TaxTMI 
TaxTMI 
2020 (1) TMI 1639
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.... 1. The learned CIT (A) has erred in law and on facts in upholding the additions made by the Assessing Officer u/s. 143(3) r.w.s. 153A of the Income-tax Act, 1961 which is invalid and bad in law. 2. The learned CIT(A) has erred in upholding the addition of Rs. 80,00,000/- made by the Assessing Officer u/s.68 of the Act. 3. The learned CIT(A) has erred in upholding the addition of Rs.60,000/- made by the Assessing Officer, being alleged unexplained expenditure @ 0.75% on aforesaid alleged capital introduced of Rs,80,00,000/-. 4. The learned CIT(A) has erred in law and on facts in upholding the disallowance made by the Assessing Officer u/s. 14A of the Act read with Rule 8D of I.T. Rules, 1962. 5. The order passed by the learned CIT(A) is in violation of principles of natural Justice and bad in law. 6. The appellant craves leave to add to, amend, alter or delete all or any of the foregoing grounds of appeal, 3. The Brief facts of the case extracted from ITA No.2568/Mum/2018 for AY 2010-11 are that a search and seizure action u/s 132(1) of the I.T.Act, 1961 was conducted in the Anand Rathi Group along with their group concerns on ....
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.... why such blank forms were kept with him. Further, statement of Shri Anand Rathi, Chairman and Director of Anand Rathi Group was also recorded on 17/07/2014, in the post search investigation proceedings, for which he did not provide any satisfactory explanation to explain various documents and to prove, the genuineness of the source of share capital, so received from the subscribers. 4. Consequent to search proceedings, the case has been selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee has received huge sum of shares capital from various companies. Therefore, he called upon the assessee to furnish necessary evidences, including name and address of the person from whom share capital is received, copy of blank statement highlighting relevant entries, ITR acknowledgment with annexure, name of the bank and branch from where amount has been received, amount of premium charged on issue of shares, copies of correspondence with the share subscriber and other details. In response, the assessee vide letter dated 30/11/2015 filed complete details of name and address, including PAN of the subscribers, copy of bank statement, ITR with annex....
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....nt proceedings, clearly proves that the identity, genuineness of transactions and creditworthiness of the shareholders are not proved. The entire gamut of transactions shows that the funds, in form of share capital has been brought in by way of capital in the name of the various companies, whose very existence could not be established by the assesses company, nor the source of these funds. Therefore, he opined that the assessee has failed to prove credit found in form of share capital as genuine transactions and accordingly, made additions of Rs. 80,00,000/- towards share capital u/s 68 of the I.T.Act, 1961. Similarly, the AO has made additions towards probable commission paid by the assessee to hawala dealers for obtaining accommodation entry and by taking note of industrial practice estimated 0.75% commission on total share capital received by the assessee and made additions of Rs. 60,000/-. Likewise, the AO has made additions towards disallowances of expenditure incurred in relation to exempt income u/s 14A r.w.Rule 8D amounting to Rs. 38,882/-. 6. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has ....
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....ocuments to prove identity is not sufficient enough and what is to be seen is whether, three ingredients have been collectively discharged or not, in the given facts and circumstances of the case. Accordingly, by taking note of various facts brought out by the AO and also by relied upon various judicial precedents, including the decision of Hon'ble Supreme Court in the case of Union of India vs Gosalia Shipping Pvt.Ltd. 1978 113 ITR 307 held that the assessee has failed to prove, the true identity, genuineness of transactions and creditworthiness of the parties, more particularly, in the backdrop of clear findings, during search proceedings and post search investigation carried, during the course of assessment proceedings and accordingly, opined that there is no error in the findings of the AO in making additions towards share capital u/s 68 of the I.T.Act, 1961. Similarly, the Ld.CIT(A) upheld additions made by the AO towards probable commission payment on accommodation entries obtained from Hawala dealers. Likewise, the Ld.CIT(A) has also upheld additions made by the AO towards disallowances of expenditure incurred, in relation to exempt income u/s 14A by invoking Rule 8D(2)(iii)....
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.... declared for the year under consideration without appreciating the correct legal position of law that in order to bring any credit within the ambit of section 68 of the Act, the Assessing Officer should prove that the credit is, in fact, the income of the assessee from undisclosed sources. In this case, nothing has been pointed out by the Assessing Officer. The learned AR further referring to various judicial precedents including the decision of Hon'ble Bombay High Court in the case of CIT vs. Creative World Telefilms Ltd. (333 ITR 100) submitted that once the assessee has discharged initial onus of proving identity, genuineness of transaction and credit worthiness of the parties, then the Assessing Officer can proceed to re-open the assessment of the creditors, but sum so received from the creditors cannot be regarded as undisclosed income of the assessee. The assessee has further relied on the following judicial precedents: a) CIT vs. Green Infra Ltd (2017) 292 CTR 233(Bombay) b) CIT vs. Gagandeep Infrastructure Pvt Ltd.(2017) 394 ITR 680(Bombay) c) CIT vs. Goa Sponge and Power Ltd Tax Appeal No. 16 of 2012 (Bombay High Court) d) CIT vs. Creat....
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....o issued, but no response. 10. The Ld. DR, further submitted that the AO has brought out clear facts to prove that transactions between the parties are not genuine, in light of seized documents, including blank and signed share transfer forms and other evidences, during the course of search. Further, when these materials were confronted to the director of Anand Rathi company group, he was not able explain, the said documents, but only reiterated that said blank documents have been kept to have right of first refusal for purchase of shares from the investors. The Ld. DR submitted that in order to prove genuineness of transactions, the assessee has to prove beyond doubt with credible evidences, especially when, the shadow cast on genuineness of transactions that transactions are genuine. In this case although, assessee has filed various evidences, including confirmation from the parties, but when the AO as well as, the Ld.CIT(A) carried out investigations by issuing 133(6) and 131 notices, none of the investors have responded with details sought for by the authorities. 11. The Ld. DR further submitted that filing of confirmation letter and evidences to prove identity is not suf....
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....CE -RULES, CASE LAWS 11 THE BEST EVIDENCE RULE 12 HERSH WIN CHADHA VS DDIT (2011) 43 SOT 544 (DEL) 13 COLLECTOR OF CUSTOM VS, D. BHOORMUL 1974 AIR 859 (SC) 14 CIT V/S GOLCHA PROPERTIES (P) (LTD) (IN LIQ.) (1997) 227 ITR 391 (RAJ) 15 DOCTRINE OF NOTORIOUS FACTS 16 SOURCE OF SOURCE:LEADING AUTHORITIES 17 ON PRESUMED COMMISSION: RAJRANI GUPTA (2000) 72 ITD 155 (MUM) 12. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that the issue involved in the present appeal is squarely covered in favour of the assessee by the decision of ITAT in assessee's own group company case in ITA No.2563/Mum/2018 and other order dated 29/08/2019, where under identical set of facts, the Tribunal has deleted additions made by the Ld. AO towards share capital and share premium u/s 68 of the I.T.Act, 1961. We further noted that the Tribunal has also deleted additions made by the Ld. AO towards probable commission paid on said share capital, on the ground that once, additions u/s 68 of the Act has been deleted, then consequent additions towards commission also needs....
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....hich the assesee offered no explanation about the nature and source, thereof or the explanations offered by the assessee, in the opinion of the AO is not satisfactory, then sum so found credited may be charged to income tax, as income of the assessee of that previous year. In order to fix any credit within the ambit of section 68 of the I.T Act, 1961, the AO has to examine three ingredients i.e., identity, genuineness of transactions and creditworthiness of the parties. In this factual and legal background, if you examine, the present case in the light of various evidences filed by the assessee, in order to prove credit found in the form of share capital and share premium, one has to see, whether the assessee has discharged its initial onus cast upon u/s 68 of the I.T.Act, 1961 or not. In this case, the assessee has filed various details, including share application form, copy of declaration, board resolution, bank statement of Investor Company, PAN card, acknowledgment of return of income, financial statement of Investor Company, form No. 2 for allotment of equity shares and bank statement reflecting, the amount received through banking channels. Once, the assessee has discharged ....
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....tion of person who gave such statement, the AO has denied, the opportunity of cross examination and also not furnished copies of statement. It is a settled position of law that once, any third party information/statements is relied upon to make additions, it is the obligation of the AO to provide copies of such statements/information and also to provide an opportunity of cross examination of the person, who gave the statement, when such opportunity has been availed by the person against whom, such statements are used. This legal proposition is supported by the decision of Hon'ble Supreme Court in the case of Kishanchand Chellaram vs CIT 1980 125 ITR 713 (SC), where it was held that when, third party information is relied upon to draw an adverse inference against the assessee, the same needs to be provided and also opportunity of cross examination shall be given, if such opportunity is availed by the assessee. The Hon'ble Supreme Court in the case of Andaman Timber Industries Ltd Vs CCE, Kolkata II in Appeal No 4228 of 2006 has vide order dated 02.09.2015 had also upheld a similar legal position and held that not allowing the assessee to crossexamine the witnesses by the adjudicatin....
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....court observed that proviso inserted to section 68 w.e.f. 01.04.2013 is considered to be prospective in nature and is applicable from A.Y. 2013-14 onwards. From the above, it is very clear that similar amendment has been made to provisions of section 56(2) by insertion of clause (viib) so as to bring share premium within the ambit of section 56(2) of the I.T Act, 1961. Since, the proviso inserted to section 68 is considered to be prospective in nature, obviously sub clause (viib) inserted to section 56(2) is also considered to be prospective and cannot be applied to the assessment year in question. Even otherwise, assuming for a moment above provisions are applicable for the year under consideration, in order to apply said amended provisions, the AO has to prove that the assessee has not proved capacity of the investors and also not offered any justification for issue of shares at premium. In this case, from the facts on record, it is clear that the assessee has proved identity and genuineness of the transactions by filing necessary evidences. The assessee has filed valuation report from registered valuer as per which the share price of the company is over and above premium charged....
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....N cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the AO. In the above circumstances, the view taken by the Tribunal cannot be faulted." CIT vs. Lovely Exports (P) Ltd (2008) 216 CTR 195 (SC) "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." CIT vs. Steller Investment Ltd (2001) 251 ITR 263 (SC) (civil appeal) "That the increase in subscribed capital of the respondent company could not be a device of converting black money into white with the help of formation of an investment company, on the round that, even if it be assumed that the subscribers to the increased capital were not genuine, tinder no circumstances could the amount of share capital be regarded as un disclosed income, an appeal was taken by the Department to th e Supreme Court. The Supreme Court dismissed the appea....
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.... "If the share applications are received by the assessee from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as the undisclosed income of the assessee." Mod Creations Pvt Ltd vs. ITO (2013) 354 ITR 282 (Del-High Court) "Held, allowing the appeal, (i) that the assessee had discharged the initial onus placed on it. In the event the Revenue still had a doubt with regard to the genuineness of the transactions in issue or as regards the creditworthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the Assessing Officer that the credits were a circular route adopted by the assessee to plough back its own undisclosed income into its accounts, could be of no avail. The Revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The Revenue would be required to bridge the gap between the suspicions and proof in order to bring home this allegation. The Tribunal without adverting to th....
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....sue thus would fall squarely within the ambit of the judgment of the Supreme court in the case of Lovely Exports (supra). No error of law can be stated to have been committed by the Tribunal. Tax Appeal is therefore dismissed." CIT vs. Peoples General Hospital Ltd (2013) 356 ITR 65 (MP High Court) " Held , dismissing the appeals , that it the assessee had received subscriptions to the public or rights issue through banking channels and furnished complete details of the shareholders, no addition could be made tinder section 68 of the Income-tax Act, 1961, 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 the company's own income from undisclosed sources. It was nobody's case that the non resident Indian company was a bogus or non-existent company or that the amount subscribed by the company by way of share subscription was in fact the money of the assessee. The assessee had established the identity of the investor who had provided the share subscription and that the transaction was genuine. Though the assessee's contention was that....
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....id not initially respond to the summons. The subscribers, however, subsequently gave their confirmation letters as would be apparent from the impugned order. The identity of the subscribers stands established and it is also a fact that they have shown the said amounts in their audited balance sheets and have also filed returns before the IT authorities. The decision of the Tribunal deleting the addition cannot befaulted." 16. Coming to the case laws relied upon by the learned DR. Although, the ld. DR placed his reliance on plethora of judgments, but he had heavily relied upon the decision of the Hon'ble Supreme Court in the case of DCIT vs. NRA Iron & Steel Pvt. Ltd. (supra). Insofar as most of case laws relied upon by the ld. DR we, noticed that the issue involved is factual and has to be examined ratios of case laws in light of facts of present case. When we had examined case laws relied upon by the ld. DR in light of facts of present case, we find that the coordinate benches have considered all those case laws and held that most of cases are not applicable to facts of present case. Therefore, we do not wish to discuss those case laws. But when it comes to Hon'ble Suprem....
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....duction by the lower authorities. We are unable to persuade ourselves as to how the interest portion on loan alone could be treated as genuine transactions after treating the principal portion of loan as ingenuine. We also find that the interest paid on such unsecured loans to aforesaid loan creditors have been duly subjected to deduction of tax at source. Notice issued u/s 133(6) of the Act by the ld AO had been duly replied by the concerned loan creditors directly before the ld AO and no deficiencies were noticed by the ld AO thereon. After this, the ld AO did not proceed to make further enquiry on the subject mentioned loan creditors. It is not in dispute that the assessee and the concerned loan creditors had duly filed their respective bank statements to prove the immediate source of credit for advancing loans to the assessee company, confirmation of having given loans to the assessee company, together with their income tax return acknowledgements and other requisite details called for by the ld AO in the notice u/s 133(6) of the Act. In case if the ld AO had any doubt on the veracity of the documents submitted by the loan creditors, the same could have been confronted on the s....
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....ts to prove identity, genuineness of transactions and creditworthiness of the parties. The assessee also furnished evidences to prove that the parties have responded to the notices issued u/s 133(6) by AO by filing various details. The assessee also filed bank statements to prove that the said unsecured loans have been repaid in the subsequent financial years. Therefore, we are of the view that there is no reason for the AO to doubt the genuineness of transactions despite furnishing necessary evidences including their financial statements, bank statements and IT returns. 6. The AO has made addition u/s 68 of the Act, on the ground that the unsecured loans are bogus accommodation entries provided by Shri Pravinkumar Jain through his hawala companies. The provisions of section 68 deal with cases where any sum found credited in the books of account of the assessee in any financial year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the AO, satisfactory, then sum so credited may be charged to income-tax as the income of the assessee of that previous year. A plain reading M/s Shree Laxmi Dev....
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....Hon'ble High Court categorically observed that the Proviso to section 68 has been inserted by the Finance Act, 2012 wef 01-04- 2013 is applicable from AY 2013-14 onwards. The Court further observed that the Parliament did not introduce the proviso to section 68with retrospective effect nor does the Proviso introduced states that it was introduced for removal of doubts. Therefore, it is not open to give retrospective effect. The relevant portion of the order of High Court is extracted below:- "The proviso to section 68 has been introduced by the Finance Act, 2012 with effect from 1-4-2013. Thus, it would be effective only from the assessment year 2013-14 onwards and not for the subject assessment year. In fact, before the Tribunal, it was not even the case of the Revenue that section 68 as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1-42013 was its normal meaning. The Parliament did not introduced to proviso of section 68, with retrospective effect nor does the proviso to introduced states that it was introduced 'for removal of doubts' or that it is 'declaratory'. Therefore, it ....
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....e case of the Assessee. The judgment in case of Gagandeep Infrastructure (P) Ltd (supra) would M/s Shree Laxmi Developers be applicable in the facts and circumstances of the present case." 9. The assessee has also relied upo the decision of Hon'ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd (2008) 216 CTR 195 (SC). The Hon'ble Apex Court while deleting the addition made u/s 68 observed 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 this amount of share application money cannot be regarded as undisclosed income u/s 68 of the Income-tax Act, 1961. 10. Coming to the case laws relied upon by the Ld.DR. The Ld.DR relied upon the decision of Hon'ble Delhi High Court in the case of Principal CIT vs Bikram Singh in ITA No.55/Del/2017 dated 25-03-2017. We have gone through the case law relied by the Ld.DR in the light of facts of the present case and find that the facts of case before Hon'ble Delhi High Court are entirely different from facts of the....
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....anies. The Department only received submissions through dak, which created a doubt about the identity of the investor companies. c) In Para 3.8. of the said judgement of Hon'ble Supreme Court, it was mentioned that the AO independently got field enquiries conducted with respect to the identity and credit-worthiness of the investor companies, and to examine the genuineness of the transaction. Enquiries were made at Mumbai, Kolkata and Guwahati where these Companies were stated to be situated. In the aforesaid case before the Hon'ble Supreme Court, the result of the enquiry by the AO revealed the following:- a) Notice were duly served on certain investor companies, but no reply was received from them ; b) Some of the investor companies were found to be closed at their correct address ; c) Notice could not be served on some of the investor companies ; d) Some of the investor companies replied to notice u/s 133(6) of the Act wherein they had confirmed having made investment in share application money in NRA Iron & Steel Pvt Ltd but had limited income as per their income tax returns which in turn resulted in doubting of creditworthiness ; ....
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....iness to advance loan to the assessee company and since all the transactions were routed through regular banking channels by account payee cheques and in view of the fact that there were no cash deposits prior to issuance of loan to the assessee company, the genuineness of transactions also stand clearly established. This goes to prove their identity, creditworthiness and genuineness of transactions of all the loan creditors. In this scenario, it could be safely presumed that the ld AO was apparently satisfied with the replies given thereon by the loan creditors directly before him in response to notice u/s 133(6) of the Act and hence there is no need to make any examination further. 8.2. In view of the aforesaid distinguishing features on facts of the assessee company vis a vis the facts before the Hon'ble Supreme Court, we hold that the reliance placed by the ld DR on the decision of Hon'ble Supreme Court supra does not come to the rescue of the revenue. 8.3. At the cost of repetition, we would like to state that the ld CIT(A) had merely placed reliance on the decision taken by his predecessor in Asst Year 2012-13 in assessee's own case in similar set of facts. ....
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....e basis of financial statements of the subscribers that none of them had enough source of income to establish creditworthiness. Therefore, we are of the view that the AO was erred in making additions towards share capital u/s 68 of the Income Tax Act, 1961. The learned CIT(A) without appreciating relevant facts has confirmed additions made by the AO towards share capital u/s 68 of the Income Tax Act, 1961. Hence, we reverse findings of ld. CIT(A) and direct the AO to delete the additions made towards share capital u/s. 68 of the Income Tax Act, 1961. 19. Insofar as, additions towards probable commission payment to entry provides, we find that since, we have deleted additions made by the AO towards share capital, consequent additions made towards probable commission @ 0.75%, on total transactions is also incorrect and accordingly, direct the AO to delete additions made towards commission estimation. 13. In this view of the matter and by respectfully following the decision of co-ordinate bench in assessee group company case, we are of the considered view that the identity, genuineness of transaction and creditworthiness of subscribers has been proved as required u/s 68 of....