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TMI Blog2023 (12) TMI 1087X X X X Extracts X X X X X X X X Extracts X X X X ..... o interfere with the findings of the ld. CIT(A) deleting the addition made u/s 68 of the Act. Appeal of the revenue is dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 (SC), and other case-laws. 4.2. The ld. CIT(A) observed that the assessee has filed documentary evidence in support of the claim of the nature and source being explained for the alleged transactions and also referred to various judicial decisions The ld. CIT(A) observe that the ld. Assessing Officer obtained all these details from the investment companies when summons issued u/s 131 of the Act and again failed to find any discrepancy in the documents filed with regard to the share subscriber companies. The ld. CIT(A) considering these details and also the fact that the assessee is carrying out regular business activity of manufacturing sponge iron and that the share subscriber had sufficient net worth to cover up the investments made in the equity capital of the assessee company, decided in favour of the assessee by deleting the impugned addition u/s 68 of the Act. 5. Aggrieved, the revenue is now in appeal before this Tribunal. 6. The ld. CIT D/R submitted that the ld. Assessing Officer has examined the facts of the case extensively and also scrutinised the financial statements of the share applicant and came to a plausible conclusion. He vehemently argued supporting the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DIRECTOR 2 HARENDRA ROY (00558688) DIRECTOR DIRECTOR 3 PARMESHWAR NATH RAI (00869571) DIRECTOR DIRECTOR (4) Details Shareholders S. No. Name of Shareholder Rabindra Enterprises Pvt. Ltd. (Appellant Company) Bhillai Holdings Pvt. Ltd. (Investor Company) 1 PARMESHWAR NATH RAI SHAREHOLDER SHAREHOLDER 2 HARENDRA RAI SHAREHOLDER SHAREHOLDER 3 MAHADEV COKE LTD. SHAREHOLDER SHAREHOLDER 4 MAYA FUELS PVT. LTD. SHAREHOLDER SHAREHOLDER 5 NEW MGM MINERALS PVT. LTD. SHAREHOLDER SHAREHOLDER 6 MGM REFRACTORIES SHAREHOLDER SHAREHOLDER PVT. LTD. (5) Details of Registered Office S. No. Name of Company Address 1 RABINDRA ENTERPRISES PVT. LTD. (Appellant Compant) Anamika Apartment, 12, Lee Road, 2nd Floor, Room No- 202, Kolkata-20 2 BHILLAI HOLDINGS PVT. LTD. (Investor Company) Anamika Apartment, 12 Lee Road, 2nd Floor, Room No- 202, Kolkata-20 Reconciliation of Rs. 27.22 cr. (a) Addition made by AO Rs. 27,22,00,000 (b) Loan as on 31.03.2011 Rs. 6,73,66,237 Interest paid 19-04-2011 Rs. 19,66,237 Amount transfer to share application a/c Rs. 6,54,00,000 Rs. 6,54,00,000 (c) Fresh share application taken d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awal of F.D 05-12-2011 RTGS 32,00,000.00 Premature withdrawal of F.D 30-12-2011 RTGS 75,00,000.00 Premature withdrawal of F.D 13-01-2012 RTGS 50,00,000.00 Premature withdrawal of F.D Rs. 24,50,000 & 20,00,000 from sale of Investment Total amount received 20,68,00,000.00 Refund of share application money by appellant company 22-11-2011 RTGS (40,00,000.00) Refund of Share application money 17-02-2012 RTGS (3,82,00,000.00) Refund of Share application money Balance of Share application money against which 1,64,60,000 shares issued @ Rs. 10. 16,46,00,000.00 8. We have heard rival contentions and perused the material placed before us and carefully gone through the decisions referred and relied by both the sides. 9. The sole effective ground raised by the revenue is against the finding of ld. CIT(A) deleting the addition u/s 68 of the Act made for alleged unexplained share application money in the form of share capital amounting to Rs. 27,22,00,000/-. During the year, the assessee company received share application money of Rs. 27,22,00,000/- from one investor company, namely, Bhillai Holdings Pvt. Ltd.. No share premium has been charged on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited(Investor Company) amounting Rs. 23,00,00,000. Investor Company and Appellant company are sister concern having common Directors, commonShare Holders, and common address which is evident from record of Registrar of Company. b. The aforesaid appellant company had unsecured loan balance of Rs. 6,73,66,237 in the name of the investor company as on 31.03.2011, out of which Rs. 19,66,237 was paid on 18.04.2011 through banking channels as per the chart given in page no 2. The aforesaid appellant company against the balance fund of Rs. 6,54,00,000 had allotted 65,40,000 shares @ Rs. 10/- on 23.02.2012. Thus, the aforesaid sum of Rs. 6,54,00,000 was received during the A.Y. 2011-12 and not in A.Y. 2012-13 and it was merely a brought forward balance of the loan amount which stood in the books of accounts of the appellant company in the name of investor company. It appears that the A.O. has overlooked this aspect and erroneously added the entire amount of share application i.e. Rs. 27,22,00.000 under section 68 of the Income Tax Act, 1961 which also includes aforesaid Rs. 6,54,00,000. c. Further, during the assessment year 2012-13, the appellant company had received share application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted by investor company, which were also filed before the A.O. as well:- VOLUME 1 Paper Book (Compilation of documents submitted by appellant company with AO) ………………... ……………….. A.O. has made addition of Rs. 27,22,00,000 under section 68 treating the same as undisclosed cash credit giving the reason that the appellant company has entered into sham transactions with the investor company. He has also doubted the genuineness of the share application money. It is seen that as per settled law the initial burden is upon the appellant to explain the nature and source of the share application money received by it. In order to discharge this burden, the appellant is required to prove (i) the identity of the share-holder, (ii) the genuineness of the transaction, and (c) the creditworthiness of the shareholder. As far as identity of investor co is concerned, on the basis of information received from appellant company the A.O. issued notice u/s 133 (6) which was complied by investor co by submitting the tcquired documents vide their letter dated 23.08.2014. Further summon u/s 131 to investor c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that the net worth of the Investor Company as disclosed in their balance Sheets far exceeded the amount of Investments made by them in the shares of the appellant company. The aforesaid facts underlined by evidence clearly prove the identity of the Investor Company, their capacity and source of funds, as well as the Genuineness of the transaction in relation to the share capital issued by the appellant company, which was subscribed by Investor Company. Thus, it proved that the investor company is actually found to have subscribed to the share capital issued by the appellant company, in the impugned previous year relevant to the assessment year under appeal, as clearly evident not only from their respective books of accounts , but also from their audited accounts filed with the income tax authorities in relation to their own income tax assessments, and the sources of such funds are also explained by the investor company in their replies addressed to the A.O. However, the A.O had not brought these indisputable facts on record but acted on his whims and fancies. It is observed that the burden which lies on the appellant company, in relation to sec. 68 of the Act, has been du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y (P.) Ltd. 120181 96 taxmann.com 403 (SC)/120181 257 Taxman 335 (SC), wherein it was held that :- "Since appellant had discharged its onus of establishing identity, genuineness and creditworthiness of both investors as well as lenders, the said addition on account of section 68 was to be deleted." b. Further, in the case of Principal Commissioner of Income Tax vs. Himachal Fibers Ltd. [2018] 98 taxmann.com 173 (SC)/120181 259 Taxman 3 (SC), wherein it was held by Hon'ble Supreme Court that:- "identity of share applicant was clearly revealed but Assessing Officer did not conduct any enquiry except resting his conclusions on surmises. Accordingly, addition made by Assessing Officer was deleted" c. In this connection, I may refer some other judicial pronouncements to hold that the appellant's case is not a fit case where provisions of sec. 68 of the Act can be attracted. The Honourable ITAT in the case of Income-Tax Officer, Ward -7(3), Kolkata v. M/s. Sancheti Projects Private Limited, 2010-LL-1126-94, held that :- "the A.O. doubted the genuineness of the share application money on surmises and conjecture and has not brought any cogent mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed opinion, the action of the A.O. is contrary to the established legal pronouncements. Accordingly, addition of Rs. 27,22,00,000 is hereby deleted and ground no.1 to 3 is hereby allowed." 12. The ld. D/R has merely given a general statement that the investor company is a paper/shell company but no concrete evidence is filed on record which could prove the substance in such submissions failing which the issue in hand can be decided only on the basis of documentary evidence available on record and which clearly states that the assessee has explained the nature and source of the alleged sum thereby proving the identity and creditworthiness of the share subscribers and genuineness of the transactions. So far as the reliance of the Ld. DR on the decision of the Hon'ble Supreme Court in the case of "PCIT v/s NRA Iron & Steel (P) Ltd." (supra) is concerned, we note that the Hon'ble Supreme Court in the said case has taken note of the observations made by the Supreme Court in the "the land mark case of Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1 (SC) and Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) laying down the proposition that the onus of proving the source of a sum of money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n upon him to furnish the evidences to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction, the burden shifted upon the Assessing Officer to examine the evidences furnished and even made independent inquiries and thereafter to state that on what account he was not satisfied with the details and evidences furnished by the assessee and confronting with the same to the assessee. In view of this, even applying the ratio laid down by the Hon'ble Supreme Court in the case of PCIT vs. NRA Iron and Steel Pvt. Ltd. (supra), impugned additions are not warranted in this case. 13. After going through these detailed finding and examining the same in the light of the documents filed before us, we notice that the investor company is a body corporate and annual returns have been regularly filed on the Ministry of Corporate Affairs portal. It has been regularly assessed to tax and even passed through scrutiny proceedings also. From perusal of the financial statements of the investor company, we notice that it had sufficient share capital and accumulated Reserves and surplus which are sufficient enough to cover up the share application money invested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows that the share application money received during the year has been applied for the purpose of business activity and the genuineness of the transactions cannot be doubted. Identity and creditworthiness of Bhillai Holdings Pvt. Ltd. is also not in dispute because the assessee company has received unsecured loan from the assessee company in the past also and in the current year nature and source of share application money has been explained with the necessary evidence including premature withdrawals from FDRs by the share applicant. Thus, the assessee has successfully discharged the primary onus to establish the three ingredients, namely, identity and creditworthiness of the said sources of funds, casted on it. 15. In the above given facts and circumstances, we are inclined to hold that the assessee has successfully explained the nature and source of alleged sum and even the source of source has been proved by providing details of the funds received from other sources through banking channel which has subsequently been used to make investment in the equity capital of the assessee company. 16(a). Our view is further supported by the following judicial pronouncements:- i) The ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e share subscribers and genuineness of the transaction. The relevant part of the order, for the purpose of ready reference, is reproduced as under: "5. Conclusion: Ground No.1 & 2 I have considered the order of the A.O as well as the submission of the appellant. I have also considered the judicial decisions relied upon by the appellant. The facts of the case have already been discussed as above. It is observed that in the year under consideration the appellant company had raised share capital of Rs. 7,60,00,000/-from 6 parties. In the course of the assessment proceedings, to verify the receipt of share capital, the AO issued notices u/s.133(6) to all the 6 share applicants and in response, they all confirmed the transactions submitted the details/document in respect of the subscription of shares of the appellant. In the course of the appellate proceedings, the appellant filed copy of each of the assessment orders passed in all the 6 cases of the shareholders for that year in which the share subscription amount has been received by the assessee company. Besides, the income-tax return filing acknowledgment, Audited Balance and sheets as on 31.03.2012, relevant bank, copy of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e corpus becomes technically explained in the eyes of law, how can, the credits arising out of the same corpus can be viewed as unexplained u/s 68 of the IT Act. In view of the facts & circumstances of the case it is held that the addition of Rs. 7,60,00,000/- for the share capital raised by the appellant from 6 share applicants as unexplained cash credit u/s 68 of the Act was not justified and the same is directed to be deleted. The appeal of the assessee company on Grounds No.1 & 2 are treated as allowed. Ground no. 3 is general in nature, which does not require adjudication. 6. In the result, the appeal of the assessee is treated as allowed." 6. A perusal of the above concluding part of the order of the CIT(A) reveals that the ld. CIT(A) has not only taken note of the accounts of the share subscribers but also, noted that all the six share subscribers were assessed u/s 143(3) of the Act. Out of which, no additions were made in case of two share subscribers. However, in the case of other four share subscribers, the additions were made regarding their source of income. Now, it is settled law, once the addition has been made in the hands of the share subscribers, the invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Even if the directors of the subscriber companies have not come personally in response to the summons issued by the AO, in our view, adverse inference cannot be taken against the assessee solely on this ground as it is not under control of the assessee to compel the personal presence of the directors of the shareholders before the AO. The Ld. Counsel for the assessee has rightly placed reliance upon the decision of the Hon'ble Bombay High Court in the case of PCIT, Panji vs. Paradise Inland Shipping Pvt. Ltd. reported in (2017) 84 taxman.com 58 (Bom) wherein the Hon'ble High Court has held that once the assessee has produced documentary evidence to establish the existence of the subscriber companies, the burden would shift on the revenue to establish their case. Further the jurisdictional Calcutta High Court in the case of "Crystal networks (P) Ltd. vs CIT" (supra) has held as under: "We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore it shall be assumed that the assessee failed to prove the existe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P.) Ltd. (supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit. (f) In the above circumstances and particularly in view of the concurrent finding of fact arrived at by the CIT(A) and the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the identity of the lender, to prove the genuineness of the transactions and to establish the creditworthiness of the lender. The Assessing Officer had brushed aside these documents and in a very casual manner had stated that merely filing the permanent account number details, and balance sheet did not absolve the assessee from his responsibility of proving the nature of the transaction. There was no discussion by the Assessing Officer on the correctness of the stand taken by the assessee. Thus, going by the records placed by the assessee, it could be safely held that the assessee had discharged his initial burden and the burden shifted onto the Assessing Officer to enquire further into the matter which he failed to do. In more than one place the Assessing Officer used the expression "money laundering". Such usage was uncalled for as the allegation of money laundering is a very serious allegation and the effect of a case of money laundering under the relevant Act is markedly different. The order passed by the Assessing Officer was utterly perverse and had been rightly set aside by the Commissioner (Appeals). The Tribunal had rightly deleted the additions under section 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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