DCIT CC-4(2), , MUMBAI V. M/s SUMATICHAND GOUTI JEWELLERS PVT. LTD., MUMBAI

ITA 2757/MUM/2019

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 9432 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2021
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2008-2009
• Appeal Filed On: 02-05-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR MENON
• Keywords: Valuation report; Accommodation entries; Reason to believe
• Section: 68; 148; 143(3); 142(1); 143(1); 250; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No. 2757/Mum/2019 (Assessment Year: 2008-09) DCIT, CC- 4(2) R. No. 1918, 1 9 t h Floor, Air India Bldg , Nari man Point, Mu mbai – 400021. बनाम/ Vs. M/s Su matichand Gouti Jew ellers Pvt Ltd, 4 t h Floor, 80/82 , Dhanji S treet, Mumb ai – 40 0 004 ./ज आइआर ./PAN/GI R No. : AAICS7007 A ( /Appellant) . . ( / Respondent) र / Appellant by : Shri Vijay Kumar Menon. DR र /Respondent by : Shri Mani Jain. AR र / D a t e o f H e a r i n g 12/07/2021 !"# र /D a t e o f P r o n o u n c e m e n t 02/09/2021 आद श / O R D E R PER PAVAN KUMAR GADALE - JM: The Revenue has filed the appeal against the order of CIT(A)-52, Mumbai passed u/s 143(3) r.w.s 147 and 250 of the Act. The revenue has raised the following grounds of appeal: ITA No. 2757Mum/2019 Sumtichand Gouti Jewellers Pvt Ltd., Mumbai. - 2 - “1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of unexplained share premium of Rs. 2,00,00,000/- within the provisions of Sec. 68 of the Act. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition unexplained share premium of Rs. 2,00,00,000/- within the provision of Sec 68 without considering the decision of the Hon’ble Apex Court in the case of CIT Vs. Durga Prasad 82 ITR 540 even when the assessee failed to prove the genuineness of transaction or produce the purchase parties. 2. The Brief facts of the case are that the assessee company is engaged in the business of manufacturing and trading of gold ornaments. The assessee has filed the return of income for the A.Y 2008-09 on 24.09.2008 with a total income of Rs. 23,54,060/- and the return of income was processed u/s 143(1) of the Act. The original assessment was completed u/s 143(3) of the Act on 21.09.2011 with a total income of Rs. 30,36,790/-.Subsequently, The Assessing officer (A.O.) received the information from the DDIT(Inv) that during the course of search and seizure operations on 09.03.2015in the case of Gouti Group, it was found that the assessee company has received share application money of Rs. 2 crores in ITA No. 2757Mum/2019 Sumtichand Gouti Jewellers Pvt Ltd., Mumbai. - 3 - the Financial year(F.Y) 2007-08 from M/s M/s Anubhuti Suppliers Pvt Ltd, were the said investor company was involved in providing accommodation entries. Hence, the A.O has reason to believe that the income has escaped the assessment and after recording the reasons for reopening of assessment, the A.O. has issued notice u/s 148 of the Act. The assessee has filed a letter dated 21-04-2015, to consider the return of income filed electronically on 20-04-2015 with the total income Rs23,54,059/-in compliance to notice. Subsequently, the assessee has requested to provide reasons for reopening of the assessment and same was provided by the A.O. Further notice u/s 142(1) of the Act was issued on the assessee to prove the identity, creditworthiness and genuineness of the transactions. Whereas, the assessee in compliance to notice issued u/s 142(1) of the Act has submitted the financial statements and evidences to prove the identity, creditworthiness and genuineness of the investor transactions. 3. The assessee has submitted the voluminous information on 01.03.2016 referred at page 4 to 8 ITA No. 2757Mum/2019 Sumtichand Gouti Jewellers Pvt Ltd., Mumbai. - 4 - Para 4.3 of the order supporting the transaction of share application money. Whereas, the A.O has received the information from the DIT(Inv), Kolkata that the M/s Anubhuti Suppliers Pvt Ltd(ASPL) is not a genuine company. The A.O has recorded statement u/s 132(4) of the Act of Shri Sumatichand Gouti who is a director and main Promoter of M/s Anubhuti Suppliers Pvt Ltd(ASPL). In response to the queries raised by the A.O, the director could not produce the books of accounts and express the inability as they were not readily traceable. Finally the A.O observed that the identity, creditworthiness and genuineness of transaction could not be proved and therefore the share application money received by the assessee has to be treated as unexplained credit u/s 68 of the Act. The A.O. also has dealt on the financial statements, and information filed by the assessee to substantiate the identity, creditworthiness and genuineness of the transactions. Finally the A.O. was not satisfied with the evidences and relied on the decisions and treated the share application money as unexplained cash credit u/s 68 of the Act and assessed the total ITA No. 2757Mum/2019 Sumtichand Gouti Jewellers Pvt Ltd., Mumbai. - 5 - income of Rs.2,30,36,790/- and passed order u/sec143(3) r.w.s 147 of the Act dated 22-03-2016. 4. Aggrieved by the A.O. order, the assessee has filed an appeal with the CIT(A). The Ld. CIT(A) considered the grounds of appeal, findings of the A.O., the written submissions of the assessee and catena of the Hon’ble Supreme court decisions, Hon’ble High Court decisions and Honble Tribunal decisions and observed that the assessee has discharged its burden by submitting the requisite information and the A.O. has failed to make enquiries and the CIT(A) has deleted the addition and observed at page 21 Para 6.5 to 7 of the order which is read as under : 6.5. I have duly considered the submissions and contentions of the assessee as also the order of the AO. As noted above, the AO has made an addition of Rs. 2,00,00,000/- u/s 68 in respect of the share application money received from M/s ASPL primarily for the following reasons- (i) At the time of the search action, the assessee was asked to produce the books of accounts of M/s. ASPL, which could not be produced. Further, at the time of search action, field enquiries conducted at the registered office of M/s. ASPL revealed that the said company is not operating from the said ITA No. 2757Mum/2019 Sumtichand Gouti Jewellers Pvt Ltd., Mumbai. - 6 - address. (II) Further, evidences in respect of the acquisition of M/s. ASPL by the Assessee Group in the form of share purchase agreement, share certificates of M/s. ASPL, share valuation report of M/s. ASPL etc. could not be provided at the time of search action. Moreover, at the time of the search action, the assessee group was asked to furnish details of the share valuations done of the various entities of the Assessee Group including the assessee wherein share capital has been raised. To which, it was submitted that no such valuations of any of the entities of the Assessee Group have been carried out. However, in course of the post-search proceedings, the assessee furnished copies of the valuation report dated prior to the search date, of the various entities of the group wherein share capital was raised. The AO noted that this was a clear contradiction of what was informed at the time of the search action that no such valuations had been carried out of any of the entities of the Assessee Group. (ii) M/s. ASPL has hardly returned any income and the various companies who have invested in its share capital at a premium are namely M/s. Oasis Syntex P. Ltd., Shulton Vyapar P. Ltd., Urochem Trades P. Ltd. etc. which have been found to be engaged in providing accommodation entries in the various search/survey operations carried out by the Department. 6.6 As regards the adverse findings of the AO at SI. No (i) of 6.5 above, it is noted that though M/s ASPL was not found to be existing at the registered address, however, at the time of the search itself, one new address was provided by Shri Sumatichand Gouti, where enquiries revealed that the said company is operating, however, the office was found to be not fully functional in view of little business in the year relevant to ITA No. 2757Mum/2019 Sumtichand Gouti Jewellers Pvt Ltd., Mumbai. - 7 - the search. 6.7 As regards the adverse comments of the AO at S. No (ii) of 6.5 above that the details of the Directors, AGM, Valuation Report of M/s ASPL at the time of its acquisition, etc could not be submitted and also the books of accounts of M/s ASPL could not be provided at the time of search action, it is observed that the relevant details were duly submitted in the post-search proceedings vide a 7 page letter dated 11.06.2015 along with enclosures of the relevant evidences in 6 Box files. It is also observed that apparently the Investigation Wing has not raised any further queries on the submissions made by the assessee vide this letter dated 11.06.2015. As regards the adverse comments of the AO that at the time of the search action, it was claimed that valuations have not been carried out of the companies of the Assessee Group wherein share capital at a premium has been received, however, subsequently the assessee produced back-dated valuations of such companies in the post-search proceedings and assessment proceedings, the assessee has explained that Shri Sumatichand Gouti was in a confused state of mind while answering the persistent queries posed to him at the time of the search action, which resulted in him giving an incorrect reply. In this context it is relevant to note that for the relevant year the said amount of share application money of Rs 2,00,00,000/- did not include any amount of premium charged, therefore, as such there is no requirement of getting any valuation done the assessee company in respect of share application money received in the relevant year. 6.8 As regards the adverse comments of the AO at SI. No. (iii) of Para 6.5 above, it is noted that though M/s ASPL has not been showing any substantial income, however, it is a fact that it had sufficeint funds in the form of Reserves & Surplus and Share Premium of Rs 25.01 crores. M/s ASPL has been subjected to scrutiny assessment and out of the said amount of Rs 25.01 crores, an addition of Rs 15 crores has been made in the relevant year which has also been upheld by the concerned First Appellate Authority (FAA). The source of the share ITA No. 2757Mum/2019 Sumtichand Gouti Jewellers Pvt Ltd., Mumbai. - 8 - application money of Rs 2,00,00,000!- received by the assessee is clearly out of the said amount of Rs 25.01 crores available with M/s ASPL. Assuming that the source of the said amount of Rs 2,00,00,000/- received by the assessee is out of the addition made of Rs 15 crores in the hands of M/s ASPL, making an addition of Rs 2,00,00,000/- in hands of the assessee on account of unexplained share application money will result into double addition. Moreover, if the source of the said amount of Rs 2,00,00,000!- received by the assessee is out of the balance amount of Rs 10.01 crores available with M/s ASPL, the question of making an addition in the hands of the assessee on account of unexplained share application money does not arise since even the source of the source has been found to be explained by the jurisdictional AO of M/s ASPL. 6.9 The Hon'ble Supreme Court in the cases of Lovely Exports (P) Ltd (216 TR 195) and Steller Investment Ltd (251 ITR 263) and the Hon'ble Delhi High Court in the case of Dwarkadhish Investments (P) Ltd (330 hR 298) which has been affirmed by the Supreme Court have held that once the identity of the creditor is established and the transactions are through banking channels, no addition can be made in the hands of the recipient assessee. It is also relevant to note that the Hon'ble Delhi High Court in the case of Divine Leasing & Finance Corpn (299 ITR 268) has held that burden of proof can seldom be discharged to the hilt by an assessee; and if the Assessing Officer harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations, but if the Assessing Officer 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 said assessee. In the instant case, it is observed that there is no dispute that M/s ASPL is part of Gouti Group whose directors include Shri Sumatichand Gouti and his son, Shri Yogendra Gouti. It is also a fact that M/s AHCL is regularly assessed to income tax and is also regular in its compliances before ROC. Further, the said transaction of receipt of share application money is through banking channels. Also, the assessee had duly discharged its onus by providing to the ITA No. 2757Mum/2019 Sumtichand Gouti Jewellers Pvt Ltd., Mumbai. - 9 - AO, the requisite evidences to prove the genuineness of the share application money received from M/s ASPL in the form of the Members' register of the Assessee company reflecting shares allotted to M/s. ASPL, the copy of the bank statement of M/s. ASPL, copy of letter received from M/s. ASPL for allotment of shares, copy of share allotment ledger, copy of the Board Resolution passed by the assessee for allotment of shares to M/s. ASPL, financials of M/s. ASPL and also of the investors in M/s. ASPL. It is also observed that after the assessee had discharged its onus, anore if the Assessing Officer harboured any doubts of the any subscription, he should have carried out thorough investigations. However, in the instant case, without unearthing any wrong or illegal dealings, the AO has proceeded to make the said addition of Rs 2,00,00,000/- on account of Share Application money received from M/s ASPL, which is not correct. 6.10 It is further noted that the proviso to section 68 of proving the source of the source of funds is applicable only from the year relevant to AY 2013-14 as held by the Hon'ble Jurisdictional High Court in the case of M/s Gagandeep Infrastructure P. Ltd. (394 ITR 680). Moreover, the Hon'ble Delhi High Court in the case of Nova Promoters &Finlease (P) Ltd. (supra) while explaining the decision of the Hon'ble Supreme Court in the case of Lovely Exports (supra) has held that in a situation like the instant one, no addition can be made in the hands of the assessee but the department can go after the shareholders and after due investigation make appropriate additions, if found fit, in their hands. In the instant case, the jurisdictional AO of the assessee's share applicant viz M/s ASPL has examined the genuineness of the share capital and share premium of Rs. 25.01 crores shown by M/s ASPL and has already made an addition of Rs 15 crores which has also been upheld by the FAA. Therefore, this addition made in the hands of the assessee as such has resulted into a double addition. 6.11 In view of the above detailed discussion, the addition ITA No. 2757Mum/2019 Sumtichand Gouti Jewellers Pvt Ltd., Mumbai. - 10 - made by the AO of Rs. 2,00,00,000/- on account of unexplained share application money from M/s ASPL cannot be sustained. Accordingly, Ground Nos. 3 & 4 of the appeal are allowed. 7. In the result, the present appeal is partly allowed. 5. Aggrieved by the order of the Ld. CIT(A),the revenue has filed an appeal with the Honble Tribunal. The Ld. DR submitted that the CIT(A) had erred in deleting the addition without considering the fact that the assessee has not proved the ingredients of Sec. 68 of the Act i.e. identity, genuineness and credit worthiness of the investor. Further the share application transaction is in the nature of accommodation entries and prayed for allowing the revenue appeal. 6. Contra, the Ld. AR supported the order of the Ld.CIT(A) and submitted that the assessee has cooperated in submitting the information in the assessment proceeding. Whereas,the A.O has ignored the information of investor financial statements and unilaterally made addition of share application money. The Ld. AR emphasized that the assessee ITA No. 2757Mum/2019 Sumtichand Gouti Jewellers Pvt Ltd., Mumbai. - 11 - has discharged its obligation by submitting the financial statements of the investor, where the payment is made through the banking channel and genuineness of the transaction, identity and credit worthiness of the investor company was proved in the assessment proceedings. Further the assessee has submitted the address, pan and jurisdiction of the investor company, income tax return, application filed for allotment for equity share, annual report, directors report, profit and loss account, balance sheet, bank statement and copy of return of allotment. Whereas, the A.O has disbelieved the fact of identity, credit worthiness and genuineness of the transaction, where the payment is made through the banking channel. Further to substantiate the identity of the investors, the assessee has filed the details of the investor’s company from the registrar of companies. Secondly on the genuineness of the transaction, the assessee has submitted the share application and the bank statements and the credit worthiness substantiated with the financial statements and investments made by other investors in the M/s Anubhuti Suppliers Pvt Ltd . The CIT(A) ITA No. 2757Mum/2019 Sumtichand Gouti Jewellers Pvt Ltd., Mumbai. - 12 - has considered all the factual aspects and the information submitted by the assessee satisfying the three ingredients of provisions of Sec. 68 of the Act. The assessee has substantiated its stand by submitting the details before the A.O and discharges the burden and the Ld.AR relied on the order of the CIT(A) and prayed for dismissal of the revenue appeal. 7. We heard the rival submissions and perused the material on record. The sole matrix of the disputed issue is with respect to share application money received from the investor company, where the A.O based on the statement recorded in the course of the search under 132(4) of the Act has made addition of share application money and over looked the various documentary evidences filed by the assessee in support of investment including the confirmation letter, PAN, income tax acknowledgement, directors report, audit report, balance sheet, bank statement, companies existence, certificate of incorporation and memorandum of Association etc. In spite of assessee filing all the details, prima-facie the A.O has not ITA No. 2757Mum/2019 Sumtichand Gouti Jewellers Pvt Ltd., Mumbai. - 13 - conducted any investigation or enquiry in respect of the information submitted by the assessee. We find that the CIT(A) has considered the detailed facts and the submissions of the assessee referred at page 10 to 20 of the CIT(A) order. The assessee prima-facie has complied with the ingredients required u/s 68 of the Act of genuineness, identity and creditworthiness. The CIT(A) relied on the Catena of judicial decisions in his order and has test checked the creditworthiness and identity of shareholder and came to a reasonable conclusion that the assessee has discharged its burden on submitting the information and the A.O has failed to make enquiries . We found the order of the CIT(A) is a reasoned and logical order, where the CIT(A) has dealt on the facts, provisions of law and Judicial decisions and applied the Ratio of decisions to the present case and deleted the addition. Further, the Ld. DR could not controvert the findings of the CIT(A) with any new cogent evidence. We considering the facts and submissions of the assessee are of the view that the CIT(A) order is reasoned and conclusive. Accordingly, we do not find any infirmity ITA No. 2757Mum/2019 Sumtichand Gouti Jewellers Pvt Ltd., Mumbai. - 14 - in the order of the CIT(A) and upheld the same and dismiss the grounds of appeal of the revenue. 8. In the result appeal filed by the revenue is dismissed. Order pronounced in the open court on 02.09.2021 Sd/- Sd/- (SHAMIM YAHYA) (PAVAN KUMAR GADALE ) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 02/09/2021 KRK, PS /Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. 3. & '( आ र आ ) / The CIT(A) 4. आ र आ ) ( ) / Concerned CIT 5. , - . / / '(, आ र '( र#, हमद & द / DR, ITAT, Mumbai 6. . 34 5 / Guard file. ान ु सार/ BY ORDER, , / //True Copy// 1. उ /सहाय ंजी ार ( Asst. Registrar) य र ी य !" र#, हम ाबा / ITAT, Mumbai