TaxTMI 
TaxTMI 
2019 (1) TMI 462
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....nbsp; 2. Under the facts and in Law, the Hon. Commissioner of Income Tax (A), erred in ignoring the A.O.'s remand report, wherein the Learned A.O. has accepted the appellant company has received share application money from various parties and their respective source was established save as except Rs. 22,00,000/- which was directly received from the lendee of M/s. Sumit Promoters. 2.01. The Learned CIT(A) has erred in confirming the addition of share application of Rs. 80,200,0007- u/s 68, ignoring the facts that appellant has discharged its obligation about the source of the Investor and capacity of Investors, which have been proved conclusively, during the remand proceeding. 2.02 The Learned CIT(A) erred in stating that Bhadresh Trading Corporation is a holding company, in fact it is a Group Company. 3. The Learned CIT(A) erred in holding that the loan given to farmer (the fund available) which was to be utilized for the Crop, could not have been given for share application ignoring the fact that fund has been utilized in making the share application of the appellant company. 3.01 The Learned CIT(A) erred in holding that the loan received for agriculture purpos....
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.... is based only on assumption and presumption, ignoring the independent evidence produced by applicant, and verified by the A.O. 13. Under the facts and in Law, the addition of Rs. 8.02 crores confirmed u/s 68 be deleted and the return of income be accepted. 14. Under the facts and in Law, the levy of interest u/s 234B deleted. 15. The appellant craves leave to add, alter or delete any of the above grounds of appeal. 2. The brief facts of the case are that assessee is a company engaged in the business of dealing in textile, cotton yarn and acting as commission agent. The return of Income for AY 2010- 11 was filed on 13.09.11 declaring total come of Rs. 39,61,617/-. Notice u/s 143(2) dated 29.09.11 was issued and served on the assessee. The AO completed the assessment u/s 143(3) of the I.T. Act on 18.03.13 determining the total income at Rs. 8,42,60,310/- after making aforementioned additions. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties, dismissed the appeal of the assessee. Now before us, the assessee has preferred the present appeal by raising the above grounds. Ground N....
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....ing on behalf of the farmers (i.e., Borrowers) on certain terms and conditions. 7. It was also submitted that IDBI Bank also entered into Management Agency Agreement with the Company (BTCL) whereby the Company (BTCL) agreed to identify the farmers who have sold/agreed to sell their agricultural produce to the Company (BTCL) and who would be eligible for financial assistance under the aforesaid Scheme and the Company (BTCL) shall select the farmers based on the criteria/norms for identifying farmers given in Schedule I to the Letter of Intent of the Bank. The above identification is to be carried out by the Company (BTCL) to the satisfaction of the Bank and the Bank in turn agreed to finance the farmers identified and recommended by the Company (BTCL) not exceeding Rs. 20 croces to disburse the loans to ten farmers. 8. Pursuant to the aforesaid understanding and Agreement arrived at between IDBI Bank and the Company (BTCL), the Company (BTCL) had identified the farmers and satisfied their credentials and creditworthiness to the Bank and consequently IDBI Bank entered into an 'Agreement for Loan and Hypothecation of Receivables' with the farmers (Borrowers) who have sol....
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....ans from IDBI Bank against the sale proceeds receivable from the Company (BTCL) on sale of the crops. 12. In respect of M/s. Sumeet Promoters Pvt. Ltd. the audited accounts filed shows that it had Reserves of Rs. 19.79 crores and the Share Capital of Rs. 2.68 crores. As against the same, it has investment in unquoted Equity Shares of Rs. 13.87 crores and under the head 'Current Assets' share application money given by it is of Rs. 3.04 crores. Thus the audited accounts of M/s. Sumeet Promoters Pvt. Ltd. for A.Y. 2010-11 prove the creditworthiness and genuineness of the investment in share application of the assessee company. 13. We noticed that in the course of the Remand Proceedings, the assessee company had filed its letter dated 16th September, 2014 enclosing the bank statements of M/s. Sumeet Promoters Pvt. Ltd. for the period from 1st April, 2009 to 6th March, 2010 (pages 110 to 112). The aforesaid bank statements of M/s. Sumeet Promoters Pvt. Ltd. record the receipts of Rs. 27 lakhs from M/s. Moonrise Suppliers Pvt. Ltd. and Rs. 53 lakhs from M/s. Pyne Estates Finance Pvt. Ltd. on 7th October, 2009 and on the same day sums of Rs. 35 lakhs and Rs. 45 lakhs were t....
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....e 85). Similarly, the ledger account of M/s. Pyne Estates Finance Pvt. Ltd. shows that M/s. Sumeet Promoters Pvt. Ltd. had sold certain investments for which it received the sale proceeds from M/s. Pyne Estates Finance Pvt. Ltd. on 29th September, 2009. The said amount was given as share application money to M/s. Brtex Cotton International Ltd. (the assessee company) and accordingly it is reflected in the bank account of M/s. Britex Cotton International Ltd. (the assessee company) on 7th October, 2009 (page 85). 16. From the documents more particularly, the ledger accounts of M/s. Moonrise Suppliers Pvt. Ltd. and M/s. Pyne Estates Finance Pvt. Ltd. in the books of account of M/s. Sumeet Promoters Pvt. Ltd. (pages 171 & 172) and the bank statement of M/s. Sumeet Promoters Pvt. Ltd. (page 112) the source of the source is proved. By the ledger accoun: of Mr. Sajeed Peerjeda and the bank statement of the assessee company (page-84) it is proved that Mr. Sajeed Peerjeda had directly paid Rs. 22,00,000/- to the assessee company on behalf of M/s. Sumeet Promoters Pvt. Ltd. as share application money. Thus while relying upon the aforesaid evidence, the assessee claimed that it had pro....
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....Shri Rameshkumar Kangar Gosai for the relevant period. Further, an amount totaling of Rs. 1.02 crores has been received by the assessee from M./s. Sumeet promoters Pvt. Ltd., an NBFC as Share Application Money on three different dates during F.Y. 2009-10. In this regard the assessee has submitted the Audited Balance Sheet and copy of acknowledgement of A.Y. 2010-11 and A.Y. 2012-13. The assessee has also submitted the bank statement account of M/s. Sumeet Promoters Pvt. Ltd. in order to justify source of fund in the hands of M/s. Sumeet Promoters Pvt. Ltd." (d) .... ." 18. After appreciating the remand report, we find that IDBI Bank through the Company (BTCL) granted loans to the farmers against their sale of agricultural produce to the Company (BTCL) and the said loan amount was utilised by the farmers for giving share application money to M/s Britex Cotton International Ltd. i.e. the assessee company, thus proved the creditworthiness and genuineness of the transaction of the share application money given by the three farmers to the assessee company was also accepted by the AO. 19. Similarly, as per the remand report, the AO had accepted regarding investment of Rs. 1.0....
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.... of more than Rs. 2 crores to BTCL so that IDBI Bank through BTCL could disburse loans to the extent of Rs. 2 crores to each farmer. It is therefore, submitted that investment of the said loan amount in shares of Britex by the farmers cannot be disputed or doubted or treated as non-genuine. 2. Secondly. IDBI granted the credit facilities to EiTCL to enable it to disburse the loan to the farmers to meet the genuine requirements of the farmers. Accordingly, BTCL disbursed loan to 20 such farmers. The requirement of the farmers would mean the requirement towards growing of cotton and related requirements and not investment in shares of the appellant company. Therefore, the source of funds clearly explained as IDBI loan is not at all proper and satisfactory explanation. In this argument, the CIT(A) accepted that the loan was given by IDBI to BTCL for disbursing the same as loan among the farmers and accordingly farmers were granted loan by IDBI which included 3 farmers who utilized loan amounts in the share application for shares aof the assessee company. At this juncture it may be noted that growing of cotton crop is seasonal and it can be grown once in a year. So....
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.... loan from IDBI through BTCL. The CIT(A) has also accepted that the said amount is diverted for investing in shares of the assessee company. Therefore, it is incorrect to conclude that creditworthiness of the farmers is not proved. On the contrary, the creditworthiness of the farmers for making investment in shares of the assessee company is proved beyond doubt. The allegation of tailor-made transactions is incorrect inasmuch as only three farmers out of ten farmers invested in the share application of the assessee company. 5. Fifthly, there is a circular rotation of the funds between BTCL and the assessee company. The funds were transferred from BTCL to the assessee company through farmers and later the assessee company made investment in BTCL. This shows a willful motive behind the investment in shares of BTCL. At this juncture, the CIT(A) has failed to appreciate that the issue is about the investment made by the farmers in the shares of the assessee company, i.e. Britex Cotton International Ltd. The said investment is treated as unexplained cash credit on the ground that the assessee company has failed to prove the genuineness of the transaction and creditworthiness....
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....y accepted by the CIT(A) when he accepted that IDBI Bank gave loan to the farmers through BTCL against the receivables of the sale proceeds of agricultural produce (i.e., cotton) from BTCL. Therefore, no further evidence is required to prove the financial strength of the farmers. In respect of M/s. Sumeet Promoters Pvt. Ltd., the audited accounts filed shows that it had reserves of Rs. 19.79 crores and a share capital of Rs. 2.68 crores (Pages 101 to 109). As against the same, it has investment in unquoted equity shares of Rs. 13.87 crores and under die head 'Current Assets' share application money given by it is of Rs. 3.04 crores. Thus the audited accounts of M/s. Sumeet Promoters Pvt. Ltd. for A.Y. 2010-11 proves the creditworthiness and genuineness of the investment in share application of the assessee company. 9. Ninthly, the confirmation letters filed by the assessee company on the letterhead of BTCL dated 18th October, 2013 which confirms the loan given by the company to the farmers are stereotyped. The above confirmation letters throw no credence to prove the genuineness of the transaction. These are only self-serving documents. Once it is accepted....
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....lv. when credits are introduced in the books of the assessee company, the onus to prove such credits to the satisfaction of the AO is on the assessee. The assessee company is not disputing that it has to prove the identity, creditworthiness and genuineness of the transaction in respect of share application money received by it. Therefore, the assessee company has adduced evidence to prove the creditworthiness and genuineness of the transaction in respect of farmers being the loans received from IDBI Bank and receipt of the sale proceeds on sale of investments by M/s. Sumeet Promoters Pvt. Ltd. Thus the assessee company has proved the identity, creditworthiness and genuineness of the transactions in respect of the receipt of share application money of Rs. 8.02 crores. 13. Thirteenthlv. the bank had stipulated that the loan to each farmer should not exceed Rs. 2 crores, but in the case of Mr. Jeram Devshi Maheshwari the loan given was Rs. 4 crores. This cannot be reason to hold that share application money given by the farmers out of the loan amount received from IDBI Bank does not prove creditworthiness and the genuineness of the transaction. On the contrary it is an ....
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....no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year [Provided that where the assessee is a company (not being 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: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.] " From the above, we noticed that the proviso to ....