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TMI Blog2018 (12) TMI 563X X X X Extracts X X X X X X X X Extracts X X X X ..... n made by the ld AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 - decided in favour of assessee. - I.T.A No. 2444/Kol/2016 - - - Dated:- 30-11-2018 - Shri A T Varkey, JM, Shri M.Balaganesh, AM For the Appellant : Shri P.K. Srihari, CIT DR For the Respondent : Shri Soumitra Choudhury, Advocate ORDER PER M.BALAGANESH, AM 1. This appeal by the Revenue arises out of the order of the Learned Commissioner of Income Tax(Appeals)-4, Kolkata [in short the ld CIT(A)] in Appeal No. 23/CIT(A)-4/Ward-12(4)/15-16 dated 18.10.2016 against the order passed by the ITO, Ward-12(4), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short the Act ) dated 25.03.2015 for the Assessment Year 2012-13. 2. The only issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the addition made towards share capital u/s 68 of the Act in the facts and circumstances of the case. 3. The brief facts of this issue are that the assessee issued part of the equity shares during the year at a premium o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the ld AO together with supporting evidences. Hence the transactions of the assessee company ought not to have been doubted by the ld AO. It was also submitted that the detailed documents submitted by the share applicants explained the sources from which the funds, utilized in acquiring shares of the assessee company. It was also pleaded that all the share applicant companies had sufficient net worth in their balance sheet and that the investment made in the assessee company was less than their net worth. All the share applicant companies were duly assessed to income tax and had filed their returns of income for the Asst Year 2012-13 on regular basis. It was pleaded that the assessee had duly proved the three ingredients viz. identitiy, creditworthiness and genuineness of the transactions. The assessee among several other decisions placed reliance on the decision of the Hon ble Supreme Court in the case of CIT vs Orissa Corporation P Ltd reported in 159 ITR 78 (SC) wherein it was held that where the assessee has discharged its onus of proving the identity and creditworthiness of the creditor as well as the genuineness of the transaction, no addition is called for on the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir replies to the statutory notices issued u/s 133(6) of the Act to them and accordingly, this precondition is also satisfied in the circumstances. 4.6. It is also observed that every share applicant in their respective replies to the statutory notices issued u/s 133(6) of the Act, furnished copies of their income tax acknowledgments evidencing filing of income tax returns by each of them, copies of their audited accounts including Balance Sheets wherein such investments made by each of them in the subscription of share capital issued by the appellant are duly reflected as also copies of their bank statements for the relevant period from which such subscription monies were paid by them respectively and copy of the allotment advise received by them from the appellant in respect of shares allotted to them. It is further observed that the net worth of the each of the share applicants, as disclosed in their Balance Sheets, far exceeded the amount of investments made by them in the shares of the appellant company. It is accordingly observed it adequately prove their creditworthiness to make investment in the share capital of the appellant. The aforesaid facts underlined by eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tire amount received by the appellant on account of share application as well as share premium monies cannot be regarded as undisclosed income u/s 68 of Act. 4.8. Therefore, considering the totality of the facts and circumstances of the case, I find substance in the argument of the AR that the appellant has made its cases that the identity of the share applicants are established beyond doubt and on enquiries made by the A.O. there is no adverse finding reached on this aspect. Admittedly, all the share applicants are existing assessee s under the Act which establish the identity and authenticity of the share applicants. About the genuineness of the transactions there is no any adverse finding in the assessment order which is distinct to the facts brought on record by the appellant during the course of assessment proceeding. The creditworthiness of the share applicants as regards their subscription to the share capital is proved by submission of their return, audited annual accounts, their bank statement and replies to notices u/s 133(6) of the Act as depicted hereinabove. The net worth of such subscribers is in excess of the amount invested by each of them as explained hereinab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a bogus entity. In view of this non-service of summon to the appellant has nothing to do with share application received by it and it cannot be a ground to invoke the provisions of section 68 of the Act. The AR of the appellant has relied upon a plethora of decisions of the Apex Court, High Court as well as jurisdictional ITAT which I find are very much relevant to the facts of the present case. Respectfully, I hold that the AO was not justified in invoking the provisions of section 68 of the facts and circumstances of the case and therefore the addition of ₹ 6,00,00,000/- stands deleted. These grounds are allowed. 6. Aggrieved, the revenue is in appeal before us. 7. We have heard the rival submissions. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. It is not in dispute that the assessee had furnished all the details of all the share subscribing companies that were sought for by the ld AO. The ld AO issued notices u/s 133(6) of the Act on al the share subscribing companies and the same were duly served. All the shareholders responded to notice u/s 133(6) of the Act directly by sending the requisite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingredients i.e identity of share applicants, genuineness of transactions and creditworthiness of share applicants. The identity of share applicants is proved beyond doubt by the assessee by furnishing the name, address, PAN of share applicants together with the copies of balance sheets and income tax returns. With regard to the creditworthiness of share applicants, these companies are having capital in several crores of rupees and the investment made in the assessee company is a small part of their capital. These transactions are also duly reflected in the balance sheets of the share applicants. By this, the creditworthiness of share applicants is also proved beyond doubt. With regard to genuineness of transactions, the monies have been directly paid to the assessee company by account payee cheques out of sufficient bank balances available in their respective bank accounts. We find that the assessee had even proved the source of money deposited into the respective bank accounts of share applicants, which in turn had been used by them to subscribe to the assessee company as share application. Hence the source of source of source is also proved in the instant case though the same i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69. Further, we may point out that section 68 under which the addition has been made by the Assessing Officer reads as under: 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The phraseology of Section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this case the legislative mandate is not in terms of the words shall be charged to income tax as the income of the assessee of that previous year . The Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ificates issued by the banks are construable as evidence about the ownership of the transferors or their respective bank accounts, as per s.4 of the Bankers' Books evidence Act 1891, which read as under: 4. Where an extract of account was duly signed by the agent of the bank and implicit in its was a certificate that it was a true copy of an entry contained in one of the ordinary books of the bank and was made in the usual and ordinary course of business and that such book was in the custody of the bank, it was held admissible in evidence. Radheshyam v. Safiyabai Ibrahim AIR 1988 Bom. 361 : 1987 Mah. 725: 1987 Bank J 552. In view of the position of law as discussed above, it is always open for a borrower to contend, that even the creditworthiness of the lender stands proved to the extent of credits appearing in his Bank Account and he should be held to be successful in this contention. 7.4. In the case of Nemi Chand Kothari vs CIT reported in 264 ITR 254 (Gau), the Hon'ble Guahati High Court has thrown light on another aspect touching the issue of onus on assessee under section 68, by holding that the same should be decided by taking into considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any fact is especially within the knowledge of any person, the burden) of proving that fact is upon him. ******** What, thus, transpires from the above discussion is that white section 106 of the Evidence Act limits the onus of the assessee to the extent of his proving the source from which he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s)of the creditor but also of his (creditor's) sub-creditors and prove, as a result, of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/source from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and IT is not the burden of the assessee to prove the creditworthiness of the source(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then, the interpretation of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuineness of the transaction and the creditworthiness of the creditor vis-a-vis the transactions which had taken place between the assessee and the creditor and not between the creditor and the subcreditors, for, it is not even required under the law for the assessee to try to find out as to what sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had' with the creditor and he may not know what transaction(s) had taken place between his creditor and the subcreditor ********** In other words, though under section 68 an Assessing Officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the subcreditor to the creditor was income of the assessee from undisclosed source unle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 46(3), Kolkata reported in 347 ITR 347(Cal) wherein the Court held as follows: 15. It is now a settled law that while considering the question whether the alleged loan taken by the assessee was a genuine transaction, the initial onus is always upon the assessee and if no explanation is given or the explanation given by the appellant is not satisfactory, the Assessing Officer can disbelieve the alleged transaction of loan. But the law is equally settled that if the initial burden is discharged by the assessee by producing sufficient materials in support of the loan transaction, the onus shifts upon the Assessing Officer and after verification, he can call for further explanation from the assessee and in the process, the onus may again shift from the Assessing Officer to assessee. 16. In the case before us, the appellant by producing the loan-confirmationcertificates signed by the creditors, disclosing their permanent account numbers and address and further indicating that the loan was taken by account payee cheques, no doubt, prima facie, discharged the initial burden and those materials disclosed by the assessee prompted the Assessing Officer to enquire through the Inspe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve the existence of the creditors or for that matter the creditworthiness. As rightly pointed out by the learned counsel that the Commissioner of Income-tax (Appeals) has taken the trouble of examining of all other materials and documents, viz., confirmatory statements, invoices, challans and vouchers showing supply of bidis as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued, in our view, is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the product of the assessee or not. When it was found by the Commissioner of Income-tax (Appeals) on facts having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this -fact finding. Indeed the Tribunal did not really touch the aforesaid fact finding of the Commissioner of Income-tax (Appeals) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 464, the Supreme Court has observed as follows: The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer of the assessee herein. However, it would be incumbent on the part of the ld AO of the assessee herein , to trigger the said verification process on the side of the department. It would be interesting to note in this regard that the Hon ble Jurisdictional High Court in the case of CIT Kolkata III vs M/s Dataware Private Limited in ITAT No. 263 of 2011 dated 21.9.2011 had held as under:- In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of the appellant company. As indicated earlier, the Tribunal below dismissed the appeal filed by the Revenue. After hearing the learned counsel for the appellant and after going through the decision of the Supreme Court in the case of Cl. T. vs. M/s. Lovely Exports Pvt. Ltd. [supra], we are at one with the Tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed. 7.9. We also find that the Hon'ble Jurisdictional High Court in the case of CIT vs Leonard Commercial (P) Ltd in ITAT No. 114 of 2011 dated 13.6.2011 had held as under:- The only question raised in this appeal is whether the Commissioner of Incometax (Appeals) and the Tribunal below erred in law in deleting the addition of ₹ 8,52,000/-, ₹ 91,50,000/- and ₹ 13,00,000/- made by the Assessing Officer on account of share capital, share application money and investment in HTCCL respectively. After hearing Md. Nizamuddin, learned Advocate appearing on behalf of the appellant and after goin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and accordingly prayed that the addition has been rightly made u/s 68 of the Act. He also placed reliance on the decision of this tribunal in the case of Subhlakshmi Vanijya (P) Ltd vs CIT reported in (2015) 60 taxmann.com 60 (Kolkata Trib.) dated 30.7.2015. In response to this, the ld AR argued that there is no mandate in law that the assessee has to prove the source of source of share applicants. He argued that in the instant case, the assessee had duly discharged its complete onus by furnishing the requisite details. In case if the ld AO has got some doubts, he should have verified the same from the AO of those share applicants. We find from the plain reading of section 68 of the Act, the duty cast on the assessee is to explain the nature and source of credit found in his books. In the instant case, the credit is in the form of receipt of share application money from five share applicants. The nature of receipt towards share application money is well established from the entries passed in the respective balance sheets of the companies as investments. Hence the nature of receipt is proved by the assessee beyond doubt. In respect of source of credit, the assessee has to prove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transactions and genuineness of share applicants and the transactions herein. In the instant case, the assessee had indeed proved the identity of the share applicants, creditworthiness of share applicants and genuineness of transactions beyond doubt. We find that the entire addition has been made by the ld AO based upon suspicion, surmises and conjectures and not upon proper evaluation and appraisal of the evidences and documents filed before him. We place reliance on the decision of the Hon ble Apex Court in this regard in the case of Dhakeshwari Cotton Mills Ltd vs CIT reported in 26 ITR 775 (SC) wherein it has been held that no addition can be made without material and on mere suspicion. In these facts and circumstances, there is no need to treat the receipt of share application money from five share applicants as unexplained u/s 68 of the Act. Hence we do not find any infirmity in the order of the ld CITA in this regard. Accordingly, the grounds raised by the revenue are dismissed. 7.11. We find that the co-ordinate bench of this tribunal recently in the case of ITO vs Wiz-Tech Solutions Pvt Ltd in ITA No. 1162/Kol/2015 dated 14.6.2018 had held as under:- 28. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y by account payee cheques out of sufficient bank balances available in their bank accounts on behalf of the share applicants. It will be evident from the paper book that the appellant has even demonstrated the source of money deposited into their bank accounts which in turn has been used by them to subscribe to the assessee company as share application. Hence the source of source of source is proved by the assessee in the instant case though the same is not required to be done by the assessee as per law as it stood/ applicable in this assessment year. The share applicants have confirmed the share application in response to the notice u/s 133(6) of the Act and have also confirmed the payments which are duly corroborated with their respective bank statements and all the payments are by account payee cheques. 30. ***** 31. ***** 32. We would like to reproduce the Hon'ble High Court order in CIT vs. Gangeshwari Metal P.Ltd. in ITA no. 597/2012 judgement dated 21.1.2013, the Hon'ble High Court after considering the decisions in the case of Nova Promoters and Finlease Pvt. Ltd. 342 ITR 169 and judgement in the case of CIT vs. Lovely Exports 319 ITR (St) 5(SC) held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of inquiry on the part of the Assessing Officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no addition can be made under Section 68 of the Income Tax Act 1961. Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law 33. The case on hand clearly falls in the category where there is lack of enquiry on the part of the A. O. as in the case of Ganjeshwari Metals (supra). b) In the case of Finlease Pvt Ltd. 342 ITR 169 (supra) in ITA 232/2012 judgement dt. 22.11.2012 at para 6 to 8/ it was held as follows. 6. This Court has considered the submissions of the parties. In this case the discussion by the Commissioner of Income Tax (Appeals) would reveal that the assessee has filed documents including certified copies issued by the ROC in relation to the share application affidavits of the directors, form 2 filed with the ROC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much less gathering of evidence by the Assessing Officer, we hold that an addition cannot be sustained merely based on inferences drawn by circumstance. Applying the propositions laid down in these case laws to the facts of this case, we are inclined to uphold the order of the Ld. Commissioner of Income Tax (Appeals) 35. To sum up section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO's record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m issuing summons u/s 131 of the Act to the directors of the share subscribing companies or carry out examination through the Assessing Officer of the share subscribing companies. The assessee could only furnish the relevant details to prove its primary onus. Thereafter the onus shifts to the revenue to decide whether to make further examination or not in the given set of facts and circumstances. The shifting of onus is like a pendulum clock between the assessee and the ld AO. The ld AO after carrying out the requisite verification on his part independently, should confront the assessee, if necessary, based on the materials gathered against the assessee and then the procedure of cross examination, if sought for by the assessee, needs to be provided in order to bring the entire enquiries and examination to the logical end. In the instant case, the ld AO called for all the relevant details from the assessee which were duly provided in time. Then the onus shifts to the ld AO. The ld AO later issued summons u/s 131 of the Act to the Director of the assessee company on 10.2.2015 which returned unserved. Later Inspector was also deputed to serve the summons to the Director of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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