TaxTMI 
TaxTMI 
2017 (1) TMI 1443
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....inctly and separately on the sales bills. The Assessing Officer on this basis, concluded that no prudent businessman shall omit to receive charges from his customers which have been incurred by him. The assessee challenged this addition before ld. CIT(Appeals) and it was submitted that assessee company has claimed jewellery making charges of Rs. 17,68,793/- in his trading account on the basis that same has not been charged in the sale bills. The Assessing Officer in the assessment order noted that assessee has converted gold bars into jewellery. Thus, it is but evident that this conversion could not take place without incurrence of making charges. Further, the assessee company has maintained Issue & Receipt Register on which the movement of stock inwards or outwards has been correctly recorded. TDS has been deducted on the jewellery making charges wherever applicable. Thus, there could be no doubt on genuineness of the expenses incurred. Further, the Assessing Officer has estimated income by applying GP rate by rejecting the books of account, however, in the present case, assessee's Gross Profit rate was accepted because assessee has shown more GP as against computed by the Ass....
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....tion of the books of account under section 145(3) of the Act. The assessee has maintained proper records and movement of the stock and TDS has been deducted on jewellery making charges wherever applicable. Therefore, in such circumstances, the disallowance made by the Assessing Officer was highly unjustified which have been correctly deleted by the ld. CIT(Appeals). This ground of appeal of the revenue has no merit, same is accordingly dismissed. 5(i) In assessment year 2009-10, revenue has raised similar ground No. 1 challenging the deletion of addition of Rs. 58,09,670/-. It is noted in the impugned order that Assessing Officer has applied gross profit rate @ 6% of the total sales of jewellery items and gross profit rate of 3% on pure gold sales without recording any basis to adopt the same and without confronting assessee with the proposed addition of comparative gross profit rate. The Assessing Officer made this addition on account of low gross profit rate. The ld. CIT(Appeals) noted that it is a fact that same Assessing Officer has accepted the gross profit rate shown by the assessee on the basis of the books of account maintained by him for assessment year 2008-09. The fal....
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.... did not approve rejection of the books of account. In these circumstances, we do not find any infirmity in the order of the ld. CIT(Appeals) in deleting the addition. This ground of appeal of the revenue is also dismissed. 6(i) In the result, Issue No. 1 is decided against the revenue in both the assessment years under appeal. ISSUE NO. 2 7. In assessment year 2008-09, revenue on ground No. 2 challenged the deletion of addition of Rs. 14,790/- This addition pertains to disallowance of repair charges on old jewellery which have been disallowed by the Assessing Officer on the ground that they do not found mention in the sales bills. The assessee submitted before ld. CIT(Appeals) that repair charges are in-fact the net amount of repair charges paid by the assessee company on old jewellery got repaired from the job workers and repair charges claimed from customers against repair of jewellery belonging to the customers. These repair charges have been paid on assessee's own jewellery and also on jewellery received from customers for repair purposes. On receipt of jewellery from customers, a repair slip is prepared. Repair charges paid to job workers on its repair is written....
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....onfirmed his findings. This ground of appeal of the revenue is, therefore, identical as have been considered in assessment year 2008-09. This ground of appeal of the revenue is accordingly dismissed. 9(i) Issue No. 2 is, therefore, decided against the revenue. ISSUE NO. 3 10. On ground No. 3 in assessment year 2008-09, revenue challenged the deletion of addition of Rs. 11,17,80,000/-. On ground No. 4 in assessment year 2008-09, revenue challenged the deletion of addition of Rs. 1 lac. 11. In assessment year 2009-10, revenue on ground No. 3 challenged the deletion of addition of Rs. 6,37,20,000/- and on ground No. 4 revenue challenged the deletion of addition of Rs. 4,50,000/-. Ld. Representatives of both the parties submitted that issue is same in both the appeals of the revenue. Both the parties mainly argued on the basis of facts considered in assessment year 2008-09. Therefore, for the purpose of disposal of this issue, the facts are taken and considered from assessment year 2008-09. 11(i) The Assessing Officer made additions of Rs. 11,17,80,000/- and Rs. 1 lac on account of unexplained share premium. The Assessing Officer in this regard has observed in para 5 of ....
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....and Sumati Dayal 214 ITR 801 and treated the share premium amounting to Rs. 11,78,80,000/- as unexplained under section 68 of the Income Tax Act. The Assessing Officer also observed that M/s Puneet Fashion Pvt. Ltd. has subscribed 10000 shares @ Rs. 100/- per share including premium of Rs. 90/- per share. Since genuineness and credit worthiness of M/s Puneet Fashion Pvt. Ltd. could not be explained, therefore, it was also treated as unexplained and further addition of Rs. 1 lac was made under section 68 of the Act. 12. The assessee challenged both the additions before ld. CIT(Appeals) and submitted his arguments on these issues which are incorporated in the impugned order and read as under : "The Ld. A.O. has added Rs. 11,17,80,000/- received on account of Share premium, credited in the books, 'arbitrarily on the basis of surmises and conjectures, which is against justice and natural law of Justice. 5.1 Before going through further we want to reiterate the facts and Circumstances of the case in summary manner, regarding this issue before your honour, which are as under:- Assessee is engaged in the retail as well as whole sale business of jewellery. A search....
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.... based companies in M/s Radhe Sham Jain Diamond jewelers Group, Ludhiana, except few discrepancies regarding difference of amount or difference of year of investment. 5.1(f) The Ld. A.O. on receiving the report of Ld. DDIT, Kolkata issued a letter dt. 20.03.2014 to assessee to explain the discrepancies as pointed out in the commission report received from Kolkata. In response to which assessee explained the each and every discrepancy vide his reply dt. 21.03.2014. 5.1(g] Thereafter in response to a letter dt. 27.03.2014 issued to Joint Director of Income Tax (Inv.) Ludhiana for their comments on the report of DDIT Kolkata, there reply received on 28.03.2014 also without any adverse interference, Certified copy enclosed at page no.62. 5.1(h) In our case on this issue not only proper explanations are on the record but also assessee have fully discharged his onus regarding identity of the subscribers, their credit worthiness' and genuineness of the Transactions and further enquiries made by Ld. A.O. also strengthen the issues regarding identity of the subscribers, their credit worthiness and genuineness of the transactions, directors produced before the ....
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....l established principal in the eyes of law that if assessee prove the identity, credit worthiness of the subscribers and genuineness of the transaction then section 68 cannot be invoked. In the present case assessee had provided the names, addresses, pan no's, amount received along with relevant details. Further information received in response to notices issued u/s 133 (6) of the Act. Ld. A.O. has not objected on the confirmations, documents attached with the confirmations, credit worthiness of the subscribers, genuineness of the transactions and source of investments explained by the subscribers in their respective reply. In response to further enquiries made by Ld. A.O. the report of DDIT Kolkata is self explanatory about the identity, credit worthiness, and genuineness of transactions and also in this report no adverse inference drawn except few discrepancies, which also have fully explained by the assessee and on record. No adverse inference drawn by the Joint Director of income Tax (Inv.)., Ludhiana in their comments on the report of DDIT, kolkata dated 28.03.2014 Reliance is being placed on i) Acron Finance (P) Ltd. V CIT (2011) 238 CTR (P&H) 3....
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....s of the assessee had not rejected or rebutted by the revenue at any stage during the whole assessment proceedings. At each and every stage of assessment proceedings ss and when Ld. A.O. asked for, assessee filed the explanations as well as evidences in support of their explanations. Neither any explanation nor any evidences in support of explanations filed rejected by the revenue or record their dissatisfaction or rebuttal of the same. Ld. A.O. had not pointed out any inherent weaknesses or short coming" in the information on record, whether provided by the assessee or collected by at his own. All the explanations as well as evidences on record are factual. There is no evidence to show that the transactions were sham. Hence addition made under section 68 is unjustifiable as well as against law of natural justice. Reliance is being placed on (i) Sree Lekha Banerjee vs CIT (1963) 49 ITR 112 (SC) (Held: Before the Department rejects such evidence it must either show an inherent weakness in the explanation or rebut it by putting to the assesses some information or evidence which it has in its possession. The Department cannot by merely reje....
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....edits-sale proceeds of jewellery-Gold and Silver jewellery sold by assessee to family members- Said jewellery was disclosed under VDIS and the CIT had issued a certificate therefore- Assessee had filed detailed description of purchases of jewellery and its valuation at the time of declaration under VDIS- Declaration Is not disputed by the Revenue- Assessee has explained the nature and source of credits with supporting evidence- First appellate authority as well as the Tribunal have given a finding that there is no material on record to suggest that the transaction was sham- Concurrent findings are based on valid material and evidence- Therefore, the sum received on "amount of sale of jewellery cannot be charged to tax under s. 68- No substantial question of law arises) 5.3(c) Revenue had not disputed any of the facts of the case at any stage of assessment proceedings. Ld. A.O. had not confronted any disputed fact to stage of assessment proceedings on which difference of opinion exists. In the absence of the same this impugned addition is against facts of the case as well as against law. Reliance is being placed on : i) Murlidhar Lahorimal Vs CIT ....
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....Jain Diamond Jewellers group. It is pertinent to mention here that the Ld. DDIT has not drawn any adverse opinion regarding the investment as well as the source of investment by Kolkata based companies in M/s Radhe Sham Jain Diamond jewelers Group, Ludhiana, except few discrepancies regarding difference of amount or difference of year of investment. The Ld. A.O. on receiving the report of Ld. DDIT, Kolkata issued an letter dt. 20.03.2014 to assessee to explain the discrepancies as pointed out in the commission report received from Kolkata. In response to which assessee explained the each and every discrepancy vide his reply dt. 21.03.2014. No adverse inference drawn from the same on record. Thereafter in response to a letter dt. 27.03.2014 issued to Joint Director of Income Tax (Inv.) Ludhiana for their comments on the report of DDIT Kolkata, there reply received on 28.03.2014. No adverse inference drawn from the same on record. When there is neither any adverse Inference on record in respect of whole enquiries nor any adverse materiel or evidences on record, then the addition made is fully unjustifiable and without any reasonable ground. 5.3(e) Revenue h....
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....ddition. Hence this addition is against the facts of the case, as well as law. Reliance is being placed on (i) CIT vs Lovely Exports (P) Ltd. (2008) "216 CTR (SC) 195 (Income-Cash credit-Share application money-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 it cannot be regarded as undisclosed income of assessee company) 5.3(g) Addition made on the basis of doubts, suspicion, surmises, conjectures, and acting unreasonably is net maintainable. Having regard all as above, this addition has been made purely on the basis of doubts, suspicion, surmises, conjectures and acting unreasonably Reliance is being placed on (i) Roshan di Hatti vs CIT (1977) 107 ITR 938 (SC) Conclusion arrived at that Tribunal having acted without material or in any event the finding of fact reached by the Tribunal being unreasonable or such that no person acting judicially and properly instructed as to the relevant law would come to such a finding, suc....
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....ng the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting as a whole. When a Court of fact acts on material partly and partly irrelevant, it is impossible to say to what extent the mind of the Court was affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use of inadmissible material and thereby an issue of law arises. Likewise, if the Court of fact bases its decision partly on conjectures, surmises and suspicions and partly on evidence, in such a situation an issue of law arises). (v) Rajendran & Ors Vs ACIT (2007) 291 ITR 178 (Mad) (Income-Cash credit-Gift from NRI-Donor is a wellsettled industrialist in UK-He has confirmed that he had made the gifts as a gratitude for the help rendered by one of the assessees to his father which enabled him to come up in life-All the gifts came through proper banking channel- Donor appeared before the Department and has given all the details-Thus, assessees have established the identity of the donor and his solvency-Reasons to reject the explanation of the assessees in each case in the re....
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....roceedings) 5.4 (Conclusion) Ld. A.O. while making this addition u/s 68 of the Act., ignored the assessee explanations, facts & circumstances of the case, confirmations received u/s 133(6) of the Act., enquiry report of Ld, DDIT, Kolkata, comments of the Joint Director of Income Tax -(Inv.), Ludhiana and acted unreasonably, arbitrarily, without any sufficient ground or adverse material on record or without pointing out any inherent weaknesses or without rejecting, disputing or rebutting any explanation, evidence, reports etc. Assessment order itself states that this newly incorporated company takes over the running business of M/s Jain Diamond Jewellers, a proprietorship firm as a going concern, which established in 1995t occupied an established showroom at prime location of the jewelers market, having a large numbers of premium customers, book value of shares comes to Rs. 410.90 on the basis of market value of the stocks. There is nothing in the assessment order as well as on the record, that these facts and figures are wrong or not satisfactory. Since there is no end or limits- in respect of suspicion, surmises or conjecture, so the glaring issues as no....
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.... he has verified identity of the companies, the genuineness and source of investment. After receiving the report of DDIT(Inv.), Unit IV(1), Kolkata the matter was taken up with the Addl. DIT(Inv.), Ludhiana for giving his comment on the report of the DDIT(Inv.), Kolkata, The Addl. DIT(Inv.), Ludhiana vide letter No.Joint DIT(Inv.)/Ldh/2013-144/2085 dated 28.03.2014 had communicated certain discrepancies. The undersigned has verified such discrepancies as pointed out by the DDIT (lnv.) Unit-IV(l), Kolkata and Addl. DIT(Inv.), Ludhiana and no adverse inference was drawn on this account except as discussed in the body of the order and this view has been brought on record. During assessment I have gone though the report submitted by the DDIT(inv.) Unit IV(l), Kolkata and documents enclosed with that report and reply of the assessee and hence no adverse inference was drawn on account of investment in shares. The copy of the report received from DDIT(Iny.) Unit-IV(l), Kolkata sent vide his office letter no.9725 dated 19.03.2014 is enclosed. It is further submitted that the discussion regarding the report of DDIT(Inv.) Unit-IV(l), Kolkata had been made in the office note of the a....
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....ecord. Further, Assessing Officer has issued commission under section 131(1)(d) of the Income Tax Act to DDIT (Investigation) at Kolkata after due deliberation with the CIT Central, Ludhiana and DIT (Investigation) Ludhiana in order to conduct detailed inquiry into identity/credit worthiness and genuineness of transfer of share application money received by he assessee. The detailed inquiry conducted by Investigation Wing at Kolkata were intimated to the Assessing Officer which is reproduced in the impugned order. 16. The ld. CIT(Appeals) on going through the report of DDIT (Investigation) Kolkata noted that facts have been verified by the Assessing Officer and no adverse inference was drawn in consultation with DIT (Investigation) Ludhiana. The report of the Assessing Officer as highlighted in the appellate order shows that after elaborate inquiries conducted by Investigation Wing at Kolkata, the identity, creditworthiness and genuineness of various share application companies could not be said to be doubtful so much so that no adverse inference from the same could be drawn. The ld. CIT(Appeals), therefore, noted that under these circumstances, the Assessing Officer had not men....
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....he assessment order. The ld. DR submitted that all these additional evidences are relevant to prove non genuine entries provided by share applicants to the assessee. The ld. DR submitted that the department has now gathered certain details establishing that most of the entities which have invested money in the assessee companies by way of share application/share premium are merely entry providers based on this information, the department has filed the Paper Book as additional evidence before the Tribunal. The ld. DR relied upon order of ITAT Chandigarh Bench in the case of M/s Lotus Integrated Taxpark Ltd. Vs DCIT dated 01.10.2015 in which the Tribunal admitted the additional evidences being relevant documents by relying upon decision of Hon'ble Supreme Court in the case of Shri Tek Ram 262 CTR 118 and decision of the Hon'ble Punjab & Haryana High Court in the case of Mukta Metal Works 336 ITR 555. The ld. DR also relied upon judgement of Hon'ble Punjab & Haryana High Court in the case of Smt. Shakuntala Thukral vs CIT 52 Taxman.com 86 in which Hon'ble High Court deemed fit to admit additional evidence with a view to advance cause of justice. The ld. DR also relied ....
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....ed". The ld. counsel for the assessee further submitted that at the stage of assessment, the Assessing Officer obtained information under section 133(6) of the Act from all the investors who have confirmed making investment in share application/share premium. The Assessing Officer also issued commission to DIT (Investigation) Kolkata for examining these investors and in his report, the DIT (Investigation) Kolkata has confirmed the genuineness of the investments made by Kolkata parties. Therefore, these additional evidences are not relevant and should not be admitted as additional evidences. The ld. counsel for the assessee also prepared a chart on the basis of additional evidences filed by the ld. DR to show that the statements of above persons recorded by office of DIT (Investigation) Kolkata sought to be admitted as additional evidence, did not relate to the assessee company and confessional statements are made against third party. He has also submitted that some of the statements were recorded by DDIT (Investigation) Kolkata prior to passing of the assessment order and some of the statements sought to be admitted as additional evidences, have been recorded after passing of the a....
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....nvestor who have invested in the assessee's company have provided mere entry. It is also not clarified whether these persons have made any statement directly against the interest of the assessee. The ld. counsel for the assessee demonstrated before us that in these statements, they did not make any allegation against the assessee and their statements for providing entry to other parties have no connection or relevance to the assessee company. No direct allegations have been made in these statements against the assessee company whether any bogus entries have been provided to the assessee. Therefore, in the absence of any statement made against the assessee company, how these statements recorded by the office of DIT (Investigation) Kolkata are relevant to the matter in issue, is not explained. The contention of ld. DR is that in Kolkata, hawala operators are operating to provide bogus entries in the name of share application/share premium. It may be a general allegation, but how it is connected with the assessee company is not established through these additional evidences. The department is trying to make out a new case altogether at this stage by producing these fresh additiona....
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....ion of the additional evidence is accordingly, rejected. It may also be noted here that revenue through DCIT, Central Circle-3 Ludhiana made a joint request for admission of additional evidence in both the appeals as matter in issue is same in both the appeals. Therefore, there is no need to discuss the same separately. 20. Considering the above discussion, we are of the view since additional evidences are not relevant to the matter in issue and no cause would serve in admitting the same, therefore, we reject the application filed by DCIT, Central Circle-3, Ludhiana for admission of these additional evidences. The application for admission of additional evidence in both the years is accordingly, dismissed. 21. Now we proceed to decide the issue on merit. 22. The ld. DR relied upon order of the Assessing Officer and submitted that assessee company was incorporated on 22.01.2008 and large number of private companies based at Calcutta have made investments in the shares of the assessee company. It is not explained why the distant parties were interested in making investment in shares of the assessee company. The ld. DR submitted that addition was made on account of share prem....
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....dentity of the companies, genuineness and source of investments have been verified by the DDIT (Investigation) Kolkata vide their report dated 19.03.2014 and no adverse inference have been drawn against the assessee. He has submitted that information under section 133(6) of the Act was also called for from all the share applicants and they have confirmed their transactions with the assessee. He has submitted that whatever discrepancies were noted in the report of DDIT (Investigation), assessee has duly replied the same, copies of the same are filed in the Paper Book on which no adverse inference have been drawn by the Assessing Officer. He has submitted that object of the formation of the assessee company was to take over running business of Jain Diamonds. There was difference in market value and book value of about Rs. 4.94 Cr and this was the reason that premium was charged on share investments. All queries by the Assessing Officer have been replied. Assessee gave PAN number of the shareholders and transactions were routed through banking channel on which no adverse inference have been drawn by the Assessing Officer. Since the Assessing Officer accepted share capital as genuinely....
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....ave been duly replied by the assessee and verified by A.O. and no adverse inference was drawn on the same. These reports and material on record clearly proved that inquiries conducted by Investigation Wing at Kolkata proved the identity, creditworthiness and genuineness of various share applicant companies. Therefore, no doubt could be raised in this regard. It is not clarified why these detailed investigations conducted by the Assessing Officer himself, through DDIT (Investigation) Kolkata in favour of the assessee have not been narrated in the assessment order. May be, some investigation reports were in favour of the assessee, the Assessing Officer deliberately did not mention these facts in the assessment order as was bent upon to make the addition against the assessee. 24(i) The Assessing Officer accepted the share capital introduced by the same parties in assessee company which would prove that the assessee established identity of the share applicants, their creditworthiness and genuineness of the transaction in the matter. Why for share premium, the same ingredients have been doubted by the Assessing Officer, have not been explained. The assessee explained before the autho....
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....assessee. A.O. however, did nothing 25. Hon'ble Delhi High Court in the case of Pr. CIT Vs Kurele Paper Mills Pvt. Ltd. 380 ITR 571 held as under : Held, dismissing the appeal, that the order of the Commissioner (Appeals)-(Appeals) revealed that there was a factual finding that no incriminating evidence related to share capital issued was found during the course of search as was manifest from the order of the Assessing Officer. Consequently, it was held that the Assessing Officer was not justified in invoking section 68 of the Income-tax Act, 1961, for the purposes of making additions on account of share capital. There was nothing to show that the factual determination was perverse. The Supreme Court has dismissed the special leave petition filed by the Department against this judgment: see [2016] 380 ITR (St.) 64-Ed.] 25(i) Hon'ble Delhi High Court in the case of CIT Vs Kamdhenu Steel & Alloys Ltd. 361 ITR 220 held as under : A delicate balance has to be maintained while applying sections 68 and 69 of the Income-tax Act, 1961. On the one hand, no doubt, such kinds of dubious practices are rampant ; on the other hand, merely because there is....
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.... treated as the undisclosed income of the assessee. No substantial question of law arose. 25(iii) Hon'ble Supreme Court in the case of CIT Vs Lovely Exports (P) Ltd. 216 CTR 195 held as under : Income- Cash credit- Share application money- 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 it cannot be regarded as undisclosed income of assessee company. 25(iv) Hon'ble Delhi High Court in the case of CIT Vs Divine Leasing & Finance Ltd. 299 ITR 268 held as under : Assessee-company having received subscriptions to the public/rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under s. 68 in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or' that any part of the share capital represented company's own income from undisclosed sources. 25(v) Hon'ble Madhya Pradesh High Court in the case of CIT Vs People's General Hospita....