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TMI Blog2020 (2) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... 29-1-2020 - Shri G. Manjunatha, Accountant Member And Shri Ravish Sood, Judicial Member For the Assessee : Ms. Hema Kataria, AR For the Revenue : H.N. Singh , CIT, DR ORDER PER G. MANJUNATHA (A.M): These appeals filed by three different assessee s are directed against separate, but identical orders of the Commissioner of Income Tax (Appeal) 53, Mumbai, all dated 07/03/2018 and they pertains to Assessment Year s (AY) 2010-11. Since, the facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are disposed-off, by this consolidated order. ITA.N.2568/Mum/2018 2. The assessee s have more or less raised common grounds of appeal in their respective appeal. Therefore, for the sake of brevity, grounds of appeal taken in ITA No. 2568/Mum/2018 for AY 2010-11 are reproduced as under:- 1. The learned CIT (A) has erred in law and on facts in upholding the additions made by the Assessing Officer u/s. 143(3) r.w.s. 153A of the Income-tax Act, 1961 which is invalid and bad in law. 2. The learned CIT(A) has erred in upholding the addition of ₹ 80,00,000/- made by the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation addressed to the board of directors of M/s Metro Woven Sacks Pvt Ltd for allotment of preference shares against payment of money. Further, certain other papers, including minutes of the board of directors meeting of the investors company, blank proforma bearing the heading Delivery, Challan , Declaration , Receipt and Sale Bill in the letter head of the BBPL and such blank proforma s were duly signed by shri Sawan Jajoo, Director of BBPL. Similarly, share transfer forms issued by Registrar of Companies, Maharashtra , Mumbai containing the seal of Registrar of Companies, Maharashtra, Mumbai, showing the presentation of the said form as on 28/01/2010 in the O/o The Registrar of Companies were also found. During the course of search proceedings, on being questioned, Shri Shailendra Singhai, Regional Manager of M/s. Anand Rathi, shares and Stock Brokers Ltd. merely stated that he does not know why such blank forms were kept with him. Further, statement of Shri Anand Rathi, Chairman and Director of Anand Rathi Group was also recorded on 17/07/2014, in the post search investigation proceedings, for which he did not provide any satisfactory explanation to explain various d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the parties, but when the Department has taken up independent enquiry, in light of various incriminating material found, during the course of search to ascertain genuineness of transactions, none of subscribers have responded and in fact, notice issued u/s 133(6) of the I.T.Act, 1961 was returned un-served. Further, the moot question arises as to why the investors are not answering all the queries along with documents to establish their identity and creditworthiness and also genuineness of the transactions. The Ld. AO, further analysing, the provision of section 68 of the Act, and also taken support from various judicial precedents, including the decision of Hon ble Supreme Court in the case of CIT vs P.Mohanakala (2007) 291 ITR 278 (SC) held that from the details collected, during the course of search and post search investigation and also, the investigation carried out,during the course of assessment proceedings, clearly proves that the identity, genuineness of transactions and creditworthiness of the shareholders are not proved. The entire gamut of transactions shows that the funds, in form of share capital has been brought in by way of capital in the name of the variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the transactions between the parties are non-genuine. 7. The Ld.CIT(A), after considering relevant submissions of the assessee and also relied upon various judicial precedents held that the assesee has not been able give any verifiable contemporaneous evidence of how, the investors were roped in, the persons contacted, the negotiations for raising such large amounts at huge premium, at the time of search, post search investigation, assessment proceedings and even, in appellate proceedings. The assesee has also failed to explain, why all these investors almost in unison decided to transfer, the shares at par to Anand Rathi group companies at huge losses. Although, the assessee has filed various evidences, but failed to furnish updated address of the investors, which is evident from the fact that, when 133(6) notices were served on them, the notices were returned un-served therefore, he opined that mere furnishing certain documents to prove identity is not sufficient enough and what is to be seen is whether, three ingredients have been collectively discharged or not, in the given facts and circumstances of the case. Accordingly, by taking note of various facts brought out by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction and has been routed through banking channels. The assessee has also filed complete details about identity of the subscribers including their PAN, address etc. The assessee has also filed income tax acknowledgment of the subscribers along with financial statement and bank statements. The Assessing Officer never disputed the fact that the assessee has filed necessary documents in order to prove identity of the subscribers and genuineness of the transactions. Once, the assessee discharges initial burden placed upon him, then the onus shifts to the shoulder of the assessing officer to prove otherwise. In this case, the Assessing Officer neither carried out any further enquiries, nor called upon the assessee to explain the credit with further evidences. But, he came to the conclusion that the transaction between the parties are not genuine merely on the basis of financial statements of the assessee, more particularly on basis of income declared for the year under consideration without appreciating the correct legal position of law that in order to bring any credit within the ambit of section 68 of the Act, the Assessing Officer should prove that the credit is, in fact, the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t genuine, which are used to convert assessee own unaccounted income in form of share capital, which is evident from the fact that the assessee has issued share at a premium and within a short period of less than two months, the same shares have been purchased back by Anand Rathi group at far value. The Ld. DR, further, submitted that it is a fact that in all shell companies/hawala operators cases, paper documents have been kept so meticulously that there should not be any doubt, regarding transactions between the parties. But, when you go through the substance of the transactions, it is very clear that all the shell companies have maintained proper documentation, in respect of transactions of share capital and premium, but when it comes to verification carried out by the department, none of the parties were responded to 133(6) notices and in fact 131 summons were also issued, but no response 10. The Ld. DR, further submitted that the AO has brought out clear facts to prove that transactions between the parties are not genuine, in light of seized documents, including blank and signed share transfer forms and other evidences, during the course of search. Further, when these mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial precedents, including the decision of Hon ble Supreme Court in the case of Pr.CIT vs NRA Iron Steel Pvt.Ltd. ( 2019) 103 taxmann.com 48. The list of case relied upon by the assesee are extracted below:- 1. PR. CIT (C) -1 V/S NRA IRON AND STEEL (P) LTD 2. A.AGARWAL COAL CORP. (P) LTD V/S. ADDL. CIT (2012) 135 ITD 270 (INDORE) B. OTHER CASES 3. CIT V/S ULTRA MODERN EXPORTS (P) LTD (2014) 220 TAXMAN 165 (DEL)(MAG) 4. KOSTUB INV. LTD VS/ ACIT (2013) 36CCH 762 (DEL)(ITAT) 5. CIT V/S NOVA PROMOTERS FINLEASE (P) LTD. (2012) 342 ITR 169 (DEL) 6. CIT V/S N.R. PORTFOLIO PVT. LTD (2013) 263 CTR 456 (DEL) 7. CIT V/S N.R. PORTFOLIO (PJ LTD (2013) 96 DTR 281 DELL 8. CIT V/S MAF ACADEMY P. LTD (2014) 361 ITR 258 (DEL) 9. ITO V/S JANAK U. BHATT (2006) 8 SOT 353 (MUM) 10. EVIDENCE -RULES, CASE LAWS 11 THE BEST EVIDENCE RULE 12 HERSH WIN CHADHA VS DDIT (2011) 43 SOT 544 (DEL) 13 COLLECTOR OF CUSTOM VS, D. BHOORMUL 1974 AIR 859 (SC) 14 CIT V/S GOLCHA PROPERTIES (P) (LTD) (IN LIQ.) (1997) 227 ITR 391 (RAJ) 15 DOCTRINE OF NOTORIOUS FACTS 16 SOURCE OF SOURCE:LEADING AUTHORITIES ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , including director and key employee of Anand Rathi Group to come to the conclusion that the assessee has entered into an arranged transactions with certain companies, in order to convert its own unaccounted income in the form of share capital, which is evident from the fact that the assessee has issued share capital with a huge premium of ₹ 30 to ₹ 72 per share, even though, the financial of those companies is not supporting such a huge valuation. Further, the AO has taken support from the statement of Director, during the course of search where, he had not explained share capital, including premium received for the year under consideration. 13. The provision of section 68 of the Income Tax Act, 1961 deals with a cases, where any sum found credited in the books of accounts of an assesee, in any previous year, for which the assesee offered no explanation about the nature and source, thereof or the explanations offered by the assessee, in the opinion of the AO is not satisfactory, then sum so found credited may be charged to income tax, as income of the assesse of that previous year. In order to fix any credit within the ambit of section 68 of the I.T Act, 1961, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tails to prove identity, genuineness of transactions and creditworthiness of the parties, then there is no reason for the AO to came to the conclusion that share capital and share premium is unexplained only for the reason that during the search proceedings, the director of the company had admitted that he cannot explain reasons why blank forms are kept in his possession, ignoring the fact that such admission has been retracted by filing affidavit along with letter explaining reasons fro such admission during search proceedings. Further, additions made by the AO cannot be sustained even on this count because, the AO has relied upon statement of third paryies to make additions towards share capital, but when the present director of the assessee company asked for copies of statement of third party and also opportunity for cross examination of person who gave such statement, the AO has denied, the opportunity of cross examination and also not furnished copies of statement. It is a settled position of law that once, any third party information/statements is relied upon to make additions, it is the obligation of the AO to provide copies of such statements/information and also to provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation about the nature and source of such sum so credited and such explanation in the opinion of the AO aforesaid has been found to be satisfactory. On perusal of amendments brought out by Finance Act 2012, w.e.f. 01.04.2013 to the provisions of section 56(2)(viib) and section 68 of the Act, it is very clear that where the assessee has issued shares at premium and also received share capital and if such company do not offer any explanation about the nature and source, then sum so received may be regarded as income of the assessee from undisclosed sources. In other words, the purpose of insertion of proviso is to examine the source of investment by subscriber to the share capital. This amendment has been examined by the Hon ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure (P) Ltd. (2017) 394 ITR 680, where the court observed that proviso inserted to section 68 w.e.f. 01.04.2013 is considered to be prospective in nature and is applicable from A.Y. 2013-14 onwards. From the above, it is very clear that similar amendment has been made to provisions of section 56(2) by insertion of clause (viib) so as to bring share premium within the ambit of section 56(2) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195. wherein the apex Court observed that if the share application money is received by the assessee-company from alleged bogus shareholders, w hose names are given to the AO, then the Department can always proceed against them and if necessary reopen their individual assessments. In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the AO to make proper investigation and reach the shareholders. The AO did nothing except issuing summons which were ultimately returned back with an endorsement not traceable In our considered view, the AO ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the AO. In the above circumstances, the view taken by the Tribunal cannot be faulted. CIT vs. Lovely Exports (P) Ltd (2008) 216 CTR 195 (SC) If the share application money is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was held that if the assessee produces the names, addresses, PAN details of the share holders then the onus on the assessee to prove the source o f share application money stands discharged. If the Assessing Authority was not satisfied with the creditworthiness of the shareholders, it was open to the Assessing Authority to verify the same in the hands of the shareholders concerned, The Tribunal has relied upon an order of the Supreme Court in case of CIT v. Divine Leasing Finance Ltd. In view of the decision 'of the Supreme Court, we dismiss the appeals with observations that the department is free to proceed to reopen their individual assessments of the shareholders whose names and details were given to the Assessing Officer. ACIT vs. Venkateshwarlspat Pvt Ltd (2009) 319 ITR 393 (Chhatisgarh-High Court) If the share applications are received by the assessee from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as the undisclosed income of the assessee. Mod Creations Pvt Ltd vs. ITO (2013) 354 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source of source'- In the instant case, the Tribunal has confirmed the order of the CIT(A) deleting the impugned addition holding that the assessee has been able to prove the identity of the share applicants and the share application money has been received by way of account payee cheques. CIT vs. Namastey Chemicals Pvt Ltd (2013) 33 Taxmann.com271 (Guj-High Court) In the present case also, the respondent assessee has received share application money from different sub scribers. It was found that large number of subscribers had responded to the letters issued by the Assessing Officer or summons issued by him and submitted their affidavits. In some cases such replies were not received through posts. ₹ 9 lacs represented those assessees who denied having made any investment altogether. The issue thus would fall sq uarely within the ambit of the judgment of the Supreme court in the case nf Lovely Exports (supra). No error of law can be stated to have been committed by the Tribunal. Tax Appeal is therefore dismissed. CIT vs. Peoples General Hospital Ltd (2013) 356 ITR 65 (MPHigh Court) Held , dismissing the appeals , that it the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the CIT(A), one cannot conclude that the purchases were not made by the respondent- assessee CIT vs. Samir Bio- Tech Pvt Ltd (2010) 325 ITR 294 (Del-High Court) Identities of the subscribers are not in doubt. The transactions have also been undertaken through banking channels inasmuch as the application money for the shares was given through account payee cheques. The creditworthiness has also been established, as indicated by the Tribunal. The subscribers have given their complete details with regard to their tax returns and assessments. In these circumstances, the Department could not draw an adverse inference against the assessee only because the sub scribers did not initially respond to the summons. The subscribers, however, subsequently gave their confirmation letters as would be apparent from the impugned order. The identity of the subscribers stands established and it is also a fact that they have shown the said amounts in their audited balance sheets and have also filed returns before the IT authorities. The decision of the Tribunal deleting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conclusion merely on the basis of documents submitted by the assessee. Therefore, after considering relevant facts, the co-ordinate Bench came to the conclusion that decision rendered by Hon ble Supreme Court in the case of NRA Iron Steel Pvt. Ltd. (supra) has no application, where the AO has not carried out any inquiries. The relevant findings of the Tribunal re as under: 8. We have heard the rival submissions and perused the materials available on record. It is not in dispute that the assessee had borrowed loans from the aforesaid loan creditors and had duly repaid the same in subsequent years by account payee cheques, for which evidences are already on record before us. It is also not in dispute that the assessee had paid interest on the aforesaid loans which had been allowed as a deduction by the lower authorities. We are unable to persuade ourselves as to how the interest portion on loan alone could be treated as genuine transactions after treating the principal portion of loan as ingenuine. We also find that the interest paid on such unsecured loans to aforesaid loan creditors have been duly subjected to deduction of tax at source. Notice issued u/s 133(6) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh the assessee has furnished necessary evidences to prove identity of the parties, but failed to establish genuineness of transactions and creditworthiness of parties in the backdrop of clear findings of Investigation Wing that those companies are hawala companies involved in providing M/s Shree Laxmi Developers accommodation entries. The AO has brought out facts in the light of statement of Shri Pravinkumar Jain deposed before the Investigation Wing to make addition. Except this, there is no contrary evidence in the possession of the AO to disprove the loan transactions from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd. On the other hand, the assessee has furished various details including confirmation letters from the parties, their bank statements alongwith their financial statements to prove identity, genuineness of transactions and creditworthiness of the parties. The assessee also furnished evidences to prove that the parties have responded to the notices issued u/s 133(6) by AO by filing various details. The assessee also filed bank statements to prove that the said unsecured loans have been repaid in the subsequent financial years. Therefore, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, the assessee has discharged its initial burden, the burden shifts to the AO to prove otherwise. In this case, the AO made addition only on the basis M/s Shree Laxmi Developers of information received from Investigation Wing, but not based on any evidence to disprove the loan transaction from above companies are ingenuine. Therefore, we are of the view that there is no reason for the AO to treat loans from above 2 companies as unexplained credits u/s 68 of the Act. 7. Coming to the case laws relied upon by the assessee, the assessee has relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs Gagandeep Infrastructure Pvt Ltd (2017) 394 ITR 680 (Bom). We have gone through the case laws relied upon by the assessee in the light of the facts of the present case and find that the Hon'ble High Court categorically observed that the Proviso to section 68 has been inserted by the Finance Act, 2012 wef 01-04- 2013 is applicable from AY 2013-14 onwards. The Court further observed that the Parliament did not introduce the proviso to section 68with retrospective effect nor does the Proviso introduced states that it was introduced for removal of doubts. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of share i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P) Ltd (supra) would M/s Shree Laxmi Developers be applicable in the facts and circumstances of the present case. 9. The assessee has also relied upo the decision of Hon'ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd (2008) 216 CTR 195 (SC). The Hon'ble Apex Court w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly distinguishable on the following grounds:- a) In Para 3.6. of the said judgement of Hon ble Supreme Court, it was mentioned that the entire share capital had been received by the assessee through normal banking channels by account payee cheques / demand drafts, and produced documents such as income tax return acknowledgements to establish identity and genuineness of the transaction. It was submitted that, there was no cause to take recourse to section 68 of the Act, and that the onus on the Assessee Company stood fully discharged. b) In Para 3.7. of the said judgement of Hon ble Supreme Court, it was mentioned that the AO had issued summons to the representatives of the investor companies. Despite the summons having been served, nobody appeared on behalf of any of the investor companies. The Department only received submissions through dak, which created a doubt about the identity of the investor companies. c) In Para 3.8. of the said judgement of Hon ble Supreme Court, it was mentioned that the AO independently got field enquiries conducted with respect to the identity and credit-worthiness of the investor companies, and to examine the genuineness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Supreme Court, the AO in that case had made field enquiries at Mumbai, Kolkata and Guwahati where those investor companies were stated to be situated to examine their identity and credentials and the result of such enquiry had been summarized hereinabove. Whereas in the instant case before us, no such enquiries were conducted by the ld AO to doubt the veracity of the details and evidences filed by the loan creditors in response to notice u/s 133(6) of the Act directly before him. In the instant case before us, all the notices u/s 133(6) of the Act were duly served on all the aforesaid loan creditors and all of them had independently filed their replies directly before the ld AO. The bank statements were also duly furnished by the loan creditors to prove that they had sufficient creditworthiness to advance loan to the assessee company and since all the transactions were routed through regular banking channels by account payee cheques and in view of the fact that there were no cash deposits prior to issuance of loan to the assessee company, the genuineness of transactions also stand clearly established. This goes to prove their identity, creditworthiness and genuinenes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that if the share application money is received by the assessee company from alleged bogus share holders, whose names are given to the AO, then the department is free to proceed to reopen their assessment in accordance with law, but sum received from share holders cannot be regarded as undisclosed income of the assessee. 18. In this view of the matter and considering the facts and circumstances of this case and also taking into consideration various case laws as discussed hereinabove, we are of the considered view that the assessee has discharged its initial onus to prove identity, genuineness of transactions and creditworthiness of the parties by filing various documents. The AO, without carrying out further inquiries in order to ascertain the claim of the assessee, jumped into conclusion on the basis of financial statements of the subscribers that none of them had enough source of income to establish creditworthiness. Therefore, we are of the view that the AO was erred in making additions towards share capital u/s 68 of the Income Tax Act, 1961. The learned CIT(A) without appreciating relevant facts has confirmed additions made by the AO towards share capital u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound, as a result of search, no additions could be made in the assessments framed u/s 153A, if such assessment has been completed /unabated as on the date of search. In this case, the facts with regard to no reference to incriminating material, in respect of additions towards disallowances of expenditure u/s 14A r.w.Rule 8D is not disputed by the revenue. When, the bench has specifically asked the Ld. DR about incriminating material, the Ld. DR failed to prove that the additions made by the AO towards disallowances of expenditure is supported by any incriminating material. Therefore, we are of the considered view that in absence of any incriminating material found as a result of search, no additions could be made in the assessment framed u/s 153A of the I.T.Act, 1961. This legal proposition is supported by the decision of Hon ble jurisdictional Bombay High Court in the case of CIT vs Continental warehousing corporation (Nhava Sheva Ltd. (2015) 374 ITR 645, where the Hon ble High Court clearly held that in absence of incriminating material no additions could be made, in respect of assessment which become final and no proceedings is pending, as on the date of search. Therefore, we ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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