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TMI Blog2021 (9) TMI 854X X X X Extracts X X X X X X X X Extracts X X X X ..... awan Singh, Member (J) And Dr. A.L. Saini, Member (A) For the Appellant : Mehul R. Shah, CA For the Respondents : Anupama Singla, Sr. DR ORDER Per Dr. A.L. Saini, Accountant Member (A) Captioned appeal filed by the assessee pertaining to the Assessment Year (A.Y.) 2012-13, is directed against the order passed by the ld. Commissioner of Income Tax(Appeals)-2, Surat dated 14.06.2017, which in turn arises out of an assessment order passed by the Assessing Officer, under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ), dated 30.03.2015. 2. Grounds of appeal raised by the assessee are as follows: 1. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of the assessing officer in making addition of ₹ 63,00,000/- on account of cash credit u/s. 68 of the IT. Act, 1961 for share application and premium from directors their concerns. 2. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of the assessing officer in making addition of ₹ 74,25,000/- on account of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full year. 3. M/s. Virendra Agarwal HUF a. Copy of the acknowledge of Income Tea return filed for the asst. year 2012-2013 b. Computation of Total Income for the year under consideration. c. Copy of Trading, Profit and Loss account and Balance Sheet for the asst. year 2012-2013. d. Copy of the capital account for the asst. year 2012-20/3. e. Copy of the Bank account for the period from 01.04.2011 to 21.03.2012 and 01.03.2012 to 07.08.2012. f. Copy of the account confirmation for the year 2011-2012. g. Copy of the voter card of KARTA of HUF as Identity Proof and address Proof. 4. Shri Virendra Kumar Agarwal a. Copy of the voter card as Identity Proof and address Proof. b. Copy of the acknowledge of Income Tax return filed for the asst. year 2012-2013 c. Computation of Total Income for the year under consideration. d. Copy of Trading. Profit and Loss account and Balance Sheet for the asst. year 2012-2013. e. Copy of the capital account for the asst. year 2012-2013. f. Copy of the Self Asst. Tax Paid for the year g. Copy of the Bank account for the period from 01.04.2011 to 14.03.2012 and 01.01.2012 to 31. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kasturchand Jain 04 6. Suresh Kumar Jain 03 7. Hukamchand Jain 06 8. Raju Jain 08 9. Rama Kala 02 10. Suryamani Jain 20 11. Nathu Kala 19 Further we would like to state that as per point No. 2.1 of your letter dated 20.03.2015 from Sr. No. 1 to 22 we have submitted the Bank statement either for last three years or from account opening date as the case may be. We would further like to state that we have submitted the confirmation of account duly signed by the investing parties as these parties are small assessee therefore they does not maintained the any Books of accounts. We would like to state with regard to point No. 2.2 that from Sr. No. 1 to 9, 14 to 15 and 17 to 22 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee carried the matter in appeal before the ld. CIT(A) who has dismissed the appeal of the assessee. Aggrieved, the assessee is in further appeal before us. 7. Shri Mehul R. Shah, Learned Counsel for the assessee, begins by pointing out that during the course of assessment proceedings, the assessee company, submitted inter alia the following details and documents to the Assessing Officer: (1). Complete Postal Address, (2). Nature of Business, (3). Details of Bank Accounts with copies of Bank Statements, (4). Details of Directors, (5). Income Tax Return Acknowledgements of Directors, (6). Copy of Income Tax Return of the Company with Income Tax Return Acknowledgement, (7). Statement showing computation of total income, (8). Balance Sheet, profit and loss account of share applicants, (9). PAN Number and voter card. 8. Learned Counsel further argues that from the above details and the paper book filed which was also before the assessing officer, it would be evident that in case of all the share applicants the Share Application form and allotment letter is available (ii) The Share applicants are income tax assessee and are filing their return of income (iii) The Share Appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght on record. The assessing officer, during the assessment proceedings noticed that assessee company has raised share capital of ₹ 28,65,000/- at the premium of ₹ 1,08,60,000/- by issuing shares to twenty nine persons/concerns. The Assessing officer asked the assessee to clarify various details relating to the investors of the company and submit documents relating to it. In response to this, assessee filed an explanation on 24.03.2015 and duly explained the points raised by the assessing officer. We note that assessee filed the following documents in relation to share capital and premium: (a) Computation of income, acknowledgement of return of income, profit and loss account, capital account, balance sheet of A.Y. 2010-11 to 2012-13. (b) Bank statement of the investors of A.Y. 2010-11 to A.Y. 2012-13. (c) Copy of minutes book, (d) Copy of share application forms for shares, (e) Copy of attendance register of AGM, (f) Copy of share certificates. (g) PAN Number, Voter id and Adar Card, (h) ROC details We note that during the assessment proceedings, assessing officer observed that notices u/s. 131 were issued to all the investors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Companies Act read with decision of Hon'ble Apex Court order in case of Bharat Fire Insurance Co. Vs. CIT 34 COS 683 (1964). The ld. Counsel contended before us that assessee has not written-off the Share premium account and the same is outstanding in the Audited Financials of the assessee company as on 31.03.2012, therefore, the stand taken by the assessing officer is without any base. 12. We have observed that: (a) all the share application monies have been received through proper banking channel and there is no evidence that assessee has paid any money in cash to the investors in consideration of cheque received from the investors, (b).The identity of all the investors gets established as all the investors are regularly assessed to tax. The receipt of share application money from all the investors are through account payee cheques which proves the genuineness of transactions. (c) Even otherwise, various Courts have ruled that once the identity of the share applicant is proved, no addition can be made in the hands of the assessee company even if the share applicants have been found person of no means until and unless otherwise, it is proved by the Revenue that there are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 40,61,986/- against investment of ₹ 50,000/-. On perusal of the Bank Statement, it can be observed that there are no cash deposits of exact amount nor there is any finding by AO that the assessee company has paid any amount in cash in lieu of cheque. All these persons are man of means who have got together for a new venture in the name of the assessee company. In fact, in case of Mangatrai Goyal there was a survey operation u/s. 133A on 31.03.2002, wherein the group made a total disclosure of ₹ 1,41,85,715/- out of which ₹ 40,87,715/- was made in the hands of Mangatrai Goyal (HUF) (Prop, of Sunita Fashion). As stated above all the promoters-cum-directors are regularly assessed to tax and the Return of Income along with, the Computation of income of subsequent, years are also filed. In fact out of ₹ 38,00,000/-, share capital of ₹ 1,50,000/- is the subscribers capital issued at face value of ₹ 10/- without any premium at the time of formation of the company by the promoters. In any way, the total amount of ₹ 38,00,000/- has been raised as share capital, even before any commercial activities has started for the company and therefore, ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licants with the ROC duly proved the identity of the share subscribers. The Ld. Counsel thereafter invited our attention to the respective balance sheets of the share applicants to show that each of them had sufficient funds available at their disposal to make investment in the assessee company. Referring to the respective bank statements, it was further pointed out that the transactions were conducted through proper banking channel and that there were no cash deposits in any of the bank account of the share applicants. He also invited our attention to the explanation furnished by each of the share applicants regarding their source of funds. It was thus submitted that the fund flow position of the share applicants, and not the profitability, was the decisive criteria to examine the creditworthiness of the share applicants. Before we adjudicate as to whether the Ld. CIT(A)'s action is right or erroneous, let us look at section 68 of the Act and the judicial precedents on the issue at hand. Section 68 under which, the addition has been made by the AO reads as under: 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2002] 256 ITR 360 [2003] 127 Taxman 523, has held that onus of the assessee (in whose books of account credit appears) stands fully discharged if the identity of the creditor is established and actual receipt of money from such creditor is proved. In case, the Assessing Officer is dissatisfied about the source of cash deposited in the bank accounts of the creditors, the proper course would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor). In arriving at this conclusion, the Hon'ble Court has further stressed the presence of word may in section 68. Relevant observations at pages 369 and 370 of this report are reproduced hereunder:- Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation [1986] 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that the scope of the inquiry under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorize the Revenue Department to make inquiry into the source(s) of the credit and/or sub-creditor. The language employed by section 68 cannot be read to impose such limitations on the powers of the Assessing Officer. The logical conclusion, therefore, has to be, and we hold that an inquiry under section 68 need not necessarily be kept confined by the Assessing Officer within the transactions, which took place between the assessee and his creditor, but that the same may be extended to the transactions, which have taken place between the creditor and his sub-creditor. Thus, while the Assessing Officer is under section 68, free to look into the source(s) of the creditor and/or of the sub-creditor, the burden on the assessee under section 68 is definitely limited. This limit has been imposed by section 106 of the Evidence Act which reads as follows: Burden of proving fact especially within knowledge.-When any fact is especially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, for, these aspects may not be within the special knowledge of the assessee. ********** ... If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis- -vis the transactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advance the said loan amounts to the assessee, such failure, as a corollary, could not have been and ought not to have been, under the law, treated as the income from the undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. Viewed from this angle, we have no hesitation in holding that in the case at hand, the Assessing Officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. In the absence of any such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the appellant from undisclosed sources. The learned Tribunal seriously fell into error in treating the said amounts as income derived by the appellant from. undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness. 18. In the case of CIT Vs Jalan Hard Coke Ltd. (95 taxmann.com 330), the Hon'ble Rajasthan High Court noted that the assessee had furnished the details ..... X X X X Extracts X X X X X X X X Extracts X X X X
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