M/S. CHARU CRIMPWEAVERS PVT. LTD, MUMBAI V. INCOME TAX OFFICER, WD (6) (2) (1), Mumbai

ITA 1577/MUM/2022

AI Insights

Charu Crimpweavers Pvt. Ltd. appealed against the order of the Ld CIT(A), which confirmed the reopening of assessment and the addition of Rs.60.00 lakhs under section 68 of the Income Tax Act, 1961. The addition was based on the grounds that the share capital received by the assessee was from entities categorized as accommodation entry providers. The Tribunal examined the documents and evidence provided by the assessee, including audited financial statements, confirmation letters, and other relevant documents, and found that the assessee had sufficiently proved the nature and source of the cash credits. The Tribunal also noted that the Assessing Officer had not conducted a thorough inquiry and had relied primarily on the statement of an individual involved in providing accommodation entries, which was later retracted. Consequently, the Tribunal set aside the order of the Ld CIT(A) and directed the deletion of the addition under section 68.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123949 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-01-2023
• Assessment Year: 2009-2010
• Appeal Filed On: 15-06-2022
• Other Referred Cases: M/s Moraj Realty P Ltd vs. DCIT, CIT vs. Orchid Industries P Ltd, CIT vs. Apeak Infotech, Sadik Sheik vs. State, C.V. Ravi vs. ITO, PCIT vs. Oriental Power Cables Ltd
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Retrospective amendment; Question of law; Fair market value; Accommodation entries; Capital receipt; Retraction; Set aside
• Section: 68; 148; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI ‘C’ BENCH, MUMBAI. Before Shri B.R. Baskaran (AM) & Shri Rahul Chaudhary (JM) I.T.A. No. 1577/Mum/2022 (A.Y. 2009-10) Charu Crimpweavers Pvt. Ltd. 7/8, 102-A, Madhavwadi Naigaon Assessee Road, Dadar-E Mumbai-400 014. PAN : AABCC7957J V s. ITO, Ward-6(2)(1) Aayakar Bhavan M.K. Road Mumbai-400 020. (Appellant) (Respondent) Assessee by Shri H.S. Raheja Department by Shri Dilip K. Shah D ate of He a rin g 05.01.2023 D ate of P r on ou nc em ent 06.03.2023 O R D E R Per B.R.Baskaran (AM) :- The assessee has filed this appeal challenging the order dated 20.04.2022 passed by Ld CIT(A), NFAC, Delhi and it relates to the assessment year 2009-10. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the validity of reopening of assessment and also confirming the addition made u/s 68 of the Act to the extent of Rs.60.00 lakhs. 2. The assessee is a private limited company and is engaged in the business of manufacturing of fabrics. For the year under consideration, the assessee did not file return of income. The revenue carried out search and seizure operations in the hands of one Sri Vipul Vidur Bhatt, who was found to be providing accommodation entries in the form of bogus purchases, unsecured loans, share capital etc through a group of companies controlled by him. It was noticed that the assessee has received share capital from some of the companies controlled by him to the tune of Rs.85.50 lakhs. Charu Crimpweavers Pvt. Ltd. 2 Hence, upon receipt of above said information, the AO reopened the assessment of the year under consideration by issuing notice u/s 148 of the Act on 30-03-2016. The details of bogus accommodation entries alleged to have been received by the assessee are tabulated as under:- S. No. Name of Party Amount (Rs.) 1. M/s SantoshimaTradelinks Ltd (Formerly known as M/s Santoshima Lease Finance & Investment (India) Ltd. 32,50,000 2. M/s Dolex Commercial Pvt. Ltd 7,00,000 3. M/s B K Dyeing Printing Mills P. Ltd. 8,00,000 4. M/s Shyam Alcohol & Chemicals Ltd. 35,00,000 5. M/s Lunked Textiles P. Ltd. 3,00,000 Total 85,50,000 3. Before the AO, the assessee submitted copy of audited financial statements, confirmation letters obtained from the above said persons, Certificate of Incorporation of above said companies, their object clause in the Memorandum of Association (MOA) and also copies of returns of income filed by them. Accordingly, it was contended that it has discharged the initial burden of proof placed upon it u/s 68 of the Act. We notice that the AO has also issued notices u/s 133(6) of the Act to the above said parties, but the assessment order is silent as to the receipt of replies to the said notices. The AO also asked the assessee to produce the above said parties along with the documents that were furnished to him. Since the assessee could not produce the above said parties, the AO took the view that the assessee has not discharged the burden placed upon him u/s 68 of the Act. After discussing the results of investigation and statement given by Shri Vipul Vidur Bhatt, the AO took the view that the above said share capital received by the assessee is liable to be assessed as unexplained income of the assessee u/s 68 of the Act. Accordingly, he assessed the above said amount of Rs.85,50,000/- as income of the assessee. Charu Crimpweavers Pvt. Ltd. 3 4. In the appellate proceedings, the Ld CIT(A) confirmed the validity of reopening of assessment. The assessee submitted that the Statement given by Vipul Vidur Bhatt has been retracted by him and accordingly contended that the AO could not have relied upon the said statement for making the impugned addition. Since the retraction was done after expiry of about 10 months, the Ld CIT(A) held that the said retraction was only an afterthought. With regard to the quantum of share capital received during the year, the assessee submitted that the AO has taken wrong amounts, i.e., the assessee had received only Rs.60,00,000/- during the year under consideration. It was submitted that the assessee has received (a) Rs.22.50 lakhs only from M/s Santoshima Trade links Ltd as against Rs.32.50 lakhs noted down by the AO. (b) Rs.22.50 lakhs only from M/s Shyam Alcohol & Chemicals Ltd as against Rs.35.00 lakhs noted down by the AO. (c) Nil amount from M/s Lunkad Textiles P Ltd as against Rs.3.00 lakhs noted down by the AO. In effect, the assessee had received only Rs.60.00 lakhs from four persons as against Rs.85.50 lakhs noted down by the AO. The Ld CIT(A) accepted the mistake pointed out by the assessee and accordingly granted relief of Rs.25.50 lakhs. With regard to the remaining amount of Rs.60.00 lakhs, the Ld CIT(A) confirmed the addition by holding that the preponderance of probabilities, in the instant case, turns against the assessee. Aggrieved, the assessee has filed this appeal before the Tribunal. 5. Though the Ld A.R first argued on the validity of reopening of assessment, yet we propose to deal with the issue on merits. The Ld A.R placed his reliance on the decision rendered by Mumbai bench of Tribunal in the case of M/s Moraj Realty P Ltd vs. DCIT (ITA No.708 & 709/Mum/2019 dated 08-12-2020) and submitted that the above said assessee had also received investments from the four companies, viz., M/s Santoshima Charu Crimpweavers Pvt. Ltd. 4 Tradelinks Ltd, M/s Doled Commercial P Ltd, M/s Shyam Alcohol & Chemical Ltd and M/s B K Dyeing & Printing Mills P Ltd. The investments so received by the above said assessee was also assessed by the AO u/s 68 of the Act in its hands on identical reasoning, viz., they are only accommodation entries and in this regard the AO had placed reliance on the statement given by Shri Vipul Vidur Bhatt. The Tribunal, on noticing that the above said assessee has furnished all the relevant documents in order prove the cash credits, has deleted the addition made by the AO. The Tribunal also observed as under with regard to the stand of the AO:- “17. Moreover, except for relying on the statement of VVB, the assessing officer has not done any enquiry himself except for referring to a notice issued under section 133(6) in AY 2009-10 only....” The Tribunal has also noticed that the Statement given by Shri Vipul Vidur Bhatt has been retracted by him later and hence the Tribunal held that the AO could not have placed reliance exclusively on the above said statement. The Tribunal also took support of the decisions rendered by Hon’ble Bombay High Court in the case of CIT vs. Orchid Industries P Ltd (ITA No.1433 of 2014 dated 5.7.2017) and in CIT vs. Apeak Infotech (397 ITR 148). Since the above said assessee has discharged the initial onus placed upon it, the Tribunal finally held that the addition made u/s 68 of the Act is not justified and accordingly deleted the addition. The Ld A.R submitted that the above said decision of Tribunal squarely applies to the case of the assessee herein. 6. The Ld D.R, on the contrary, placed heavy reliance on the decision rendered by Ld CIT(A). The Ld D.R further relied upon following case law in support of decision rendered by Ld CIT(A):- (a) Sadik Sheik (277 Taxman 594)(SC) (b) C.V. Ravi vs. ITO (281 Taxman 362)(SC) (c) PCIT vs. Oriental Power Cables Ltd (289 Taxman 625) Charu Crimpweavers Pvt. Ltd. 5 7. We heard the parties and perused the record. We have gone through the case laws relied upon by Ld A.R. In the case of Sadik Sheik (supra), the assessee therein could not explain the transfer of cash from Bangalore to Goa and hence it was held that the source of deposit was not explained and the addition made u/s 68 of the Act was upheld. In the case of C.V. Ravi (supra), it was found that the assessee has failed to establish identity of creditor and genuineness of transactions. In the case of Oriental Power Cables Ltd (supra), the Hon’ble Rajasthan High Court has confirmed the deletion of addition made u/s 68 of the Act on the reasoning that the opportunity to cross examine was not granted to the assessee. The SLP filed by the revenue against the above said decision of Hon’ble Rajasthan High Court has been admitted by the Hon’ble Supreme Court. Thus, we notice that the above said case laws relied upon by Ld D.R turns on the facts prevailing in those cases and hence we are of the view that the revenue cannot take support of above said decisions. 8. In the instant case, the addition has been made u/s 68 of the Act, wherein cash credits, which are essentially share capital received by the assessee, have been added. Sec. 68 enables assessment of such types of cash credits, if the assessee fails to prove the nature and source of cash credits. “Nature of cash credit” would mean that the assessee is required to show that it is not of revenue nature. In order to prove cash credits, the assessee should discharge initial burden placed upon his shoulders of the assessee u/s 68 of the Act, i.e., the assessee is required to prove three main ingredients, viz., the identity of the creditor, the genuineness of the transactions and the credit worthiness of the creditor. If the assessee discharges the initial burden, then the burden would shift to the shoulders of the assessing officer, i.e., it is the responsibility of the AO to disprove the claim of the assessee by bringing evidences on record. Charu Crimpweavers Pvt. Ltd. 6 9. We shall now examine the facts prevailing in the instant case. It is noticed that it is not the case of the AO that the assessee did not discharge the initial burden placed upon it with regard to the four loans availed by it. The assessee has furnished all the details relating to the four investors in order to discharge the burden placed upon it u/s 68 of the Act. In fact, the AO went ahead and issued notices u/s 133(6) of the Act, but did not mention about the results of such notices issued by him. However, the AO has refused to admit that those cash credits as proved, only for the reason that these companies have been categorized by the investigation wing as accommodation entry providers. 10. We noticed from the record that the assessee has filed following documents in order to discharge the burden placed upon it under section 68 of the Act :- a) Full set of audited annual account of share applicants b) Confirmation obtained from the share applicants c) Copy of income tax return acknowledgments filed by share applicants. d) Bank statements of the assessee company showing receipt of money e) Certificate of incorporation of share applicants and extract of MOA showing object clause of the share applicants. Thus, in our view the assessee has discharged initial burden placed upon it under section 68 of the Act by furnishing above said documents. 11. The question as to whether the Assessing Officer could have made addition under section 68 of the Act by relying upon the statement given by Shri Vipul Vidur Bhatt was examined by the Coordinate Bench in the case of M/s. Moraj Realty Pvt. Ltd. (supra) and it was held as under :- Charu Crimpweavers Pvt. Ltd. 7 “17. Moreover, except for relying on the statement of VVB the Assessing Officer has not done any inquiry himself except for referring to a notice issued under section 133(6) in A.Y. 2009-10 only. The learned counsel of the assessee has challenged the very veracity of this observation. He has submitted that assessee has asked for the copy of the said notice issued under RTI Act. In response it was replied that copies thereof are not available. Hence, this shows that even the so called inquiry by the Assessing Officer was done in case of only one party for A.Y. 2009-10 and the veracity of which is itself in doubt. 18. We find ourselves in agreement with the submissions of the assessee’s counsel. We note that except for the statement of the entry operator which was also retracted the addition made by the authorities below is devoid of cogent material. In this regard we note that in similar circumstances honourable Bombay High Court in the case of CIT Vs. Orchid Industries Pvt. Ltd. (ITA No. 1433 of 2014 dated 5.7.2017) held as under :- “The Assessing Officer added Rs.95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account. The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P.) Ltd. (supra) would be applicable in the facts and circumstances of the present case.” 19. Similarly honourable Bombay High Court in the case of Gagandeep Infrastructure Pvt. Ltd. (supra) has held as under :- We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards Charu Crimpweavers Pvt. Ltd. 8 and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced “for removal of doubts” or that it is “declaratory”. Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. (ii) Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in CIT v/s. Lovely Exports (P)Ltd. 317 ITR 218 in the context to the preamended 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. 20. Similarly Hon'ble Bombay High Court in the case of CIT Vs. Apeak Infotech (3971 ITR 148) has held as under :- “Amendment to Section 68 of the Act by the addition of proviso thereto took place with effect from 1 st April, 2013. Therefore, it was not applicable for the subject Assessment year 2012-13, So for as the pre-amended Section 68 of the Act was concerned, the same cannot be invoked in this case, as evidence was led by the Respondents- Assessee before the Assessing Officer with regard to identity, capacity of the investor as well as the genuineness of the investment Therefore, admittedly, the Assessing Officer did not invoke Section 68 of the Act to bring the share premium to tax. Similarly, the OT(A) an consideration of facts, found that Section 68 of the Act cannot be invoked, in view of the above, it was likely that the Revenue may have taken an informed decision not urge the issue of Section 68 of the Act before the Tribunal. High Court may also point out that decision of High Court in Major Metals Ltd. vs. Union of India, 359 ITR 450 proceeded on its own facts to uphold the invocation of Section 68 of the Act by the Settlement Commission. In the above case, the Settlement Commission arrived at a finding of fact that the subscribers re shares of the Assessee - Company were not Charu Crimpweavers Pvt. Ltd. 9 creditworthy in as much as they did not have financial standing which would enable them to make an investment of Rs. 6,00,00,000/- at premium of Rs. 990 per share. It was this finding of the fact arrived at by the Settlement Commission which was not disturbed by High Court in its writ-jurisdiction. In the present case the person who have subscribed to the share and paid share premium have admittedly made statement on oath before the Assessing Officer as recorded by the Tribunal. No finding in this case has been given by the Authorities that shareholder/share applicants were unidentifiable or bogus. High Court find that the impugned order of the Tribunal upheld the view of the CIT(A) to hold that share premium is capital receipt and therefore, cannot be taxed as Income. This conclusion was reached by the impugned order following the decision of this Court in Vodafone India Services Pvt. Ltd. (supra) and of the Apex Court in M/s G.S. Homes and Hotel P. Ltd. (supra). In both the above cases the Court has held that the amount received on issue of share capital including premium are on capital account and cannot be considered to be income. It was further pertinent to note that the definition of income as provided under Section 2(24) of the Act at the relevant time did not define as income any consideration received for issue of share in excess of its fair market value. This came into the statute only with effect from 1 st April, 2013 and thus, would have, no application to the share premium received by the Respondent - Assesses in the previous year relevant to the assessment year 2012 - 2013. Similarly, the amendment to Section 68 of the Act by addition of proviso was made subsequent to previous year relevant to the subject Assessment year 2012-13 and cannot be invoked. It may be pointed out that High Court in Commissioner of Income Tax vs. M/s. Gangadeep Infrastructure (P) ltd (Income Tax Appeal No. 1613 of 2014 decided in 20 March 2017) has while refusing to entertain a question with regard to Section 68 of the Act has held that the proviso to Section 68 of the Act introduced with effect from 1 April 2013 will not have retrospective effect and would be effective only from Assessment year 2013-14. In view of the above, Question No .B as proposed also does not give rise any substantial question of law as it is an issue concluded by the decision of High Court in M/s Vodafone India Services Pvt. Ltd. (Supra) and in the Apex Court in M/s G.S. Homes & Hotels P. Ltd. (supra). Thus not entertained. ” 21. Accordingly in the background of aforesaid discussion and precedent in our considered opinion assessee has given all the necessary details required for establishment of identity creditworthiness and genuineness under extant provisions of section 68 of the IT Act. The onus cast upon the assessee stands discharged. The addition by invoking amended provisions of section 68 of the Act which are not applicable for the assessment year is not sustainable.” Charu Crimpweavers Pvt. Ltd. 10 12. In our view, the above said decision rendered by the co-ordinate bench supports the case of the assessee. Accordingly, following the above said decision, we hold that the addition made by the Assessing Officer under section 68 of the Act, in the facts and circumstances of the case, was not justified. Accordingly we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to delete the addition under section 68 of the Act. 13. Since we have deleted the addition on merits, we do not find it necessary to address the legal issue relating to validity of reopening of the assessment as the same has become academic in nature. 14. In the result, appeal filed by the assessee is allowed. Pronounced in the open court on 06.03.2023. Sd/- Sd/- (RAHUL CHAUDHARY) (B.R. BASAKARAN) Judicial Member Accountant Member Mumbai; Dated : 06/03/2023 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// (Assistant Registrar) PS ITAT, Mumbai