ITO, Ludhiana V. M/s M. M. Color Chemicals (P) Ltd., Ludhiana

ITA 272/CHANDI/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95643 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 01-10-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 28-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: B K NOHRIA
• Keywords: Unexplained cash credit
• Section: 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 272/CHD/2012 ASSESSMENT YEAR: 2006-07 THE ITO, WARD-1(4), VS. M/S M.M. COLOR CHEMICALS (P) LTD., LUDHIANA LUDHIANA PAN NO. AAECM2368J (APPELLANT) (RESPONDENT) APPELLANT BY : SH. S.K.MITTAL RESPONDENT BY : SH. B.K. NOHRIA DATE OF HEARING : 01.10.2015 DATE OF PRONOUNCEMENT : 03.11.2015 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF CIT(A) - II, LUDHIANA DATED 10.01.2012 RELATING TO ASSESSMEN T YEAR 2006-07. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE IN THIS APPE AL READS AS UNDER:- THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FA CTS IN RESTRICTING THE ADDITION OF RS. 1,00,000/- AND DELE TING THE ADDITION OF RS. 14,23,000/- MADE BY THE ASSESSING O FFICER U/S 68 IGNORING THE FACT THAT ASSESSEE COMPANY FAIL ED TO PROVE THE GENUINENESS AND CREDITWORTHINESS OF THE SUBSCRIBERS. 2 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED ITS RETURN OF INCOME ON 2.11.2006 DECLARING TOTAL INCOME AT RS. 7 5,640/-. THE SAID RETURN WAS PROCESSED U/S 143(1) OF THE ACT ON 2.8.2007. L ATER ON, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AS PER GUIDELINES OF CBDT. THE ASSESSEES MAIN SOURCE OF INCOME IS FROM TRADING IN DYES AND C HEMICALS. THE ASSESSING OFFICER NOTICED THAT IN THE BALANCE SHEET AS ON 31. 3.2006, THE ASSESSEE HAS GIVEN THE AMOUNT OF PAID UP SHARE CAPITAL AT RS. 1 LAKH R EPRESENTING THE FULLY SUBSCRIBED 10,000 EQUITY SHARES OF THE COMPANY OF T HE FACE VALUE AT RS. 10 EACH. HOWEVER, THE SHARE APPLICATION MONEY PENDING ALLOTM ENT OF SHARES WAS SHOWN IN THE BALANCE SHEET AT RS. 49,48,000/- . THE ASSESSIN G OFFICER OBSERVED THAT ALTHOUGH THIS IS INITIAL YEAR OF BUSINESS OF PRIVAT E COMPANY, BUT SHARE APPLICATION MONEY IS ALLEGED TO HAVE BEEN PAID BY V ARIOUS INVESTORS FOR THE ALLOTMENT OF EQUITY SHARES OF RS. 10/- AT A PREMIUM OF RS. 190/- EACH. THE AUTHORIZED SHARE CAPITAL OF RS. 50 LAKHS OF THE COM PANY IS MADE 5 LAKHS OF EQUITY SHARES OF RS. 10/- EACH. THE ASSESSING OFFIC ER ISSUED STATUTORY NOTICES TO THE ASSESSEE. VIDE NOTICE DATED 19.12.2008, THE ASS ESSING OFFICER REQUIRED THE ASSESSEE TO SUBMIT A COMPLETE LIST OF SHARE HOLDERS WITH NUMBER OF SHARES ALLOTTED TO EACH OF THEM AS ON DATE, STRICTLY AS PE R THE INFORMATION FILED WITH REGISTRAR OF THE COMPANIES. IN RESPONSE TO THE SAI D QUERY THE ASSESSEE SUBMITTED A LIST OF 15 SHAREHOLDERS TO WHOM 24825 EQUITY SHARES OF RS. 10/- EACH FOR A CASH AT PREMIUM OF RS. 190/- EACH ARE A LLEGED TO HAVE BEEN ALLOTTED AT THE BOARD MEETING HELD ON 14.8.2006. THE TOTAL V ALUE OF THESE SHARES CAME TO RS. 49,65,000/-. ACCORDING TO ASSESSING OFFICER, T HIS LIST INCLUDED THE NAME OF ONE SHRI IQBAL SINGH OF NANGAL TO WHOM 1500 SHARES WERE ALLOTTED BUT HIS NAME DID NOT APPEAR IN THE LIST OF PERSONS WHO HAD ALLEG EDLY APPLIED FOR ALLOTMENT OF SHARES AND IN WHOSE CASES SHARE APPLICATION MONEY W AS SHOWN IN THE BALANCE SHEET AS ON 31.3.2006. THE ASSESSING OFFICER ADDED A SUM OF RS. 15,23,000/- STATING THAT THE SOURCE AND THE GENUINENESS OF THE SAME HAS NOT BEEN EXPLAINED TO HIS SATISFACTION. CONSEQUENTLY, THE ASSESSING OF FICER ADDED AN AMOUNT OF 3 SHARE APPLICATION MONEY RECEIVED FROM FOLLOWING PER SONS AS UNEXPLAINED CASH CREDITS U/S 68 OF THE INCOME-TAX ACT, 1961 (IN SHOR T 'THE ACT'). SMT. SATWANT KAUR WARD NO. 2 DASUYA 100000 MS. RAMINDER CHAWLA WARD NO.2, DASUYA 100000 SH. KULWANT SINGH 1572, SEC -32A, LUDHIANA 32500 0 SMT. ASHDEEP PRIYA 160, JANTA ENCLAVE, LUDHIANA 1 00000 SMT. SIMRAN KAUR TUTOR, GTB HOSPITAL, LUDHIANA 10 0000 3. ON APPEAL, THE CIT(A) RESTRICTED THE ADDITION TO RS. 1 LAKHS AND DELETED THE ADDITION OF RS. 14,23,000/- MADE BY THE ASSESSI NG OFFICER U/S 68 OF THE ACT, OBSERVING AS UNDER:- 5. I HAVE GONE THROUGH THE CONTENTION OF THE A PPELLANT'S COUNSEL AND ALSO PERUSED THE RELEVANT MATERIAL PLAC ED ON RECORD. FACTS OF THE CASE ARE THAT DURING THE COURS E OF ASSESSMENT PROCEEDINGS, THE AO STATED THAT THE APPE LLANT NOT EXPLAINED THE SOURCE OF EIGHT SUBSCRIBERS UPTO HER SATISFACTION AS THE ONE OF THE SUBSCRIBERS SMT. NAV DEEP KAUR DENIED ANY INVESTMENT WITH THE APPELLANT COMPA NY AND FURTHER THE SCRUTINY OF THE BANK STATEMENTS FIL ED BY THE SAID SUBSCRIBERS REVEALED THAT THERE WAS DEPOSIT OF CASH IN THE BANK ACCOUNTS IMMEDIATELY BEFORE THE ISSUANCE O F CHEQUES. HOWEVER, THE APPELLANT'S COUNSEL CONTENDED THAT APPELLANT HAS RECEIVED SHARE APPLICATION MONEY FROM ALL SUBSCRIBERS THROUGH CHEQUE OR BANK DRAFT ALONG WITH SHARE APPLICATION FORM FROM ALL THE SUBSCRIBERS AND THE A PPELLANT HAS ISSUED EQUITY SHARES TO ALL THE SUBSCRIBERS. TH E APPELLANT HAS PROVED THE CREDITWORTHINESS AND GENUI NENESS OF ALL THE SUBSCRIBERS. FURTHER, HE ALSO REFERRED T O THE LANGUAGE OF THE SECTION 68 OF THE ACT AND CONTENDED THAT 'FROM BARE READING OF SECTION 68 IT IS CLEAR THAT T HE SUM 4 MUST BE CREDITED IN THE BOOKS MAINTAINED BY THE ASS ESSEE, THAT THERE HAS TO BE OF A SUM DURING THE PREVIOUS Y EAR AND EXPLANATION OFFERED BY THE ASSESSEE, IN THE OPINION OF AO, IS NOT SATISFACTORY. THE EXPRESSION 'THE ASSESSEE O FFERS NO EXPLANATION' MEANS WHERE THE ASSESSEE OFFER NO PROP ER, REASONABLE AND ACCEPTABLE EXPLANATION AS REGARDS TH E SUM FOUND CREDITED IN THE BOOKS MAINTAINED BY THE ASSES SEE. THE OPINION OF THE AO FOR NOT ACCEPTING THE EXPLANATION OFFERED BY THE ASSESSEE AS NOT SATISFACTORY IS REQUIRED TO BE BASED ON PROPER APPREHENSION OF MATERIAL AND OTHER ATTEND ING CIRCUMSTANCES AVAILABLE ON RECORD. THE OPINION OF THE AO IS REQUIRED TO BE FORMED OBJECTIVELY WITH REFERENCE TO THE MATERIAL AVAILABLE ON RECORD. IN THE RELEVANT CASE THE AO HAS NOT APPLIED HIS MIND BEFORE FRAMING THE OPINION BY MAKING THE ADDITION U/S 68 OF THE L.T. ACT, 1961. THE ASSESSEE HAS PRODUCED ALL THE SHARE APPLICATION FOR M RECEIVED BY THE ASSESSES FOR ALLOTMENT OF SHARES, B ANK STATEMENT OF THE APPLICANTS, ITR OF THE APPLICANT, MOREOVER THE AO HAS RECORDED THE STATEMENT OF THREE APPLICAN TS, OUT OF WHICH TWO HAS STATED THAT THEY HAD INVESTMENT IN THE SHARES OF THE COMPANY BY MAKING PAYMENT THROUGH THE IR RESPECTIVE SAVING BANK ACCOUNT. COPY OF ALL APPLICA TION FORM, BANK STATEMENTS AND ITR IS ENCLOSED FOR YOUR KING REFERENCE. BUT WITHOUT APPLYING HIS MIND AND ON THE BASIS OF FLIMSY GROUND, THE AO HAS MADE THE ADDITION OF S HARE APPLICATION MONEY RECEIVED THROUGH BANK AS UNEXPLAI NED INCOME U/S 68 OF THE INCOME TAX ACT, 1961. THE AS SESSES HAS PROVED THE GENUINENESS AND CREDITWORTHINE SS OF ALL THE APPLICANTS. ' 6. HE ALSO REFERRED TO THE DECISION OF HON'B LE CALCUTTA HIGH COURT IN THE CASE OF ACTIVE TRADERS PRIVATE LI MITED'S CASE [214 ITR 583 (CAL), WHEREIN THE COURT AFTER EX AMINING VARIOUS FACTS OF THE ISSUE, OBSERVED THAT 'IF THE SHARES HAD BEEN PURCHASED BY THE SHAREHOLDERS OUT OF TH EIR UNACCOUNTED FOR MONEY, SUCH INVESTMENT MAY BE LIABLE TO BE ADDED AS THE UNDISCLOSED INCOME OF SUCH 5 SHAREHOLDERS AND AS SUCH THE ASSESSMENT OF THE COMP ANY MAY NOT BE AFFECTED. ' 7. FURTHER, THE HON'BLE DELHI ITAT IN THE CAS E OF STANDARD CYLINDER (P) LTD'S CASE [24 1TD 504], HAS HELD THAT ' A COMPANY IS REQUIRED BY THE COMPANIES ACT TO KEEP THE DETAILS REGARDING THE NAMES, ADDRESSES AND SHAREHOLDING OF THE SHAREHOLDERS, BUT IT DOES NOT A UTHORIZE THE COMPANY TO ENQUIRE FROM ITS SHAREHOLDERS, ABOUT SOURCES OF MONEY FOR INVESTMENT MADE IN ITS SHARES. THE LAW DOES NOT PRESCRIBE FOR THE IMPOSSIBLE OR THE IL LEGAL TO BE ACCOMPLISHED FOR COMPLIANCE. THE TRIBUNAL HELD T HAT THE ENQUIRY FROM COMPANY ABOUT THE SOURCE OF THE INVEST MENT OF ITS SHAREHOLDERS IN THE SHARES OF COMPANY WAS UNAUT HORIZED AND UNCALLED FOR IN THE ASSESSMENT OF THE COMPANY.' 8. IN THE INSTANT CASE, SINCE, THE APPELLANT HAS PROVED THE GENUINENESS OF THE ALL THE SUBSCRIBERS EXPECT REGARDING SMT. NAVDEEP KAUR, WHO HAS DENIED ANY INVESTMENT WITH THE APPELLANT COMPANY, THEREFORE, K EEPING IN VIEW THE ABOVE FACTUAL AND DISCUSSED POSITION OF THE CASE, THE ADDITION MADE BY THE AO IS HEREBY RESTRIC TED TO THE EXTENT OF RS. 1,00,0007- AND REMAINING IS DIREC TED TO BE DELETED. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE MATERIALS AVAILABLE ON RECORD. SHRI S.K. MITTAL LD. DR STRONG LY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. SHRI B.K. NOHRIA, LD. COUNSEL F OR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. HE F URTHER SUBMITTED THAT ASSESSEE COMPANY HAD RECEIVED SHARE APPLICATION MON EY FROM ALL SUBSCRIBERS THROUGH CHEQUE OR BANK DRAFTS ALONG WITH SHARE APPL ICATION FORMS FROM ALL THE SUBSCRIBERS. HE ALSO SUBMITTED THAT ASSESSEE HAD I SSUED EQUITY SHARES TO ALL THE 6 SUBSCRIBERS. HE FURTHER POINTED OUT THAT ASSESSING OFFICER HAD ISSUED SUMMONS 131 OF THE ACT TO SH. KULWANT SINGH, SMT. NAVEEP KA UR AND SHRI NIRMAL SINGH DEGUN. ALL THE SUBSCRIBERS APPEARED BEFORE THE ASSE SSING OFFICER AND IN THEIR STATEMENTS SHRI KULWANT SINGH AND NIRMAN SINGH DEGU N HAD CONFIRMED THAT THEY HAD APPLIED FOR SHARES OF ASSESSEES COMPANY A ND FURNISHED ALL BANK ACCOUNTS FROM WHERE THEY INVESTED THE AMOUNT IN ASS ESSEES COMPANY. HOWEVER, SMT. NAVDEEP KAUR HAS CATEGORICALLY DENIED THE INVE STMENT MADE IN THE ASSESSEES COMPANY. IT IS APPARENT FROM THE RECORDS THAT THE ASSESSEE HAD PRODUCED ALL THE SHARE APPLICATION FORMS RECEIVED B Y IT FOR ALLOTMENT OF SHARES, BANK STATEMENT OF THE APPLICANTS/ SUBSCRIBERS, OUT OF WHICH TWO HAVE STATED THAT THEY HAD MADE INVESTMENT IN THE SHARES OF THE COM PANY BY MAKING PAYMENTS THROUGH THEIR RESPECTIVE SAVING BANK ACCOUNT. IT IS ALSO EVIDENT FROM THE RECORD THAT COPIES OF ALL THE APPLICATION FORMS, BANK STAT EMENTS AND ITRS WERE PRODUCED BEFORE THE LOWER AUTHORITIES. IT APPEARS T HAT THE ASSESSING OFFICER HAS MADE THE ASSESSMENT IN A HURRY WITHOUT APPLYING HER MIND. AS WE HAVE ALREADY OBSERVED HEREIN ABOVE THAT THE ASSESSEE HAD FURNISH ED ALL DETAILS ABOUT SHARE APPLICATION MONEY RECEIVED ALONG WITH SHARE APPLICA TION FORMS, BANK STATEMENTS OF THE APPLICANTS, PAN NUMBERS AND ADDRESSES OF THE APPLICANTS. IN THE CASE OF CIT V JAY DEE SECURITIES AND FIANCE LTD. (2013) 35 0 ITR 220 (ALL) THE HON'BLE ALLABAHAD HON'BLE HIGH COURT HELD THAT IF THE ASSES SEE PRODUCES THE NAMES, ADDRESSES AND PERMANENT ACCOUNT NUMBER OF THE SHARE HOLDERS, THE ONUS IS ON THE ASSESSEE TO PROVE THE SOURCE OF SHARE APPLICATION MONEY STANDS DISCHARGED. IF THE ASSESSING AUTHORITY IS NOT SATISFIED WITH THE C REDITWORTHINESS OF THE SHARE HOLDERS, IT IS OPEN TO THE ASSESSING AUTHORITY TO V ERIFY THE SAME IN THE HANDS OF THE SHARES HOLDERS CONCERNED. KEEPING IN VIEW THE F ACTS OF THE PRESENT CASE, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE HAS BEEN ABLE TO DISCHARGE THE INITIAL BURDEN TO ESTABLISH THE IDENTITY, CREDITWOR THINESS AND GENUINENESS AS REGARDS THE TRANSACTIONS CONCERNING THE ALLOTMENT O F SHARES. IN THAT VIEW OF THE MATTER, WE DECLINE TO INTERFERE WITH THE ORDER OF L D. CIT(A) ON THIS ISSUE. THE 7 APPEAL PREFERRED BY THE REVENUE DESERVES TO BE DISM ISSED. ACCORDINGLY, WE DISMISS THE SAME. 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 03.11.2015 SD/- SD/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 3 RD NOVEMBER, 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR