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TMI Blog2023 (8) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... The present appeal filed by the revenue is directed against the order passed by the CIT(Appeals)-1, Raipur, dated 25.04.2018, which in turn arises from the order passed by the A.O u/s.143(3) of the Income-tax Act, 1961 (for short Act ) dated 30.03.2016 for A.Y. 2013-14. The revenue has assailed the impugned order on the following grounds of appeal before us: 1. Whether on points of law and on facts circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs. 10,72,80,000/- made by the AO u/s 68 of the Act? 2. Whether on points of law and on facts circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs. 10,72,80,000/- by ignoring the facts as brought on record by the AO that the assessee company failed to prove the genuineness and creditworthiness of the investor company as per the parameters of the legal provisions u/s 68 of the Act? 3. Whether on points of law and on points of facts circumstances of the case, the Ld. CIT(A) having concurrent powers of the AO u/s 250(4) of the Act, was justified in deleting the addition of Rs. 10,72,80,000/- made by the AO in the absence of satisfaction of parameters pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforementioned share applicant company filed with the A.O supporting documentary evidences, viz. (i) share application form; (ii) bank statement of the share applicant company; (iii) copy of PAN; (iv) copy of return of income a/w. audited financial statement of the share applicant company; and (vi) memorandum of association and articles of association of the share applicant company. It was observed by the A.O that the share applicant company, viz. M/s. Kush Trading Commerce Pvt. Ltd. in turn was in receipt of funds aggregating to Rs. 10,72,80,000/- from seven companies, as under: Sr. No. Particulars Name Amount (Rs.) 1. Swastik Securities Finance Ltd. Dew Drops Mercantiles Ltd. 4500000 2. Balsaria Holding Pvt. Ltd. 12450000 3. JIT Finance Pvt. Ltd. 28600000 4. Lectrodyer Marketing Pvt. Ltd. 10600000 5. Sunderm Consultants Pvt. Ltd. 21700000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10600000 5. Sunderm Consultants Pvt. Ltd. 21700000 6. Admire Vinimay Pvt. Ltd. 19980000 7. Ginni Vinimay Pvt. Ltd. 9450000 Total 10,72,80,000 It is observed from the information provided by the assessee that these companies that have infused funds in M/s. Kush Trading Commerce Pvt. Ltd. which are listed above are all Kolkata based. Due diligence was done to verify the creditworthiness and genuineness of these funds received in M/s Kush Trading Commerce Pvt. Ltd. It is noted that out of the 7 companies that have introduced three of them namely Balsaria Holding Pvt Ltd, JIT Finance Pvt Ltd., and Lectrodyer Marketing Pvt. Ltd. belong to Shri Abishek Chokhani group who has admitted on oath that paper companies/Jamakharchi in order to provide accommodation entries in the form of bogus billing, bogus share capital, unsecured loan etc to various business houses. His statement is part of various surveys u/s 133A of the I.T. Act, 1961 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but the same were summarily discarded by the A.O without there being any whisper in his order that as to why no weightage was to be given to the said documents. Further, it was observed by the CIT(Appeals) that M/s. Kush Trading Commerce Pvt. Ltd. was an inhouse company of the assessee with certain common directors. The CIT(Appeals) observed that though the A.O had drawn adverse inferences as regards the authenticity of the transaction of receipt of share application money by the assessee company from M/s. Kush Trading Commerce Pvt. Ltd., for the reason that the latter was in receipt of funds from seven companies out of which three companies were managed by Shri Abhishek Chokani, an infamous accommodation entry provider, but the said fact was at no stage in the course of the assessment proceedings ever confronted to the assessee company. Referring to the aforesaid lapse of the A.O, the CIT(Appeals) relied on the judgment of the Hon ble Supreme Court in the case of Andaman Timber Industries Vs. Commissioner of Central Excise (2015) 281 CTR 241 (SC) a/w other judicial pronouncements; and was of the view that the adverse inferences that were drawn by the AO on the basis of materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid seven investor companies could be drawn. Also, it was observed by the CIT(Appeals) that the assessee company had further received share application money of Rs. 3.23 crore (approx.) from the aforesaid share applicant company, viz. M/s. Kush Trading Commerce Pvt. Ltd. in the immediately succeeding year i.e. A.Y.2014-15, which was accepted in the scrutiny assessment of the assessee company for the said year u/s. 143(3) of the Act. The CIT(Appeals) held a conviction that now when the assessee company had on the basis of supporting documentary evidence duly discharged the onus that was cast upon it as regards proving the identity, creditworthiness and genuineness of the transaction of receipt of share application money from the aforesaid share applicant company, viz. M/s. Kush Trading Commerce Pvt. Ltd., as well as substantiated the source-of-source of the said investment, therefore, there was no justification for the A.O to have summarily dislodged the same without placing on record any material proving to the contrary. Accordingly, the CIT(Appeals) holding a conviction that the assessee company on the basis of supporting documentary evidence had duly established the auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he A.O during the course of the assessment proceedings, Page 89-92 of APB. The CIT(Appeals) on the basis of the aforesaid facts held a conviction that the assessee company by placing on record supporting documentary evidence had duly discharged the primary onus that was cast upon it as regards proving the nature and source of credit of Rs. 10.50 crore (supra) in its books of account. Also, the CIT(Appeals) was of the view that as complete details about the nature and source of the amounts which in turn were received by the share applicant company, viz. M/s Kush Trading Commerce Pvt. Ltd. and were utilized for sourcing the investment made with the assessee company were filed during the course of the assessment proceedings with the AO, therefore, the onus that was cast upon the assessee company as regards proving the authenticity of the transaction of receipt of share application was fully discharged by it under Sec. 68 of the Act. Further, the CIT(Appeals) observed that now when the AO while framing assessment in the case of the share applicant company, viz. M/s Kush Trading Commerce Pvt. Ltd. had not drawn any adverse inferences and accepted the share application money that w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh identity, genuineness and creditworthiness of share capital. AO has not made any enquiry to disprove the veracity of these documents. On similar facts it has been held by Hon'ble Chhattisgarh High Court in the case of Pawan Kumar Agrawal Vs ITO Ward 2(2), Bilaspur that once the assessee has discharged its onus by furnishing requisitioned documents the AO is bound to issue notice u/s 133(6) or 131, otherwise no addition can be made the relevant part of the decision of the Hon'ble High Court are as under Sec. 68 of the Act provides a process by which the assessing authority has to reach at transactions of those persons with whom the assessee had entered into transactions in which the particular assessee is involved to conclude he assessment on the basis of the transactions referable to those persons. Such concluded assessments will have a bearing on the acceptability or otherwise the peas set up the assessee in the course of proceedings u/s. 68 of the Act. So much so, notwithstanding, the finality attained by the assessment proceedings in relation to the lender, the borrower is entitled to say that the contents of the return of the lender and the matters emanating ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Trading. If source of funds in the hands of M/s Kush Trading has been accepted by the Department as proper, there is no basis for taking adverse view in the case of the assessee which has received funds from M/s. Kush Trading. Further the assessee company which has received further share application money in the previous to the next A.Y.2014-15. Assessment of the assessee company for A.Y.2014-15 has been completed u/s 143(3). Where there is no material to dispute genuineness or creditworthiness of investors and source of money received by assessee, the addition on account of share application money not justified. (CIT vs. Five Vision Promoters Pvt. Ltd., (2016) 380 ITR 289 Del). In the present case the statement relied upon in the assessment was in the case of Kush Trading and the statement was not resulted in adverse finding in Kush Trading. case of Principal CIT vs. Soft Creations Pvt. Ltd., (2016) 387 ITR 636 (Delhi High Court) on an appeal filed by the department has held that if assessee has provided Permanent Accountant Numbers, bank details of share applicant and affidavits of Directors then the share application money cannot be considered as unexplained cash credits in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of the AO that the facts in said cases are entirely different from the facts in the instant case. Hence no such differentiation could be effectively demonstrated and brought on the record by the AO. I find that the investments made by the share applicants were duly reflected in the audited financial statements of the corporate investors. It is a settled principle of law that reason for suspicion, however; grave it may be, cannot be a basis for holding adversity- against appellant. In my considered opinion, the ratio of the foresaid judgments are-certainly binding in nature on all the revenue authorities and courts etc. and further; the judgment of the jurisdictional High Court has been rendered on identical facts. Hence, it is impermissible to deviate from the ratio laid down therein and against the law of judicial precedents. Latest decision on the issue of share capital is of the jurisdictional ITAT. Recently vide order dated 18.1.2018 the ITAT has ox the basis of similar facts in the case of ITA Nos.225 to 231/RPR/2014 DCIT, Central Circle Raipur vs R.R Energy Ltd. (Assessment Years :2006-2007 to 2012-2013) has ruled as below- 14. It is an undisputed fact that the names, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant as the facts are not only similar but identical. The appellant has also relied upon the decision of the Hon'ble Supreme Court and jurisdictional High Court which cannot be ignored. The A.O has referred to the notices issued under section 133(6) which have been returned un-served in some of the cases. I have carefully perused the explanation submitted by the appellant in respect of cases where the notices remained unserved, the submissions of the appellant are found to be convincing. It is further observed that no further enquiry or investigation has been conducted by the AO to corroborate or support the conclusions drawn in the assessment order so as to assess the share capital money as the undisclosed income of the appellant company. In my considered opinion, apart from drawing presumptions, the AO has not brought any clinching material or evidence on record to prove that the said share capital money belongs to the appellant since no nexus has been established that the money for augmenting the investment in the business has flown from appellant's own money which is an essential pre-requisite for making addition in such cases. I am convinced that the case of the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above discussion, I am inclined to agree with the arguments and evidences provided by the appellant to substantiate that the transaction regarding Share Application Money received by it were genuine transactions and the same were not accommodation entries. I also do not find any evidence collected by the A.O which could proveotherwise. Accordingly, the AO was not justified in treating amount of share application money received by the appellant as its undisclosed income..... .... ..I am convinced that the appellant has been able to establish the identity and creditworthiness of the subscribers as also the genuineness of the transactions. In my considered opinion, the ratio of the aforesaid judgements of the Hon'ble Supreme Court in Lovely Exports and that of jurisdictional High Court are certainly binding in nature on all the revenue authority and courts etc. and further, the judgement of the jurisdictional High Court as well as that of the Hon'ble Supreme Court in Lovely Exports has been rendered on identical facts. Hence it is Impermissible to deviate from the ratio laid down therein and against the law of judicial precedents. In view of the above and respectfu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order as to why the explanation of the assessee as regards the nature and source of the amount of Rs. 10.50 crore (supra) that was credited in its books of account and the documentary evidence filed in support thereof were not accepted by the A.O. At this stage, we may herein observe that though the assessee company had duly discharged the primary onus that was cast upon it as regards proving the identity and creditworthiness of the investor company, viz. M/s Kush Trading Commerce Pvt. Ltd., as well as the genuineness of the transaction of receipt of share application money, but the AO had without conducting any enquiries and dislodging the veracity of the aforesaid claim of the assessee, had only on the basis of surmises held the amount of share application money received by the assessee company as an unexplained cash credit u/s 68 of the Act. Involving identical facts, the Hon ble Supreme Court in the case of PCIT Vs. Himachal Fibers Ltd (2018) 259 Taxman 3 (SC), had observed, that as in the case before them, though the identity of the share applicants was clearly revealed, but the AO had without conducting any enquiry and resting his conclusions on surmises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establish the identity of the lender or prove the genuineness of the transaction or establish the creditworthiness of the lender. Ostensibly, as can be gathered from the assessment order, the AO in the present case before us had not even tried to put up an attempt to dislodge the documents/material that were filed by the assessee company to support its claim of having received genuine application money from the investor company, viz. M/s Kush Trading Commerce Pvt. Ltd. a/w the latters source thereof. Also a similar view had been taken by the Hon ble High Court of Bombay in the case of The PCIT Vs. Parth Enterprises (2018) 103 CCH 398 (Bom). Approving the view taken by the Tribunal, it was observed by the Hon ble High Court that no addition can be made u/s 68 of the Act without making an enquiry in respect of creditors whose confirmations were filed by the assessee. Also we find that the Hon ble High Court of Delhi in the case of CIT Vs. Nova Promoters Finlease (P) Ltd., had while approving the addition made by the AO by treating the share application received by the assessee company as unexplained cash credit u/s 68 of the Act, had however as a word of caution by relying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading Commerce Pvt. Ltd. was not to be accepted, therefore, he had failed to disprove the authenticity of the claim of the assessee. Apropos the reliance placed by the ld. AR on the judgment of the Hon ble Supreme Court in the case of CIT Vs. Lovely Exports P. Ltd. (2009) 319 ITR (St.) 5 (SC) and that of the Hon ble High Court of Chhattisgarh in the case of CIT Vs. Venkateshwar Ispat P. Ltd. (2009) 319 ITR 393 (Chhattisgarh), both having been rendered in context of pre- amended Sec. 68 of the Act, i.e prior to amendment vide the Finance Act, 2012 w.e.f 01.04.2013, to support his alternative plea that that if the share application money received by the assessee company was to be held as bogus, then the department was free to proceed with and reopen in accordance with law the case of the investor company from whom the share application money was so received, and it could not be regarded as the undisclosed income of the assessee company, we are afraid that said contention of his would not assist the case of the assessee company for the year under consideration i.e AY 2013-14, which falls within the regime of post-amended Sec. 68 of the Act. Our aforesaid view is fortified b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he investment that was made by the share applicant company, viz. M/s Kush Trading Commerce Pvt. Ltd. with the assessee company, the same as observed by us hereinabove was admittedly sourced from the amount of share application money which in turn it had received from seven investor companies. As observed by us hereinabove, the AO i.e ITO, Ward-14(2), Kolkata while framing assessment in the case of the share applicant company, i.e M/s Kush Trading Commerce Pvt. Ltd. for the year under consideration i.e AY 2013-14, had vide his order passed u/s 143(3) of the Act, dated 30.12.2015, Page 95-96 of APB not drawn any adverse inferences as regards the share application money that was received by it from the aforesaid seven investor companies. Further, a perusal of the bank account of the share applicant company, viz. M/s Kush Trading Commerce Pvt. Ltd., Page 40-41 fortifies the fact that the investment under consideration was in turn sourced out of the share application money that was over the year received by the share applicant company from the seven investor companies. We are persuaded to subscribe to the observation of the ld. CIT(Appeals), that now when the department while fram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share application money received by the assessee company could not have been brought to tax in its hands as an unexplained cash credit u/s 68 of the Act. Apart from the fact that the investment made by the share applicant company, viz. M/s Kush Trading Commerce Pvt. Ltd. with the assessee company had not been adversely commented upon by the AO i.e ITO, Ward-14(2), Kolkata while framing assessment in its case for the year under consideration itself i.e AY 2013- 14, Page 95-96 of APB, we find that the very fact that the said share applicant company, viz. M/s Kush Trading Commerce Pvt. Ltd. had in the immediately succeeding year i.e AY 2014-15 made a further investment of Rs. 3.23 crore (approx.) against purchase of 1293600 fresh equity shares of the assessee company of a face value of Rs. 10/- per share at a premium of Rs. 15/- per share, which too had not been adversely commented upon by the AO while framing assessment in the case of the assessee company for the said succeeding year i.e AY 2014-15, vide his order passed u/s 143(3) of the Act, dated 23.12.2016, further fortifies the creditworthiness of the share applicant company, viz. M/s Kush Trading Commerce Pvt. Ltd. for ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roving the identity, creditworthiness and genuineness of the transaction of receipt of share application money had filed with the AO supporting documentary evidences; as well as had proved the source of source, therefore, the facts herein involved being distinguishable on facts would not assist the case of the revenue. (C). Bisakha Sales (P) Ltd. Vs. CIT (Kol)-II, (2015) 152 ITD 750 (Kol) (i). In the aforesaid case, it was observed by the Tribunal that as the assesseee company before them had received share application money with huge and unjustified share premium from corporate entities, then merely because the amount was received through banking channel would not justify the AO to accept the said transactions as genuine without making proper enquiries. (ii). As the facts involved in the present case of the assessee company does not pertain to receipt of any substantial amount of premium, which is being claimed by it to be genuine for the reason that the same had been received through banking channel, therefore, the same too being absolutely distinguishable on facts would by no means assist the case of the revenue. (D). Subhlakshmi Vanijya (P) Ltd. Vs. CIT-1, Kol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserve, that neither the AO had in the assessment order placed on record any material which would support his observation that the aforesaid three companies mentioned by him were paper/shell/jamakharchi companies managed and controlled by Shri. Abhishek Chokani(supra); nor as observed by the CIT(Appeals) the AO had prior to drawing of adverse inferences on the basis of his said observation confronted the said fact to the assessee company. As observed by the CIT(Appeals) and, rightly so, the adverse inferences drawn on the basis of any material or statement of a third party without confronting the same to the assessee, being in breach of principle of natural justice, cannot be sustained and are liable to be vacated on the threshold on the said count itself. Our aforesaid observation is duly supported by the judgment of the Hon ble Supreme Court in the case of Andaman Timber Industries Vs. Commissioner of Central Excise (2015) 281 CTR 241 (SC) and that of the Hon ble High Court of Bombay in the case of Vodafone India Ltd. Vs. UOI (2014) 265 CTR 42 (Bom). Also, a similar view had been taken by the Hon ble High Court of Delhi in the case of CIT Vs. Ashwani Gupta (2010) 322 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he share applicant company, viz. M/s. Kush Trading Commerce Pvt. Ltd. was not to be accepted. Be that as it may, we concur with the CIT(appeals) that as the aforesaid unsubstantiated observation of the AO, which was pressed into service by him for drawing adverse inferences in the hands of the assessee company was never confronted to the assessee company in the course of the assessment proceedings, therefore, as per the settled position of law, the same being in breach of the principles of natural justice, could not have been acted upon by him for drawing adverse inferences in the hands of the assessee company. We may further observe that though the assessee company in the course of the assessment proceedings had filed with the AO financial statements a/w the bank accounts of the seven investor companies which had made investment towards share application of the share subscriber company, viz. M/s. Kush Trading Commerce Pvt. Ltd., but the AO had not even referred about the same in his assessment order; much the less recorded any adverse observations as regards the creditworthiness of the said investor companies in the backdrop of supporting documents, i.e financial statements, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved that if the AO did not care to discharge the onus that was cast upon him, then for his said negligence he cannot be provided with fresh innings. Further, the Hon ble High Court had observed that as the Tribunal acts purely as an appellate authority, therefore, in its said capacity it has to see whether the assessment framed by the AO, all for that matter, orders of the CIT(Appeals) were according to law and purportedly framed on facts and whether there was subject matter to support it. It was observed by the Hon ble High Court that the Tribunal is only to see as to whether the additions are sustainable and there is adequate material to support the same; if not to delete the same. It was further observed that it is not for the Tribunal to start investigation it would not order further inquiry. For the sake of clarity, the multi-facet reasons given by the Hon ble High Court while declining the request of the department to remit the matter to the file of the AO to enable him to make further investigation are culled out as under : 20. During the arguments, we had posed these queries. Learned counsel appearing for the Revenue understood the limitation of their case. For th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) were according to law and purportedly framed on facts and whether there was sufficient material to support it. It is not for the Tribunal to start investigation. The Tribunal is only to see as to whether the additions are sustainable and there is adequate material to support the same if not the addition has to be deleted. At that stage, the tribunal would not order further inquiry. It is to be kept in mind that the AO is prosecutor as well as adjudicator and it is for the AO to collect sufficient material to make addition. There may be exceptional circumstances in which such an inquiry can be ordered, but normally this course is not resorted to. Also, we find that the Hon ble Supreme Court in the case of Mohinder Singh Gill Anr. Vs. The Chief Election Commissioner, New Delhi(178) AIR 851, had observed that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. It was further observed by the Hon ble Court that in case the order is supplemented by fresh reasons or otherwise, then an order bad in the beginning may, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year under consideration. 16. Although we are not inspired at all by the aforesaid unsubstantiated observation of the AO w.r.t three investor companies, all the more for the reason that the same was never confronted to the assessee company prior to drawing of adverse inferences in its hands, but at the same time find substance in the claim of the ld. AR wherein, he had by referring to the extract of a statement of Shri. Rajesh Kumar Kedia S/o Bishwambhar Lal Kedia R/o 8/1, Hardutta Roy, Chamaria Road, Howrah 711 101, an infamous accommodation entry provider, who in his statement recorded on oath u/s 131 of the Act during the course of survey proceedings conducted at his office, had admitted that he was, inter alia, engaged in providing accommodation entries in the form of bogus billing, share capital, unsecured loans to some of the companies, in lieu of commission. On a perusal of the aforesaid statement (extract), it transpires that Shri. Rajesh Kumar Kedia (supra) in reply to Q.no. 6 of his statement on being queried about the concerns which he was managing from his office, had in his reply stated that he was, inter alia, managing two companies from his office, v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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