9911796707
TMI Blog2024 (9) TMI 1312X X X X Extracts X X X X X X X X Extracts X X X X ..... olution, Copy of investor company s PAN Card, Copy of Bank statement showing the payment by an account payee cheque, Income Tax return of the investor company for the year under consideration and of the previous year, copy of companies master data dated 31.03.2009 and 31.03.2015 as to show that the company are active and copy of confirmation and affidavit of the director of the investor company at the time of reassessment proceeding so as to confirm the investment made by the investor company. All this evidence so filed before the ld. AO has not been controverted including the affidavit of the director of the investor company. These evidences so filed proves the identity, credit worthiness and genuineness of the transaction. Here it is worthwhile to note that First Proviso to Section 68 wherein addition on account of Share Application Money / Share Capital can be made, stood inserted to the statue book, by Finance Act 2012, w.e.f. 01.04.2013 and therefore that addition made by ld. AO on account of Share Application Money u/s 68 for the year under consideration is not in accordance with law and it is made without considering the provision of law stood related to the year under consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le-1, Jaipur. 2. In this appeal, the assessee has raised following grounds: - 1. On the facts and in the circumstances of the case and in law, Id. CIT(A) has grossly erred in confirming the action of Id. AO in re-opening the assessment of the assessee u/s 147 of the Act arbitrarily. 1.1 That, Id.CIT(A) has further erred in confirming the reopening of assessment solely on the basis of statements of sh. Pravin Kumar Jain (a third party, not related to assessee in any manner) recorded during the course of search conducted at his premises. Appellant prays that reopening is thus made by Id.AO on borrowed satisfaction and without independent application of mind, which is not in accordance with law and order so passed deserves to be quashed. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) grossly erred in confirming the actions of Id. AO, in treating the share application money of Rs. 60,00,000/- received by assessee from various companies as undisclosed income of the assessee company arbitrarily. 2.1 That Id. CIT(A) further erred in confirming the action of Id. AO in making addition of Rs. 60,00,000/- without considering the submission made and evidence adduced. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gus share application money in the hands of the assessee. The assessee has suppressed its profits by taking accommodation entries of bogus share application money. Therefore, minimum income of Rs. 60,00,000/-has remained escaped to be taxed. Therefore, in terms of section 147 r.ws. 148 of the Act, after recording the reasons in this case, a notice u/s 148 of the Act dated 13.02.2015 was issued to the assessee, which was served upon the assessee. Vide letter dated 09-03-2015 assessee submitted that the original return of income filed u/s 139(1) may be considered as return filed in response to notice u/s 148 of the IT. Act. 3.3 During the assessment proceeding ld. AR of the assessee raised objections on the re-opening of the case and also requested to provide the statement of Shri Praveen Jain, which was provided to the assessee and the rest of the objections raised was disposed by the ld. AO. 3.4 Considering the reasons so recorded the ld. AO asked the assessee to furnish various details about the share application money. The assessee vide letter dated 21.03.2016 replies to the queries raised by the ld. AO. Thereafter, the assessee was asked to show cause as to why the accommodation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on truth it is well knows that no one will tell a lie especially harming one's own interest unless such a statement is true. In addition, the ld. AO discussed the various facts from the statement of Shri Praveen Kumar Jain wherein he confirmed that he is engaged in the accommodation entries and also controls the affairs of the various companies. Thus, based on these aspect of the matter as discussed in the order of the assessment the ld. AO held that Shri Praveen Kumar Jain has provided accommodation entry of Rs. 60,00,000/- to the assessee company though the dummy company M/s Alka Diamond Industries Ltd., Ms Anchal Properties P. Ltd., M/s Atharv Business P. Ltd. (Faststone Tred (I) Ltd, M/s Casper Enterprises P. Ltd. (Oswal Trading (I) P. Ltd.), M/s Nakshatra Business P. Lid. (Hema Trading Co. P. Ltd.), M/s Olive Overseas P. Ltd. (Realgold Trading Co. P. Ltd.) M/s Vanguard Jewels Ltd., managed by Shri Praveen Kumar Jain. Based on these ld. AO noted that the transaction made by the assessee with the concerns owned or operated by Shri Praveen Kumar Jain are non-genuine and there are only paper transactions that took place instead of actual transaction. Therefore, the share a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00,000/- declared as an entry in the books of account in the form of share application money from 7 private limited companies was assessee's own undisclosed income. Therefore, he brought the same to tax. Hence, this appeal, 8. The details of the compliance of the assessee in appeal proceedings, have already been described above in this appeal order. It has been contended that assessee has proved the credit by furnishing his own bank account showing the credit entries, by furnishing certificate (from a private practicing company secretary) reflecting active status of the 7 companies as on 31.07.2017 and the share application money was converted into allotted shares to the 7 investors and by pointing out that the 7 companies continued to be shareholders till 31.07.2017. However, the fact remains that the 7 investor companies were in the business of providing accommodation entries of various types and Shri. Pravin Kumar Jain had provided accommodation entries to various beneficiaries from the said companies as well as many other companies controlled by him and many beneficiaries had admitted the fact when confronted by the Income Tax Department. Moreover, the financials of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A), wherein ld. CIT(A) arbitrarily dismissed the appeal of assessee without considering the submission made, evidence adduced before him and soley relying upon the information received from the Investigation Wing and statement of Shri Praveen Kumar Jain through the same was retracted by him on 15.05.2014 (APB 17-21). Aggrieved by the order of ld. CIT(A), assessee company has preferred a present appeal before the Hon ble Bench. Grounds of Appeal Nos. 1: In these grounds of appeal, assessee has challenged the reopening of assessment u/s 147 of the Income tax Act, solely on the basis of information received from the DGIT (Inv.) Mumbai. Facts pertaining to the grounds of appeal are that the case of assessee was reopened on the basis of following information: Reasons for the belief that income has escaped assessment The assessee M/s Padmawati Agrico (India) Pvt. Ltd. filed its Return of income for AY 2010-11 on 25.09.2010 declaring total income as Nil. The return was processed u/s 143(1) on 28.04.2011. As per the information available on record, it is found that the assessee has received accommodation entries from Sh. Praveen Kumar Jain, in whose case search was conducted at Mumbai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y reproduced the contents as mentioned in the information supplied to him, based on which he initiated the reassessment proceedings. On receiving reasons recorded, the assessee raised objections to against reopening vide letter dated 07.12.2015 (APB 22-23) primarily objecting to recording of reasons done in a mechanical manner, i.e. on discussion of general information and modus operandi of entry providers and not specifically mentioning as to how transaction of assessee was also accommodation entry how funds have been routed for such alleged accommodation entry. Also, neither statements recorded nor any such information wherein name of assessee was appearing was supplied to the assessee. It is further relevant to state that ld. AO disposed-off the objection raised by assessee vide notice dated 22.02.2016 (APB 24-26) in mechanical manner, wherein ld.AO straightaway solely relied upon the information received from Investigation wing and repeated the same. It simply shows that Ld.AO himself was not sure while forming his belief for re-opening, as to whether there was actually escapement of Income or not. On perusal of aforesaid para, it is relevant that ld.AO formed belief regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment and not in a mechanical manner as has been done in the case in hand. The re-opening of the case based on the borrowed satisfaction on the information provided by some other official without in any manner recording his own independent satisfaction deserves to be held illegal. In this regard reliance is placed on the decision of Hon ble Delhi High court in case of Sarthak Securities Co. Pvt. Ltd. Vs. ITO reported in 329 ITR 110 wherein it has been held as under: Reassessment Notice Condition precedent Formation of belief that income escaped assessment Assessing Officer treating share application money as bogus accommodation entries Payments through banking channel and companies investing money genuine No independent application of mind by Assessing Officer but acting under information from investigation wing Notice to be quashed Income Tax Act, 1961, ss. 147, 148. Uma Strips Ltd. vs DCIT 3284/Del/2019 decision dated 11.05.2022 (Delhi ITAT) (decision para reproduced): 9. From the above, we find that there is no live link presented by the AO between the material available with him i.e. the report of the investigation and to reason to belief that the assessee has tried to evade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... na Acrylic Manufacturing Co. v. CIT [2008] 175 Taxman 262 (Delhi) it was held by the Hon ble Delhi High Court that notice under section 148, giving reason that it had come to his notice that assessee had taken accommodation entries from 'H' during relevant year when assessee, in course of original assessment proceedings, had supplied all relevant details; in assessment order which were verified and moreover, in reasons supplied to assessee there was no allegation that it had failed to disclose fully and truly all material facts necessary for assessment and because of its failure there had been an escapement of income chargeable to tax, reopening of assessment after expiry of four years from end of relevant assessment year was without jurisdiction. It is further relevant to state that ld. CIT(A) during the course of appellate proceedings without adjudicating on the legal ground and solely on the basis of information of third party confirmed the additions made by ld. AO. Thus In the circumstances it is submitted that there was no independent application of mind neither by Ld. AO while issuing notice u/s 148 nor by ld. CIT(A) while passing the order. They simply proceeded on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment proceedings as well as appellate proceedings assessee submitted necessary evidences regarding receipts of share application money from the above parties before the Ld. AO as well as Ld. CIT(A) details of which are summarized as under 1. Copy of documentary evidences to prove identity, creditworthiness and genuineness of M/s Alka Diamond Ind. Ltd. a. Copy of Share application form 60-61 b. Copy of Board Resolution 62-63 c. Copy of PAN Card 64 d. Copy of Bank Statement 65 e. Copy of ITR for A.Y. 2009-10 2010-11 66-67 f. Copy of company master data as on 31.03.2009 31..03.2015 68-69 g. Copy of Confirmations Affidavit 70-73 2. Copy of documentary evidences to prove identity, creditworthiness and genuineness of M/s Anchal Properties Pvt. Ltd. a. Copy of Share application form 74-75 b. Copy of Board Resolution 76-77 c. Copy of PAN Card 78 d. Copy of Bank Statement 79 e. Copy of ITR for A.Y. 2009-10 2010-11 80-81 f. Copy of company master data as on 31.03.2009 31..03.2015 82-83 g. Copy of Confirmations Affidavit 84-87 3. Copy of documentary evidences to prove identity, creditworthiness and genuineness of M/s Athrav Business Pvt. Ltd a. Copy of Share application form 88-89 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory It is further relevant to state that First Proviso to Section 68 wherein addition on account of Share Application Money/ Share Capital can be made, stood inserted to the statue book, by Finance Act 2012, w.e.f. 01.04.2013 and therefore that addition made by ld. AO on account of Share Application Money u/s 68 for the year under consideration is not in accordance with law and deserves to be deleted. In this regard reliance is being place on the decision of Hon ble Bombay High Court in the case of Commissioner of Income Tax 1 vs. M/s Gagandeep Infrastructure Pvt. Ltd. reported in 394 ITR 680, wherein it is held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me any consideration received for issue of share in excess of its fair market value. This came into the statute only with effect from April 1, 2013 and thus, would have, no application to the share premium received by the respondent-assessee in the previous year relevant to the assessment year 2012-13. Similarly, the amendment to section 68 of the Act by addition of proviso was made subsequent to previous year relevant to the subject assessment year 2012-13 and cannot be invoked. It may be pointed out that this court in CIT v. Gagandeep Infrastructure Pvt. Ltd. (Income Tax Appeal No. 1613 of 2014, dated March 20, 2017) MANU/MH/1274/2017 : [2017] 394 ITR 680 (Bom) has while refusing to entertain a question with regard to section 68 of the Act has held that the proviso to section 68 of the Act introduced with effect from April 1, 2013 will not have retrospective effect and would be effective only from the assessment year 2013- 14. Further from the perusal of section 68, it is evident that assessing officer can make addition u/s 68 only under two circumstances, i.e.: (i) Appellant does not offer any explanation about nature and source of such credit or (ii) Explanation offered by Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no onus on the assessee to prove source of source. Once the assessee is able to establish that he has in fact received money from third party, it can t be burdened with a further onus of establishing the source from which such third party had been able to obtain the money. Reliance is placed on the following decisions: - a. 24 Tax World 146 Sideways Investment Pvt. Ltd. Vs DCIT (JP ITAT) b. 87 ITR 349 CIT Vs. Daulat Ram Rawatmal (SC) c. 103 ITR 344 Saraogi Credit Corp. Vs. CIT (PAT) It is further relevant to state that on perusal of the assessment order it is evident fact that the Ld. AO has summarily rejected the evidence submitted by the assessee and made no effort to bring on record some material to support his conclusion that during the year under appeal assessee has received share application money from bogus parties and the transaction entered was not genuine. The Ld. AO on the basis of the information supplied by the Directorate of Investigation, Mumbai and the on the basis of statement pf Shri Praveen Kumar Jain (which was later on retracted vide affidavit dated 15.05.2014) has concluded as under 7.1. From the above, it is clearly established that Shri Praveen Kumar Jai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the share application money was converted into allotted shares to the 7 investors and by pointing out that the 7 companies continued to be shareholders till 31.07.2017. However, the fact remains that the 7 investor companies were in the business of providing accommodation entries of various types and shri. Pravin Kumar Jain had provided accommodation entries to various beneficiaries from the said companies as well as many other companies controlled by him and many beneficiaries had admitted the fact when confronted by the Income Tax Department. Moreover, the financials of the assessee do not have anything to invite/attract an independent person to invest in the assessee company. In view of these facts, I find that AO was justified in treating the amount of Rs. 60,00,000/- as undisclosed income of the assessee. Accordingly, the addition made on made on that account is confirmed On perusal of aforesaid observation made by ld. CIT(A), it clearly evident that addition has been confirmed solely on the basis of statement of third party which were recorded by some other officials behind the back of assessee. It is further relevant to state that ld. CIT(A) further failed to take cogni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon ble Supreme Court has held that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but if cannot be regarded as undisclosed income of the assessee company. In case of the assessee, the assessee has not only given the names and addresses of the shareholders but has also given their PANs. Further assessee to prove genuineness of the transaction also submitted the Share Application form, Board Resolution, ITR s, Confirmation and Affidavit from investors. On the above facts, the decision of the Hon ble Apex Court in the case of CIT V/s. Lovely Exports (P) Ltd. (supra) reported in 216 CTR 195 as well as the decision of the Hon ble Chhattisgarh High Court in the case of Venkateshwar Ispat (P) Ltd. (supra) are squarely applicable as the assessee has filed the necessary confirmation and other particulars of shareholders and incidentally all the subscribers are Private Limited Companies and the appellant had received the application money through banking channel. In view of above facts it is therefore s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted I.T. Act, 1961, ss. 68, 69, 69A, 69B, 69C. 3. 100 ITTD 5 (Jodh.) (T.M.) Uma Polymers (P) Ltd. Vs. DCIT, Sp. Range Section 68 of the Income Tax Act, 1961 Cash credits Assessment year 1989-90 Whether distinction between a public and a private limited company is not very material, as far as introduction of share capital money is concerned Held, yes Whether in respect of share application money received from investors, assessee company has to prove only existence of person in whose name share application is received Held, yes Whether if identity of creditor is established, then burden to prove that money advanced by creditor did not belong to him but to somebody else is on revenue who has to find real investor and, if any shareholder is found to have made unexplained investment, then addition of such investment is required to be made in hands of shareholder and not in account of assessee Held, yes Whether where assessee company had received share application money through banking channels and it had submitted detailed list of shareholders, their GIR Nos. and income tax particulars and their bank statements, identity of share holders was fully established and, therefore, no addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. In light of the contentions raised above, supported with the relevant case-laws, it is most humbly submitted that the addition of Rs. 60,00,000/- on account of treating the share application money received from various companies as undisclosed income of assessee, despite of fact that assessee company duly substantiated its claim with necessary documentary evidence. Thus the addition so made by ld. AO and confirmed by ld. CIT(A) solely on the basis of generalised information received from other wing of department which remained uncorroborated is against the law and deserves to be deleted. 6. To support the contention so raised in the written submission reliance was placed on the following evidence / records / decisions: S. No. PARTICULARS PAGE NOS. 1. Copy of Return of Income, Acknowledgement and Computation of Total Income filed u/s 139(1) of Income Tax Act, 1961. 01-03 2. Copy of Audited report and balance sheet for the year ending 31.03.2010 04-14 3. Copy of Letter dated 09.03.2015 seeking reasons for re-opening assessment. 15 4. Copy of the notice dated 12.02.15 wherein reasons for re-opening assessment was provided. 16 5. Copy of Retraction dated 15/05/2014 by Sh. Praveen K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss Pvt. Ltd. a. Copy of Share application form 117-119 b. Copy of Board Resolution 120-121 c. Copy of PAN Card 122-123 d. Copy of Bank Statement 124 e. Copy of ITR for A.Y. 2009-10 2010-11 125-126 f. Copy of company master data as on 31.03.2009 31..03.2015 127-128 g. Copy of Confirmations Affidavit 129-132 17. Copy of documentary evidences to prove identity, creditworthiness and genuineness of M/s Olive Overseas Pvt. Ltd. a. Copy of Share application form 133-134 b. Copy of Board Resolution 135-136 c. Copy of PAN Card 137 d. Copy of Bank Statement 138 e. Copy of ITR for A.Y. 2009-10 2010-11 139-140 f. Copy of company master data as on 31.03.2009 31..03.2015 141-142 g. Copy of Confirmations Affidavit 143-146 18. Copy of documentary evidences to prove identity, creditworthiness and genuineness of M/s Vanguard Jewels Pvt. Ltd. a. Copy of Share application form 147-148 b. Copy of Board Resolution 149-150 c. Copy of PAN Card 151 d. Copy of Bank Statement 152 e. Copy of ITR for A.Y. 2009-10 2010-11 153-154 f. Copy of company master data as on 31.03.2009 31..03.2015 155-156 g. Copy of Confirmations Affidavit 158-160 18. Copy of Written Submission filed on 25/07/2017 before ld. CIT(A), NFA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by the decision of the apex court in the case of Lovely Exports as the assessee has provided all the details related to the identity, genuineness and credit worthiness of all those companies who have made investment in the assessee company. All the details to prove the identity, genuineness of the transaction, capacity for making investment were placed on record and the ld. AO has not controverted the factual aspect of the matter. 8. Per contra, the ld. DR is heard who relied on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A). The ld. DR stated that the case of the assessee was validly re-opened based on the investigation wing report and based on the detailed search conducted and the material collected by the revenue. Thus, based on that tangible material the case of the assessee has rightly been re-opened and in support of this contention he relied upon the decision of the apex court in the case of Raymond Woollen Mills Ltd. Vs. ITO [ 236 ITR 24(SC) ] As regards the merits of the case Shri Praveen Kumar Jain he based on the information unearthed by the revenue has categorically confirmed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and the addition has been made ignoring the evidence placed on record. The brief facts related to the grounds so raised are that the assessee filed the return of income declaring loss of Rs. 23,590/-. The case of assessee was reopened on the basis of information received by ld. AO from the office of DGIT (Inv.) Mumbai, wherein Investigation Wing reported that Shri Praveen Kumar Jain was indulged in providing accommodation entries in the form of bogus share application from various entities including from M/s Alka Diamond Industries Ltd., M/s Anchal Properties P. Ltd., M/s Atharv Business Pvt. Ltd., M/s Casper Enterprises Pvt. Ltd., M/s Nakashatra Business Pvt. Ltd., M/s Olive Overseas Pvt. Ltd. M/s Vanguard Jewels Pvt. Ltd. Based on said information from ld. DGIT (Inv), it was presumed by ld.AO that share application money worth Rs. 60,00,000/- received by assessee from aforesaid companies is also the accommodation entry obtained to reroute unaccounted money and therefore, proceeding u/s. 147 r.w.s. 148 was initiated after recording the reasons and notice u/s. 148 date 13.02.2015 was issued to the assessee. Vide letter dated 09.03.2015 assessee requested ld. AO to consider orig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te proceedings assessee submitted necessary evidence regarding receipts of share application money from the above parties before the Ld. AO as well as Ld. CIT(A). The documents so submitted for all these investor companies consists of Copy of Share Application form, Copy of Board Resolution, Copy of investor company s PAN Card, Copy of Bank statement showing the payment by an account payee cheque, Income Tax return of the investor company for the year under consideration and of the previous year, copy of companies master data dated 31.03.2009 and 31.03.2015 as to show that the company are active and copy of confirmation and affidavit of the director of the investor company at the time of reassessment proceeding so as to confirm the investment made by the investor company. All this evidence so filed before the ld. AO has not been controverted including the affidavit of the director of the investor company. These evidences so filed proves the identity, credit worthiness and genuineness of the transaction. The provision of section 68 as it stood for the year under consideration reads as under : 68. Where any sum is found credited in the books of an assessee maintained for any previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation 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& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence submitted by the assessee and made no effort to bring on record some material to support his conclusion that during the year under appeal assessee has received share application money from bogus parties and the transaction entered was not genuine. He merely based on the information supplied by the Directorate of Investigation, Mumbai and the on the basis of statement pf Shri Praveen Kumar Jain (which was later on retracted vide affidavit dated 15.05.2014) made the additions. When the matter carried to the ld. CIT(A) by the assessee the Ld. CIT(A) who has summarily rejected the claim of the assessee and evidences brought on record by the assessee by holding that; . However, the fact remains that the 7 investor companies were in the business of providing accommodation entries of various types and shri. Pravin Kumar Jain had provided accommodation entries to various beneficiaries from the said companies as well as many other companies controlled by him and many beneficiaries had admitted the fact when confronted by the Income Tax Department. Moreover, the financials of the assessee do not have anything to invite/attract an independent person to invest in the assessee company. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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