TaxTMI 
TaxTMI 
2020 (2) TMI 1215
X X X X Extracts X X X X
X X X X Extracts X X X X
....rading and investments during the assessment year under consideration. The AO noted that the assessee company has received share application money to the tune of Rs. 5,60,000/- in cash from the following persons:- Name of the person Share Application Money Berisal Singh 11/04/2012- Rs. 20,000/- 17/05/2012 - Rs. 20,000/- 22/06/2012- Rs. 20,000/- Dasrathi Biswal 30/05/2012 - Rs. 20,000/- 12/02/2013- Rs. 20,000/- Gayatri Devi Palode 18/04/2012 - Rs. 20,000/- 22/06/2012 - Rs. 20,000/- 16/01/2013 - Rs. 20,000/- Indu Devi Dadhich 05/04/2012 - Rs. 20,000/- 15/06/2012 - Rs. 20,000/- 12/02/2013 - Rs. 20,000/- 20/03/2013 - Rs. 20,000/- Mahavir Prasad Palode 25/04/2012 - Rs. 20,000/- 24/05/2012 - Rs. 20,000/- 10/01/2013 - Rs. 20,000/- Parmeshwar Lal Tiwari 25/04/2012 - Rs. 20,000/- 30/05/2012- Rs. 20,000/- 10/10/2012- Rs. 20,000/- 24/12/2012- Rs. 20,000/- Ram Kumar Sharma 17/07/2012- Rs. 20,000/- 20/11/2012- Rs. 20,000/- 18/01/2013- Rs. 20,000/- Sitam....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n, the assessee had collected an amount of Rs. 5,60,000/- from 9 (nine) individuals named in the given chart (supra). We note that the AO had issued 133(6) notices to all the nine parties. The AO acknowledges that in compliance of notice issued u/s. 133(6) all the share applicants filed evidences in the form of : a. Balance sheets b. ITR acknowledgements for the a.y 2013-14 c. Bank statements. 8. According to the AO since the assessee did not file any evidence regarding source of cash deposits, he made an addition of Rs. 5,60,000/- . Before the ld. CIT(A) the assessee had filed the following additional documents :- i. account statements of the share applicants ii. share application forms iii. copy of bank account of the share applicants iv. copy of ledger account of the share applicants. 9. However, ld. CIT(A) without looking into the balance sheets filed by them, which shows that share subscribers were creditworthy still did not accept the genuineness of the transaction. We note that before the ld. CIT(A) the assessee had brought to the notice the following detailed facts about each of the share subscribers, whic....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... book. The copies of the share application forms are also available in the paper book. All the relevant documents for this Individual are available on pages 82-88 of the paper book. (d) Indu Devi Dadhich: This Individual made share application for Rs. 80,000/-in the appellant company. The share application was made by cash. This Individual has duly filed her return of income before ITO Ward 35(2), Kolkota and was having PAN ADTPD4922C. This Individual was having a capital of Rs,12J19,075/- as on 31/03/2013 and Rs. 10,93,115/- as on 31/03/2012 respectively. The copy of the account statements for the year ended 31/03/2013 and 31/03/2012 was made available in the paper book. The copy of the ledger account also made available in the paper book. The copy of the IT Acknowledgement for the Asst. Year ended 31/03/2012 is available in the paper book. The copies of the share application forms are also available in the paper book. All the relevant documents for this Individual are available on pages 89-97 of the paper book. (e) Mahabir Prasad Palode: This Individual made share application for Rs. 60,000/- in the appellant company. The was made by cash. This Individual has du....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the paper book. (h) Sita Ram Sharma: This Individual made share application for Rs. 60,000/- in the appellant company. The share application was made by cash. This Individual has duly filed his return of income before ITO Ward 36(3), Kolkata and was having PAN ALRPS8387G. This Individual was having a capital of Rs. 10,22,585/- as on 31/03/2013 and Rs. 9,21,665/- as on 31/03/2012 respectively. The copy of the account statements for the year ended 31/03/2013 and 31/03/2012 was made available in the paper book. The copy of the ledger account also made available in the paper book. The copy of the IT Acknowledgement for the Asst. year ended 31/03/2012 is available in the paper book. The copies of the share application forms are also available in the paper book. All the relevant documents for this Individual are available on pages 123-130 of the paper book. (i) Tikam Chand Sharma: This Individual made shore application for Rs. 60,000/- in the appellant company. The share application was made by cash. This Individual has duly filed his return of income before ITO Ward 45(3), Kolkata and was having PAN BATPS2701. This Individual was having a capital of Rs. 8,12,516/- a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alf of the share applicants. The share applicants have confirmed the transactions in response to the notice u/s 133(6) of the Act and have also confirmed the payments. 12. We note that main contention of the ld. DR that the addresses of the share applicants are same i.e 8 Lyons Range, Ground Floor, Kolkata-700 001. We note that the ld. CIT(A) has called for the assessment records and had confirmed that pursuant to the notice issued by the AO u/s. 133(6) of the Act to the share applicants they had confirmed about the transaction with the assessee. The shareholders had submitted all the relevant details and had confirmed the transactions with the appellant assessee. He also notes that from the submissions of the assessee that the evidences are available in the paper book pages 67-138. All these evidences were filed before the ld. CIT(A) and despite it has been shown to the ld. CIT(A) that all the 9 (nine) share applicants had enough creditworthiness to give amount ranging Rs. 40,000/- to Rs. 80,000/- and their bank statements showing the amount being withdrawn, then also he did not accept the claim of the assessee and found that assessee failed to prove the genuineness of the tran....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... High Court the special leave petition filed by the Revenue has also been dismissed by the Hon'ble Apex Court. 17. In the case of CIT v. Orissa Corpn. (P.) Ltd. [1986] 25 Taxman 80F/59 ITR 78 (SC) and the Hon'ble Gujarat High Court, in the case of Dy. CIT v. Rohini Builders [2002] 256 ITR 360/[2003] 127 Taxman 523 , the Hon'ble Apex Court has held that onus of the assessee (in whose books of account credit appears) stands fully discharged if the identity of the creditor is established and actual receipt of money from such creditor is proved. In case, the Assessing Officer is dissatisfied about the source of cash deposited in the bank accounts of the creditors, the proper course would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor). In arriving at this conclusion, the Hon'ble Court has further stressed the presence of word "may" in section 68. Relevant observations at pages 369 and 370 of this report are reproduced hereunder:- "Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation of statutes, when we read carefully the provisions of section 68, we notice nothing in section 68 to show that the scope of the inquiry under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorize the Revenue Department to make inquiry into the source(s) of the credit and/or sub-creditor. The language employed by section 68 cannot be read to impose such limitations on the powers of the Assessing Officer. The logical conclusion, therefore, has to be, and we hold that an inquiry under section 68 need not necessarily be kept confined by the Assessing Officer within the transactions, which took place between the assessee and his creditor, but that the same may be extended to the transactions, which have taken place between the creditor and his sub-creditor. Thus, while the Asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been. eventually, received by the assessee. It, therefore, further logically follows that the creditor's creditworthiness has to be Judged vis-a-vis the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, for, these aspects may not be within the special knowledge of the assessee. " ** ** ** " ... If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the identity of the creditors, namely, Nemichand Nahata and Sons (HUF) and Pawan Kumar Agarwalla. The appellant had also shown, in accordance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors aforementioned. In fact the fact that the assessee had received the said amounts by way of cheques was not in dispute. Once the assessee had established that he had received the said amounts from the creditors aforementioned by way of cheques, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter the burden had shifted to the Assessing Officer to prove the contrary. On mere failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee, such failure, as a corollary, could not have been and ought not to have been, under the law, treated as the income from the undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....further explanation from the assessee and in the process, the onus may again shift from the Assessing Officer to assessee. 16. In the case before us, the appellant by producing the loan-confirmation-certificates signed by the creditors, disclosing their permanent account numbers and address and further indicating that the loan was taken by account payee cheques, no doubt, prima facie, discharged the initial burden and those materials disclosed by the assessee prompted the Assessing Officer to enquire through the Inspector to verify the statements." 21. In a case where the issue was whether the assessee availed cash credit as against future sale of product, the AO issued summons to the creditors who did not turn up before him, so AO disbelieved the existence of creditors and saddled the addition, which was overturned by Ld. CIT(A). However, the Tribunal reversed the decision of the Ld. CIT(A) and upheld the AO's decision, which action of Tribunal was challenged by the Hon'ble High Court, Calcutta in the case of Crystal Networks (P.) Ltd. v. CIT [2013] 35 taxmann.com 432/216 Taxman 151 (Mag.)353 ITR 171 wherein the Tribunal's decision was overturned and decisi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble of examining of all other materials and documents, viz., confirmatory statements, invoices, challans and vouchers showing supply of bidis as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued, in our view, is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the product of the assessee or not. When it was found by the Commissioner of Income- tax (Appeals) on facts having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this -fact finding. Indeed the Tribunal did not really touch the aforesaid fact finding of the Commissioner of Income-tax (Appeals) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 464, the Supreme Court has observed as follows: "The Income-tax Appellate Tribunal performs a judicial function under the Indian Income-tax Act; it is invested with authority to determine finally all questions of fact. The Tribunal must, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. So long it is not established that the return submitted by the creditor 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. We find that both the Commissioner of Income Tax (Appeal) and the Tribunal below followed the well-accepted principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities." 23. Our attention was also drawn to the decision of the Hon'ble Supreme Court while dismissing SLP in the case of CIT v. Lovely Exports (P.) Ltd. as has been reported as judgment delivered by the CTR at [2008] 216 CTR 195: "Can the amount of share money be regarded as undisclosed income under section 68 of the Income tax Act, 1961? We ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the case of Cl. T. v. M/s. Lovely Exports Pvt. Ltd. (supra) we are at one with the Tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed. 25. Our attention was drawn to the decision of the Hon'ble High Court, Calcutta in the case of CIT v. Nishan Indo Commerce Ltd. in [INCOME TAX APPEAL NO.52 OF 2001 dated 2-12-2013 wherein the Court held as follows: "The Assessing Officer was of the view that the increase in share capital by Rs. 52,03,500/- was nothing but the introduction of the assessee's own undisclosed funds/income into the books of accounts of the assessee company. The Assessing Officer accordingly treated the investment as unexplained credit under Section 68 of the Income Tax Act and added the same to the income of the assessee. Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) being the First Appellate Authority and contended that the Assessing Officer had no material to show that the share capital was the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Commissioner and accordingly the learned Tribunal dismissed the appeal of the Revenue and affirmed the decision of the learned Commissioner. Mr. Dutta appearing on behalf of the petitioners cited judgment of the Division Bench of this Court in Commissioner of Income Tax v. Ruby Traders and Exporters Limited reported in 236 (2003) ITR 3000 where a Division Bench of this Court held that when Section 68 is resorted to, it is incumbent on the assessee company to prove and establish the identity of the subscribers, their credit worthiness and the genuineness of the transaction. The aforesaid judgment was rendered in the context of the factual background of the aforesaid case where, despite several opportunities being given to the assessee, nothing was disclosed about the identity of the shareholders. In the instant case, the assessee disclosed the identity and address and particulars of share allocation of the shareholders. It was also found on the facts that all the shareholders were in existence. Only nine shareholders subscribing to about 900 shares out of 6, 12,000 shares were not found available at their addresses, and that too, in course of assessment proceedings....
X X X X Extracts X X X X
X X X X Extracts X X X X
....articulars indicated above, the initial onus of the assessee was shifted and it was the duty of the Assessing Officer to enquire whether those particulars were correct or not and if the Assessing Officer was of the view that the particulars supplied were insufficient to detect the real share applicants, to ask for further particulars. The Assessing Officer has not adopted either of the aforesaid courses but has simply blamed the assessee for not producing those share applicants. In our view, in the case before us so long the Assessing Officer was unable to arrive at a finding that the particulars given by the assessee were false, there was no scope of adding those money under section 68 of the Income- tax Act and the Tribunal below rightly held that the onus was validly discharged. We, thus, find that both the authorities below, on consideration of the materials on record, rightly applied the correct law which are required to be applied in the facts of the present case and, thus, we do not find any reason to interfere with the concurrent findings of fact based on materials on record. The appeal is, thus, devoid of any substance and is dismissed s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ribers as held by Hon'ble jurisdictional High Court in CIT v. DATAWARE (supra) which has not been done, so no adverse view could have been drawn. Third ingredient is genuineness of the transactions, for which we note that the monies have been directly paid to the assessee company by account payee cheques out of sufficient bank balances available in their bank accounts on behalf of the share applicants. It will be evident from the paper book that the appellant has even demonstrated the source of money deposited into their bank accounts which in turn has been used by them to subscribe to the assessee company as share application. Hence the source of source of source is proved by the assessee in the instant case though the same is not required to be done by the assessee as per law as it stood/ applicable in this assessment year. The share applicants have confirmed the share application in response to the notice u/s 133(6) of the Act and have also confirmed the payments which are duly corroborated with their respective bank statements and all the payments are by account payee cheques. 30. We also note that recently the ITAT Kolkata in several cases has deleted the addition on ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t Ltd. we are at one with the tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed. 3.4.2. In view of the aforesaid findings and respectfully following the decision of the apex court (supra) and Jurisdictional High Court (supra), we find no infirmity in the order of the Learned CIT(A) and accordingly, the ground no.2 raised by the Revenue is dismissed. 4. The last ground to be decided in this appeal of the Revenue is as to whether the Learned CIT(A) is justified in deleting the addition u/s 68 of the Act made in respect of allotment of shares to 20 individuals for an amount of Rs. 57,00,000/-in the facts and circumstances of the case. 4.1. The brief fact of this issue is that the assessee had received share application monies from 20 individuals in the earlier year which were kept in share application money account. During the asst year under appeal, the assessee allotted shares to these 20 individuals out of transferring the monies from share ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hiness of the investors were not established." 4.3. The Learned DR prayed for admission of the additional ground raised before us and vehemently supported the order of the Learned AO. In response to this, the Learned AR fairly conceded to admission of this additional ground and vehemently supported the order of the Learned CIT(A). 4.4. We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee. We find that the additional ground raised by the assessee separately before us vide its covering letter dated 9. 12.2011 is admitted as it appears to be a genuine and bonafide error of omission on the part of the Revenue from not raising this ground in the original grounds of appeal filed along with the memorandum of appeal. Moreover, it does not require any fresh examination of facts. Hence the same is admitted herein for the sake of adjudication. 4.4.1. We find from the details available on record that the share application monies from 20 individuals in the sum of Rs. 57,00,000/- has been received by the assessee during the financial year 2004-05 relevant to Asst Year....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT(A) ought to have held that the assessee had not established the genuineness of the transaction." Held After hearing the learned counsel for the appellant and after going through the decision of the Supreme Court in the cases of CIT v. M/s Lovely Exports Pvt Ltd. we are at one with the tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed." 6.2. We find that the issue is also covered by the decision of Hon'ble Delhi High Court in the case of CIT v. Value Capital Services P Ltd. reported in (2008) 307 ITR 334 (Del) , wherein it was held that: "In respect of amounts shown as received by the assessee towards share application money from 33 persons, the Assessing Officer required the assessee to produce all these persons. While accepting the explanation and ITA No. 632/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l the companies at the addresses furnished in Form 2 as filed with him, which were duly served at the given addresses. The A0 argued that the letters should not have been served at the given address by the assessee. He served a show a cause notice dated 09.12.2011 asking for the explanation from the assessee as to how the notices u/s. 133(6) could be served to these nine companies who had different address as per ROC records. The AO was explained vide letter dated 20.12.2011 of the assessee that those companies had changed their addresses since filing of Form 2 with the Registrar. Further, it was none of the business of the assessee to question the addresses of the applicants as long as they affirm the address. The applicants were duly incorporated bodies under the Companies Act. 1956 since long. They have been regularly filing their returns of income under the Income Tax Act and are being assessed by the Revenue since long. Some of them are even registered as Non-Banking Financial Companies with Reserve bank of India. They have been filing returns regularly with Registrar of Companies and RBI since long. The letters might have been received at their old addresses because in case o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation transactions. However we find that all the money received in the form of share capital is duly supported with the requisite document as discussed above. To our mind the basis on which the addition was made by the AO is not tenable. The Ld. DR also could not brought anything on record to controvert the findings of the Ld. CIT(A). In view of above we find no reason to interfere in the order of the Id. CIT(A). Accordingly the ground raised by Revenue is dismissed." (d) The Ld ITAT Kolkata in ITO v. Cygnus Developers (I) P Ltd. in [IT Appeal No. 282 (Kol.) of 2012 dated 2-3-2016]. In this the decision the Ld. Tribunal held as follows: "6. On appeal by the assessee the CIT(A) deleted the addition made by the AO observing as follows "(6) I have considered the submission of the appellant and perused the assessment order. I have also gone through the details and documents filed by the appellant company in the course of assessment: proceedings vide letter dt. 3-10-2007. On careful consideration of the facts and in law I am of the opinion that the AO was not justified in making, the addition aggregating to Rs. 54,00,000/- u/s.68 of the Act being t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....No. 179/2008, dated 17.11.2009 wherein the Hon'ble Allahabad High Court took a view that non production of the director of a Public Limited company which is regularly assessed to Income tax having PAN, on the ground that the identity of the investor is not proved cannot be sustained. Attention was also to the similar ruling of the ITAT Kolkata bench in the case of ITO v. Devinder Singh Shant in IT A No.20BIKo112009 vide order dated 17.04.2009. 9. We have considered the rival submissions., We are of the view that order of CIT(A) does not call for any interference. It may be seen from the grounds of appeal raised by the Revenue that the Revenue disputed only the proof of identity of the shareholder. In this regard it is seen that for A Y.2004-05 Shree Shyam Trexim Pvt. Ltd., was assessed by ITO, Ward- 9(4), Kolkata and the order of assessment u/s/143(3) dated 25.01.2006 is placed in the paper book. Similarly Navalco Commodities Pvt. Ltd., was assessed to tax u/s 143(3) for A Y.2005-06 by I TO, Ward- 9(4), Kolkata by order dated 20.03.2007. Similarly Jewellock Trexim Pvt. Ltd was assessed to tax for A Y.2005-06 by the very same ITO- Ward- 9(3), Kolkata assessing the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....). The High Court however held that the aforesaid judgment was distinguishable from the facts of the present case. The Court observed that in that judgment the Assessing Officer had brought on record enough corroborative evidence to show that the assessee had routed unaccounted monies into its books through medium of share subscription. The share applicants had confessed that they were "accommodation entry providers". The Assessing Officer in the latter case was able to prove with enough material that the share subscription was a pre-meditated plan to route unaccounted monies. In the present case however the Department was unable to bring any material whatsoever shows that share application was in the nature of accommodation entries. The Court observed that the appellant had filed sufficient documentary evidences to establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. The AO however chose to sit back with folded hands till the assessee exhausted all the evidence in his possession and then merely reject the same without conducting any inquiry or verification whatsoever. The Court thus held that the decision of CIT v. Nova Promote....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e has been duly considered and found not acceptable. This entry remains unexplained in the hands of the assessee as has been arrived by the Investigation wing of the department. As such entries of Rs. 5~50/000/- received by the assessee are treated as an unexplained cash credit in the hands of the assessee and added to its income. Since I am satisfied that the assessee has furnished inaccurate particulars of its income/ penalty proceedings under Section 271(1)(c) are being initiated separately." The facts of Nova Promoters and Finlease (P.) Ltd. (supra) fall in the former category and that is why this Court decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P.) Ltd. (supra). There was a clear lack of inquiry on the part of the Assessing Officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no addition can be made under Section 68 of the Income Tax Act 1961. Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law' ....