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TMI Blog2018 (11) TMI 1835X X X X Extracts X X X X X X X X Extracts X X X X ..... e directors/shareholders did not present themselves before the Assessing Officer, an addition u/s 68 of the Act, cannot be made. In view of the above circumstances, we cannot uphold this addition made u/s 68 of the Act. Under these circumstances, we delete the addition and allow this appeal of the assessee. - ITA No. 1812/Kol/2016 - - - Dated:- 16-11-2018 - Sri J. Sudhakar Reddy, Accountant Member And Sri S.S. Viswanethra Ravi, Judicial Member For the Appellant : Shri Miraj D. Shah, FCA, For the Respondent : Shri Sankar Halder, Addl. CIT Sr. D/R. ORDER Per J. Sudhakar Reddy, AM :- This appeal filed by the revenue is directed against the order of the Learned Commissioner of Income Tax (Appeals)-4, Kolkata, (hereinafter the Ld. CIT(A) ), dt. 23/06/2016, passed u/s 250 of the Income Tax Act, 1961 (hereinafter the Act ), relating to Assessment Year 2012-13. 2. The assessee is a company and is in the business of construction and development of properties. For the Assessment Year 2012-13, it filed its return of income on 27/09/2017, disclosing Nil income. The Assessing Officer completed the assessment u/s 143(3) of the Act, determining the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... banking channels and that there was no cash deposits in these bank accounts, prior to the issue of cheques to the assessee company for allotment of shares. Explanations were also filed to explain the immediate source of funds for the payments of share application monies. On examination of the documents furnished by the share applicant companies, we find as follows:- a) M/s. Pleasant Sales Pvt. Ltd.:- This company invested an amount of ₹ 15,00,000/-, in the assessee company. The source of investment was explained as amount received from M/s. Shrinu Vinimay Pvt. Ltd. of ₹ 1Lakh/- and M/s. Amazing Sales Pvt. Ltd. of ₹ 14 Lakhs/-, against the sale of shares. We find that the investible fund available with this company is ₹ 7,68,54,071/- as against an investment of ₹ 15,00,000/- only. In our view, the ld. CIT(A) was right in holding that this company has proved its identity, creditworthiness and genuineness of the transactions. Merely because this company raised capital during the year, the addition cannot be made in the hands of the assessee company, specifically when M/s. Pleasant Sales Pvt. Ltd, is also assessed to tax. b) M/s. Tricon Business P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that this company has proved its identity, creditworthiness and genuineness of the transactions. Merely because this company raised capital during the year, the addition cannot be made in the hands of the assessee company, specifically when M/s. Ideal Barter Pvt. Ltd, is also assessed to tax. f) M/s. Ritz Agencies Pvt. Ltd.:- This company invested an amount of ₹ 15,00,000/-, in the assessee company. The source of investment was explained as share application money received from M/s. Vilasini Sales Pvt. Ltd. We find that the investible surplus available with this company is ₹ 21,02,19,710/- as against the investment of ₹ 15 Lakhs/- only. In our view, the ld. CIT(A) was right in holding that this company has proved its identity, creditworthiness and genuineness of the transactions. Merely because this company raised capital during the year, the addition cannot be made in the hands of the assessee company, specifically when M/s. Alavel Finvest Pvt. Ltd., is also assessed to tax. 5.1. From the above, the ld. CIT(A), at para 4.6., held as follows:- 4.6. In the appellant s case I find that the assessee had filed copies of the audited accounts for the FY 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO. The audited financial statements of each of the share applicant proved that each of them had sufficiently large investible funds from which the share application monies were paid. Each share applicant had admitted subscribing to the share capital of the appellant by account payee cheques, No falsity or infirmity in these documents was proved. In view of these facts therefore I have no hesitation in holding that the assessee had discharged the onus cost on him proving creditworthiness of the share applicants. 4.10. From the A/R's submissions it is noted that the only summons issued u/s 131 by the AO was upon the Director of the appellant. In that summons, the AO had required him to produce the Directors of each of the six share applicant companies. It is noted that although the AO made direct enquiries from them u/s. 133(6) but he chose not to issue personal summons u/s 131 upon them. Instead the AO required the appellant to enforce their attendance. The AO having been vested with statutory powers was expected to enforce personal attendance of share applicants and not the appellant. In my considered view therefore such action of the AO was completely uncalled for and un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:- 4.1. The assessee is engaged in the business of trading in shares and securities. This is not a case of paper company. The premium charged i.e. ₹ 40/- per share of face value of ₹ 10/- each, is also not excessive or abnormal on the facts of this case. From the audited financial statements, it could be seen that the assessee has gross income of ₹ 5,59,283/- and has shareholder funds of ₹ 12,91,40,498/-. It had advanced long term loans and advances of ₹ 4,73,00,140/-. The total assets are ₹ 14,45,98,802/-. Thus, the premium charged per share cannot be said to be not genuine or exorbitant. In this case, four companies are the share applicants. These are Jai Hind Promoters Pvt. Ltd., Ninachal Barter Pvt. Ltd., Dynamo Infrastructures Pvt. Ltd., Dhanraksha Investment Consultants Pvt. Ltd. All these companies which have subscribed for the shares of the assessee company are also active companies. They are not paper companies. This is clear from the financial statements filed by them. In case of Dhanraksha Investment Consultants Pvt. Ltd., the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciously and consistently with the evidences adduced during the course of the assessment proceedings by the appellant and the replies of the share applicants in respect of the share capital which does not warrant the inference that such share application monies received in unaccounted cash credit. Hence, I am inclined to accept the arguments tendered by the AR of the appellant in this respect. In view of the foregoing, I have no hesitation to hold that the impugned addition of ₹ 2,64,20,000/- made by the AO u/s 68 of the Act is not justified in the circumstances and accordingly such addition is directed to be deleted in respect of the four shareholders. Therefore, Ground Nos. 3 to 6 of the appeal are accordingly allowed. 4.2. The ground on which the addition has been made by the Assessing Officer is that there is not compliance to the summons issued to the share subscribers u/s 131 of the Act. The share applicant companies, as well as the assessee company, belong to the same group of companies, with a common director Mr. Sanjay Kumar Khemka. When all the information as required by law, is given, an addition cannot be made solely on the ground that the directors failed to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material. The shareholder/directors have explained their sources. On these facts we examine the case-law. 6. The Hon ble Supreme Court in the case of CIT v. Lovely Exports Ltd. 216 CTR 195 SC, held as follows:- Section 68 of the Income-tax Act, 1961 - Cash credit - If share application money is received by assessee-company from alleged bogus shareholders, whose names are given to Assessing Officer, then Department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of assesseecompany 6.1. Just because the Directors did not appear to summons issued u/s 131 of the Act, no addition u/s 68 of the Act, can be made, when the Directors have otherwise confirmed the transaction to the Assessing Officer with evidence. 6.2. The Hon ble Supreme Court in the case of Commissioner Of Income-Tax, vs Orissa Corporation (P) Ltd [1986] 159 ITR 78 (SC), held as follows:- In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessees. Their index number w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xercise which is required in law and the other in which the Assessing Officer (sits back with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the Assessing Officer after noting the facts, merely rejected the same. This would be apparent from the observations of the Assessing Officer in the assessment order to the following effect Investigation made by the Investigation Wing of the department clearly showed that this was nothing but a sham transaction of accommodation entry. The assessee was asked to explain as to why the said amount of ₹ 1,11,50,000 may not be added to its income. In response, the assessee has submitted that there is no such credit in the books of the assessee. Rather, the assessee company has received the share application money for allotment of its share. It was stated that the actual amount received was ₹ 55,50,000 and not ₹ 1,11,50,000 as mentioned in the notice. The assessee has furnished details of such receipts and the contention of the assessee in respect of the amount i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to judicial conclusions would be improper, more so when the assessee produced material. The least that the Assessing Officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description of S. 68 of the Income Tax Act, 1961. 6.7 The Hon'ble Calcutta High Court in the case of CIT v. Roseberry Mercantile (P.) Ltd. GA No. 3296 of 2010 ITAT No. 241 of 2010 dated 10.1.2011, wherein the questions raised before their lordships and decision rendered thereon is as under:- On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT(A) ought to have held that the assessee had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g sources of funds for making the investment, the Assessing Officer has not given any reason as to why he is not able to accept the same. If at all the creditworthiness of the directors is not proved, then an addition can be made only in their hands and not in the hands of the company as held by the Hon ble A.P. High Court in the case of Lanco Industries Ltd. (supra). No contrary evidence to controvert the evidence produced by the assessee, is brought on record. Simply because the directors/shareholders did not present themselves before the Assessing Officer, an addition u/s 68 of the Act, cannot be made. In view of the above circumstances, we cannot uphold this addition made u/s 68 of the Act. Under these circumstances, we delete the addition and allow this appeal of the assessee. 7. In the result, appeal of the assessee is allowed. 5. In view of the above discussion, we uphold the order of the ld. First Appellate Authority and dismiss this appeal of the revenue. 5.4. The B Bench of the Kolkata Tribunal in the case of ITO vs. M/s. Splendour Villa Makers Pvt. Ltd., in ITA No. 1768/Kol/2016 Assessment Year 2012-13, order dt. 05/09/2018, under identical circumstances has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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