ITO 16(1)(5), MUMBAI V. REALSTONE ENTERTAINMENT P.LTD, MUMBAI

ITA 1271/MUM/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7463 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 22-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA; SACHIDANAND DEBE DR S
• Assessee Lawyers: R C JAIN AR LAST
• Keywords: Unexplained cash credit; Bogus Share capital; Source of fund; Valuation report; Accommodation entries; Competent authority; Reassessment proceedings
• Section: 143(3); 143(1); 148; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI PAWAN SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 1271/MUM/2017 ASSESSMENT YEAR: 2009 - 10 INCOME TAX OFFICER - 16(1)(5), ROOM NO. 439, 4 TH FLOOR, AAYAKAR BHAVAN M.K. ROAD, MUMBAI - 400020. VS. M/S REALSTONE ENTERTAINMENT PVT. LTD. A - 601, CRYSTAL PALACE, LINK ROAD, MALAD (W), MUMBAI - 400064. PAN NO. AACCR8558F APPELLANT RESPONDENT C.O. NO. 201 /MUM/2018 (ITA NO. 1271 /MUM/2017) ASSESSMENT YEAR: 2009 - 1 0 M/S REALSTONE ENTERTAINMENT PVT. LTD. C/O AJAY DAGA& CO. CAS, 401 - A, PEARL ARCADE, OPP P K JEWELLERS, DAWOODBAUG LANE, OFF J P ROAD, ANDHERI (W), MUMBAI - 400058. VS. INCOME TAX OFFICER - 16(1)(5) , ROOM NO. 439, 4 TH FLOOR, AAYAKARBHAVAN M.K. ROAD, MUMBAI - 400020. PAN NO. AACCR8558F APPELLANT RESPONDENT REVENUE BY : MR. CHAITANYA ANJARIA & MR. SACHIDANAND DEBE, DR S ASSESSEE BY : MR. R.C. JAIN , AR LAST D ATE OF HEARING : 03 / 05 / 2019 DATE OF PRONOUNCEMENT : 24/07/2019 M/S REALSTONE ENTERTAINMENT ITA NO. 1271/MUM/2017 & CO. NO. 201/MUM/2018 2 ORDER PER N.K. PRADHAN, A.M. THE APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS) - 4 [IN SHORT CIT(A)], MUMBAI AND ARISE OUT OF THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (AO) U/S 143(3) R.W.S. 147 OF THE INCOME TAX ACT 1961, (THE ACT). ITA NO. 1271/MUM/2017 ASSESSMENT YEAR: 2009 - 10 2. THE GROUNDS OF APPEAL FILED BY THE REVENUE READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING TO DELETE THE ADDITION OF RS.7,00, 00,000/ - MADE U/S, 68 OF THE INCOME - T AX ACT, 1961, THEREBY ALLOWING THE SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE AS PROPERLY EXPLAINED, WITHOUT APPRECIATING THAT THE GENUINENESS OF THIS TRANSACTION IS IN SERIOUS DOUBT AND AS SUCH THE AMOUNT AS TAXABLE U/S 68 OF THE LT. ACT AS UNEXPLAINED CASH CREDIT, 2. ON T HE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING TO DELETE THE ADDITION OF RS.7,00,00,000/ - MADE U/S, 68 OF THE INCOME - TAX ACT, 1961, BY HOLDING THAT THE TRANSACTION IS GENUINE WITHOUT APPRECIATING THAT T HIS SHARE APPLICATION MONEY WAS RECEIVED FROM COMPANIES WHICH ARE 'BALANCE - SHEET HEAVY' AND OF LITTLE ECONOMIC SIGNIFICANCE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING TO DELETE THE ADDIT ION OF RS.7,00,00,000/ - MADE U/S. 68 OF THE INCOME - TAX ACT, 1961, WITHOUT APPRECIATING THAT THE SAME I S COVERED BY THE RATIO LAID DOWN IN THE JUDGMENT OF THE BOMBAY HIGH COURT IN M/S REALSTONE ENTERTAINMENT ITA NO. 1271/MUM/2017 & CO. NO. 201/MUM/2018 3 THE CASE OF MAJOR METALS VS. UNION OF INDIA WHEREIN THE JUDGMENT OF THE HON'B LE SUPREME COURT IN THE CASE OF CIT VS LOVELY EXPOR TS PVT LTD. (2008) 319 ITR 5 (SC) HAS BEEN DULY DISCUSSED AND DISTINGUISHED. 3. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2009 - 10 ON 30.09.2009 DECLARING TOTAL INCOME OF RS.4,12,614/ - . THE NATURE OF BUSINESS OF THE ASSESSEE - COMPANY IS CONSULTANCY AND FILM PRODUCTION. THE RE TURN WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY, THE ASSESSING OFFICER (AO) RECEIVED INFORMATION FROM THE CHIEF COMMISSIONER OF INCOME TAX, MUMBAI THAT DURING THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAS ISSUED 60,0000 SHARES ON PREMIUM, THE FACE V ALUE FOR WHICH IS RS.100/ - . THE PREMIUM AMOUNT RECEIVED ON CASH AMOUNTS TO RS.5,40,00,000/ - WHICH COMES TO RS.900/ - PER SHARE. THE AO OBSERVED THAT AS PER THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT, THE INTRINSIC VALUE OF THE SHARES ARE MUCH LESS TO COM MAND SUCH A HUGE AMOUNT OF PREMIUM. BASED ON THE ABOVE INFORMATION AND AFTER RECORDING THE REASONS, THE AO REOPENED THE CASE BY ISSUING NOTICE U/S 148 DATED 28.03.2014 TO THE ASSESSEE. THE AO ALSO PROVIDED TO THE ASSESSEE THE REASONS RECORDED FOR REOPENING THE ASSESSMENT VIDE OFFICE LETTER DATED 06.02.2015. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD ISSUED SHARES AT A HUGE PREMIUM TO 7 PARTIES AND DURING THE YEAR THE ASSESSEE HAD ACTUALLY ISSUED 70,000 EQUITY SHARE S AT A PRICE OF RS.1000/ - PER SHARE FOR A TOTAL SUM OF RS.70,000,000/ - AND OUT OF THIS, FACE VALUE OF ONE SHARE IS RS.100/ - AND PREMIUM IS RS.900/ - . AS RECORDED BY THE AO, THE ASSESSEE FILED THE VALUATION REPORT DATED M/S REALSTONE ENTERTAINMENT ITA NO. 1271/MUM/2017 & CO. NO. 201/MUM/2018 4 07.04.2008 WHEREIN THE VALUATION OF ON E SHARE IS DONE AT THE VALUE OF RS.1004.81. FURTHER, THE AO HAS MENTIONED THAT THE ASSESSEE FILED BEFORE HIM DETAILS SUCH AS BALANCE SHEET, PROFIT AND LOSS ACCOUNT AND ITR OF THE PARTIES FOR THE RELEVANT PERIOD. HOWEVER, THE AO WAS NOT CONVINCED WITH THE A BOVE SUBMISSION OF THE ASSESSEE FOR THE REASON THAT THE CREDITWORTHINESS OF THE INVESTORS IS NOT PROVED AND GIVEN THE PAST PERFORMANCE OF THE COMPANY, THE SHARE PREMIUM IS HIGHLY SUSPICIOUS. REFERRING TO SECTION 68 OF THE ACT AND RELYING ON VARIOUS CASE LA WS, THE AO MADE AN ADDITION OF RS.70,000,000/ - RECEIVED AS SHARE CAPITAL AND SHARE PREMIUM AS UNEXPLAINED CREDIT U/S 68 OF THE ACT. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). IN ORDER DATED 21.11.2016, THE LD. CIT(A) DELETED THE ABOVE ADDITION BY OBSERVING THAT : 3.13 THUS IN THE LIGHT OF THE ABOVE FACTUAL NARRATION, VARIOUS REFERENCES AND JUDICIAL PROPOSITIONS I REACH TO THE CONCLUSION THAT THE AO HAS MADE ADDITION U/S 68 FOR THE SAKE OF ADDITION. THE APPELLA NT HAS ESTABLISHED BEYOND DOUBT, IDENTITY, AND GENUINENESS OF TRANSACTION AND SOURCE OF SHARE APPLICATION MONEY. THE AO HAS, HOWEVER, MERELY DOUBTED THE CAPACITY BUT HAS NOT BEEN ABLE TO REFER SINGLE EVIDENCE THAT SUCH SHARE APPLICATION MONEY IS FROM UNKNO WN OR UNDISCLOSED SOURCE. ON THE CONTRARY, IT IS FOUND BEYOND THAT SHARE APPLICATION MONEY HAS BEEN RECEIVED BY THE APPELLANT FROM ESTABLISHED COMPANIES DULY ASSESSED TO TAX. THESE COMPANIES HAVE GIVEN SHARE APPLICATION MONEY FROM THEIR OWN FUNDS AND THE A O HAS ACCEPTED THE FACT THAT SHARE APPLICATION MONEY HAS BEEN ADVANCED FROM THE SAID FUNDS, HENCE IT BECOMES CRYSTAL CLEAR THAT THERE IS NO UNEXPLAINED CASH CREDIT OR UNEXPLAINED SHARE CAPITAL. THEREFORE, SUCH BASELESS ADDITION MADE BY THE AO OF RS.70,000, 000/ - U/S. 68 OF THE IT. ACT IS DELETED. M/S REALSTONE ENTERTAINMENT ITA NO. 1271/MUM/2017 & CO. NO. 201/MUM/2018 5 5. BEFORE US, THE LD. DR RELIES ON THE ORDER OF THE AO. 6. ON THE OTHER HAND, THE LD. COUNSEL RELIES ON THE ORDER OF THE LD. CIT(A). THE LD. COUNSEL FURTHER SUBMITS THAT THE ASSESSEE HAD FILED THE FOLLOWING DOCUMENTS BEFORE THE AO AND CIT(A) : 1. ACKNOWLEDGEMENT OF ROI FILED ORIGINALLY TOGETHER WITH C OMPUTATION OF TOTAL INCOME & AUDITED FINANCIAL STATEMENTS FOR THE YEAR UNDER APPEAL. 2. NOTICE U/S 148 OF THE IT ACT, 1961 DT.28.3.14. 3. ITO'S LETTER DT. 06.02.15 FURNISHING THE REASONS RECORDED FOR RE - OPENING OF THE ASSESSMENT. 4. APPELLANT'S LETTER DT. 09.02.15 OBJECTING TO THE REASONS RECORDED FOR RE - OPENING OF THE ASSESSMENT. 5. ITOS LETTER DT. 05.03.15 DISPOSING OFF THE OBJECTIONS TO THE REASONS RECORD ED FOR RE - OPENING OF THE ASSESSMENT. 6. APPELLANT'S AR'S LETTER DT.11.03.15 FURNISHING DETAILS IN THE COURSE OF RE - ASSESSMENT PROCEEDINGS TOGETHER WITH RELEVANT DETAILS & SUPPORTING WITH REGARD TO ISSUE OF SHARES AT A PREMIUM. 7. APPELLANT'S AR'S LETTER DT . 17.03.15 TOGETHER WITH ANNEXURES WITH REGARD TO JUSTIFICATION FOR ISSUE OF SHARES AT A PREMIUM. 6.1 IN RESPONSE TO CLARIFICATION DURING THE COURSE OF HEARING ON 0 3.05 .2019 THE LD. COUNSEL SUBMITS THAT THE AO IN THE PRESENT CASE, WITHOUT MAKING ANY INQUIR Y INTO THE MATTER AND WITHOUT DISLODGING THE PLETHORA OF EVIDENCE PLACED ON RECORD AND THE SUBMISSION MADE, CONSIDERED THE SHARE CAPITAL RAISED AT A PREMIUM AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE MAINLY ON THE GROUND THAT CREDITWORTHINESS OF THE SHARE M/S REALSTONE ENTERTAINMENT ITA NO. 1271/MUM/2017 & CO. NO. 201/MUM/2018 6 APPLICANTS IS NOT PROVED AS THEY HAVE RETURNED LOW INCOME COMPARED TO THE AMOUNT OF INVESTMENT MADE BY THEM. DISTINGUISHING THE CASE OF NRA IRON & STEEL PVT. LTD. DECIDED BY THE HONBLE SUPREME COURT ON 05.03.2019, THE LD. COUNSEL SUBMITS THAT THE FACTS IN THE ABOVE CASE ARE TOTALLY DIFFERENT FROM THE FACTS OF THE PRESENT ASSESSEE IN AS MUCH AS DETAILED INQUIRIES WERE CONDUCTED BY THE AO AND HE CONCLUDED THAT THE ASSESSEE FAILED TO PROVE THE IDENTITY OF THE INVESTOR COMPANIES AND GENUINENESS OF THE TRANSACTION IN AS MUCH AS THE INVESTOR COMPANIES WERE FOUND TO BE NON - EXISTENT, ALMOST NONE OF THE COMPANIES PRODUCED BANK STATEMENTS TO ESTABLISH SOURCE OF FUNDS FOR MAKING HUGE INVESTMENTS IN THE SHARES, A ND NONE OF THE INVESTOR COMPANIES APPEARED BEFORE THE AO. THE LD. COUNSEL SUBMITS THAT IN THE PRESENT CASE OF THE ASSESSEE, NO INQUIRIES WERE MADE BY THE AO, RELEVANT BANK STATEMENTS OF EACH OF THE SHARE APPLICANTS WERE FURNISHED BY THE ASSESSEE, THE AO HI MSELF ACCEPTED THAT THE SOURCE OF FUNDS FOR MAKING INVESTMENT WAS OUT OF THE SHARE CAPITAL RECEIVED BY THEM AND ALL THE SHARE APPLICANTS ARE BODIES CORPORATE WHO ARE REGULARLY FILING T HEIR RETURN OF INCOME WITH THE D EPARTMENT AND ANNUAL RETURNS WITH THE RO C AND ARE SHOWN AS ACTIVE ON THE WEBSITE OF THE MINISTRY OF CORPORATE AFFAIRS. THUS IT IS SUBMITTED BY HIM THAT THE ORDER OF THE LD. CIT(A) BOTH ON THE VALIDITY OF ASSUMPTION OF JURISDICTION AS WELL AS ON MERITS HAVE TO BE SUSTAINED. 7. WE HAVE HEARD TH E RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IT IS WELL SETTLED THAT IN ORDER TO DISCHARGE THE ONUS U/S 68 OF THE, THE ASSESSEE MUST PROVE THE FOLLOWING : (I) THE IDENTITY OF THE CREDITOR, M/S REALSTONE ENTERTAINMENT ITA NO. 1271/MUM/2017 & CO. NO. 201/MUM/2018 7 (II) THE CAPACITY OF THE CREDITOR TO ADVAN CE MONEY; AND (III) THE GENUINENESS OF TRANSACTION. IT IS ALSO WELL SETTLED THAT AFTER THE ASSESSEE HAS ADDUCED EVIDENCE TO ESTABLISH PRIMA FACIE THE AFO RESAID, THE ONUS SHIFTS TO THE D EPARTMENT. IT IS HAS BEEN HELD SO IN SHANKAR IND V. CIT 114 ITR 689; PRAKASH TEXTILE V. CIT 121 ITR 890 ; CIT V. UNITED 187 ITR 596; RAJSHREE V. CIT 256 ITR 331; ASHOKPAL V. CIT 220 ITR 452, 454; CIT V. METACHEM 245 ITR 160; CIT V. SHREE GOPAL 204 ITR 285; MOD CREATIONS P. LTD. V. ITO 354 ITR 282. AS MENTIONE D EARLIER AT PARA 6, THE ASSESSEE FILED BEFORE THE AO THE RELEVANT DETAILS AND SUPPORTING DOCUMENTS WITH REGARD TO ISSUE OF SHARES AT A PREMIUM. A PERUSAL OF THE ASSESSMENT ORDER CLEARLY INDICATES THAT THE AO WITHOUT MAKING ANY S ORT OF INQUIRY HAS REJECTED THE EVIDENCE FILED BY THE ASSESSEE ON THE BASIS OF CONJECTURES AND ASSUMPTIONS. FACTS BEING SO, WE CONFIRM THE ORDER OF THE LD. CIT(A). 8. IN THE RESULT, THE APPEAL FILED BY THE R EVENUE IS DISMISSED. 9. THE CROSS - OBJECTION FILED BY THE ASSESSEE READS AS UNDER : THE ORDER UNDER APPEAL IS VOID AND ILLEGAL AND, THEREFORE, BAD IN LAW FOR WANT OF APPROVAL OF SATISFACTION FOR RE - OPENING THE CASE FROM THE COMPETENT AUTHORITY AS REQUIRED U/S 151 OF THE IT ACT, 1961. 10. THE LD. COUNSEL SUBMITS THAT AS CLEAR FR OM THE REASONS RECORDED BY THE AO THAT THERE IS NO MATERIAL, LET ALONE ANY COGENT MATERIAL WHICH WOULD GIVE RISE TO REASONS TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WARRANTING ACTION U/S 147 OF THE ACT. IT IS M/S REALSTONE ENTERTAINMENT ITA NO. 1271/MUM/2017 & CO. NO. 201/MUM/2018 8 FURTHER STATED THAT REOPENING OF THE ASSESSMENT IS NOT PERMITTED FOR A FISHING OR ROVING INQUIRY. ON THE OTHER HAND, THE LD. DR SUBMITS THAT THE AO HAS RIGHTLY REOPENED THE RETURN OF INCOME WHICH WAS PROCESSED ORIGINALLY U/S 143(1) OF THE ACT. 11. WE HAVE HEARD THE RIVAL S UBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IN THE INSTANT CASE, THE RETURN OF INCOME ORIGINALLY FILED BY THE ASSESSEE ON 30.09.2009 WAS PROCESSED U/S 143(1) OF THE ACT. THE HONBLE SUPREME COURT IN THE CASE OF ACIT V. RAJESH JHAVERI STOCK BRO KERS P. LTD. (2007) 291 ITR 500 (SC) ANALYZED THE DISTINCTION BETWEEN THE ACCEPTANCE OF A RETURN U/S 143(1) AND AN ASSESSMENT WHICH IS FRAMED U/S 143(3) OF THE ACT. IN THE FORMER CASE, THE AO WOULD HAVE MUCH WIDER LATITUDE TO REOPEN THE ASSESSMENT. IN THE CASE OF AVIRAT STAR HOMES VENTURE P. LTD. V. ITO (2019) 411 ITR 321 (BOM), THE HONBLE BOMBAY HIGH COURT REFERRING TO THE ABOVE DECISION HAS HELD : THAT THE RETURN HAD BEEN ACCEPTED WITHOUT SCRUTINY. THE INCOME - TAX INVESTIGATION HAD SUBSEQUENTLY PROVIDED INFORMATION ABOUT CERTAIN COMPANIES HAVING BANK ACCOUNTS WITH A BANK IN KOLKATA AND WHO WERE INVOLVED IN GIVING ACCOMMODATION ENTRIES OF VARIOUS NATURE TO SEVERAL BENEFICIARIES INCLUDING THE ASSESSEE. THE INFORMATION SUPPLIED BY THE INVESTIGATION WING TO THE ASSESSING OFFICER FORMED A PRIMA FACIE BASIS TO ENABLE THE ASSESSING OFFICER TO FORM A BELIEF OF INCOME CHARGEABLE TO TAX HAVING ESCAPED ASSESSMENT. THE ASSESSING OFFICER PERUSED THE INFORMATION SUPPLIED BY THE INVESTIGATION WING AND HAVING FORMED THE BELIEF THAT INCOME CHARGEABLE TO TAX HAD E SCAPED ASSESSMENT, COULD NOT BE STATED TO HAVE ACTED MECHANICALLY. FURTHER, THE MERE FACT THAT THE ASSESSEE HAD ASKED FOR CERTAIN M/S REALSTONE ENTERTAINMENT ITA NO. 1271/MUM/2017 & CO. NO. 201/MUM/2018 9 INFORMATION FROM THE ASSESSING OFFICER, WHICH AT THIS STAGE WAS NOT SUPPLIED, WOULD NOT INVALIDATE THE REASONS RECORDED BY THE ASSESSING OFFICER IN ISSUING THE NOTICE. THE NOTICE WAS VALID. THUS IN THE INSTANT CASE, THE AO HAS RIGHTLY ISSUED NOTICE U/S 148 FOR REOPENING THE RETURN OF INCOME PROCESSED U/S 143(1) OF THE ACT. ACCORDINGLY WE DISMISS THE CROSS - OBJECTION FILED BY TH E ASSESSEE. 12. TO SUM UP, THE APPEAL FILED BY THE R EVENUE AND THE CROSS - OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/07/2019. SD/ - SD/ - ( PAWAN SINGH ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 24 /07/2019 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI