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TMI Blog2025 (1) TMI 521X X X X Extracts X X X X X X X X Extracts X X X X ..... actions and whether such transaction has been accepted by the AO in the case of the Creditors but instead of adopting such course, the AO himself could not brand the creditors as unworthy of credence - so long as it is not established that that return submitted by the creditor/subscriber has been rejected by its AO, the AO of the assessee is bound to accept the same as genuine when the identity of creditor and genuineness of the transactions through account payee cheque has been established. Similarly, in the case of PCIT Vs. Naina Distributors Pvt. Ltd. [ 2023 (6) TMI 1362 - CALCUTTA HIGH COURT] has decided the issue in favour of the assessee by holding that mere non-production of director cannot be the ground for making any addition in the hands of assessee u/s 68 of the Act. Reopening based on borrowed satisfaction - We find that the ld. AO in the reason recorded referred to the search material found during the course of search and also post search enquiries that the assessee was a beneficiary of bogus share capital. We note that that the ld. AO has not made any enquiry and just reached a conclusion that income has escaped assessment and thus reopened the assessment based on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmodation entries in the form of share capital. The assessee filed before the ld. AO in respect of three subscribers, copy of ITRs, board resolution, applications for allotment of equity shares, bank statements, audited financial statements, form 1 and master datas of the subscribers and also filed the details of allotment made during the instant financial year. The copies of audited financial statement, bank statement, annual return, etc. for relating to the assessee were also furnished. The ld. AO also issued notices u/s 131 of the Act for independent verification, requiring personal attendance of the subscriber companies which were returned back. Thereafter, the ld. AO issued show cause notice u/s 09.12.2029, giving the final opportunity to the assessee to produced the directors of the subscriber companies. The same remained non-complied with. Finally, the ld. AO concluded that the money raised by the assessee was not explained as the assessee failed to establish the identity, creditworthiness of the subscribers and genuineness of the transactions and added the same to the income of the assessee u/s 68 of the Act in the assessment framed u/s 143 read with section 147 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order, it is observed that the AO made the additions on the following grounds. i. The share subscribers were not found in the given address ii. The assessee did not produce the director of the subscriber company. iii. Share applicant companies disclosed meagre income The documents submitted by the appellant have been perused. The appellant has stated that the share applicant companies regularly filed their income tax returns. As per documents placed on record, it is observed that all the share applicant companies regularly file their income tax returns which are duly processed u/s 143(1). It is observed that all the three share applicant companies filed their return(s) of income in A.Y: 2013-14. From the audited books of account of the three share subscriber companies, viz. the following facts emerge: Name of the Share Subscriber Company Total own funds as on 31.03.2012 Investment with assessee M/s Dynamic Sarees Pvt. Ltd. Rs.1,32,38,456/- Rs.72,00,000/- M/s Berhampore Finance 86 Leasing Pvt. Ltd. Rs. 32,91,75,291/- Rs.67,00,000/- M/s Pilot Barter Pvt. Ltd Rs.3,68,88,760/- Rs. 11,00,000/- Evidently all the share applicant companies had sufficient funds with them for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transaction, identity creditworthiness of the shareholders: (i) share applications (ii) allotment letters (iii) MOA and AOA of the shareholders (iv) Financial statement of the relevant Assessment years, (v) copy of bank statements (vi) Form No. -2 being the return of allotment filed before ROC (vii) Master Data of the Shareholder taken from ROC showing all the companies as active (viii) details of registered office of the companies as per www.mca.gov.in. (ix) Schedule of the balance sheet of the shareholder from FY 201213 to 2017- 18 showing that they were holding the shares of assessee company from ROC which also proved that they were regularly making compliance under company law. (x) PAN No. of allottee company. The AO states that the parties were not found at the given address. However, in the case of Vinod Nirman Pvt Ltd., a group concern, which has also been assessed u/s 147/143(3) the AO has discussed that as per the Inspectors Report submitted before ADIT(Inv) Unit-3(4), that the Inspector was able to serve notice u/s 131 on the three companies at the registered office of the companies on 15.02.2016. During the course of assessment proceedings or appeal proceedings, howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch were duly processed u/s 143(1), their identity cannot be placed under doubt, especially owing to the fact that the Departmental Inspector was able to locate their office and serve the summons upon them, besides the fact that one of the share applicants investing in a group concern of the appellant has been accepted. Therefore, I find that the appellant has been able to discharge his onus towards establishing the identity, creditworthiness of the share applicants as well as the genuineness of the transactions. The AO on the other hand, made no further enquiries in respect of the documents submitted by the appellant. So, in absence of any cogent evidence from the AO, no doubt can be raised on creditworthiness of these companies. The transactions were also made through banking channels and therefore it is hard to doubt the genuineness of these transactions. The appellant has submitted a plethora of judgements in support of his contention. I find that various courts including the Hon. Jurisdictional High Court has held that where the assessee offers an explanation to the AO by placing evidence regarding the identity of the investor along with relevant documentary evidences such as r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee therein u/s 68 of the Act, held that after getting the PAN number and getting the information that the creditor is assessee under the Act, the Assessing Officer should enquire from the Assessing Officer of the creditor as to the genuineness of the transaction and whether such transaction has been accepted by the Assessing Officer of the Creditor but instead of adopting such course, the Assessing Officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. The Hon'ble High Court further held that so long as it is not established that the return submitted by the creditor (subscriber shareholder) has been rejected by its Assessing Officer, the Assessing Officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness of transaction through account payee cheque has been established. In a very recent judgement, the Hon'ble Calcutta High Court in the case of PCIT Vs. Naina Distributors Pvt. Ltd. in ITAT/113/2023, IA No. GA/1/2023 dated 28.06.2023 has decided the issue in favour of the assessee by holding that mere non-production of director cannot be the ground for making a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant to the enquiry conducted in response to the notices issued under Section 133(6) of the Act. The learned Tribunal also referred to the decision of this Court in the case of Crystal Networks Pvt. Ltd. Vs. CIT reported in 353 ITR 171 (CAL). Thus we find that there is no question of law much less substantial question of law arising for consideration in this appeal. Accordingly, the appeal fails and is dismissed. Owing to the above discussion, I cannot agree with the contention of the AO that the identity, creditworthiness and genuineness of the transaction were not proved. The addition of Rs. 1,50,00,000/-, therefore, cannot be sustained and stands deleted. This ground is allowed. Ground 2 Additional Grounds 1 2 In respect of the discussion made in Ground No.1, these grounds being other legal grounds are now redundant and academic in nature, need no adjudication. Ground 3 is general in nature and needs no adjudication. In the result, the appeal is allowed. 06. After hearing the rival contentions and perusing the materials available on record, we find that the case was reopened u/s 147 of the Act on the basis of information found during search operation that the assessee was benefic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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