPL. It is an admitted position that the assessee on its part has filed voluminous documents concerning all investors including investor in dispute. The assessee in relation to PVPL has filed income tax return of the subscriber, annual account for last three years, the bank statement as well as the source of money in the hands of the person who transferred the money to PVPL utilized in subscription. As per the case records, one M/s. Dhoomketu Marketing Pvt. Ltd. transferred the funds to PVPL out of realization of fixed deposit placed by it with banks. The proceeds so transferred were utilized by PVPL for subscription of the preference share of the assessee company. Noticeably, the assessment order framed under Section 143(3) of Dhoomketu for Assessment Year 2014-15 is also part of the paper book. Thus, where the assessee furnished the incorporation certificate, the PAN details, IT returns audited annual accounts for several years, no aspiration can be cast on the identity of the subscriber per se as rightly concluded by the CIT(A).
As regards genuineness of the transaction, we note that fund provided by PVPL has arisen from definite source, i.e., realization of fixed deposit by Dhoomketu. This also explains the creditworthiness aspect. Coupled with this, the net worth of PVPL is stated to be Rs.55.80 crore as on 31.03.2015 and similar net worth is declared in the preceding years as well. The cash and bank balance of PVPL itself is declared at Rs.4.04 crore and the subscriber also owned real estate and having FDRs. The company subscriber, i.e., PVPL is in existence since 1994 and has been dutifully complying with all statutory obligations under various laws. The notice under Section 133(6) sent by the Assessing Officer of the assessee to PVPL has been duly complied with. The time period of compliance for summons under Section 131 was barely four days and Chartered Accountant Mr. Pankaj did appear before the Assessing Officer for the subscriber. In response to such summons, his presence was however discredited by the AO. Under the circumstances, on the face of such tangible evidences giving firm impression of the bona fides of the transaction, mere rejection of explanation provided by the assessee on flimsy grounds will not convert a credit into income of an assessee. The action of Assessing Officer has the effect of converting a good proof into no proof.
14. In the backdrop of the facts, where the existence of the shareholder/subscriber is fully identifiable and unequivocally proved by direct evidences, the creditworthiness of the subscriber is justifiable by formidable evidences and the genuineness of the transaction carried out through banking channel and return of allotment for subscription of shares have been filed before the competent authority, the dispute raised by the Revenue appears inexplicable. The substantial net worth enjoyed both by the subscriber as well as the source of source also provides sound basis to infer the bona fides of the transaction and fortifies the plea of the assessee. We also bear in mind that the assessee is being quizzed on the affairs of the investor company where its access is limited. Besides, there is nothing on record to show that any unaccounted funds have found its way in the affairs of the assessee company in the shape of such subscription. The onus rest on the Revenue in this regard which remains to be tested. The suspicion entertained on bona fides has not been carried out to any logical end. The Assessing Officer has attempted to implicate the assessee mainly on two grounds namely, inspector report which shows that the assessee was not in existence at the address and secondly, the summons issued under Section 131 has not been complied with by the Director of the Assessee. Both the points do not have much force. The inspector is stated to have visited on local address utilized on share basis. No verification at registered office situated at Kolkata was done. This apart, it is illogical to fasten liability on the assessee merely because director of the subscriber sitting 1500 km away could not personally attend at the command of the Assessing Officer at a short notice but instead produced his representative in an available time span of merely four days. Thus, when seen in the light of cumulative facts, the allegation made against the assessee by the Assessing Officer has been rightly found to be devoid of any strength by the CIT(A). We concur with the conclusion drawn by the CIT(A) on facts that charge of the Assessing Officer towards lack of satisfactory explanation contemplated under Section 68 of the Act against the assessee is without any demonstrable basis. We thus decline to interfere with the view expressed by the CIT(A).
In the result, the appeal of the Revenue is dismissed. Order pronounced in the open Court on 29.05.2023.