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TaxTMI 
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2022 (1) TMI 1378
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.... conditions laid down in section 68 of the IT Act i.e. Identity, genuineness and creditworthiness in respect of money received in its books of accounts. 2. Whether on the fact and the circumstance of the case and in law, the Ld CIT(A) was justified in deleting the addition made u/s 68 of the IT Act without appreciating the fact that the assessee has failed to produce the directors of the companies M/s Kuber Metals P. Ltd and M/s Sunny Wisdom Enterprise. 3. Whether on the fact and the circumstance of the case and in law, the Ld CIT(A) was justified in deleting the addition made u/s 68 of the IT Act without appreciating the fact that in case of investor company M/s Anushka Soft Tel Pvt Ltd, its director has accepted that the company is having no infrastructure, no regular source of income and no business and capacity of their shareholder is not proved. 4. On the facts and in the circumstances of the case, the Ld CIT(A) has ought to have upheld the order of the Assessing Officer. 5. It is, therefore, prayed that the order of the CIT(A) may be set aside and that of Assessing Officer may be restored to the above extent." 3. The relevant material facts, as culled out from the ma....
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....BER METALS PVTLTD 12/372, RANITAL assessing officer MAIN ROAD, OPP. ANKUR APARTMENT, SURAT 29850 10 660 2,98,500 1,97,01,000 1,99,99,500 ANUSHKA SOFT-TEL PVT LTD 105, SAGAR SHOPPINGCENTRE, J P ROAD, ANDHERI(WEST), MUMBAI 284000 10 660 28,40,000 18,74,40,000 19,02,80,000 SUNNY WISDOM ENTERPRISE INC RM 51, 5TH FLOOR, BRITANNIA HOUSE, JALAN CATOR, BANDARSERI, BEGAWAN BS, 8811, NEGARA, BRUNE1 250000 10 440 25,00,000 11,00,00,000 11,25,00,000 4. Therefore, Assessing Officer issued notice under section 142(1) of the Act, dated 15.01.2015, (vide assessing officer page 3) requiring the assessee to furnish the supporting material to establish the identity, genuineness and creditworthiness in respect of the share capital and share premium during the year. 5. The Assessing Officer also issued notice under section 133(6) of the Act dated 30.01.2015 to the Investor Companies. These notices were served on the Investor companies. In response to notice under section 133(6) of the Act, the Investor Companies had replied to the assessing officer with documentary evidences which is recorded by the Assessing Officer in page no.5 of his assessment order, which is reproduced bel....
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.... of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has deleted the addition made by the Assessing Officer. Aggrieved, the Revenue is in appeal before us. 10. Shri H. P. Meena, Learned Departmental Representative (ld. DR) for the Revenue argued a lot and also submitted written submissions before the Bench. The sum and substance of the written submission are that share subscribing companies were having meager income and not doing any business activity but only engaged in giving accommodation entries. The assessee had shown total receipt of Rs. 30,27,80,000/- in the garb of share capital including share premium. Since, the transaction with the entity was not found to be genuine, therefore, the Assessing Officer made addition of Rs. 30,27,80,000/- in A.Y. 2012-13 under section 68 of the IT Act. From the perusal of the details/document filed by the assessee, it is clear that share subscribing Companies were not having any business activity. They were having meager income from which it is clear that they were paper/shell companies and engaged in giving accommodation entries to the beneficiaries in the garb of share capital including share pre....
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....er in 1st para on page no. 23 of assessment order). These investments and loans have been realized and then invested in shares of assessee-company. Therefore, in case of M/s Anushka Soft-Tel Pvt. Limited, the three ingredients of section 68, that is, identity, creditworthiness and genuineness have been fulfilled. The learned Counsel submitted that assessee company has also proved identity; genuineness and creditworthiness in respect of amount received from M/s Sunny Wisdom Enterprise INC. In case of M/s Sunny Wisdom Enterprise INC, the amount has been received through proper foreign remittance channels, after following due procedure as evident by application FC-GPR submitted by the assessee to RBI and Part "A' of Form no FC-GPR and declaration-cum- undertaking u/s 10 (5) of FEMA, letter to branch manager of Punjab National Bank and Kotak Mahindra and the letter of RBI dated 13.07.2012. The assessee company also submitted Balance Sheet, Profit and loss account, Bank statements, and other documents as required by the assessing officer. Learned Counsel further contends that assessing officer has himself decided not to make any addition under section 68 of the Act, in respect of M....
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....red supra) and as mentioned in page no. 11 of the assessment order, the notices were duly complied with by the above two investor companies, thereby filing replies. (vide page NO.5 and 11 of the assessment order). It is important to mention here that notices u/s 133(6) were issued only to (i) M/s Anushka Sort Tel Pvt Ltd (ASTPL) and (ii) M/s Kuber Metals P Ltd. However, we note that no notice was issued in case of Sunny Wisdom Enterprises. However, addition u/s 68 has been made in the case of M/s Anushka Soft-Tel Pvt. Limited and Sunny Wisdom Enterprise Inc. The notices u/s 133 (6) of the Act were served and they are also complied with. We note that directors of M/s Anushka Sort Tel Pvt Ltd, Shri Viral Gujjaar appeared before the Assessing Officer in response to summons u/s 131 of the Act and the Assessing Officer interrogated him and recorded a comprehensive statement. All these above facts were not disputed by ld DR for the Revenue. 13. We note that according to section 68 of the Income Tax Act, where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanatio....
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....of MCA, which shows that status of M/s Anushka Soft-Tel Pvt. Limited is 'active'. This indicates that M/s Anushka Soft-Tel Pvt. Limited has been filing all the statutory returns with the Registrar of Companies regularly and company is an active company. The Assessing Officer asked the director about the address of M/s Anushka Soft-Tel Pvt. Limited (question no. 21), wherein the director has stated that Registered Office of the company is changed on 30.04.2012 and that the form no. 8 has been filed with the ROC for change of address and the copy of the same is also provided. This reply of the director is not discussed by the assessing officer and no adverse inference drawn. M/s Anushka Soft-Tel Pvt. Limited has been filing income tax returns. The assessee has filed copy of income tax return of M/s Anushka Soft-Tel Pvt. Limited for assessment year 2012-13, alongwith Profit and loss account, Balance Sheet, copy of bank statements, ROC details and financial statements before the assessing officer and the same documents were filed before ld CIT(A). The above details have been filed both by the assessee as well as by M/s Anushka Soft-Tel Pvt. Limited in response to notice u/s 133(6) of t....
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....vestment activity to have tangible assets in its Balance Sheet. This aspect was asked to the director of M/s Anushka Soft-Tel Pvt. Limited in question no.17 wherein he has explained as under:- "ANS: We have made investment in shares of above company in view of future potential by way of appreciation in value of shares. At present, there is no manufacturing activity. Initially, we had planned to do business of software developers and do outsourcing work of foreign companies, but the business could not take off due to non-availability of required software engineers and lack of outsourcing work due to policy of U S Government, which has emphasized to get the work done in their company only". However, the assessing officer has not mentioned this part of statement anywhere in the assessment order. The right course is to mention it and rebut it by contrary finding or to discredit the statement by further interrogation. (b) The ld CIT(A) observed that it is evident from the balance sheet of M/s Anushka Soft-Tel Pvt. Limited that the major source of its fund is from share capital and reserve funds, and surplus, which is Rs.19 crores. From balance sheet it was noted by ld CIT(A) that M/....
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....cer noticed that there are no cash deposits in its bank account. The bank accounts shows that M/s Anushka Soft-Tel Pvt. Limited has received funds from another investee company and as soon as the amounts invested elsewhere in another investee company are realized the same are invested in the assessee's company. The ld Counsel contended that the assessee - company has no obligation nor is it required to explain the "source" of M/s Anushka Soft-Tel Pvt. Limited as it tantamount to "source of source". The ld Counsel argued that, if the source of M/s Anushka Soft-Tel Pvt. Limited is found to be of doubtful nature, it can be examined in the assessment of M/s Anushka Soft-Tel Pvt. Limited and brought to tax, in its hands. The ld Counsel pointed out that, there are no cash deposits and no significant borrowing by M/s Anushka Soft-Tel Pvt. Limited and there is no significant infusion of funds in M/s Anushka Soft-Tel Pvt. Limited in the current year except for short term borrowing of Rs. 21.89 lacs. The ld Counsel also stated that, there is no linkage of hawala operations and M/s Anushka Soft-Tel Pvt. Limited is not part of any group of shell companies. He pointed out that this is a stand....
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....knowledge, management, goodwill, and we personally visited their Sivassa Factory. We also studied their future potential before investing in Geelon Industries P Ltd and also consulted my CA and relatives as explained in earlier reply." ANSWER To Q.NO 18:- "As explained above, we have studied the working of above company and considering the volume of activity and market it possess, we thought it prudent to make investment in shares at a premium in above 'company. We have also seen the credit rating given to above company by JCRA. We analyzed their strategy and, product line which was very unique on this basis, we were of the opinion that the price of shares will increase." Therefore, ld CIT(A) has rightly observed that assessing officer has not further interrogated or countered him to discredit the said explanation. The assessing officer has not discussed this part of statement anywhere in his assessment order. It is also evident from the answers of the directors of M/s Anushka Soft-Tel Pvt. Limited that he is having very good knowledge of the business activity of the assessee-company and he has taken considered decision of investing in the assessee-company. (b) The ld CIT....
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....foreign remittance channels, after following due procedure as evident by application FC - GPR submitted by the assessee to RBI and Part "A' of Form no FC - GPR and declaration-cum-undertaking u/s 10 (5) of FEMA, letter to branch manager of Punjab National Bank and Kotak Mahindra and the letter of RBI dated 13.07.2012. It is also observed from the Income and Expenditure Account and the Balance Sheet ( forming part of paper book (page Nos 121 to 125) that SWEI has operating revenues (turnover) of 82,34,593 USD and net income of is at 6,33,128 USD. This shows that the SWEI is not a dummy company as it has significant operating revenues. (c) From the balance sheet (PB 122), it can be seen that SWEI has total shareholders equity of 38,69,938 .99 USD. A copy of the ledger account, income tax return of SWEI INC has also been filed (paper book page no. 1230) as per which, the total investment in assessee -company is shown at Rs. 25,00,000 USD which appears in the balance sheet Under the head Funds and Long Term Investment. From these documents, prima facie (i) identity, (ii) creditworthiness (iii) and genuineness of transactions are established by the assessee. The assessing officer h....
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....Court in Lovely Exports (P) Ltd. (supra) in the context to the pre-amended section 68 of the Act has held that where the revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the revenue to add the same to the assessee's income as unexplained cash credit." 19. From the above judgment of the Hon'ble Bombay High Court in the case of M/s. Gagandeep Infrastructure Pvt. Ltd (supra), it is vivid that proviso to section 68 of the Act which has been introduced by the Finance Act 2012 with effect from 1st April, 2013, is effective only from the Assessment Year 2013-14. That is, the amendment is prospective in nature, hence such amendment is not applicable to the assessee under consideration, as in the assessee`s case the assessment year involved is "Assessment Year 2012-13", therefore assessee need not to prove source of the source. However, from the facts narrated above, it is abundantly clear that assessee under consideration has proved "source of the source" also. 20. We note ....
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....sessing Officer did not follow the principle laid down under Section 68 of the Income Tax Act. 17. If on verification, it was found that those lenders did not disclose in their income tax return the transaction or that they had not disclosed the aforesaid amount, the Assessing Officer could call for further explanation from the assessee to prove the genuineness of the transaction or creditworthiness of the same. However, without verifying such fact from the income tax return of the creditors, the action taken by the Assessing Officer in examining the lenders of the assessee was a wrong approach. Moreover, we find that those lenders have made inconsistent statement as pointed out by the Commissioner of Income Tax (Appeals) and in such circumstances, we find that both the Commissioner of Income Tax (Appeals) and the Tribunal were justified in setting aside the deletion as the Assessing Officer, without taking step for verification of the Income Tax Return of the creditors, took unnecessary step of further examining those creditors. If the Assessing Officers of those creditors are satisfied with the explanation given by the creditors as regards those transactions, the Assessing Offi....
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....y speed post; (b) Explanation of the sources from which investments were made by the respective companies; (c) Copy of the bank statement showing the aforesaid transaction. 12. The following facts are apparent on record to establish the creditworthiness of the share applicant-companies: (i) All the applicant-companies are 9 to 10 years old companies as can be verified from the date of incorporation written on the return of income; (ii) All the share applicant-companies are having authorized and paid up share capital ranging from 50 lakhs to 65 lakhs; (iii) All the share applicant companies are non-banking finance companies registered with the Reserve Bank of India to carry on the business of non-banking financial institution; (iv) All the companies have substantial investments ranging from Rs. 65.10 lakhs to Rs. 96.16 lakhs in other companies; (v) Annexures of investment shows the name of M/s. Ujala Dyeing and Printing Mills Pvt. Ltd. in whose share capital those companies have made investment; (vi) All the applicant-companies are assessed to tax and assessment order has been received by them for the relevant assessment year 2002-03. 13. On the basis of the afor....
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....se of Rameshchandra M. Luthra : (2002) 257 ITR 460 by the learned standing counsel for the Revenue is uncalled for. Since the Tribunal has recorded findings of fact and after appreciation of the evidence has come to the correct conclusion, we are of the view that no substantial question of law arises out of the order of the Tribunal. We, therefore, dismiss the appeal." 23. The main plank on which the assessing officer made the addition was because the directors of the share subscribers did not turn up before him. However, we note that director of M/s Anushka Soft-Tel Pvt. Limited, one of the share subscribing companies, appeared before assessing officer and assessing officer took statement under section 131 of the Act. Therefore, stand taken by the assessing officer is not correct. We also note that notice issued by the assessing officer under section 133(6) of the Act was served on M/s Anushka Soft-Tel Pvt. Limited and this share subscribing company made the compliance. Besides, M/s Anushka Soft-Tel Pvt. Limited, had submitted Profit and Loss account, Balance sheet, Bank statement, books of accounts, ROC records, PAN Number and other documents, as required by the assessing office....
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....their bank accounts as unexplained investments of those creditors under section 69. 24. In the case of Nemi Chand Kothari 136 Taxman 213, the Hon'ble Guahati High Court has thrown light on another aspect touching the issue of onus on assessee under section 68, by holding that the same should be decided by taking into consideration the provision of section 106 of the Evidence Act which says that a person can be required to prove only such facts which are in his knowledge. The Hon'ble Court in the said case held that, once it is found that an assessee has actually taken money from depositor/lender who has been fully identified, the assessee/borrower cannot be called upon to explain, much less prove the affairs of such third party, which he is not even supposed to know or about which he cannot be held to be accredited with any knowledge. In this view, the Hon'ble Court has laid down that section 68 of Income-tax Act, should be read along with section 106 of Evidence Act. The relevant observations at page 260 to 262, 264 and 265 of the report are reproduced herein below:- "While interpreting the meaning and scope of section 68, one has to bear in mind that normally, inte....
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.... 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and it is not the burden of the assessee to prove the creditworthiness of the source(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then, the interpretation of section 68 are to stand together, which they must, then the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of section 106 of the Evidence Act and section 68 of the Income- tax Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the assessee to prove tha....
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....aken place between the creditor and the sub creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-creditor to the creditor was income of the assessee from undisclosed source unless there is evidence, direct or circumstantial, to show that the amount which has been advanced by the sub-creditor to the creditor, had actually been received by the subcreditor from the assessee ...." ********** "Keeping in view the above position of law, when we turn to the factual matrix of the present case, we find that so far as the appellant is concerned, he has established 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 creditor....
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....a 347 ITR 347 wherein the Court held as follows: "15. It is now a settled law that while considering the question whether the alleged loan taken by the assessee was a genuine transaction, the initial onus is always upon the assessee and if no explanation is given or the explanation given by the appellant is not satisfactory, the Assessing Officer can disbelieve the alleged transaction of loan. But the law is equally settled that if the initial burden is discharged by the assessee by producing sufficient materials in support of the loan transaction, the onus shifts upon the Assessing Officer and after verification, he can call for 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." 27....
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....tions raised by the assessee and the Commissioner in the light of the evidence and the relevant law. 10. We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore, it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter the creditworthiness. As rightly pointed out by the learned counsel that the Commissioner of Income-tax (Appeals) has taken the trouble 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....
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....m assessee has received funds" . The Hon'ble' jurisdictional High Court has concurred with this view of Hon'ble ITAT in ITA No. 967/2015 dated 05.01.2016 . 29. On the identical facts, in Tax appeal no. 442 of 2011 of Hon'ble' Gujarat High Court in the case of CIT v/s Belgium Glass & Ceramics P Ltd (date of pronouncement 13.06.2012), held as follows: "4. On consideration of facts and the order of the Tribunal, it is seen that while reversing the order of the Commissioner (Appeals) the Tribunal took view that once the applicants admit to have made the payment of share application money, no further inquiry was necessary into the creditworthiness and genuineness of the transactions in the case of assessee - company. It took such view on the basis of various judicial pronouncements of the High Courts in which, the issue of share application money was considered and mainly relied on the decision of the Apex Court in CIT v/s Lovely Exports P Ltd (2010 ) 14 SSC 761) 4.1 In the facts of the case, it is not disputed that the assessee had furnished the assessing officer the names of 15 persons from whom the share application money was receive. The assessee had also produced ....
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.... copy of bank account, copy of share application and copy of income tax returns of the creditors, or share applicants have been furnished by the assessee, the onus of proving the above three elements required for section 68 is discharged. It is also held that it is not for the assessee to prove or to explain the "source" of the share applicant or loan creditor. It is also held that if there is any doubt regarding source of the said creditors / share applicants, the matter can be examined by the concerned assessing officer in their own assessment. For this, reliance can be placed on the judgment of the Hon`ble Gujarat High Court in the case of Hindustan Inks & Resigns Ltd v/s DCIT, 60 DTR 0018 (Guj).The same legal ratio is also followed in following binding decisions of Hon'ble' jurisdictional High Court of Gujarat: (i) CIT v/s Himatsu Blmet Ltd (High Court of Gujarat no. 546 of 2009 Order dt 04.05.2010 in Tax Appeal (ii) CIT v/s Bhavana Property Developers P ltd (High Court of Gujarat) in ITA No. 1039/2009 (iii) CIT v/s M/s Goyal Synthetics P Ltd (High Court of Gujarat) (in ITA No. 498 of 2010) are all of exact issue of share application money received. (iv) CIT v/s Shr....
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....hka Soft-Tel Pvt. Limited as well as the assessee-company. The director is not a name lender as generally happens in the case of dummy companies and Shell Company. The statement of the director has not been rebutted or discredited by the assessing officer. The assessee company is having a turnover of Rs. 200 crores and the Share Capital of the company is Rs 1.32 crores. Hence, the premium is charged by the assessee- company. In the case of M/s SWEI Inc, the details and documents have been filed before the Id assessing officer however, the assessing officer has not examined and / or rebutted them with any cogent or discernible line of reasoning. The assessing officer has not made reference to FT & TR nor has he made any investigation / inquiry, in this case. The documents filed reflect that SWEI Inc, is a Company having substantial operating revenues and it has enough shareholders equity to make investment in assessee-company. Further, the documents also show that the investment has been made through a proper channel of foreign remittances and by following due procedure under FCGPR. The same is also reflected in the balance sheet of M/s SWEI Inc. The assessing officer has not given ....