TaxTMI 
TaxTMI 
2023 (8) TMI 29
X X X X Extracts X X X X
X X X X Extracts X X X X
....,000/- by ignoring the facts as brought on record by the AO that the assessee company failed to prove the genuineness and creditworthiness of the investor company as per the parameters of the legal provisions u/s 68 of the Act?" 3. Whether on points of law and on points of facts & circumstances of the case, the Ld. CIT(A) having concurrent powers of the AO u/s 250(4) of the Act, was justified in deleting the addition of Rs. 10,72,80,000/- made by the AO in the absence of satisfaction of parameters prescribed u/s 68 of the Act?" 4. "Whether on points of law and on points of facts & circumstances of the case, Ld. CIT(A) was justified in giving a finding which is contrary to the ratio of the decision of Hon'ble Supreme Court in the case of M/s Rajmandir Estates Pvt. Ltd. vs PCIT-III, Kolkata (SLP No. 22566-22567 dt. 09.01.2017?" 5. "Whether on points of law and facts & circumstances of the case, the Ld. CIT(A) was justified in giving a finding which is contrary to the ratio of the decisions of ITAT, Kolkata 'B' Bench in the case of M/s Subhlakshmi Vanijya (P) Ltd. Vs CIT-1, 6. "Whether on points of law and facts & circumstances of the ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1. Swastik Securities & Finance Ltd. Dew Drops Mercantiles Ltd. 4500000 2. Balsaria Holding Pvt. Ltd. 12450000 3. JIT Finance Pvt. Ltd. 28600000 4. Lectrodyer Marketing Pvt. Ltd. 10600000 5. Sunderm Consultants Pvt. Ltd. 21700000 6. Admire Vinimay Pvt. Ltd. 19980000 7. Ginni Vinimay Pvt. Ltd. 9450000 Total 10,72,80,000 4. It was further observed by the A.O that out of the aforesaid seven companies, three companies, viz. (i) Balsaria Holding Pvt. Ltd.; (ii) JIT Finance Pvt. Ltd.; and (iii) Lectrodyer Marketing Pvt. Ltd. were companies which belonged to Shri Abhishek Chokani, an infamous accommodation provider, who had admitted in his statements recorded on oath in course of certain survey proceedings conducted u/s.133A of the Act by the Investigation Wing, Kolkata that he was engaged in providing accommodation entries in the form of bogus bills, bogus share capital, unsecured loans etc. to various business houses through certain paper/jamakharchi companies. The A.O on the basis of the aforesaid fact held the entire amount of share application money of Rs. 10,72,80,000/- received by the assessee company fr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....maintained for any previous 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 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:" Thus, based on the above provisions undisclosed amount of Rs. 10,72,80,000/- is disallowed and added back to the income of the assessee." 5. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was framed u/s.143(3) of the Act, wherein no adverse inferences were drawn as regards the genuineness of the receipt of share application money by it from the aforesaid seven share applicant companies. The CIT(Appeals) was of the view that now when department while framing assessment in the case of share applicant company, viz. M/s. Kush Trading & Commerce Pvt. Ltd. had not relied upon the statement of Shri Abhishek Chokani (supra) for drawing any adverse inferences as regards the authenticity of the transaction of receipt of share application money by it from the seven share applicants, thus, there was no justifiable basis for the AO to have taken a view to the contrary on the same issue while framing assessment in the case of the assessee company for the same year. In sum and substance, the CIT(Appeals) was of the view that now when the department while scrutinizing the case of the share applicant, viz. M/s Kush Trading & Commerce Pvt. Ltd. for the year under consideration i.e AY 2013-14 had not drawn any adverse inferences in its hands as regards the receipt of share application money of Rs. 10.72 crore (approx.) from the aforesaid seven investor companies, therefore, there was ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r in appeal before us. 7. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. 8. Ld. AR of the assessee company had at the very threshold of hearing of the appeal, submitted that the assessee company during the year under consideration was in receipt of an amount of Rs. 10.50 crore (wrongly mentioned by the AO as Rs. 10,72,80,000/-) from M/s. Kush Trading & Commerce Pvt. Ltd., against which 42 lac equity shares of a face value of Rs. 10/- per share were issued at a premium of Rs. 15/- per share. Our attention was drawn by the Ld. AR to the financial statements of the investor company, viz. M/s. Kush Trading & Commerce Pvt. Ltd. in support of his aforesaid claim, Page 57 of APB. It was further averred by the Ld. AR that the CIT(Appeals) had duly considered the aforesaid factual mistake of the AO and corrected the same in the course of the proceedings before him. 9. As is discernible from the records, it transpires that the assessee company ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her investment of Rs. 3.23 crores (approx.) made by the same share applicant company, viz. M/s Kush Trading & Commerce Pvt. Ltd. with the assessee company in the immediately succeeding year i.e AY 2014-15, which had been accepted by the AO while framing scrutiny assessment in the case of the assessee company for the said succeeding year, further fortified the genuineness of the transaction of receipt by the assessee company of share application money of Rs. 10.50 crore (supra) from the said share applicant company during the year under consideration. Accordingly, the CIT(Appeals) on the basis of his aforesaid deliberations vacated the addition of Rs. 10.50 crore (supra) that was made by the A.O u/s.68 of the Act, observing as under: "3.3 Facts being as above, the appellant has received share application money from M/s Kush Trading and Commerce Pvt Ltd. (AO has erringly taken the figure as Rs. 10,72,80,000/- where as the assessee has received Rs. 10,50,00,000/-). This is an in-house company and directors are common in this company and the assessee company. AO has held the credit to be non-genuine and has added the whole amount as assessee's income. AO has based his deci....
X X X X Extracts X X X X
X X X X Extracts X X X X
....taking the view that it was open to the department to take recourse of Sec. 131 or Sec. 133(6) of the Act if they were to further proceed. That not having done so, the First Appellate Authority was within the jurisdiction to conclude on facts and law, in favour of the assessee. The Appellate Tribunal in the aal at the instance of the Revenue, has not rendered the decision holding the finding of the First Appellate Authority regarding applicability of Sec. 131 and 133(6) of the Act, as the case may be, is erroneous in laws. So much so, the impugned decision of the Tribunal' sands faulted on a substantial question of law relatable to the contents of Sec. 68 of the Act and the failure of the revenue to take recourse of Sec. 131 and 133(6) of the Act, in the case of the assessee, where the primary onus u/s 68 of the Act stood discharged by the assessee. For the forgoing reasons, we are of the view that the impugned order of the Tribunal has to be set aside answering the question of law, farmed and quoted above, in favour of the assessee. We do so." If no proper opportunity is given to the assessee to controvert the documents/information in possession of AO, the re....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the entire capital has been treated as unexplained cash credit. Once the assessee has discharged its onus, the onus shifts on the AO to make enquires/investigation to establish that either or all of the identity, creditworthiness and genuineness of shareholders has not been established in-spite of the existence of documents. Since documents were submitted before the AO it shows that the companies do exist. Also these companies are duly registered with ROC and having registered offices and registration numbers. As per bank statements payments have received by the assessee from shareholder's accounts to assessee's account. Therefore, genuinenessof the transaction cannot be doubted without making an inquiry and bringing on record any adverse finding. Coming to the source of source, M/s Kush Trading has advanced money to the assessee out of its source. As per explanation, M/s Kush Trading has advanced funds to the assessee out of the money received from seven other companies as listed in the assessment order. In the hands of M/s Kush Trading its capital has already been accepted in scrutiny assessment. When the capital of investor has been accepted by its AO and it ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... payee cheques from the investors most of whom are companies and is duly reflected in the bank account of the appellant. I have perused the bank statements of the investors, their audited financial statements and confirmation for making such investments, which clearly establishes the factum of making investments. These facts are clearly establishing the identity of the investors and the genuineness of the impugned transactions. 15. It is observed from the records and assessment order that for the purpose of making addition as unexplained cash credits, the AO has heavily relied upon the judicial pronouncements, however, the appellant has made elaborate submissions distinguishing the facts, I am convinced with the explanation of the appellant that the decisions relied upon by the A.0 are not applicable in the facts of the present case as there is nothing on record which can indicate that the receipt of share application money was by way of accommodation entries only. It is also not the case of the A.O that the investors have accepted by way of statement that the sums paid to the appellant was in fact received from the appellant and investors merely routed the undisclosed inc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. reported in 319 ITR 393 for the reason that the facts in such cases are entirely same, particularly, when no differentiation could be effectively demonstrated and brought on to the record by the A.O. The submissions of the AO that the decision of the Hon'ble Supreme Court in the case of Lovely Exports (P) Limited was rendered in the light of different facts inasmuch as the said judgement was rendered by the Hon'ble Supreme Court in the context of public issue, is devoid of merit because the decision was rendered by the Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd. which is a Private Limited Company and which cannot bring public issue of shares. I find that the investments made by the share applicants were duly reflected in the audited financial statements of the corporate investors. It is a settled principle of law that reason for suspicion, however grave it may be, cannot be a basis for holding adversity against appellant. 17. The Assessing Officer has disregarded the documentary evidences adduced by the appellant such as confirmation from the share applicants, their PAN, certificate of incorporation of subscriber companies. The subscription....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... In fine, after necessary documents were filed in respect of the subscriber company to establish the genuineness of capital and creditworthiness of subscriber and since there is nothing on record to reject the genuineness of capital the same has be accepted. In view of the above and respectfully following the ratio of the binding judgments of jurisdictional tribunal and high-court on similar facts, I find that the addition of share capital money of Rs. 10,72,80,000/- as unexplained cash credits u/s 68 is uncalled for and hence deleted. The appeal is allowed." 10. We have given a thoughtful consideration and find that the onus that was cast upon the assessee company to prove the authenticity of the transaction of receipt of share application money during the year under consideration i.e AY 2013-14 has two facets, viz. (i) an explanation about the nature and source of the sum so credited in its books of accounts; and (ii) an explanation of the share applicant company as regards the nature and source of its investment i.e share application money credited in the books of account of the assessee company. 11. As observed by us hereinabove, the assessee company had discharged....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the identity and creditworthiness of the share applicants; and also the genuineness of the transaction by placing on record adequate material/evidence, thereafter in case such evidence is to be discarded or is claimed to be a 'created' evidence, then the revenue is supposed to make thorough investigation before it could fasten the assessee with a liability u/s 68 of the Act is supported by the judgment of the Hon'ble High Court of Delhi in the case of CIT-II Vs. Kamdhenu Steel & Alloys Ltd. (2014) 361 ITR 220 (Del). Also a similar view had been taken by the Hon'ble High Court of Delhi in the case of PCIT Vs. N.C Cables Ltd. (2017) 391 ITR 11 (Delhi). It was observed by the Hon'ble High Court that now when the assessee had furnished documents to evidence genuineness of transaction and identity and creditworthiness of parties, then in case of failure by the AO to conduct adequate and proper enquiry no addition could be made u/s 68 of the Act. The Hon'ble High Court further observed that though the Investigation wing had leveled several allegations as regards the receipt of share application money by the assessee company, and also the AO was in possession of certain bank accounts o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ved that if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the assessee company. Alternatively, we may herein observe that the standalone reliance placed by the AO on the information purportedly obtained by him from the Investigation wing, Kolkata, which as per him revealed that three companies (out of seven companies) from whom the share applicant company, viz. M/s Kush Trading & Commerce Pvt. Ltd. had received share application money belonged to Shri. Abhishek Chokani, an infamous accommodation entry provider, in our considered view in absence of any corroborating material could not have justifiably formed a sole basis for dubbing the transaction of receipt of share application money by the assessee company as bogus. Our aforesaid observation is supported by the order of the Hon'ble High Court of Delhi in the case of PCIT Vs. Krishna Devi & Ors. (2021) 431 ITR 361 (Del). It was observed by the Hon'ble High Court that reliance placed on the report of investigation wing without further corroboration on the basis of cogent material, does not justify AOs conclusion that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nded Section 68 of the Act 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 assess them to tax in accordance with law, and the revenue was not entitled to add the same to the assessee's income as unexplained cash credit. Accordingly, the aforesaid claim of the ld. AR subsequent to the insertion of the "1st proviso" to Sec. 68 of the Act vide the Finance Act, 2012 w.e.f AY 2013-14 cannot be accepted. 12. Fact that the share applicant company, viz. M/s Kush Trading & Commerce Pvt. Ltd. was an in-house company of the assessee with certain common directors, holding PAN and filing its returns of income; coupled with the fact that assessment in its case for the year under consideration i.e AY 2013-14 was framed by the ITO, Ward-14(2), Kolkata, wherein after, inter alia, carrying out necessary verifications and recording the statement of its director u/s 131 of the Act the returned income was accepted as such vide order passed u/s 143(3) of the Act, dated 30.12.2015, Page 95-96 of APB, therein conclusively proves th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee company; nor doubted the amount of share application money that was received by it from the aforesaid seven investor companies, which thereafter was utilized for making investment towards share application money with the assessee company, then it was not permissible for the AO to have discarded the said material fact and take a view to the contrary on either of the aforesaid facets of the transaction while framing assessment in the case of the assessee company for the year under consideration i.e AY 2013-14. Our aforesaid view that where assessment of the share applicant company which had invested in the share capital of the assessee company is completed u/s 143(3) of the Act, then no addition of such share application money can be made in the hands of the assessee company u/s 68 of the Act is supported by the order of the ITAT, Bench "A", Kolkata in the case of Ninestar Merchants Pvt. Ltd. Vs. ITO (2021) 61 CCH 201 (Kolkata). Also, support is drawn from the judgment of the Hon'ble High Court of Delhi in the case of CIT-II Vs. Kansal Fincap Ltd. (2014) 42 taxmann.com 147 (Delhi). It was observed by the Hon'ble High Court that where the transactions relating to receipt of sha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aid judgment of the Hon'ble Apex Court being distinguishable on facts would not assist the case of the revenue. As in the aforesaid case the assessee company with a small amount of authorized share capital had raised huge sum on account of premium, i.e increased its share capital by issuing 7.93 lakh shares of Rs. 10/- per share at a premium of Rs. 390/- per share, therefore, the CIT observing that as it could be a case of money laundering that had gone undetected due to lack of requisite enquiry into increase of share capital (including premium) received by the assessee company, therefore, revised the order u/s 263 of the Act. On appeal, the High Court observed that as the assessee company with an authorized share capital of Rs. 1.36 crores had raised nearly a sum of Rs. 32 crores on account of premium and had chosen not to go in for increase of authorised share capital to avoid payment of statutory fees, thus the same was an important pointer necessitating investigation and thus, the CIT had rightly exercised the powers vested with him u/s 263 of the Act. On further appeal, the Hon'ble Apex Court dismissed the Special Leave Petition (SLP) filed by the assessee. (ii). As ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at much higher price than their real worth. As the AO did not make any addition u/s 68 of the Act, therefore, the CIT exercised his revisional jurisdiction u/s 263 of the Act, and directed the AO to frame fresh assessment after carrying out detailed enquiry as regards the genuineness of the transaction. On appeal, the Tribunal observing that since the inadequate enquiry conducted by the AO was as good as no enquiry, therefore, the CIT had rightly exercised his jurisdiction under Sec. 263 of the Act. (ii). Once again, as the facts involved in the case of the present assessee company before us are factually distinguishable as against those involved in the aforesaid case, therefore, the same would be of no assistance to the revenue. 14. Apropos the obligation that was fastened upon the assessee company as per the "1st proviso" to Sec. 68 of the Act (as was made available on the statute vide the Finance Act, 2012 w.e.f 01.04.2013), which mandates an explanation from the share applicant company about the nature and source of the sum credited in the books of account of the assessee company, it transpires that in discharge of the said statutory obligation, it was in the course....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under Sec. 68 on account of share application money only on basis of any third party statement. It was observed that the statements made by some persons related with the investing companies was of no effect because such statements could not have been utilized against the assessee-company when the assessee company had not been afforded an opportunity of confronting and cross- examining the persons concerned. Taking a similar view, the Hon'ble High Court of Delhi in the case of PCIT Vs. Best Infrastructure (India) Pvt. Ltd. (2017) 397 ITR 82 (Del), had observed, that as the department had relied upon the statement of an accommodation entry provider that was recorded u/s 132(4) of the Act for drawing adverse inferences in the hands of the assesseee company, therefore, onus was cast upon the department to facilitate to the assessee company a cross-examination of the said person, and a failure to do so would be sufficient to discard the said statement. On the basis of the aforesaid facts r.w the settled position of law, we are of the considered view that as observed by the CIT(Appeals) and, rightly so, no adverse inferences could have validly been drawn by giving any weightage to the af....
X X X X Extracts X X X X
X X X X Extracts X X X X
....itions are sustainable and there is adequate material to support the same; and if not the addition is to be deleted, but for the sake of completeness, we may herein observe that a perusal of the financial statements, bank accounts of the aforesaid seven investor companies reveals that the respective investments made by them were sourced out of funds that were available with them and were invested from their respective bank accounts. Also in neither of the case of the said seven investors the respective investments made by them is found to have been sourced out of any cash deposits made in their bank accounts prior to their making of investment with the share applicant company, viz. M/s. Kush Trading & Commerce Pvt. Ltd. 15. Apropos the alternative claim of the ld. DR that in case it was to be held that the AO had not carried out proper verifications for dislodging the authenticity of the transaction of receipt of share application money by the assessee company, as well as the source-of-source of the said investment, then the matter in all fairness be restored to his file with a direction to re- adjudicate the same, we are unable to persuade ourselves to accept the same. As the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evenue. There are number of reasons for denying this course of action which are mentioned below: (i) It is not a case where some procedural defect or irregularity had crept in the order of the AO. Had that been the situation, and the additions made by the AO were deleted because of such infirmity, viz., violation of principle of natural justice, the Court could have given a chance to the AO to proceed afresh curing such procedural irregularity. One example of such a case would be when statement of a witness is relied upon, but opportunity to cross-examine is not afforded to the assessee. (ii) On the contrary, it is a case where the AO(s) did not collect the required evidence which they were supposed to do. To put it otherwise, once the assessee had discharged their onus and the burden shifted on the AO(s), they could not come out with any cogent evidence to make the additions. No doubt, as indicate by us above, the AO(s) could have embark upon further inquiry. If that is not done and the AO(s) did not care to discharge the onus which was laid down, for this "negligence" on the part of the AO(s), he cannot be provided with "fresh innings". (iii) The order ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... been followed by the Hon'ble High Court of Madhya Pradesh in the case of Bardoli Jan Kalyan Avam Vikas Samiti Vs. CBDT & Ors. (2022) 114 CCH 157 (MP). It was observed by the Hon'ble High Court that it was trite law that validity of an order of a statutory authority must be seen on the basis of grounds mentioned therein and not for any other reason. Further, a similar view had been taken by the Hon'ble High Court of Madhya Pradesh in the case of M/s Satyam Cineplexes Ltd. Vs. State of M.P and Others, W.P No. 4694/2014; dated 09.02.2021. Relying on the judgment of the Hon'ble Apex Court in the case of Mohinder Singh Gill (supra), the High Court had observed that it is a trite law that validity of an order of a statutory authority must be judged on the basis of grounds mentioned therein and it cannot be supported by assigning different reasons in the court by filing counter affidavits. It was further observed that orders made by public authorities must be construed objectively with reference to the language used in the order itself. Considering the facts as can safely; or in fact inescapably be gathered on a perusal of the assessment order, viz. (i) the AO had blatantly failed to dis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s were not carrying out any work. For the sake of clarity the relevant extract of the statement of Shri. Rajesh Kumar Kedia (as had been culled out by the department in the statement of facts filed before us) is reproduced as under: Although the aforesaid statement of Sh. Rajesh Kumar Kedia (supra) had not been referred to by the AO, but considering the fact that the same would have a strong bearing on the adjudication of the present appeal we cannot remain oblivion of the contents of the same. Considering the aforesaid statement of Shri. Rajesh Kumar Kedia (supra) as had been brought to our notice, which raises serious doubts about the credibility of the aforesaid two companies, viz. (i). Lectrodryer Marketing Pvt. Ltd; and (ii). Balsaria Holdings Pvt. Ltd., we in all fairness and interest of justice restore to the file of the AO the issue pertaining to the explanation of the assessee company as regards the source-of-source, i.e share application money received by the assessee company from the share applicant company i.e M/s. Kush Trading & Commerce Pvt. Ltd., to the extent the same was sourced from the funds which the latter had received from the said two companies, with a dir....