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TMI Blog2015 (11) TMI 1304X X X X Extracts X X X X X X X X Extracts X X X X ..... cided against revenue Reopening of assessment - receipt of accommodation entries - CIT(A) deleted the addition by observing that purchases were genuine, however, at the very same time, the CIT(A) directed the AO to estimate the gross profit at 6% - Held that:- carefully gone through the orders of the authorities below and found that the contradictory statement was given by Mehrunissa with regard to the sales undertaken by her. However, nowhere she has stated the name of assessee company with regard to any bogus sales. It is a matter of record that nothing wrong was found by the AO in the books of account. All the purchases have been accepted by the AO and its corresponding sales. Once the sales have been accepted, there must be purchases. Under such circumstances, it is possible that bills have been taken from one party, whereas goods have been purchased from some other party. Keeping in view the totality of facts and circumstances of the case the total purchases cannot be disallowed. Accordingly, we direct the AO to restrict the addition to the extent of 10% of the purchases so as to serve the end of justice. Accordingly, we uphold the addition of ₹ 2,21,600/-. There i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dentity, creditworthiness and genuineness of the share application money received from 15 companies as under :- Sl.No. Name and Address of the Applicant Total 1 Damidar Vanijya Pvt. Ltd. 45,00,000/- 2 Dayanidhi Vyapar Pvt. Ltd. 68,00,000/- 3 Dolphin Indotech limited 2,50,00,000/- 4 Dowell Finance Ltd. 25,00,000/- 5 Eastern Sponge Pvt. Ltd. 1,75,00,000/- 6 Feel Good Merchandise Pvt. ltd. 20,00,000/- 7 Information Synergies Pvt. Ltd. 30,00,000/- 8 Kamayani Commotrade (P) Ltd. 3,83,00,000/- 9 Prabhudhan Financial Services Pvt. Ltd 20,00,000/- 10 Rovam Tieups Pvt. Ltd. 25,00,000/- 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s established, there can be no basis for treating the amount as unexplained cash credit u/s. 68 of the Act. It was submitted that the appellant had furnished the PAN Nos. and all other relevant details of the shareholders and established their identity. 15 In this respect the appellant relied upon Apex court's decision in case of CIT v Lovely Exports [216 CTR 195 (SC)] wherein it is held, that even if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the department is free to proceed to reopen their individual assessments in accordance with law, but it c:annot be regarded as undisclosed income of the appellant company. 16. The appellant further relied upon following cases for establishing that the share application money received by the company cannot be added as undisclosed income in hands of the company: CIT v. Value Capital Services P. Ltd [307 ITR 334 (Del.)] CIT v. AKJ Granites P. Ltd. [301 ITR 298 (Raj.)) CIT V. First Point Finance Ltd. [286 ITR 477 (Raj.)) Shree Barkha Synthetic Ltd. v. ACIT [283 ITR 377 (Raj.)) CIT v. Belenje Investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than that required under the Companies Act, 1956. It was not the appellant company's responsibility to go and physically verify the address of the applicant and see that he had sufficient funds to invest so long as the formalities involved in applying for and allotment of shares were completed. Thus, in all these cases, the creditworthiness of the creditors was proved. 21. As regards the genuineness of the transaction, there is no doubt regarding that. All transaction was made through banking channels. The confirmation letters are available on record. The shares were allotted in accordance with Companies Act. Most of the subscribers are Income Tax assessee and they have confirmed the transaction as genuine. In view of the above discussed facts the AO s action appears to be far fetched. Actually the AO has not been able to make out a case of unexplained cash credits with regards to this company. 22. The appellant has brought on record considerable evidence to show that the transaction of issue of share capital was genuine. That being so no addition under the provisions of section 68 can be made in the hands of the appellant. In the case of CIT vs. Stellar Investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the same could be assessed as the company's income by virtue of the provisions of section 68 of the Act. The A. O. has relied upon these three judgments of Hon'ble Calcutta High Court and also the judgment of Calcutta High Court in the case of Bhola Shankar Cold Storage vs. JCIT 270 ITR 487 (Cal). In the case of Sophia Finance Ltd., Hon'ble Delhi High Court, in effect, held that the jurisdiction of the AO to apply section 68 should be restricted to find out whether or not the shareholder in fact exists. Now, Hon'ble Supreme Court have upheld this view and finally quelled the controversy whether section 68 applies or not in the case of CIT vs. Lovely Exports (P) Ltd. 216 CTR (SC) 195. In that judgment Hon'ble Supreme Court have addressed to the question, Can the amount of share money be regarded as undisclosed income under section 68 of I T Act, 1961 and answered, if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the A. 0., then the department is free to proceed to reopen their individual assessment in accordance with law. With these observations, Hon'ble Supreme Court has dismiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the authorities below and found from the record that the AO has made addition in respect of share application money received during the year. The CIT(A) has found the share capital to be genuine after considering various documentary evidence filed before AO. The CIT(A) has also applied the proposition of law laid down by various Hon ble High Courts and Hon ble Supreme Court to the facts of instant case and concluded that the existence of shareholders was not in doubt and held that as per documentary evidence submitted by the assessee company, the credit entry is liable to be accepted as genuine, insofar as identity and creditworthiness of the creditor and genuineness of the transaction is provided by the assessee. A finding has also been recorded by the CIT(A) to the effect that the assessee has filed before the AO documents and details regarding share subscribers in question, so as to establish these ingredients of genuine credit. The identity of the subscribers stood proved by the fact that their names, address PAN Number balance sheet, bank statement and confirmation letters, share application and share allotment details were submitted by the assessee company. All these facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant stated that the section 68 cannot be invoked in this case because the amount does not deal with cash credit but with the sundry creditors from whom the goods have been purchased. In the books of accounts of the appellant there is no cash credit but a liability has been created on account of purchases made in the regular course of business. 10. It was further argued that the amount added has been paid to the party in the subsequent year. It was stated that if the goods purchased from Director of M/s Chevron Metal Products Pvt. Ltd. Mrs. Mehrunnisa Hussaini are paper transactions then the purchases made by her are also paper transaction and then in her case also similar addition should have been made by the department, whereas, the department has made addition of only 0.25% to the commission income of 0.25% shown by Mrs. Mehrunisa Husseini director of M/s. Chevend Technology F Ltd and Cheveron Metal Products (P) Ltd in the returned income. There is no addition made regarding the sundry creditors in her hand at all. In the case of the appellant also, following the same logic, the same should, be done by making addition of 0.50% as commission and no addition regarding the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed vide Order No. No CIT(A)-361 AP.27 109-10 dated 15110/2010. The GP of this concern is 2.59% and the turnover is approximately 151 crores. In order to maintain consistency, in all the orders, the GP of 6% is taken in this case also. Accordingly, since this results in enhancement, the appellant was vide order sheet entry dated was asked to give reply to the enhancement The appellant objected and stated that the GP cannot be uniformly applied in all the cases as a standard measure. The appellant is in trading of different items as compared to M/s. SKS Ispat and Power Ltd. Further, the turnover of the appellant is much more and hence the standard GP cannot be applied in such circumstances. The above arguments of the appellant have been considered and are rejected as the appellant is a part of the same group and dealing in almost similar category of items. The GP of 6% is therefore applied in this case also and after giving benefit for the disclosed GP of 2.59%, the addition is made of 3.41% in the GP. Accordingly. for the turnover of about ₹ 151 crores, the addition will be ₹ 5.15 crores. Hence, there is enhancement in this case of ₹ 4,92 crores. Therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed her transactions as genuine, however when she was confronted about offering 0.25% of commission in the return filed, she has admitted that her transactions were paper entries in order to save her skin. However, Mrs Mehrunissa Husseini has not referred to or made any mention of the assessee in any of her statement. As per ld. AR since Mrs Mehrunissa Husseini has given two contradictory statements, her statements cannot be relied upon to sustain the addition of ₹ 23,16,000/-. It is also worth noting that the Assessing Officer has not carried out any inquiry to show that the purchases were not genuine. 16. Ld. AR vehemently argued that quantitative tally of purchase and sale has not been doubted by the AO meaning thereby all the purchases have been accepted by the AO with its corresponding sales. Our attention was also invited to page No.2 of the assessment order wherein the AO has clearly stated that stock ledger reflecting purchases had been produced before him. 17. On the other hand, ld. DR relied on the order of AO and contended that the CIT(A) was not justified in deleting the addition made on account of purchases from Mrs. Mehrunissa Husseini s company. 18. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... variably be given opportunity for offering explanation regarding defects in accounts and on his failure to satisfactorily explain the defects, the Department would be justified in rejecting the books of account. Thus, books of account should not be rejected light-heartedly. The duty of the Assessing Officer is to administer the provisions of the Act in the interest of public revenue and to prevent evasion or escapement of tax legitimately due to the State. At the very same time, the duty of the Appellate Authority is to ensure not only that the provisions of the Act are administered in the interest of public revenue so as to prevent evasion/escapement of tax, but at the very same time to ensure that only the tax legitimately due to the State is collected. 20. Applying the proposition of law laid down hereinabove to the facts of instant case, we do not find any justification in estimating GP rate without rejecting the books of account. As we have already upheld the addition of ₹ 2,31,600/- on account of purchases which was pointed out by the AO, there is no justification for applying the higher GP rate to the entire sales of the assessee which was ₹ 151 crores. In c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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