ITO 6 (2)(1), MUMBAI V. M/S CONFIANCE TRADING PVT LTD., MUMBAI

ITA 199/MUM/2020

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 9817 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 06-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Source of fund; Retrospective amendment; Valuation report; Accommodation entries; Set aside
• Section: 68; 133(6); 143(1); 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “C”, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA No.199/M/2020 Assessment Year: 2012-13 ITO 6(2)(1), 5 th Floor, Room No.510, Aaykar Bhavan, M.K. Road, Mumbai – 400 020 Vs. M/s. Confiance Trading Pvt. Ltd., 308, Adharu Industrial Estate, Sun Mill Compound, Lower Parel, Mumbai – 400 013 PAN: AACCC4316L (Appellant) (Respondent) Present for: Assessee by : Shri Dharmvir, A.R. Revenue by : Shri Gaurav Kabra, D.R. Date of Hearing : 10.11.2021 Date of Pronouncement : 24.01.2022 O R D E R Per Amarjit Singh, Judicial Member: The present appeal has been preferred by the Revenue against the order dated 09.09.2019 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2012-13. 2. The grounds raised by the Revenue are as under: “1. On the facts and circumstance of the case and in law, the Ld. CTT(A) erred in deleting the addition ofRs.4,99,99,680/- made by the Assessing office on account of share capital and share premium received from M/s Dallas Impex Pvt. Ltd. and M/s Monarch Infraprojects Pvt. Ltd, by the assessee company as unexplained cash credits u/s.68 of the IT. Act without taking cognizance of the facts substantiated by the Assessing Officer in the Assessment order. 2. On the facts and circumstance of the case and in law, the Ld. CJT(A) has failed to appreciate the facts that the decision of Hon'ble Mumbai High Court in the case of ITA No.199/M/2020 M/s. Confiance Trading Pvt. Ltd. 2 M/s Gagandeep Infrastructure Pvt. Ltd. for A.Y.2008-09 has not been accepted by the department and filed the petition for Special Leave to Appeal(C) No.5759/2018. 3. The Appellant prays that the order of the CIT(Appeals) on the above grounds be set aside and that of the AO be restored. 4. The Appellant craves leave to ament or alter any ground or to submit additional new ground, which may be necessary.” 3. The issue raised in 1 st ground of appeal is against the deletion of addition of Rs.4,99,99,680/- by Ld. CIT(A) as made by the AO on account of share capital and share premium received from Dallas Impex Pvt. Ltd. and Monarch Infotech Pvt. Ltd. under section 68 of the Act as unexplained cash credit. 4. The facts in brief are that the assessee filed return of income on 11.09.2012 declaring nil income which was processed under section 143(1) of the Act. The case of the assessee was selected for scrutiny and during the assessment proceedings the AO observed that assessee has received during the year by way of share capital Rs.13,88,880/- and share premium Rs.4,86,10,800/- aggregating to Rs.4,99,99,680/-. According to the AO the issue of shares at such a high premium was unnatural and suspicious and accordingly the assessee was asked to prove the identity, creditworthiness of these investors and genuineness of the transactions. In compliance, the assessee filed before the AO various documents comprising ITRs, balance sheet, bank statements of the investors. The AO noted that assessee has issued shares of face value Rs.10/- each at a premium of Rs.350/-. The assessee has also filed before the AO the valuation report justifying the valuation of shares. However, the AO was not satisfied with the reply of the assessee and treated the entire share capital and share premium as non ITA No.199/M/2020 M/s. Confiance Trading Pvt. Ltd. 3 genuine and added to the income of the assessee as unexplained cash credit under section 68 of the Act. 5. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee by holding that the AO has made addition under section 68 of the Act and not under section 56(2)(viib) of the Act. The Ld. CIT(A) noted that in respect of excess premium received by the private limited company can be made under section 56(2)(viib) of the Act from A.Y. 2013-14 only. The Ld. CIT(A) observed that the assessee has even filed valuation report as per DCF method, however, the AO has not pointed out any defect or deficiency in the said report. The Ld. CIT(A) also noted that the proviso to section 68 requires the assessee to prove source of source is also applicable from A.Y. 2013-14. The Ld. CIT(A) while allowing the appeal of the assessee relying on the decision of Co-ordinate Bench of the Tribunal in the case of ITO vs. M/s. Shripal Polyfilm Ltd. (2019) 104 taxman.com 172 wherein the co-ordinate Bench of the Tribunal by following the decision of Hon’ble Bombay High Court in the case of CIT vs. Green Infra Ltd. (2017) 392 ITR 7 wherein it has been held that the valuation of share is not relevant for determining the genuineness of the transaction for the purpose of section 68 of the Act. The Ld. CIT(A) also referred to the decision of Vodafone India Services Ltd. vs. UOI 368 ITR 1 wherein it has been held that share premium is not an income of the assessee. The Ld. CIT(A) also recorded a finding that AO has not done any verification on the evidences filed by the assessee neither pointed out any defect or deficiency in the said evidences. It was recorded by the Ld. CIT(A) that assessee has discharged its onus by filing the necessary evidences to establish the identity, ITA No.199/M/2020 M/s. Confiance Trading Pvt. Ltd. 4 creditworthiness and genuineness of the transactions, however, the AO has not done any further verification. The Ld. CIT(A) also relied on the decision of Hon’ble Supreme Court in the case of CIT vs. Lovely Exports Pvt. Ltd. (2008) 216 CTR 195 (SC) wherein it has been held that no addition can be made under section 68 of the Act on account of unexplained investments where the assessee furnished before the AO the evidences to prove identity of the investors. The Ld. CIT(A) also followed the decision of Hon’ble Bombay High Court in the case of CIT vs. Creative World Telefilms Ltd. (2011) 333 ITR 100 (Bom-HC) wherein it has been held that if the share application is received by the assessee from alleged bogus shareholders whose names are given to the AO then the department can proceed against them and if necessary to reopen their individual assessments. The Ld. CIT(A) also followed the decision of CIT vs. Gagandeep Infrastructure Pvt. Ltd. 80 taxmann.com 272 (Bom.) wherein it has been held that where the assessee has established the identity, genuineness and capacity of the shareholders who subscribed to the shares then AO was not justified in making addition of share subscription amount as unexplained investments besides holding that proviso to section 68 as introduced by the Finance Act, 2012 is not retrospective and is applicable from A.Y. 2013-14 onwards. Thus the Ld. CIT(A) has allowed the appeal of the assessee after discussing the several case laws as discussed hereinabove. 6. The Ld. D.R., on the other hand, relied heavily on the order of AO and prayed before the Bench that the money received by the assessee as share capital and share premium is nothing but bogus accommodation entries. ITA No.199/M/2020 M/s. Confiance Trading Pvt. Ltd. 5 7. We have carefully perused the facts on records and heard the rival arguments advanced by the ld. AR and ld. DR. The facts in brief are that the case of the assessee was reopened primarily because the shares of face value of Rs.10 were issued at a premium of Rs.350/-, however, the addition was made u/s 68 of the Act and not u/s 56(2)(viib) of the Act. We note that addition on account of excess premium received by a private limited company can only be made from AY 2013-14 u/s 56(2)(viib) of the Act. The case of the assessee is supported by the decisions of the coordinate benches in ITO Vs. Singhal General Traders (P) Ltd ( 115 Taxmann.com 119)(Mumbai) & ITO vs M/s Chiripal Poly Films Ltd (104 taxmann.com 172)(A’bad). Both the above decisions support conclusion of Ld CIT(A) that addition on for excess share premium received by a private limited company can be made from AY 2013-14 u/s 56(2)(viib) of the Act. We also find merit in the finding of the Ld CIT(A) that prior to A Y 2013-14 there is no onus on the assessee to justify basis of premium on which shares are issued after relying upon the decision of Jurisdictional High Court in case of CIT v. Green Infra Ltd.[2017] 392 ITR 7(Bom.). We noted that coordinate bench in case of Singhal General Traders (P) Ltd. (Supra) relying on the decision of Hon’ble Bombay High Court in case of Pr. CIT v. Apeak Infotech [2017] 88 taxmann.com 695/397 ITR 148 (Bom.), held as under:- “14. From the above decision of honourable jurisdictional High Court it is abundantly clear that in the present assessment year the assessing officer was not empowered in examining the justification of share premium and the decisions referred by the assessing officer has been duly held to be not applicable on the facts of this case. The decisions referred by learned DR are with reference to those cases where the source of funds have been doubted by the assessing officer or are not established beyond doubt. However, in the present case there is no such doubt ITA No.199/M/2020 M/s. Confiance Trading Pvt. Ltd. 6 as the assessing officer has accepted that the sources of funds are duly explained. Further those decisions refer to the absence of the share applicants and/or their director at the given address. There is no such case made out by the Assessing Officer here. Furthermore, some of the cases refer to notices returning unserved, which is not at all the case here. Hence these decisions do not fructify the revenues case in the fact of the present case. The other decisions referred by learned counsel of the assessee duly support the case of the assessee as discussed above.” 8. Therefore respectfully following the above decisions of jurisdictional High Court and the Hon’ble ITAT Mumbai, it is held that the legislature does not envisage any sort of valuation for the purpose of section 68 of the Act and the addition made because of premium received for instant AY 2012-13 is incorrect in law. 9. We further note that the assessee has filed following documents before the lower authorities i.e:  ITR of investors M/s Dallas Impex Pvt Ltd and M/s. Monarch Infraprojects Pvt Ltd.  Financial statements of M/s Dallas Impex Pvt Ltd and M/s. Monarch Infraprojects Pvt Ltd along with Ledger Confirmation  Valuation Report  Copy of Bank statement of M/s Dallas Impex Pvt Ltd and M/s. Monarch Infraprojects Pvt Ltd. showing the investments made in share capital. The authorities below have not conducted any enquiry or investigation to dislodge the above documentary evidences submitted by the assessee. The reliance on the decision of Apex Court in case of NRA Iron & Steel P. Ltd. (412 ITR 161)(SC) by the DR is also not applicable in this case as we find that in the case before the Hon'ble Supreme Court the parties never responded to 133(6) notices as the AO has carried out inquiries ITA No.199/M/2020 M/s. Confiance Trading Pvt. Ltd. 7 by issuing notices u/s. 133(6), for which none of the companies have replied. None of the companies produced bank statements to establish source of funds for making such huge investments in shares, even though they were declaring a very meagre income in the return of income. None of the investors appeared before the AO, but merely sent response through Dak. In this case, from the facts on record, it is clear that the assessee has filed complete set of documents, but the AO neither carried out any investigation nor issued notices u/s. 133(6) or summons u/s. 131(1) to examine the veracity of documents furnished by the assessee. therefore unless, the AO has carried out further investigations to ascertain true nature of transactions, he cannot come to the conclusion merely on the basis of documents submitted by the assessee. 10. The Hon'ble Bombay High Court in the case of CIT v/s Creative World Telefilms Ltd 333 ITR 100 has held "If the share application money is received by the assessee company from alleged bogus shareholders who's name are given to the Assessing Officer then the department can always proceed against them and if necessary reopen their individual assessments. The Hon'ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure Pvt. Ltd.( 247 Taxman 245) also considered the similar facts and 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 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 ITA No.199/M/2020 M/s. Confiance Trading Pvt. Ltd. 8 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. 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 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.........” 11. In view the above factual and legal position when details with supporting documents for the share application money and the investors are provided during the course of assessment proceedings and the same have been brought on record, the amount received as share capital and share premium cannot be treated as unexplained cash credit in the hands of assessee. Therefore respectfully following the order of the jurisdictional ITAT and High Court which are squarely applicable to the facts of the appellant's case, the grounds raised by the Revenue are dismissed by upholding the order of Ld. CIT(A). Order pronounced in the open court on 24.01.2022. Sd/- Sd/- (Rajesh Kumar) (Amarjit Singh) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 24.01.2022. *Vijay Pal Singh (Sr. PS) Copy to: The Appellant ITA No.199/M/2020 M/s. Confiance Trading Pvt. Ltd. 9 The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// [ By Order Dy/Asstt. Registrar, ITAT, Mumbai.