BRITEX COTTON INTERNATIONAL LTD., MUMBAI V. DCIT ,RG. 5(1), MUMBAI

ITA 2831/MUM/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9027 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 18-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G
• Assessee Lawyers: B V JHAVERI
• Keywords: Bogus Share capital; Share purchase agreement; Source of fund; Onus to prove; Sham transactions
• Section: 143(3); 234B; 68

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE HONBLE SH. B R. BASKARAN , AM & HONBLE SH. SANDEEP GOSAIN, JM ./ I.T.A. NO . 2831 /MUM/201 6 ( / ASSESSMENT YEAR: 2010 - 11 ) M/S BRITEX COTTON INTERNATIONAL LTD. 205, MAJESTIC SHOPPING CENTRE, 144, JSS ROAD, MUMBAI - 400 004 / VS. DCIT RG 5(1), AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 ./ ./ PAN NO. AA BCB1805E ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI B. V. JHAVERI , AR / RESPONDENTBY : SHRI D. G. PANSARI , DR / DATE OF HEARING : 14.11 .2018 / DATE OF PRONOUNCEMENT : 12/12/2018 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE P RESENT APPE AL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF LD. CIT (APPEAL) 10, MUMBAI DATED 18.01.16 F OR AY 20 10 - 11 ON THE GROUNDS MENTIONED HEREIN BELOW: - 2 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. 1. UNDER THE FACTS AND IN LAW, THE HON. COMMISSIONER OF INCOME TAX (A), ERRED IN CONFIR MING ADDITION OF RS. 80,200,000/ - (EIGHT CRORE TWO LAC), BEING SHARE APPLICATION MONEY RECEIVED, AS INCOME U/S 68 OF INCOME TAX ACT, 1961. 1.01. UNDER THE FACTS AND IN LAW, THE APPELLANT HAS CONCLUSIVELY PROVED THE SOURCE AND IDENTITY OF SHARE APPLICANTS VIZ: (A) SUMIT PRO MOTERS LTD. RS. 10,200,000 (B ) JERAM DEVASHI MAHESHVARI RS. 40,000,000 (C) SHIVJI MEGHA RABARI RS. 20,000,000 (D) RAMESHKUMAR KANGAR GOSAI RS. 10,000,000 RS.802,000,000 2. UNDER THE FACTS AND IN LAW, THE HON. COMMISSIONER OF INCOME TAX (A), ERRED IN IGNORING THE A.O.'S REMAND REPORT, WHEREIN THE LEARNED A.O. HAS ACCEPTED THE APPELLANT COMPANY HAS RECEIVED SHARE APPLICATION MONEY FROM VARIOUS PARTIES AND THEIR RESPECTIVE SOURCE WAS ESTABLISHED SAVE AS EXCEPT RS. 22,00,000 / - WHICH WAS DIRECTLY RECEI VED FROM THE LENDEE OF M/S. SUMIT PROMOTERS. 2.01. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF SHARE APPLICATION OF RS. 80,200,0007 - U/S 68, IGNORING THE FACTS THAT APPELLANT HAS DISCHARGED ITS 3 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. OBLIGATION ABOUT THE SOURCE OF THE INVESTOR AND CAPACITY OF INVESTORS, WHICH HAVE BEEN PROVED CONCLUSIVELY, DURING THE REMAND PROCEEDING. 2.02 THE LEARNED CIT(A) ERRED IN STATING THAT BHADRESH TRADING CORPORATION IS A HOLDING COMPANY, IN FACT IT IS A GROUP COMPANY. 3. THE LEARNED CIT(A) ERRED I N HOLDING THAT THE LOAN GIVEN TO FARMER (THE FUND AVAILABLE) WHICH WAS TO BE UTILIZED FOR THE CROP, COULD NOT HAVE BEEN GIVEN FOR SHARE APPLICATION IGNORING THE FACT THAT FUND HAS BEEN UTILIZED IN MAKING THE SHARE APPLICATION OF THE APPELLANT COMPANY. 3.01 THE LEARNED CIT(A) ERRED IN HOLDING THAT THE LOAN RECEIVED FOR AGRICULTURE PURPOSED CANNOT BE USED FOR ANY OTHER PURPOSE, AND SUCH HOLDING IS NOT SUPPORTED BY THE FACTS AND LAW. 3.02 THE LEARNED CIT(A) ERRED IN HOLDING THAT THE FARMERS DO NOT HAVE S UCH HUGE SURPLUS AMOUNT IS ONLY BASED ON ASSUMPTION, SUSPICION AND CONJECTURE WITHOUT HAVING ADEQUATE EVIDENCE AND FACTS TO SUPPORT SUCH ASSUMPTION. 4. UNDER THE FACTS AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT 'THE SOURCE OF FUNDS WERE CLEARLY 4 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. EXPLAINED AS IDBI BANK LOAN IS NOT AT ALL A PROPER AND SATISFACTORY EXPLANATION. 4.01 THE LEARNED CIT(A) ERRED IS ALLEGING THAT LOAN DOCUMENTS ARE BOGUS. 4.02 THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT SOURCE OF THE SHARE APPLICATION ARE NOT PROPERLY EXPLAINED, IGNORING THE DOCUMENTS ENTERED BETWEEN VARIOUS PARTIES, SHOWING THE SOURCE OF FUND, USED TO MAKE SHARE APPLICATION WITH THE APPELLANT COMPANY. 5. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING ADDITION OF SHARE APPLICATION MONEY RECEIVED FROM THE FARMERS, IGNORING HIS OWN OBSERVATION ABOUT THE SOURCE OF THE SHARE APPLICATION IS RECEIVED FROM BHADRESH TRADING CORPORATION. 6. THE LEARNED CIT(A)'S OBSERVATION ABOUT THE CIRCULAR MOVEMENT OF FUND, DOES NOT ESTABLISH THAT THE SHARE APPLICATION MONEY IN ANY CIRCUMSTANCES, CAN BE TREATED AS INCOME CHARGEABLE TO TAX. 7. THE LEARNED CIT(A)'S OBSERVATION ABOUT THE RECEIPT OF SHARE APPLICATION MONEY OF RS. 8.02 CRORES AS AGAINST THE AUTHORIZED CAPITAL OF RS. 75 LACS, DOES NOT HOLD GOOD TO CONFIRM T HE ADDITION IN RESPECT OF RECEIPT OF SHARE APPLICATION MONEY, WHICH IS IN ACCORDANCE WITH PROVISION OF INDIAN CONTRACT ACT. 5 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. 8. UNDER THE FACTS AND IN LAW, THE LEARNED CIT(A) ERRED IN IGNORING THE VARIOUS DOCUMENTS FILED BEFORE THE A.O., LIKE NET WORTH CE RTIFICATES OF FARMERS, 7/12 EXTRACT OF AGRICULTURAL LAND HELD BY THE FARMERS, WHO AFTER CONSIDERING ACCEPTED THE AMOUNT RECEIVED FROM THE VARIOUS SHARE APPLICANT. 9. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE APPELLANT HAS NOT PROVED THE SOURCE OF THE SHARE APPLICANTS. 10. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THE APPELLANT HAD SUBMITTED COPY OF FINANCIAL STATEMENTS AND RETURN OF INCOME OF SUMEET PROMOTERS LTD. 11. THE LEARNED CIT(A) ERRED IN HOLDING THE ADDITION OF RS. 7 CRORES, BY OBSERVING THE LOAN DISBURSED BY THE IDBI BANK AS COLORABLE DEVICE, AND APPLYING THE SUPREME COURT JUDGMENT IN THE CASE OF ME DOWELL & CO. 12. THE LEARNED CIT(A)'S ORDER IS BASED ONLY ON ASSUMPTION AND PRESUMPTION, IGNORING THE INDEPENDENT EVIDENCE PRODUCED BY APPLI CANT, AND VERIFIED BY THE A.O. 6 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. 13. UNDER THE FACTS AND IN LAW, THE ADDITION OF RS. 8.02 CRORES CONFIRMED U/S 68 BE DELETED AND THE RETURN OF INCOME BE ACCEPTED. 14. UNDER THE FACTS AND IN LAW, THE LEVY OF INTEREST U/S 234B DELETED. 15. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 2 . THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF DEALING IN TEXTILE, COTTON YARN AND ACTING AS COMMISSION AGENT. T HE R ETURN OF INCOME FOR AY 2010 - 11 WAS FILED ON 13.09.11 DECLARING TOTAL COME OF RS. 39,61,617/ - . NOTICE U/S 143(2) DATED 29.09.11 WAS ISSUED AND SERVED ON THE ASSESSEE. THE AO COMPLETED THE ASSESSMENT U/S 143(3) OF THE I.T. ACT ON 18.03.13 DETERMINING THE TOTAL INCOME AT RS. 8,42,60,310 / - AFTER MAKING AFOREMENTIONED ADDITIONS. AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) AFTER CONSIDERING THE CASE OF BOTH THE PARTIES, DISMISSED THE APPEAL OF THE ASSESSEE. 7 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. NOW BEFORE US, THE ASSESSEE HAS PREFE RRED THE PRESENT APPEAL BY RAISING THE ABOVE GROUNDS. GROUND NO. 1 TO 15 . 3 . THESE GROUND S RAISED BY THE ASSESSEE ARE INTER - CONNECTED AND INTER - RELATED AND RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN CONFIRMING THE ADDITIONS MADE BY AO U/S 68 OF THE I.T. ACT, BEING SHARE APPLICATION MONEY RECEIVED FROM FOUR PARTIES, THEREFORE WE THOUGHT IT FIT TO DISPOSE OF THE SAME BY THIS COMMON ORDER. 4 . WE HAVE HEARD THE COUNSELS FOR BOTH THE PARTIES AT LENGT H AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD, JUDGMENT CITED BY BOTH THE PARTIES , WRITTEN SYNOPSIS IN THE SHAPE OF BRIEF FACTS AND PROPOSITION AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. 5 . FROM THE RECORDS, W E FIND THAT THE ONLY ISSUE IN THE PRESENT APPEAL IS THAT THE ASSESSEE HAD RECEIVED SHARE APPLICATION MONEY 8 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. FROM 3 FARMERS AND ONE M/S SUMEET PROMOTERS PVT. LTD. AGGREGATING TO RS. 8,02,00,000/ - . DURING THE PREVIOUS YEAR, RELEVANT TO AY 2010 - 11, THE SAID SHARE APPLICA TION MONEY WAS TREATED AS UN - EXPLAINED CASH CREDIT U/S 68 OF THE I.T. ACT 1961 BY THE AO WHILE COMPLETING THE ASSESSMENT. THE SAID ADDITIONS WERE ALSO CONFIRMED BY LD. CIT(A). NOW BEFORE US LD. AR IN ORDER TO SUPPORT ITS CONTENTIONS HAD TAKEN US TO THE B ACKGROUND OF THE CASE BY SUBMITTING THAT AS PER THE GUIDELINES ISSUED BY RESERVE BANK OF INDIA (RBI), IDBI BANK LIMITED (IDBI BANK) HAD FRAMED A SCHEME FOR FINANCING AGRICULTURISTS. M/S. BHADRESH TRADING CORPORATION LTD., (THE COMPANY - BTCL) WHICH IS ENGA GED IN TRADING AND MANUFACTURING OF COTTON AND COTTON BALES IN ITS FACTORIES AT GUJARAT AND MAHARASHTRA, REPRESENTED TO THE IDBI BANK THAT THERE WERE NUMBER OF AGRICULTURISTS/FARMERS IN THE AREA ALLOTTED TO THE COMPANY (BTCL) BY THE STATE GOVERNMENTS TO PU RCHASE AGRICULTURAL PRODUCES FROM FARMERS AND THOSE FARMERS CAN BE TARGETED TO GRANT LOANS BY THE BANK UNDER THE AFORESAID SCHEME. THE COMPANY (BTCL) FURTHER REPRESENTED THAT THEY WERE IN A BETTER POSITION TO IDENTIFY THE FARMERS WHO ARE ELIGIBLE FOR THE L OAN AS PER THE SCHEME OF THE BANK AND THE COMPANY 9 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. (BTCL) WOULD ASSIST THE BANK IN THE ADMINISTRATION OF THE SCHEME. THE COMPANY (BTCL) ALSO REPRESENTED TO THE BANK THAT IT SHALL ASSIST IN THE RECOVERY OF THE AMOUNTS FROM THE BORROWERS ALONG WITH INTEREST A ND OTHER CHARGES. 6 . IT WAS ALSO SUBMITTED THAT IDBI BANK ISSUED A LETTER OF INTENT TO THE COMPANY (BTCL) FOR SANCTIONI NG OF A SHORT - TERM LOAN WHICH WAS TO BE GRANTED TO THE FARMERS/VILLAGE LEVEL AGGREGATORS (VLA) ACTING ON BEHALF OF THE FARMERS (I.E., BO RROWERS) ON CERTAIN TERMS AND CONDITIONS . 7 . IT WAS ALSO SUBMITTED THAT IDBI BANK ALSO ENTERED INTO MANAGEMENT AGENCY AGREEMENT WITH THE COMPANY (BTCL) WHEREBY THE COMPANY (BTCL) AGREED TO IDENTIFY THE FARMERS WHO HAVE SOLD/AGREED TO SELL THEIR AGRICULTURA L PRODUCE TO THE COMPANY (BTCL) AND WHO WOULD BE ELIGIBLE FOR FINANCIAL ASSISTANCE UNDER THE AFORESAID SCHEME AND THE COMPANY (BTCL) SHALL SELECT THE FARMERS BASED ON THE CRITERIA/NORMS FOR IDENTIFYING FARMERS GIVEN IN SCHEDULE I TO THE LETTER OF INTENT OF THE BANK. THE ABOVE IDENTIFICATION IS TO BE CARRIED OUT BY THE COMPANY (BTCL) TO THE SATI SFACTION OF THE BANK AND THE BANK IN 10 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. TURN AGREED TO FINANCE THE FARMERS IDENTIFIED AND RECOMMENDED BY THE COMPANY (BTCL) NOT EXCEEDING RS.20 CROCES TO DISBURSE THE LOANS TO TEN FARMERS. 8 . PURSUANT TO THE AFORESAID UNDERSTANDING AND AGREEMENT ARRIVED AT BETWEEN IDBI BANK AND THE COMPANY (BTCL), THE COMPANY (BTCL) HAD IDENTIFIED THE FARMERS AND SATISFIED THEIR CREDENTIALS AND CREDITWORTHINESS TO THE BANK AND CONSEQ UENTLY IDBI BANK ENTERED INTO AN 'AGREEMENT FOR LOAN AND HYPOTHECATION OF RECEIVABLES' WITH THE FARMERS (BORROWERS) WHO HAVE SOLD T HEIR CROP TO THE COMPANY (BTCL). 9. IN CONSIDERATION OF THE BANK HAVING AGREED TO GRANT / GRANTED THE SAID LOAN TO THE FARMERS, THE FARMERS HYPOTHECATED IN FAVOUR OF THE BANK THE AMOUNTS RECEIVABLE BY THE FARMERS IN RESPECT OF THE SALE OF THE CROP TO THE COMPANY (BTCL) . IT WAS SUBMITTED THAT T HE COMPANY (BTCL) HAD EXECUTED THE GUARANTEE AGREEMENTS IN FAVOUR OF IDBI BANK LTD. GUARANTEEING THE REFUND OF LOANS GIVEN BY IDBI BANK TO THE FARMERS THROUGH THE COMPANY (BTCL) (SEE PAGES 36 TO 55). THE DIRECTORS OF THE 11 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. COMPANY (BTCL) ALSO FURNISHED THE UNDERTAKING OF PERSONAL GUARANTEE IN FAVOUR OF IDBI BANK . 10 . IT WAS ALSO SUBMITTED THAT ACCORDING TO THE AGREEMENT BETWEEN IDBI BANK AND THE COMPANY (BTCL) AND THE AGREEMENT BETWEEN IDBI BANK AND THE BORROWERS (FARMERS), THE AMOUNTS WERE TRANSFERRED BY THE BANK IN THE ACCOUNT OF THE COMPANY (BTCL) FROM WHICH THE COMPANY (BTCL) TRANSFERRED THE AMOUNTS TO THE BANK ACCOUNT OF THE FARMERS ON THE SAME DAY. ACCORDINGLY, THE AMOUNTS WERE DEPOSITED INTO T HE BANK ACCOUNTS OF THE FARMERS. THUS THE SAID AMOUNTS WER E RECEIVED FROM THE COMPANY (BTCL) AND THE SAID AMOUNTS WERE THEN TRANSFERRED TO M/S. BRITEX COTTON INTERNATIONAL LTD., I.E., THE ASSESSEE COMPANY, AS SHARE APPLICATION MONEY ON THE SAME DAY OR THE NEXT DAY. 11 . AFTER HAVING CONSIDERED THE SUBMISSIONS AS MADE OUT ABOVE, WHICH ARE SUPPORTED BY DOCUMENTS, I T IS CLEAR THAT THE ASSESSEE COMPANY (BRITEX COTTON INTERNATIONAL LTD.) HAS RECEIVED RS. 7 CRORES AS SHARE APPLICATION MONEY FROM THREE FARMERS, NAMELY MR. JERAM DEVSHI MAHESHWARI, MR. SKIVJI / SAVA MEGFCA RABARI AID MR. RAMESHKAMAR KANGAR GOSAI, WHO HAD IN TARN 12 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. RECEIVED THE LOAN FROM IDBI BANK THROUGH THE COMPANY (BTCL) FOR WHICH NECESSARY DOCUMENTS WERE SUBMITTED, I.E., THE AGREEMENT FOR LOAN AND HYPOTHECATION OF RECEIVABLES (PAGES 62 TO 70), BEFORE THE C OMMISSIONER (APPEALS) AND BEFORE THE AO IN THE COURSE OF THE REMAND PROCEEDINGS AND WHICH ARE NOW FORMING PART OF THE PAPER BOOK BEFORE YOUR HONOURS. THUS THE ASSESSEE COMPANY HAS ESTABLISHED THE IDENTITY OF THE PARTIES, NAMELY, THE FARMERS. THE ASSESSEE C OMPANY HAD ALSO PROVED THE GENUINENESS OF THE TRANSACTION AS THE TRANSACTIONS WERE CARRIED OUT THROUGH THE BANKING CHANNEL. THE ASSESSEE COMPANY HAS ALSO ESTABLISHED THE CREDITWORTHINESS AND THE CAPACITY OF THE FARMERS BY FURNISHING THE DOCUMENTS WHICH CLE ARLY SHOWS THAT THE FARMERS HAD RECEIVED THE LOANS FROM IDBI BANK AGAINST THE SALE PROCEEDS RECEIVABLE FROM THE COMPANY (BTCL) ON SALE OF THE CROPS. 12 . IN RESPECT OF M/S. SUMEET PROMOTERS PVT. LTD . THE AUDITED ACCOUNTS FILED SHOWS THAT IT HAD RESERVES OF RS. 19.79 CRORES AND THE SHARE CAPITAL OF RS.2.68 CRORES. AS AGAINST THE SAME, IT HAS INVESTMENT IN UNQUOTED EQUITY SHARES OF RS.13.87 CRORES AND 13 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. UNDER THE HEAD 'CURRENT ASSETS' SHARE APPLICATION MONEY GIVEN BY IT IS OF RS.3.04 CRORES. THUS THE AUDITED AC COUNTS OF M/S. SUMEET PROMOTERS PVT. LTD. FOR A.Y. 2010 - 11 PROVE THE CREDITWORTHINESS AND GENUINENESS OF THE INVESTMENT IN SHARE APPLICATION OF THE ASSESSEE COMPANY. 13 . WE NOTICED THAT I N THE COURSE OF THE REMAND PROCEEDINGS, THE ASSESSEE COMPANY HAD FIL ED ITS LETTER DATED 16 TH SEPTEMBER, 2014 ENCLOSING THE BANK STATEMENTS OF M/S. SUMEET PROMOTERS PVT. LTD. FOR THE PERIOD FROM 1 ST APRIL, 2009 TO 6 TH MARCH, 2010 (PAGES 110 TO 112). THE AFORESAID BANK STATEMENTS OF M/S. SUMEET PROMOTERS PVT. LTD. RECORD THE RECEIPTS OF RS.27 LAKHS FROM M/S. MOONRISE SUPPLIERS PVT. LTD. AND RS.53 LAKHS FROM M/S. PYNE ESTATES FINANCE PVT. LTD. ON 7 TH OCTOBER, 2009 AND ON THE SAME DAY SUMS OF RS.35 LAKHS AND RS.45 LAKHS WERE TRANSFERRED BY M/S. SU MEET PROMOTERS PVT. LTD. TO M/S. BRITEX COTTON INTERNATIONAL LTD., THE ASSESSEE COMPANY (PAGE - 112). 14 . WE ALSO NOTICED THAT I N THE REMAND PROCEEDINGS, THE ASSESSEE FILED ANOTHER LETTER DATED 15 TH SEPTEMBER, 2014 (SEE 14 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. PAGES 148 TOLSL). THE ASSESSEE COMPAN Y GAVE DETAILS OF THE SOURCE OF FUNDS OF M/S. SUMEET PROMOTERS PVT. LTD. AS UNDER: 29 TH SEPTEMBER, 2009 FROM MR. SAJEED PEERJEDA RS.22 LAKHS 7 TH OCTOBER, 2009 FROM M/S. MOONRISE SUPPLIERS PVT. LTD. RS.27 LAKHS 7 TH OCTOBER, 2009 FROM M/S. PYNE ESTATES FINANCE PVT. LTD. RS.53 LAKHS THE ABOVE FACTS WERE CONSIDERED BY THE AO IN HIS REMAND REPORT DATED 19 TH SEPTEMBER, 2014 (SEE PAGE 156) WHEREIN THE AO ACCEPTED THAT THE NAMES OF M/S. MOONRISE SUPPLIERS PVT. LTD. AND M/S. PYNE ESTATES FINANCE PVT. LTD. ARE REFLECTED IN THE BANK STATEMENT OF M/S. SUMEET PROMOTERS PVT. LTD. IN RESPECT OF MR. SAJEED PEERJEDA, THE AO OBSERVED THAT NO SUPPORTING DOCUMENTS WERE SUBMITTED. 15. IN THIS RESPECT IT IS SUBMITTED THAT THE ASSESSEE HAD REQUESTED M/S. SUME ET PROMOTERS PVT. LTD. HAVING THEIR OFFICE AT 31/1, N.S. ROAD, KOLKATA - 700001 TO FURNISH A COPY OF THE LEDGER ACCOUNT OF THE ASSESSEE COMPANY AS WELL AS OF MR. SAJEED PEERJEDA, M/S. MOONRISE SUPPLIERS PVT. LTD. AND M/S. PYNE ESTATES FINANCE PVT. LTD. IN I TS BOOKS OF ACCOUNT. THE SAID COPIES 15 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. OF LEDGER ACCOUNTS OF THE AFORESAID PARTIES INCLUDING THE ASSESSEE COMPANY WERE MADE AVAILABLE BY M/S. SUMEET PROMOTERS PVT. LTD. RECENTLY AND THEREFORE, THE SAID COPIES OF LEDGER ACCOUNTS ARE ENCLOSED AT PAGES 169 TO 1 72 OF THE PAPER BOOK AND THE APPLICATION FOR ADMISSION OF THE SAID STATEMENTS IS SEPARATELY PREFERRED. FROM THE AFORESAID LEDGER ACCOUNT OF MR. SAJEED PEERJEDA, IT IS SEEN THAT MR. SAJEED PEERJEDA MADE DIRECT PAYMENT OF RS.22,00,000/ - TO M/S. BRITEX COTTON INTERNATIONAL LTD. ON BEHALF OF M/S. SUMEET PROMOTERS PVT. LTD. SIMILARLY, THE LEDGER ACCOUNT OF M/S. MOONRISE SUPPLIERS PVT. LTD. SHOWS THAT M/S. SUMEET PROMOTERS PVT. LTD. HAD SOLD CERTAIN INVESTMENTS FOR WHICH IT RECEIVED THE SALE PROCEEDS FROM M/S. MO ONRISE SUPPLIERS PVT. LTD. ON 7 TH OCTOBER, 2009. THE SAID AMOUNT WAS GIVEN AS SHARE APPLICATION MONEY TO M/S. BRITEX COTTON INTERNATIONAL LTD. (THE ASSESSEE COMPANY) AND ACCORDINGLY IT IS REFLECTED IN THE BANK ACCOUNT OF M/S. BRITEX COTTON INTERNATIONAL LT D. (THE ASSESSEE COMPANY) ON 7 TH OCTOBER, 2009 (PAGE 85). SIMILARLY, THE LEDGER ACCOUNT OF M/S. PYNE ESTATES FINANCE PVT. LTD. SHOWS THAT M/S. SUMEET PROMOTERS PVT. LTD. HAD SOLD CERTAIN INVESTMENTS FOR WHICH IT RECEIVED THE SALE PROCEEDS FROM M/S. 16 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. PYNE ES TATES FINANCE PVT. LTD. ON 29 TH SEPTEMBER, 2009. THE SAID AMOUNT WAS GIVEN AS SHARE APPLICATION MONEY TO M/S. BRTEX COTTON INTERNATIONAL LTD. (THE ASSESSEE COMPANY) AND ACCORDINGLY IT IS REFLECTED IN THE BANK ACCOUNT OF M/S. BRITEX COTTON INTERNATIONAL LTD . (THE ASSESSEE COMPANY) ON 7 TH OCTOBER, 2009 (PAGE 85). 16. FROM THE DOCUMENTS MORE PARTICULARLY, THE LEDGER ACCOUNTS OF M/S. MOONRISE SUPPLIERS PVT. LTD. AND M/S. PYNE ESTATES FINANCE PVT. LTD. IN THE BOOKS OF ACCOUNT OF M/S. SUMEET PROMOTERS PVT. LTD. ( PAGES 171 & 172) AND THE BANK STATEMENT OF M/S. SUMEET PROMOTERS PVT. LTD. (PAGE 112) THE SOURCE OF THE SOURCE IS PROVED. BY THE LEDGER ACCOUN: OF MR. SAJEED PEERJEDA AND THE BANK STATEMENT OF THE ASSESSEE COMPANY (PAGE - 84) IT IS PROVED THAT MR. SAJEED PEE RJEDA HAD DIRECTLY PAID RS.22,00,000/ - TO THE ASSESSEE COMPANY ON BEHALF OF M/S. SUMEET PROMOTERS PVT. LTD. AS SHARE APPLICATION MONEY. THUS WHILE R ELYING UP ON THE AFORESAI D EVIDENCE, THE ASSESSEE CLAIMED THAT IT HAD PROVED THE SOURCE OF THE SOURCE, THAT I S, THE SOURCE OF M/S. SUMEET 17 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. PROMOTERS PVT. LTD. WHICH HAD INVESTED RS.L,02,00,OOO/ - AS THE SHARE APPLICATION MONEY WITH THE ASSESSEE COMPANY. 17. AT THIS JUNCTURE, OUR ATTENTION WAS INVITED TO THE REMAND REPORT OF THE DCIT, CIRCLE - 5(1), MUMBAI, DATED 19 TH SEPTEMBER, 2014 (PAGES 153 TO 158) WHERE IN PARA 4, THE AO HAS STATED THE FOLLOWING FACTS: '4. THE NEW EVIDENCES SUBMITTED BY THE ASSESSEE HAS BEEN PERUSED WHEREIN THE UNDER MENTIONED FACTS HAS BEEN OBSERVED: (A) . (B) BTCL HAD OB TAINED TWO SHORT TERM LOAN FACILITIES FROM IDBI BANK LTD. VIZ RS. 20 CRORES EACH ON 13.11.09 AND 20.02.10. BTCL HAD ENTERED INTO MANAGEMENT AGENCY AGREEMENT WITH IDBI BANK LTD. WHEREIN BTCL AGREED TO IDENTIFY FARMERS WHO COULD AVAIL THE AGRICULTURIST FINANCING SCHEME OF IDBI. FURTHER, THE IDBI AGREED TO PROVIDE FUNDS TO BTCL ENABLING IT TO DISBURSE THE SAID LOAN TO THE ELIGIBLE FARMERS WHO HAVE SOLD / AGREED TO SELL THEIR PRODUCE TO BTCL. FURTHER, BTCL AS WELL AS THE PROMO TERS OF BTCL GROUP HAVE EXECUTED A GUARANTEE AGREEMENT IN 18 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. FAVOUR OF IDBI INDEMNIFYING IT AGAINST ANY LOSSES IN THE, SAID AGREEMENT. ON PERUSAL OF THE SAID LOAN AGREEMENTS AND GUARANTEE AGREEMENTS, IT HAS BEEN OBSERVED THAT THE BTCL WAS NOT IN THE POSITION TO AVAIL THE SAID LOANS DIRECTLY IN ITS OWN ACCOUNT FOR ANY OTHER BUSINESS ACTIVITY EXCEPT FACILITATING LOANS TO THE ELIGIBLE FARMERS. ON THE OTHER HAND, THE SAID LOANS HAVE BEEN GRANTED EXCLUSIVELY TO ELIGIBLE FARMERS WHO COULD AVAIL AGRICULTURIST FINANCI NG SCHEME OF IDBI WHICH WAS IN ACCORDANCE WITH THE GUIDELINES ISSUED BY THE RESERVE BANK OF INDIA AND IN THIS PROCESS BTCL HAD ACTED AS MANAGEMENT AGENCY AND AS A GUARANTOR. 'C) ON PERUSAL OF THE FRESH SUBMISSIONS, IT HAS BEEN OBSERVED THE ASSESSEE COM PANY HAS RECEIVED AN AMOUNT IN TOTAL OF RS.7 CRORES FROM THREE INVESTORS NAMELY SHRI JERAM DEVSHI MAHESWARI, SHRI SHIVJI MEGHA RABRI AND SHRI RAMESHKUMAR KANGAR GOSAI WHO HAVE RECEIVED THE SAID SUM AS LOANS FROM BTCL AS PER THE AGREEMENT BETWEEN BTCL AND I DBI BANK LTD. UNDER THE AGRICULTURIST FINANCING SCHEME OF IDBI. IT IS PERTINENT TO MENTION HERE THAT THE SAID LOANS WERE ACTUALLY GRANTED BY THE IDBI BANK LTD. AND M/S. BTCL HAD ACTED ONLY AS A MANAGEMENT AGENCY IN THIS PROCESS. IN THIS REGARD, THE ASSESSE E HAS SUBMITTED COPY OF BANK 19 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. STATEMENTS OF SHRI JERAM DEVSHI MAHESWARI, SHRI SHIVJI MEGHA RABRI AND SHRI RAMESHKUMAR KANGAR GOSAI FOR THE RELEVANT PERIOD. FURTHER, AN AMOUNT TOTALING OF RS.1.02 CRORES HAS BEEN RECEIVED BY THE ASSESSEE FROM M./S. SUMEET PRO MOTERS PVT. LTD., AN NBFC AS SHARE APPLICATION MONEY ON THREE DIFFERENT DATES DURING F.Y. 2009 - 10. IN THIS REGARD THE ASSESSEE HAS SUBMITTED THE AUDITED BALANCE SHEET AND COPY OF ACKNOWLEDGEMENT OF A.Y. 2010 - 11 AND A.Y. 2012 - 13. THE ASSESSEE HAS ALSO SUBMI TTED THE BANK STATEMENT ACCOUNT OF M/S. SUMEET PROMOTERS PVT. LTD. IN ORDER TO JUSTIFY SOURCE OF FUND IN THE HANDS OF M/S. SUMEET PROMOTERS PVT. LTD.' (D) .... .' 1 8 . AFTER APPRECIATING THE REMAND REPORT, WE FIND THAT IDBI BANK THROUGH THE COMPANY (BTCL) GRANTED LOANS TO THE FARMERS AGAINST THEIR SALE OF AGRICULTURAL PRODUCE TO THE COMPANY (BTCL) AND THE SAID LOAN AMOUNT WAS UTILISED BY THE FARMERS FOR GIVING SHARE APPLICATION MONEY TO M/S BRITEX COTTON INTERNATIONAL L TD. I.E. THE A SSESSEE COMPANY, T HUS PROVED THE CREDITWORTHINESS AND GENUIN ENESS OF THE T RANSACTION OF THE SHARE APPL ICATION MONEY 20 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. GIVEN BY THE THREE FARMERS TO THE ASSESSEE COMPANY WAS ALSO ACCEPTED BY THE AO. 19 . SIMILARLY, AS PER THE REMAND REPORT, THE AO HAD ACCEPTED REGARDING INVESTMENT OF RS. 1.02 CRORES AS SHARE APPLICATION MONEY BY M/S. SUMEET PROMOTERS PVT. LTD., THE NBFC COMPANY. IN ORDER TO CORROBORATE AND SUBSTANTIATE ITS ARGUMENTS, THE ASSESSEE HAD ALSO SHOWN COPY OF LED GER ACCOUNT OF MR. SAJ EED PEERJE DE IN THE BOOKS OF M/S SUMEET PROMOTERS PVT. LTD. WHICH EXPLAINS THAT M/S SUMEET PROMOTERS PVT. LTD HAD SOLD CERTAIN INVESTMENTS FOR WHICH THE SALE PROCEEDS OF RS. 22 LAKHS WERE RECEIVED FROM SAJEED PEERJADA ON 1 ST SEPT 2009 WHICH WAS DIRECTLY PA ID TO THE SAJEED PEERJEDA TO M/S BRITEX COTTON INTERNATIONAL LTD UNDER THE INSTRUCTIONS OF M/S SUMEET PROMOTERS PVT. LTD. THE REC EIPT OF CHEQUE OF RS. 22 LAKHS BY M/S BRITEX COTTON INTERNATIONAL PVT. LTD. FROM MR. SAJEED PEERJEDA ON 29 TH SEPT 2009 IS REFLECTED IN THE BANK STATEMENT WHICH IS AT PAGE NO.E 84 OF THE PAPER BOOK . THIS FACT ALSO SUBSTANTIATE THE SUBMISSION OF ASSESSEE THAT AMOUNT WAS PAID BY MR. SAJEED PEERJEDA ON 21 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. BEHALF OF M/S SUMEET PROMOTERS PVT. LTD. THE ASSESSEE HAD ALSO S UBMITTED BANK WISE REPLY IN ORDER TO COUNTER THE FINDING RECORDED BY LD. CIT(A), WHICH ARE AS UNDER: - 20 . THE LD. AR HAD ALSO DRAWN OUR ATTENTION TO THE WRITTEN SUBMISSION WHEREIN THE POINTS RAISED BY THE LD. CIT(A) HAD BEEN CATEGORICALLY REPLIED WHICH IS AS UNDER: REASONS OF THE CIT(A) REPLY OF THE ASSESSEE COMPANY 1 FIRSTLY, FROM THE LETTER OF INTENT OF THE BANK, IT IS CLEAR THAT THE LOANS GIVEN TO THE FARMERS WERE TOWARDS SUPPLY OF CROPS TO BTCL BUT NOT TOWARDS PURCHASE OF SHARES IN ITS GROUP COMPANY, I.E., THE ASSESSEE COMPANY. AS PER THE TERMS AND CONDITIONS, THE LOAN IS G IVEN AGAINST THE RECEIVABLES ON SALE OF CROPS TO BTCL. THEREFORE, IT IS CONCLUDED THAT THE FARMERS DO NOT HAVE SUCH HUGE SURPLUS AMOUNT TO INVEST IN SHARES WHICH ONE GENERALLY USE FROM UNUTILIZED FUNDS BUT NOT FROM THE FUNDS MEANT FOR WORKING CAPITAL. THE FIRST REASON GIVEN BY THE CIT(A) IS NO REASON TO HOLD THAT THE INVESTMENT MADE BY THE FARMERS IN THE SHARES OF BRITEX IS NOT GENUINE OR THE CREDITWORTHINESS OF THE FARMERS IS NOT PROVED. IN FACT, THE LETTER OF INTENT OF THE BANK PROVES THAT IDBI BANK GAVE LOAN TO BTCL FOR DISBURSEMENT AMONG THE FARMERS WHO HAVE SOLD THEIR CROPS TO BTCL AND THOSE FARMERS HAVE TO RECEIVE SALE PROCEEDS FROM BTCL. AGAINST SUCH SALE PROCEEDS RECEIVABLE FROM BTC L, THE FARMERS WERE GIVEN LOAN BY IDBI BANK. THEREFORE, THE CAPACITY OF THE FARMERS IS PROVED AS THEY HAD SOLD THE CROPS OF MORE THAN RS.2 CRORES TO BTCL SO THAT IDBI BANK THROUGH BTCL COULD DISBURSE LOANS TO THE EXTENT OF RS.2 22 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. CRORES TO EACH FARMER. IT IS THEREFORE, SUBMITTED THAT INVESTMENT OF THE SAID LOAN AMOUNT IN SHARES OF BRITEX BY THE FARMERS CANNOT BE DISPUTED OR DOUBTED OR TREATED AS NON - GENUINE. 2 SECONDLY. IDBI GRANTED THE CREDIT FACILITIES TO EITCL TO ENABLE IT TO DISBURSE THE LOAN TO THE FAR MERS TO MEET THE GENUINE REQUIREMENTS OF THE FARMERS. ACCORDINGLY, BTCL DISBURSED LOAN TO 20 SUCH FARMERS. THE REQUIREMENT OF THE FARMERS WOULD MEAN THE REQUIREMENT TOWARDS GROWING OF COTTON AND RELATED REQUIREMENTS AND NOT INVESTMENT IN SHARES OF THE APPELLANT COMPANY. THEREFORE, THE SOURCE OF FUNDS CLEARLY EXPLAINED AS IDBI LOAN IS NOT AT ALL PROPER AND SATISFACTORY EXPLANATION. IN THIS ARGUMENT, THE CIT(A) ACCEPTED THAT THE LOAN WAS GIVEN BY IDBI TO BTCL FOR DISBURSING THE SAME AS LOAN A MONG THE FARMERS AND ACCORDINGLY FARMERS WERE GRANTED LOAN BY IDBI WHICH INCLUDED 3 FARMERS WHO UTILIZED LOAN AMOUNTS IN THE SHARE APPLICATION FOR SHARES AOF THE ASSESSEE COMPANY. AT THIS JUNCTURE IT MAY BE NOTED THAT GROWING OF COTTON CROP IS SEASONAL AN D IT CAN BE GROWN ONCE IN A YEAR. SOME TIME, TAKING INTO ACCOUNT THE CONDITIONS OF THE LAND, THE SAME CROP CANNOT BE TAKEN FROM YEAR TO YEAR BASIS AND A FARMER HAS TO SKIP A YEAR FOR GROWING COTTON. THUS THE FUNDS WITH THE FARMER REMAIN UNUTILISED AND THER EFORE, THE SAME ARE INVESTED WITH KNOWN CONCERNS. IN ANY VIEW OF THE MATTER, THE CIT(A) HAS ACCEPTED THAT THE SOURCE OF THE FUNDS IN THE HANDS OF THE FARMERS WHICH WERE UTILIZED FOR SUBSCRIBING 2 3 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. SHARES OF THE ASSESSEE COMPANY IS THE LOAN AMOUNT GIVEN BY IDB I THROUGH BTCL. THEREFORE, THE SOURCE OF FUNDS INVESTED IN THE SHARES OF THE ASSESSEE COMPANY BY THE FARMERS IS PROVED BEYOND DOUBT. 3 THIRDLY, THE CIT(A) REFER TO THE DATE OF AGREEMENT AND DATE OF STAMP PAPER ON WHICH THE AGREEMENT WAS EXECUTED TO STATE THAT THE SAID DATES ARE NOT MATCHING. SECONDLY, IT IS STATED THAT AGREEMENT WAS TOWARDS 'HYPOTHECATION OF RECEIVABLES' BUT NOT FOR INVESTMENT IN SHARES. THUS THE SOURCES WERE DEEMED TO HAVE BEEN NOT EXPLAINED SATISFACTORILY. THE ALLEGED MISMATCH IN THE DATE OF THE STAMP PAPER AND THE DATE OF EXECUTION OF THE AGREEMENT SHOWN BY THE CIT( A) IS NOT A RELEVANT FACT INASMUCH AS THE FACT REMAINS THAT IDBI HAD GIVEN LOANS TO FAMERS THROUGH BTCL AND THE SAID LOAN AMOUNTS WERE UTILISED BY THREE FARMERS ONLY IN INVESTING IN SHARES OF THE ASSESSEE COMPANY. THE FARMERS HAD SOLD THEIR CROPS TO BTCL A ND THEY HAD TO RECEIVE SALE PROCEEDS FROM BTCL. THE SAID RECEIVABLES (I.E., THE SALE PROCEEDS) WERE HYPOTHECATED BY THE FARMERS TO IDBI TO GET THE LOAN FROM THE BANK. AFTER RECEIVING THE LOAN FROM THE BANK, THE FARMERS DECIDED TO INVEST IN PURCHASE OF SHAR ES OF BRITEX. THEREFORE, THE CONCLUSION OF THE CIT(A) THAT THE SOURCE HAS NOT BEEN EXPLAINED SATISFACTORILY IS INCORRECT AND CONTRARY TO THE FACTS ON RECORD. 4 FOURTHLY, REFERRING TO THE THE CIT(A) HAS ONCE AGAIN 24 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. BANK STATEMENT OF THE SAID THREE FARMERS, THE CIT(A) OBSERVED THAT THE SAID BANK ACCOUNTS ONLY REFLECT THE RECEIPT OF FUNDS FROM BTCL AND PAYMENT OF FUNDS TO THE ASSESSEE COMPANY. THE SOURCE OF THE DEPOSIT IN THESE BANK ACCOUNTS OF THE FARMERS IS THROUGH RTGS FROM BTCL. THEREFORE, TRANSACTIONS ARE TAILOR - MADE. IT WAS FURT HER OBSERVED THAT THE LOAN AMOUNT RECEIVED THROUGH BTCL BY THE FARMERS WERE DIVERTED TO THE ASSESSEE COMPANY. THEREFORE, THE CREDITWORTHINESS OF THE CREDITORS IS NOT PROVED. ACCEPTED THE SOURCE OF THE FUNDS AVAILABLE WITH THE FAN NERS BEING THE LOAN FROM IDBI THROUGH BTCL. THE CIT(A) HAS ALSO ACCEPTED THAT THE SAID AMOUNT IS DIVERTED FOR INVESTING IN SHARES OF THE ASSESSEE COMPANY. THEREFORE, IT IS INCORRECT TO CONCLUDE THAT CREDITWORTHINESS OF THE FARMERS IS NOT PROVED. ON THE CON TRARY, THE CREDITWORTHINESS OF THE FARMERS FOR MAKING INVESTMENT IN SHARES OF THE ASSESSEE COMPANY IS PROVED BEYOND DOUBT. THE ALLEGATION OF TAILOR - MADE TRANSACTIONS IS INCORRECT INASMUCH AS ONLY THREE FARMERS OUT OF TEN FARMERS INVESTED IN THE SHARE APPLICATION OF THE ASSESSEE COMPANY. 5. FIFTHLY, THERE IS A CIRCULAR ROTATION OF THE FUNDS BETWEEN BTCL AND THE ASSESSEE COMPANY. THE FUNDS WERE TRANSFERRED FROM BTCL TO THE ASSESSEE COMPANY THROUGH FARMERS AND LATER THE ASSESSEE COMPANY MADE INVESTMENT IN BTCL. THIS SHOWS A WILLFUL MOTIVE BEHIND THE IN VESTMENT IN SHARES OF BTCL. AT THIS JUNCTURE, THE CIT(A) HAS FAILED TO APPRECIATE THAT THE ISSUE IS ABOUT THE INVESTMENT MADE BY THE FARMERS IN THE SHARES OF THE ASSESSEE COMPANY, I.E. BRITEX COTTON INTERNATIONAL LTD. THE SAID INVESTMENT IS TREATED AS UNE XPLAINED CASH CREDIT ON THE GROUND THAT THE ASSESSEE COMPANY HAS FAILED TO PROVE THE GENUINENESS OF THE TRANSACTION AND CREDITWORTHINESS OF THE FARMERS (SHARE APPLICANTS). 25 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. IN FACT, THE CIT(A) HAS ACCEPTED THAT THE AMOUNT INVESTED BY THE FARMERS IN THE SHAR ES OF THE ASSESSEE COMPANY IS THE LOAN GRANTED BY IDBI TO THE FARMERS THROUGH BTCL. THEREFORE, THE GENUINENESS AND CREDITWORTHINESS OF THE TRANSACTIONS OF INVESTMENT IN SHARES OF THE ASSESSEE COMPANY IS PROVED BEYOND DOUBT. THE ALLEGATION OF ROTATION OF FU NDS DOES NOT DETRACT THE FACT THAT THE FARMERS WERE GIVEN LOANS BY IDBI AND THE SAID LOAN AMOUNTS WERE INVESTED IN SHARE APPLICATION OF THE ASSESSEE COMPANY AND THEREFORE THE GENUINENESS AND CREDITWORTHINESS ARE PROVED BEYOND DOUBT. 6 SIXTHLY, THE AUTHORIZED CAPITAL OF THE ASSESSEE COMPANY IS ONLY R.S 75 LAKHS WHEREAS IT HAS RECEIVD SHARE APPLICATION OF RS. 8.02 CRORES AND THUS IT HAS VIOLATED THE PROVISIONS OF THE COMPANIES ACT. THE ASSESSEE COMPANY HAS NOT VIOLATED THE PROVISIONS OF THE I.T. ACT AS THE SAME DOES NOT DEAL WITH THE AUTHORIZED CAPITAL OR SUBSCRIBED CAPITAL OR ISSUED CAPITAL OF A COMPANY. THE ASSESSEE COMPANY HAS RECEIVED SHARE APPLICATION MONEY FROM FOUR SHAREHOLDERS AGGREGATING TO RS.8.02 CRORES AND THE ASSESSEE HAS PROVED IDENT ITY OF THE SAID SHAREHOLDERS, THEIR CAPACITY TO INVEST IN THE SHARES AND THE GENUINENESS OF THE TRANSACTION. THESE REQUIREMENTS OF SEC.68 ARE 26 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. FULLY MET. IT IS ALSO REQUIRED TO BE NOTED THAT THE ASSESSEE COMPANY HAD RECEIVED THE SHARE APPLICATION MONEY AND THE ASSESSEE COMPANY HAD NOT ISSUED THE SHARES IN THE YEAR UNDER CONSIDERATION AND THEREFORE, NON - AVAILABILITY OF AUTHORISED CAPITAL HAS NO RELEVANCE. 7. SEVENTHLY, THERE IS NO EVIDENCE FILED BEFORE THE AO OR CIT(A) TO SHOW THAT THE APPLICATIONS WERE CAL LED FOR ALLOTMENT OF SHARES AND THE FARMERS WERE WILLING TO MAKE INVESTMENT. NO EVIDENCE FILED WITH REGARD TO ALLOTMENT OF SHARES OR ISSUE OF SHARE CERTIFICATES. THIS REASON CANNOT BE SAID TO BE RELEVANT FOR THE PURPOSE OF DECIDING WHETHER THE ASSESSEE HAS PROVED THE CREDITWORTHINESS OF THE SHARE APPLICANTS AND GENUINENESS OF THEIR TRANSACTIONS OF GIVING SHARE APPLICATION MONEY. 8. EIGHTHLY, THE ASSESSEE COMPANY HAS NOT FILED RETURNS OF INCOME OF THE FARMERS SHOWING FINANCIAL STRENGTH. THE RETURN OF IN COME OF M/S. SUMEET PROMOTERS PVT. LTD. SHOWS GROSS TOTAL INCOME OF RS. 15,7947 - FOR A.Y. 2010 - 11. THEREFORE, THE GENUINENESS AND THE FINANCIAL STRENGTH OF THE FARMERS IS ALREADY ACCEPTED BY THE CIT(A) WHEN HE ACCEPTED TH AT IDBI BANK GAVE LOAN TO THE FARMERS THROUGH BTCL AGAINST THE RECEIVABLES OF THE SALE PROCEEDS OF AGRICULTURAL PRODUCE (I.E., COTTON) FROM BTCL. THEREFORE, NO FURTHER EVIDENCE IS REQUIRED TO PROVE THE FINANCIAL STRENGTH OF THE FARMERS. 27 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. CREDITWORTHINESS IS AT HIGH PERIL. IN RESPECT OF M/S. SUMEET PROMOTERS PVT. LTD., THE AUDITED ACCOUNTS FILED SHOWS THAT IT HAD RESERVES OF RS.19.79 CRORES AND A SHARE CAPITAL OF RS.2.68 CRORES (PAGES 101 TO 109). AS AGAINST THE SAME, IT HAS INVESTMENT IN UNQUOTED EQUITY SHARES OF RS. 13.87 CRORES AND UNDER DI E HEAD 'CURRENT ASSETS' SHARE APPLICATION MONEY GIVEN BY IT IS OF RS.3.04 CRORES. THUS THE AUDITED ACCOUNTS OF M/S. SUMEET PROMOTERS PVT. LTD. FOR A.Y. 2010 - 11 PROVES THE CREDITWORTHINESS AND GENUINENESS OF THE INVESTMENT IN SHARE APPLICATION OF THE ASSESSEE COMPANY. 9 NINTHLY, THE CONFIRMATION LETTERS FILED BY THE ASSESSEE COMPANY ON THE LETTERHEAD OF BTCL DATED 18 TH OCTOBER, 2013 WHICH CONFIRMS THE LOAN GIVEN BY THE COMPANY TO THE FARMERS ARE STEREOTYPED. THE ABOVE CONFIRMATION LETTERS THROW NO CR EDENCE TO PROVE THE GENUINENESS OF THE TRANSACTION. THESE ARE ONLY SELF - SERVING DOCUMENTS. ONCE IT IS ACCEPTED THAT IDBI GAVE LOAN TO FARMERS THROUGH BTCL, WHICH ARE USED FOR MAKING INVESTMENT IN SHARE APPLICATION OF THE ASSESSEE COMPANY, THE CREDITWORTHINESS AND GENUINENESS ARE PROVED BEYOND DOUBT. THE CONFIRMATION GIVEN BY BTCL THAT THE LOANS WERE GIVEN TO THE FARMERS ARE RECORDING THE SAME FACTS FOR ALL THE THREE FARMERS AND THEREFORE, THEY ARE GIVEN IN THE STANDARDISED FORMAT AND HENCE THEY CANNOT BE DISCARDED BY STATING THAT THEY ARE STEREOTYPED 28 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. AND SELF - SERVING DOCUMENTS. 10 TENTHLY, THE AO REFERS TO THE DECISION OF THE SUPREME COURT IN THE CASE OF DURGA PRASAD MORE (82 ITR 540) AND OBSERVED THAT WHEN THE SOURCE OF FUNDS ARE NOT GENUINE, THE CREDITV/ORTHINESS OF THE INVESTORS CANNOT BE PROVED. IN THE INSTANT CASE, THE SOURCE OF THE FUNDS ARE ONLY LOANS TAKEN FROM BTCL WHICH IS NOT A EARMARKED FUND OR SURPLUS FUND MEANT FOR INVESTMENT IN SHARES. THE ASSESSEE COMPANY HAS PROVED THE SOURCE OF THE SOURCE INASMUCH AS THE SOURCE OF THE INVESTMENT IN SHARE APPLICATION IS THE FARMER S AND THE FARMERS HAVE IN THEIR TURN RECEIVED LOAN FROM IDBI AGAINST THE SALE PROCEEDS OF CROPS RECEIVABLE FROM BTCL. THEREFORE, THE ASSESSEE COMPANY HAS PROVED THE CREDITWORTHINESS OF THE FARMERS. SIMILARLY, THE ASSESSEE COMPANY HAS PROVED THAT M/S. SUMEE T PROMOTERS PVT. LTD. RECEIVED THE PROCEEDS ON SALE OF INVESTMENT FROM M/S. MOONRISE SUPPLIERS PVT. LTD. AND M/S. PYNE ESTATES FINANCE PVT. LTD. WHICH IT HAD INVESTED AS SHARE APPLICATION MONEY WITH THE ASSESSEE COMPANY. 11 ELEVENTHLY, ANOTHER LINE OF ARGUMENT OF THE ASSESSEE IS THAT IF THE SOURCE OF THE INVESTORS IS DOUBTED THE AO SHOULD HAVE ASSESSED THAT AMOUNT IN THE HANDS OF THE INVESTORS AND NOT IN THE HANDS OF THE ASSESSEE AT THE FIRST AVAILABLE OPPORT UNITY, THE ASSESSEE COMPANY HAS PROVED THAT THE FARMERS AND M/S SUMEET PROMOTERS PVT. LTD. HAD INVESTED IN SHARE APPLICATION OF THE ASSESSEE COMPANY AND THEIR SOURCE OF THE SAID FUNDS IS THE LOAN FROM IDBI BANK AS FAR AS 29 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. COMPANY. THE FARMERS ARE CONCERNED AND THE S ALE PROCEEDS ON SALE OF INVESTMENTS AS FAR AS M/S. SUMEET PROMOTERS PVT. LTD. IS CONCERNED. THEREFORE, THE ASSESSEE COMPANY DOES NOT HAVE TO GO INTO ANY OF THE ALTERNATIVE ARGUMENTS OF MAKING ADDITION IN THE HANDS OF THE INVESTOR, ETC. IN ANY VIEW OF THE MATTER THE ASSESSEE COMPANY IS ENTITLED TO PUT FORWARD THE ALTERNATE CONTENTION WITHOUT PREJUDICE TO ITS MAIN CONTENTION. 12 TWELFTHLV. WHEN CREDITS ARE INTRODUCED IN THE BOOKS OF THE ASSESSEE COMPANY, THE ONUS TO PROVE SUCH CREDITS TO THE SATISFACTION OF THE AO IS ON THE ASSESSEE. THE ASSESSEE COMPANY IS NOT DISPUTING THAT IT HAS TO PROVE THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION IN RESPECT OF SHARE APPLICATION MONEY RECEIVED BY IT. THEREFORE, THE ASSESSEE COMPANY HAS ADDUCED EVIDENCE TO PROVE THE CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION IN RESPECT OF FARMERS BEING THE LOANS RECEIVED FROM IDBI BANK AND RECEI PT OF THE SALE PROCEEDS ON SALE OF INVESTMENTS BY M/S. SUMEET PROMOTERS PVT. LTD. THUS THE ASSESSEE COMPANY HAS PROVED THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTIONS 30 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. IN RESPECT OF THE RECEIPT OF SHARE APPLICATION MONEY OF RS.8.02 CRORES . 13 THIRTEENTHLV. THE BANK HAD STIPULATED THAT THE LOAN TO EACH FARMER SHOULD NOT EXCEED RS.2 CRORES, BUT IN THE CASE OF MR. JERAM DEVSHI MAHESHWARI THE LOAN GIVEN WAS RS.4 CRORES. THIS CANNOT BE REASON TO HOLD THAT SHARE APPLICATION MONEY GIVEN BY THE FARMERS OUT OF THE LOAN AMOUNT RECEIVED FROM IDBI BANK DOES NOT PROVE CREDITWORTHINESS AND THE GENUINENESS OF THE TRANSACTION. ON THE CONTRARY IT IS AN ACCEPTED FACT THAT MR. JERAM DEV SHI MAHESHWARI WAS GIVEN LOAN OF RS. 4 CRORES WHICH HE INVESTED IN SHARE APPLICATION OF THE ASSESSEE COMPANY. THUS THE GENUINENESS OF THE TRANSACTIONS AND HIS CREDITWORTHINESS ARE PROVED. 14 FOURTEENTHLY, AS PER THE LETTER OF IDBI DATED 1 ST AUGUST, 2013, THE LOAN GIVEN TO THE FARMERS HAVE BEEN REFUNDED WITHIN A PERIOD OF 9 MONTHS. AS THE ASSESSEE HAS NOT PROVIDED EVIDENCE OF REPAYMENT OF LOAN BY THE FARMERS FOR VERIFICATION AND THEREFORE, IT CREATES DOUBT ON THE GENUINENESS OF THE TRANSACTIO N. THE ISSUE OF THE RETURN OF LOANS BY THE FARMERS WAS RAISED BY CIT(A) IN HIS ORDER FOR THE FIRST TIME AND THEREFORE, THE ASSESSEE HAD NO OCCASION TO ADDUCE EVIDENCE IN RESPECT THEREOF. HOWEVER THE REFUND OF THE SHARE APPLICATION MONEY OR ISSUANCE OF SHA RES BY THE ASSESSEE COMPANY DOES NOT DECIDE THE GENUINENESS OR CREDITWORTHINESS OF THE FARMERS OR M/S. SUMEET PROMOTERS PVT. LTD. THEREFORE, THIS CANNOT BE THE GROUND TO REJECT THE EXPLANATION OF THE 31 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. ASSESSEE ABOUT THE GENUINENESS AND CREDITWORTHINESS OF T HE FARMERS AND M/S. SUMEET PROMOTERS PVT. LTD. IF THE ASSESSEE COMPANY IS GIVEN AN OPPORTUNITY TO ADDUCE THE EVIDENCE, IT CAN SHOW THAT THE FARMERS HAVE REFUNDED THEIR LOANS TO IDBI BANK. 21. THE LD. DR SUBMITTED THAT THE ASSESSEE HAS NOT PROVED CREDITWORTHINESS OF THE SHARE SUBSCRIBERS. THE BANK ACCOUNT OF THE PERSONS ARE SHOWING VERY LOW BALANCE AND THE MONEY HAS BEEN RETURNED BACK TO THEM WITHOUT ALLOTTING SHARES. THE ASSESSEE HAS ALSO INVES TED THE FUNDS IN ITS GROUP COMPANY. THE CONFIRMATION LETTERS FILED BY THE APPLICANTS ARE ALSO STEREOTYPE IN NATURE. THE LD. DR FURTHER SUBMITTED THAT APPLICANTS DID NOT HAVE INCOME /ASSET COMMENSURATE WITH THE AMOUNT INVESTED BY THEM IN THE COMPANY. ACCORD INGLY, THE LD. DR SUBMITTED THAT THE IMPUGNED TRANSACTIONS ARE SHAM TRANSACTIONS. ACCORDINGLY, HE SUBMITTED THAT GENUINENESS OF THE TRANSACTIONS IS ALSO IN DOUBT. ACCORDINGLY, THE LD. DR SUBMITTED THAT THE ASSESSEE HAS FAILED TO 32 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. PROVE THE CREDITORS AND HEN CE, THE LD. CIT(A) WAS JUSTIFIED IN CONFIRMING THE ADDITION. 22. WE HAVE CONSIDERED THE ABOVE REPLIES FILED BY THE ASSESSEE TO MEET OUT THE POINTS RAISED BY LD. CIT(A). MOREOVER F OR EASE OF REFERENCE, SECTION 68 OF THE ACT IS REPRODUCED BELOW: 'WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION OF THE ASSESSING OFFICER, SATISFACTO RY, THE SUM SO CREDITED MAY BE CHARGED TO INCOME - TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR [PROVIDED THAT WHERE THE ASSESSEE IS A COMPANY (NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED), AND THE SUM SO CREDITED (CONSIST S OF SHARE APPLICATION MONEY, SHARE CAPITAL, SHARE PREMIUM OR ANY SUCH AMOUNT BY WHATEVER NAME CALLED, ANY EXPLANATION OFFERED BY SUCH ASSESSEE - COMPANY SHALL BE DEEMED TO BE NOT SATISFACTORY, UNLESS (A) THE PERSON, BEING A RESIDENT IN WHOSE NAME SUCH CRED IT IS RECORDED IN THE BOOKS OF SUCH COMPANY ALSO OFFERS AN EXPLANATION ABOUT THE NATURE AND SOURCE OF SUCH SUM SO CREDITED; AND 33 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. (B) SUCH EXPLANATION IN THE OPINION OF THE ASSESSING OFFICER AFORESAID HAS BEEN FOUND TO BE SATISFACTORY: PROVIDED FURTHER THAT NOTHING CONTAINED IN THE FIRST PROVISO SHALL APPLY IF THE PERSON, IN WHOSE NAME THE SUM REFERRED TO THEREIN IS RECORDED, IS A VENTURE CAPITAL FUND OR A VENTURE CAPITAL COMPANY AS REFERRED TO IN CLAUSE (23FB) OF SECTION 10.] ' FROM THE ABOVE, WE NOTICED THAT TH E PROVISO TO SECTION 68 WAS INSERTED BY FINANCE ACT 2012 AND THE SAME IS EFFECTIVE FROM APRIL 1, 2013 AND IS NOT APPLICABLE TO THE YEAR UNDER QUESTION. THE LAW APPLICABLE FOR AY 2010 - 11 CASTS AN OBLIGATION ON THE ASSESSEE TO PROVIDE DETAILS ONLY OF SOURCE OF AMOUNT CREDITED IN ITS BOOKS AND NOT THE SOURCE OF ITS SOURCE. 23 . THE PROVISIONS OF SECTION 68 PROVIDE THAT AN ASSESSEE SHALL PROVIDE EXPLANATION IN RELATION TO THE CREDIT IN ITS BOOKS OF ACCOUNTS. ONCE IT HAS DISCHARGED ITS OBLIGATION TO PROVE THE SAID CREDIT, IT IS NOT REQUIRED TO PROVE THE SOURCE OF FUNDS OF ITS SOURCE OF SHARE APPLICATION MONEY. AS CAN BE SEEN FROM THE JUDGMENTS WHEREIN EVEN THE HONBLE SUPREME COURT AND VARIOUS HONBLE HIGH COURTS HAVE HELD THAT AN ASSESSEE IS NOT REQUIRED TO PROVIDE DETAILS ABOUT ITS SOURCE'S SOURCE. 34 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. 2 4 . AFTER HAVING GONE THR OUGH THE FACTS OF THE PRESENT CASE, WE NOTICE THAT LD CIT(A) THEREFORE, CONCLUDED THAT THE LOAN GIVEN TO THE FARMERS BY IDBI FOR SUPPLY OF MATERIAL LIKE COTTON TO BTCL WAS GHASTLY MISUSED AND WERE DIVERTED BACK TO BTCL IN THE FORM OF SHARE APPLICATION MONE Y BY USING THE CONDUIT OF BANKING CHANNEL IN A CIRCULAR ROTATION BY USING COLOURABLE DEVISE. 25 . IN THIS RESPECT, WE NOTICED THAT LD. CIT(A) HAS ACCEPTED THAT THE SOURCE OF THE FUNDS INVESTED BY THE FARMERS IS THE LOAN GIVEN BY IDBI THROUGH BTCL. THEREFOR E, SUCH AMOUNT INVESTED BY THE FARMERS CANNOT BE SAID TO BE NON - GENUINE TRANSACTIONS. SECONDLY, THE IDBI HAD GIVEN LOAN TO FARMERS AGAINST SALE PROCEEDS RECEIVABLE BY THEM FROM BTCL ON SALE OF THE CROPS. THEREFORE, THE CREDITWORTHINESS OF THE FARMERS IS PROVED BEYOND DOUBT. WE HAVE ALSO NOTICED FROM THE DETAILS THAT THE ASSESSEE HAD REFUNDED THE SHA RE APPLICATION OF THE SAID THREE FARMERS IN THE MONTH OF MARCH 2011 I.E. 2011 - 12. 26 . ALL OTHER ALLEGATIONS OF THE LD. CIT(A) ARE NOT RELEVANT FOR DECIDING THAT THE RECEIPT OF THE SHARE APPLICATION MONEY IS 35 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. GENUINE AND THE CREDITWORTHINESS OF THE PARTIES INVESTING IN SHARE APPLICATION IS PROVED. 27 . THE PROVISIONS OF SEC.68 OF THE ACT PLACES INITIAL BURDEN OF PROOF UPON THE SHOULDERS OF THE ASSESSEE, I.E., THE ASSESSEE IS REQUIRED TO PROVE THREE MAIN INGREDIENTS VIZ., THE IDENTITY OF THE CREDITOR, THE CR EDITWORTHINESS OF CREDITOR AND GENUINENESS OF TRANSACTIONS. ONCE THE ASSESSEE DISCHARGES THE INITIAL BURDEN PLACED UPON ITS SHOULDERS, THEN THE BURDEN WOULD SHIFT UPON THE SHOULDERS OF THE ASSESSING OFFICER, I.E., IT IS THE AO WHO HAS TO DISPROVE THE SUBMI SSIONS MADE BY THE ASSESSEE. FROM THE FOREGOING DISCUSSIONS, WE NOTICE THAT THE ASSESSEE HAS DISCHARGED THE INITIAL BURDEN OF PROOF PLACED UPON ITS SHOULDERS BY PROVING THE IDENTITY OF THE SHARE APPLICANTS, THEIR SOURCES AND THE GENUINENESS OF TRANSACTIONS . DURING THE COURSE OF HEARING, THE LD A.R ALSO TOOK US THROUGH THE VARIOUS DOCUMENTS FURNISHED IN THE PAPER BOOK. HOWEVER, WE NOTICE THAT THE AO COULD NOT DISPROVE THE SAME, MEANING THEREBY, THE AO HAS FAILED TO DISCHARGE THE BURDEN PLACED UPON HIS SHOULD ERS. 36 I.T.A. NO. 2831 /MUM/201 4 M/S BRITEX COTTON INTERNATIONAL LTD. 28 . IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE BY THE AO U/S 68 OF THE ACT. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) AND DIRECT THE AO TO DELETE THE ADDI TION MADE BY HIM TOWARDS SHARE APPLICATION MONEY. 29 . IN THE NET RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED WITH NO ORDER AS TO COST. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH DEC , 2018 . SD/ - SD/ - ( B. R. BASKARAN ) (SANDEEP GOSAIN) / A COUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 12 . 1 2 .201 8 SR.PS . DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI