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TMI Blog2019 (1) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... ps. Therefore, the creditworthiness of the farmers is proved beyond doubt. We have also noticed from the details that the assessee had refunded the share application of the said three farmers in the month of March 2011 i.e. 2011-12. All other allegations of the Ld. CIT(A) are not relevant for deciding that the receipt of the share application money is genuine and the creditworthiness of the parties investing in share application is proved. The provisions of sec.68 places initial burden of proof upon the shoulders of the assessee, i.e., the assessee is required to prove three main ingredients viz., the identity of the creditor, the creditworthiness of creditor and genuineness of transactions. Once the assessee discharges the initial burden placed upon its shoulders, then the burden would shift upon the shoulders of the assessing officer, i.e., it is the AO who has to disprove the submissions made by the assessee. We notice that the assessee has discharged the initial burden of proof placed upon its shoulders by proving the identity of the share applicants, their sources and the genuineness of transactions. Referring to various documents furnished in the paper book. However, we no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan given to farmer (the fund available) which was to be utilized for the Crop, could not have been given for share application ignoring the fact that fund has been utilized in making the share application of the appellant company. 3.01 The Learned CIT(A) erred in holding that the loan received for agriculture purposed cannot be used for any other purpose, and such holding is not supported by the facts and Law. 3.02 The Learned CIT(A) erred in holding that the farmers do not have such huge surplus amount is only based on assumption, suspicion and conjecture without having adequate evidence and facts to support such assumption. 4. Under the facts and in Law, the Learned CIT(A) erred in holding that the source of funds were clearly explained as IDBI Bank loan is not at all a proper and satisfactory explanation. 4.01 The Learned CIT(A) erred is alleging that loan documents are bogus. 4.02 The Learned CIT(A) has erred in holding that source of the share application are not properly explained, ignoring the documents entered between various parties, showing the source of fund, used to make share application with the appellant Company. 5. The Learned CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 determining the total income at ₹ 8,42,60,310/- after making aforementioned additions. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties, dismissed the appeal of the assessee. Now before us, the assessee has preferred the present appeal by raising the above grounds. Ground No. 1 to 15. 3. These grounds raised by the assessee are inter-connected and inter-related and relates to challenging the order of Ld. CIT(A) in confirming the additions made by AO u/s 68 of the I.T. Act, being share application money received from four parties, therefore we thought it fit to dispose of the same by this common order. 4. We have heard the counsels for both the parties at length and we have also perused the material placed on record, judgment cited by both the parties, written synopsis in the shape of brief facts and proposition as well as the orders passed by revenue authorities. 5. From the records, we find that the only issue in the present appeal is that the assessee had received share application money from 3 farmers and one M/s Sumeet Promoters Pvt. Ltd. aggregating to ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oans to ten farmers. 8. Pursuant to the aforesaid understanding and Agreement arrived at between IDBI Bank and the Company (BTCL), the Company (BTCL) had identified the farmers and satisfied their credentials and creditworthiness to the Bank and consequently IDBI Bank entered into an 'Agreement for Loan and Hypothecation of Receivables' with the farmers (Borrowers) who have sold their crop to the Company (BTCL). 9. In consideration of the Bank having agreed to grant / granted the said loan to the farmers, the farmers hypothecated in favour of the Bank the amounts receivable by the farmers in respect of the sale of the crop to the Company (BTCL). It was submitted that the Company (BTCL) had executed the Guarantee Agreements in favour of IDBI Bank Ltd. guaranteeing the refund of loans given by IDBI Bank to the farmers through the Company (BTCL) (see pages 36 to 55). The directors of the Company (BTCL) also furnished the Undertaking of personal guarantee in favour of IDBI Bank. 10. It was also submitted that according to the Agreement between IDBI Bank and the Company (BTCL) and the Agreement between IDBI Bank and the Borrowers (farmers), the amounts were transferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bank statements of M/s. Sumeet Promoters Pvt. Ltd. for the period from 1st April, 2009 to 6th March, 2010 (pages 110 to 112). The aforesaid bank statements of M/s. Sumeet Promoters Pvt. Ltd. record the receipts of ₹ 27 lakhs from M/s. Moonrise Suppliers Pvt. Ltd. and ₹ 53 lakhs from M/s. Pyne Estates Finance Pvt. Ltd. on 7th October, 2009 and on the same day sums of ₹ 35 lakhs and ₹ 45 lakhs were transferred by M/s. Sumeet Promoters Pvt. Ltd. to M/s. Britex Cotton International Ltd., the assessee company (page-112). 14. We also noticed that in the remand proceedings, the assessee filed another letter dated 15th September, 2014 (see pages 148 tolSl). The assessee company gave details of the source of funds of M/s. Sumeet Promoters Pvt. Ltd. as under: 29th September, 2009 from Mr. Sajeed Peerjeda Rs.22 lakhs 7th October, 2009 from M/s. Moonrise Suppliers Pvt. Ltd. Rs.27 lakhs 7th October, 2009 From M/s. Pyne Estates Finance Pvt. Ltd. Rs.53 lakhs The above facts were considered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pyne Estates Finance Pvt. Ltd. in the books of account of M/s. Sumeet Promoters Pvt. Ltd. (pages 171 172) and the bank statement of M/s. Sumeet Promoters Pvt. Ltd. (page 112) the source of the source is proved. By the ledger accoun: of Mr. Sajeed Peerjeda and the bank statement of the assessee company (page-84) it is proved that Mr. Sajeed Peerjeda had directly paid ₹ 22,00,000/- to the assessee company on behalf of M/s. Sumeet Promoters Pvt. Ltd. as share application money. Thus while relying upon the aforesaid evidence, the assessee claimed that it had proved the source of the source, that is, the source of M/s. Sumeet Promoters Pvt. Ltd. which had invested Rs.l,02,00,OOO/- as the share application money with the assessee company. 17. At this juncture, our attention was invited to the Remand Report of the DCIT, Circle -5(1), Mumbai, dated 19th September, 2014 (Pages 153 to 158) where in para 4, the AO has stated the following facts: 4. The new evidences submitted by the assessee has been perused wherein the under mentioned facts has been observed: (a) . (b) BTCL had obtained two short term loan facilities from IDBI Bank Ltd. Viz ₹ 20 crores each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the remand report, we find that IDBI Bank through the Company (BTCL) granted loans to the farmers against their sale of agricultural produce to the Company (BTCL) and the said loan amount was utilised by the farmers for giving share application money to M/s Britex Cotton International Ltd. i.e. the assessee company, thus proved the creditworthiness and genuineness of the transaction of the share application money given by the three farmers to the assessee company was also accepted by the AO. 19. Similarly, as per the remand report, the AO had accepted regarding investment of ₹ 1.02 crores as share application money by M/s. Sumeet Promoters Pvt. Ltd., the NBFC Company. In order to corroborate and substantiate its arguments, the assessee had also shown copy of ledger account of Mr. Sajeed Peerjede in the books of M/s Sumeet Promoters Pvt. Ltd. which explains that M/s Sumeet Promoters Pvt. Ltd had sold certain investments for which the sale proceeds of ₹ 22 lakhs were received from Sajeed Peerjada on 1st Sept 2009 which was directly paid to the Sajeed Peerjeda to M/s Britex Cotton International Ltd under the instructions of M/s Sumeet Promoters Pvt. Ltd. The rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e farmers. Accordingly, BTCL disbursed loan to 20 such farmers. The requirement of the farmers would mean the requirement towards growing of cotton and related requirements and not investment in shares of the appellant company. Therefore, the source of funds clearly explained as IDBI loan is not at all proper and satisfactory explanation. In this argument, the CIT(A) accepted that the loan was given by IDBI to BTCL for disbursing the same as loan among the farmers and accordingly farmers were granted loan by IDBI which included 3 farmers who utilized loan amounts in the share application for shares aof the assessee company. At this juncture it may be noted that growing of cotton crop is seasonal and it can be grown once in a year. Some time, taking into account the conditions of the land, the same crop cannot be taken from year to year basis and a farmer has to skip a year for growing cotton. Thus the funds with the farmer remain unutilised and therefore, the same are invested with known concerns. In any view of the matter, the CIT(A) has accepted that the source of the funds in the hands of the farmers which were utilized for subscribing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in shares of the assessee company is proved beyond doubt. The allegation of tailor-made transactions is incorrect inasmuch as only three farmers out of ten farmers invested in the share application of the assessee company. 5. Fifthly, there is a circular rotation of the funds between BTCL and the assessee company. The funds were transferred from BTCL to the assessee company through farmers and later the assessee company made investment in BTCL. This shows a willful motive behind the investment in shares of BTCL. At this juncture, the CIT(A) has failed to appreciate that the issue is about the investment made by the farmers in the shares of the assessee company, i.e. Britex Cotton International Ltd. The said investment is treated as unexplained cash credit on the ground that the assessee company has failed to prove the genuineness of the transaction and creditworthiness of the farmers (share applicants). In fact, the CIT(A) has accepted that the amount invested by the farmers in the shares of the assessee company is the loan granted by IDBI to the farmers through BTCL. Therefore, the genuineness and creditworthiness of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the receivables of the sale proceeds of agricultural produce (i.e., cotton) from BTCL. Therefore, no further evidence is required to prove the financial strength of the farmers. In respect of M/s. Sumeet Promoters Pvt. Ltd., the audited accounts filed shows that it had reserves of ₹ 19.79 crores and a share capital of ₹ 2.68 crores (Pages 101 to 109). As against the same, it has investment in unquoted equity shares of ₹ 13.87 crores and under die head 'Current Assets' share application money given by it is of ₹ 3.04 crores. Thus the audited accounts of M/s. Sumeet Promoters Pvt. Ltd. for A.Y. 2010-11 proves the creditworthiness and genuineness of the investment in share application of the assessee company. 9. Ninthly, the confirmation letters filed by the assessee company on the letterhead of BTCL dated 18th October, 2013 which confirms the loan given by the company to the farmers are stereotyped. The above confirmation letters throw no credence to prove the genuineness of the transaction. These are only self-serving documents. Once it is accepted that IDBI gave loan to farme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternate contention without prejudice to its main contention. 12. Twelfthlv. when credits are introduced in the books of the assessee company, the onus to prove such credits to the satisfaction of the AO is on the assessee. The assessee company is not disputing that it has to prove the identity, creditworthiness and genuineness of the transaction in respect of share application money received by it. Therefore, the assessee company has adduced evidence to prove the creditworthiness and genuineness of the transaction in respect of farmers being the loans received from IDBI Bank and receipt of the sale proceeds on sale of investments by M/s. Sumeet Promoters Pvt. Ltd. Thus the assessee company has proved the identity, creditworthiness and genuineness of the transactions in respect of the receipt of share application money of ₹ 8.02 crores. 13. Thirteenthlv. the bank had stipulated that the loan to each farmer should not exceed ₹ 2 crores, but in the case of Mr. Jeram Devshi Maheshwari the loan given was ₹ 4 crores. This cannot be reason to hold that share ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to meet out the points raised by Ld. CIT(A). Moreover for ease of reference, Section 68 of the Act is reproduced below: 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 [Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited (Consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingredients viz., the identity of the creditor, the creditworthiness of creditor and genuineness of transactions. Once the assessee discharges the initial burden placed upon its shoulders, then the burden would shift upon the shoulders of the assessing officer, i.e., it is the AO who has to disprove the submissions made by the assessee. From the foregoing discussions, we notice that the assessee has discharged the initial burden of proof placed upon its shoulders by proving the identity of the share applicants, their sources and the genuineness of transactions. During the course of hearing, the Ld A.R also took us through the various documents furnished in the paper book. However, we notice that the AO could not disprove the same, meaning thereby, the AO has failed to discharge the burden placed upon his shoulders. 28. In view of the foregoing discussions, we are of the view that the Ld CIT(A) was not justified in confirming the addition made by the AO u/s 68 of the Act. Accordingly we set aside the order passed by Ld CIT(A) and direct the AO to delete the addition made by him towards share application money. 29. In the net result, the appeal filed by the assessee stands all ..... X X X X Extracts X X X X X X X X Extracts X X X X
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