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TMI Blog2017 (10) TMI 826X X X X Extracts X X X X X X X X Extracts X X X X ..... een filed in response to notice under section 148 of the I.T. Act. The A.O. issued detailed questionnaire on the above issue of share capital and the assessee filed necessary details and clarifications before A.O. time to time. The assessee filed objections to the reopening of the assessment under section 148 of the I.T. Act, which was rejected on 13th August, 2012. The assessee submitted before A.O. that it has raised money aggregating to Rs. 17.60 crores through share capital/share premium during the assessment year under appeal from various parties which are Mumbai based companies, Kolkata based companies and Gauhati based companies. The details of which are noted at pages 2 and 3 of the assessment order. It was submitted that assessee has already filed copies of the confirmations, income tax return acknowledgments and bank accounts in respect of these companies, duly establishing the identity, genuineness and source of transaction regarding share capital and share premium. The entire share capital/ application money has been received by the assessee-company through normal banking channels by account payee cheques/demand drafts. Furthermore, the said confirmations also clearly r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merits before Ld. CIT(A). The detailed contention of the assessee as regards reopening of the assessment has been noted in the impugned order. However, the Ld. CIT(A), confirmed the reopening of the assessment and dismissed this ground of appeal of assessee, particularly, when he has allowed the relief to the assessee on merit. Therefore, no detailed reasoning have been given because it was found that the issue is left with academic discussion only. 4. The assessee as regards the addition, on merit, reiterated the same submissions before Ld. CIT(A) and it was submitted that A.O. made the addition arbitrarily and unjustifiably. The assessee produced all the relevant documents before A.O. which have not been doubted. The assessee filed confirmations of all the share applicants, copy of their income tax returns, bank accounts and copy of annual accounts. Therefore, no adverse inference has been drawn against the assessee. The Ld. CIT(A) on going through the documents and material on record, deleted the entire addition of Rs. 17.60 crores and allowed the appeal of assessee. His findings in paras 3.3 to 3.5 of the impugned order are reproduced as under : "3.3. I have considered the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This ground of appeal is allowed." 5. The Ld. D.R. relied upon the orders of the A.O. and submitted that some parties did not file reply before A.O. and many parties filed reply at the Dak counter. No reasons have been given for the higher premium paid. Copy of the bank statements were not filed before A.O. The income declared by assessee and the share applicant companies were very small. Therefore, addition was correctly made by the A.O. The Ld. D.R. relied upon the following decisions. i. CIT vs. Precision Finance (P) Ltd., (1994) 208 ITR 465 (Cal.) ii. CIT vs. United Commercial & Industries Co. (P) Ltd., (1991) 187 ITR 596 (Cal.) iii. CIT vs. Nipun Builders & Developers (P) Ltd., (2013) 350 ITR 407 (Del.) iv. CIT vs. Nova Promoters & Finlease (P) Ltd., (2012) 342 ITR 169 (Del.). v. Mukesh Shah vs. ITO (2012) 246 CTR 82 (Jharkhand) vi. CIT vs. N.R. Portfolio (P) Ltd., (2013) 263 CTR 456 (Del.) vii. CIT vs. Empire Buildtech (P) Ltd., (2014) 366 ITR 110 (Del.) viii. CIT vs. Focus Exports (P) Ltd., (2014) 51 taxmann.com 46 (Del.). 6. On the other hand, Learned Counsel for the Assessee, reiterated the submissions made before the authorities below and relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., 90,00,000 2. Warner Multimedia Ltd., 95,00,000 3. Gopikar Supply Pvt. Ltd., 90,00,000 4. Ganga Builders Ltd., 90,00,000 5. Gromore Fund Management Co. Ltd., 95,00,000 6. Bayanwala Brothers Pvt. Ltd., 95,00,000 7. Super Finance Ltd., 90,00,000 8. Shivalaxmi Export Ltd., 95,00,000 9. Natraj Vinimay Pvt. Ltd., 95,00,000 10. Neelkanth Commodities Pvt. Ltd., 95,00,000 11. Prominent Vyapaar Pvt. Ltd., 95,00,000 (C) Guwahati based companies 1. Ispat Sheets Ltd., 90,00,000 2. Novelty Traders Ltd., 90,00,000 Total Amount 17,60,00,000 8. The Learned Counsel for the Assessee relied upon the order of the ITAT, Delhi Bench in the case of ACIT, Central Circle-13, New Delhi vs. M/s. Adamine Construction Pvt. Ltd., (supra), in which the departmental appeal, on the identical question have been dismissed. The findings of the Tribunal in paras 10 to 18 of the Tribunal are reproduced as under : "I.T.Appeal No. 6175/Del/2013 : 10. The Revenue has questioned first appellate order on the following grounds :- " 1. The order of Ld. CIT (Appeals) is not correct in law and facts; 2. On the facts and circumstances of the case the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mumbai and Kolkata. The ld. CIT (Appeals) has, however, deleted the addition being convinced with the submissions of the assessee. 15. In support of the ground, the ld. Sr. DR has basically placed reliance on the assessment order with this contention that assessee has thoroughly failed to establish creditworthiness of the investor companies as well as genuineness of the transaction. Some of the parties were not found on the given address and some of them did not respond to the notices issued by the Assessing Officer to them nor the assessee has been able to produce them for verification before the Assessing Officer. In absence of compliance of these requirements the Assessing Officer was very much justified in making the addition of Rs. 5,15,00,000/- under section 68 of the Act on account of unexplained share capital and share premium received by the assessee company from various companies. Ignoring these material aspects the ld. CIT (Appeals) has erred in deleting the addition. 16. The ld. AR, on the other hand, placed reliance on the first appellate order and reiterated following submissions made before the ld. CIT (Appeals) :- (1) By way of a brief introduction, it is sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 2. Ganga Builders Ltd (Rs. 2,910/-) 2008-09 3. Shivlaxmi Exports Ltd Nil 2008-09 4. Lexus Infotech Ltd 15,64,590/- 2008-09 5. Hema Trading Co Pvt Ltd 17,16,207/- 2008-09 (4) In order to further verify the genuineness of all the parties commissions u/s 131 were sent by the Learned Assessing Officer to the respective Investigation agencies in Mumbai and Kolkata. In response to which reports were received from the office of Addl. CIT, Range-10(2), Mumbai and Assistant Director of Income Tax (Inv) Unit- III(3), Kolkata. The Addl Commissioner of Income Tax, Range 10(2), Mumbai and Assistant Director of Income Tax (Inv), Unit-III(3), Kolkata also deputed Inspectors of Income Tax to serve the summons and conduct field enquiries. The results of the said enquiries are as follows:- Report from Mumbai S No. Name of the Shareholder Report as received in response to commission from Mumbai 1. Vanguard Jewels Ltd Party has responded to the summons and the details are annexed. Details annexed as Exhibit-C 2. Lexus Infotech Ltd Party has responded to the summons and the details are annexed. Details annexed as Exhibit-D. 3. Hema Trading Co Pvt Ltd The address is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showing the source of fund for share application money. (6) The Learned Assessing Officer has accordingly held that the creditworthiness of the investors and the genuineness of the transactions is in doubt and has accordingly treated share capital/application money and share premium amounting to Rs. 5,15,00,000/- as unexplained and added this same to the taxable income of the Appellant Company u/s 68 of the Income Tax Act, 1961. (7) The Assessing Officer in the course of assessment proceedings had desired the Appellant Company to furnish the details of the amount received and evidence in support of identity and creditworthiness of the applicants and also the genuineness of the transaction of all the parties situated at Mumbai and Kolkata from whom the share capital and share premium had been received. In response, the Appellant Company filed copies of confirmations, Income Tax Return acknowledgements and bank accounts from all the parties establishing the identity, genuineness and sources of transaction regarding share capital and share premium with the Assessing Officer. The entire share application money had been received by the Appellant Company through normal banking chann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f with a view to arrive at the ultimate source of funds. As long as the nature, source and identity of the investor is established, no further onus of proof can be enjoined on it. In the instant case no case can be made out to doubt the genuineness, existence or identity of the investors and as such no cause exists for the invocation of S. 68. (11) An analysis of the provisions of Section 68 of the Incometax Act, 1961 would make it clear that in order to discharge the onus, the Assessee must prove the following:- (i) identity of the creditor; (ii) capacity of the creditor to advance money; and (iii) genuineness of the transaction. (12) The question of the manner in which the onus u/s 68 has to be discharged is to be looked at with different perspectives and varying parameters in each different circumstance and no standards/ guidelines can be lead out in this regard. (13) In the instant case there is no material on record to prove or even remotely suggest that the share application money received actually emanated for the Appellant Company. In fact it may be reiterated that the share application money was received from independent legally incorporated companies thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself." (16) Subsequent to the above an appeal filed by the Department against the judgement/observations of the Supreme Court was also dismissed and the Hon'ble Supreme Court did not find any reason to interfere with the order of the High Court in the case of CIT vs Steller Investment Ltd [(2001) 251 ITR 263 (SC)]. As such the observations of the Hon'ble Delhi High Court have obtained the approval of their Lordship of the Supreme Court and accordingly attained judicial finality and stamp of approval. (17) In addition, Your Honor's kind attention is also invited to the following judgement of the Delhi High Court in the case of Commissioner of Income Tax v Lovely Exports Pvt Ltd [(2008) 299 ITR 268 (Delhi)] has held as follows :- " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi High Court has been dismissed with the following remarks :- "We find no merit in this Special Leave Petition for the simple reason that 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. Hence, we find no infirmity with the impugned judgement". (19) The above decision of the Hon'ble Supreme Court follows the earlier decision of the Hon'ble Supreme Court in the case of Steller Investment Ltd, cited supra and further reinforces the arguments put forward for and on behalf of the Appellant Company. (20) In particular, with regard to the issue of establishing the creditworthiness of the parties, Your Honour's attention is invited to the following recent judgements wherein it has been conclusively held, relying on the decisions in the case of M/s Lovely Exports Pvt Ltd cited above, that as long as the identity of the share applicant was proved, the burden of proving the creditworthiness was not on the Assessee:- * Commissioner of Income-tax, Udaipur v. Bhaval Synthetics [(2013) 35 Taxmann.com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise is going in vain as few more steps which should have been taken by the Revenue in order to find out causal connection between the cash deposited in the bank accounts of the applicant banks and the assessee were not taken. It is necessary to link the assessee with the source when that link is missing, it is difficult to fasten the assessee with such a liability. 39. We may repeat what is often said, that a delicate balance has to be maintained while walking on the tight rope of sections 68 and 69 of the Act. On the one hand, no doubt, such kind of dubious practices are rampant, on the other hand, merely because there is an acknowledgement of such practices would not mean that in any of such cases coming before the Court, the Court has to presume that the assessee in questions as indulged in that practice. To make the assessee responsible, there has to be proper evidence. It is equally important that an innocent person cannot be fastened with liability without cogent evidence. One has to see the matter from the point of view of such companies (like the assessee herein) who invite the share application money from different sources or even public at large. It would be asking fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cants are identified and it is established that they have invested money in the purchase of shares, no recourse can be made to the provisions of S 68. In the instant case the Appellant Company had provided all the requisite particulars to establish the identity of the share applicants in the confirmations already filed before the Assessing Officer. The ld. AR also placed reliance on the following decisions :- (i) CIT Vs. Gangeshwari Metal Pvt. Ltd. ITA. No. 597/2012 [judgement dated 21.01.2013 (Delhi High Court); (ii) Pr. CIT Vs. N. C. Cables Ltd. (2017) 391 ITR 11 (Del.); (iii) Pr. CIT Vs. Softline Creations P. Ltd. (2016) 387 ITR 636 (Del.); (iv) CIT Vs. Real Time Marketing P. Ltd. (2008) 306 ITR 35 (Del.); (v) CIT Vs. Value Capital Sergvices P. Ltd. (2008) 307 ITR 334 (Del.); (vi) CIT Vs. Orbital Communication (P) Ltd. (2010) 327 ITR 560 (Del.); (vii) CIT Vs. Winstral Petrochemicals P. Ltd. (2011) 330 ITR 603 (Del.); (viii) CIT Vs. Kamdhenu Steel and Alloys Ltd. (2014) 361 ITR 220 (Del.). 17. Having gone through the above cited decisions, we find that the ratio laid down therein is that the primary onus lies upon the assessee to establish identity and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue to prove that credits were not genuine. In that case while dismissing the appeal of the Revenue, the Hon'ble High Court was pleased to hold that it had not been disputed that the share application money was received by the assessee company by way of account payee cheques through normal banking channels. Admittedly, copies of application for allotment of shares were also provided to the Assessing Officer. Since the applicant companies were duly incorporated, were issued PAN Cards and had bank accounts from which money was transferred to the assessee by way of account payee cheques, they could not be said to be non-existent, even if they, after submitting the share applications, had changed their addresses or had stop functioning, held the Hon'ble High Court. 18. When we examine the facts of the present case in view of the above cited ratio laid down by the Hon'ble jurisdictional High Court of Delhi, we find that facts are almost similar. In the present case there were 6 investor companies claimed to have invested Rs. 5,15,00,000/- in total in the assessee company. In support of their identity and creditworthiness as well as genuineness of the transactions, as discussed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of capital formation cannot be taken to be representing only unaccounted funds or impeded. It was submitted that all the companies having Registered office at the premises undisputedly belonged to Bhushan Group. The sources of capital introduced in these companies were established during the respective assessment proceedings. It was further contended that no evidence was found during search to indicate introduction of cash in the form of share capital. It is also pertinent to mention over here that out of total 6 investor companies, notices could not be served in case of 2 companies as they were not available on the given addresses and in case of 1 company notice could not be served as the premises was found locked on various days. The remaining 4 companies had responded and had filed their submissions. However, there is no dispute that in case of all the 6 investor companies, the assessee had filed primary documents and had accordingly discharged its initial onus to establish identity and creditworthiness of the investor companies and genuineness of the transaction as there is no dispute that all the transactions have been done through banking channels i.e. through account payee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived 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 cannot be regarded as undisclosed income of assessee company." 11. The Hon'ble Delhi High Court in the case of CIT vs. Kamdhenu Steel & Alloys Ltd., & Ors. 361 ITR 220 (Del.) held as under : "Once adequate evidence/material is given, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it has "created" evidence, the Revenue is supposed to make thorough probe before it could nail the assessee and fasten the assessee with such a liability under s.68; AO failed to carry his suspicion to logical conclusion by further investigation and therefore addition under s.68 was not sustainable." 12. The Hon'ble Delhi High Court in the case of CIT vs. Vrindavan Farms P. Ltd. Etc. in ITA.No.71/2015 dated 12.08.2015 in which the sole basis for the Revenue to doubt their creditworthiness was the low ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money from the investor Companies. The assessee on the basis of the documentary evidences have been able to establish that the share holders are genuine parties and they are not bogus and fictitious. The Hon'ble Delhi High Court in the case of CIT vs. Divine Leasing & Fin. Ltd., 299 ITR 268 held that "no adverse inference should be drawn if shareholders failed to respond to the notice by AO." 15. The Hon'ble M.P. High Court in the case of CIT vs. Peoples General Hospital Ltd., (2013) 356 ITR 65 held that "dismissing the appeals, that if the assessee had received subscriptions to the public or rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under section 68 of the Income-tax Act, 1961, in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented the company's own income from undisclosed sources. It was nobody's case that the non-resident Indian company was a bogus or non-existent company or that the amount subscribed by the company by way of share subscription was in fact the money of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was also of the opinion that the assessee had been able to prove the identity of the share applicants and the share application money had been received by way of account payee cheques. On appeal to the High Court: Held, dismissing the appeals, that the deletion of addition was justified." 17. The Hon'ble Delhi High Court in the case of CIT vs. Winstral Petrochemicals P. Ltd., 330 ITR 603 (Del.) held that "dismissing the appeal, that it had not been disputed that the share application money was received by the assessee-company by way of account payee cheques, through normal banking channels. Admittedly, copies of application for allotment of shares were also provided to the Assessing Officer. Since the applicant companies were duly incorporated, were issued PAN cards and had bank accounts from which money was transferred to the assessee by way of account payee cheques, they could not be said to be non-existent, even if they, after submitting the share applications had changed their addresses or had stopped functioning. Therefore, the Commissioner (Appeals) and the Tribunal were justified in holding that the genuineness of the transactions had been duly established by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey so invested in assessee-company came from coffers of assessee-company. All objections of A.O. have been considered by Ld. CIT(A) and various case law referred to above support the findings of Ld. CIT(A) that addition has been correctly deleted. 20. The Ld. D.R. relied upon the decision of various Hon'ble High Courts and Delhi High Court referred to above. In these cases, the gist of the findings are that the assessee failed either to prove the identity or capacity of the subscriber companies or that the amount was received as accommodation entries. However, the assesseecompany, in the present case, has been able to prove the identity of the investors, creditworthiness and genuineness of the transaction in the matter. Therefore, Ld. CIT(A) on proper appreciation of evidence and material on record, correctly deleted the addition of Rs. 17.60 crores. The Departmental appeal fails and is accordingly, dismissed. 21. In the result, appeal of the Revenue is dismissed. 22. The assessee in the cross-objection has challenged the reopening of the assessment. Learned Counsel for the Assessee however, fairly conceded that in the case of M/s. Adamine Construction Pvt. Ltd., (supra), the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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