ITO, Wd.-4(1) , Kolkata V. M/s Moonview Conclave Pvt Ltd, Kolkata

ITA 34/KOL/2021

AI Insights

The case revolves around an appeal by the Income Tax Officer against the order of the Ld. CIT(A) which had granted relief to Moonview Conclave Pvt. Ltd. concerning an addition of Rs. 13,57,35,500 made under section 68 of the Income-tax Act, 1961. The addition was initially made by the Assessing Officer (AO) due to doubts regarding the genuineness and creditworthiness of the share applicants. The Ld. CIT(A) reversed this decision after a detailed examination of the facts and documents provided by the assessee, which included confirmations and financial statements of the share subscribing companies. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO had not substantiated his doubts with adverse material and had failed to investigate the matter thoroughly.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125011 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-07-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 08-02-2021
• Other Referred Cases: Pr.CIT(Central)-l, Delhi Vs. NRA Iron & Steel Pvt. Ltd. (412 ITR 161), CIT v. Dataware Pvt. Ltd., CIT Vs. Sagun Commercial P. Ltd., CIT v. Creative World Telefilms P. Ltd., Pranav foundations Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANOJ KATARUKA
• Keywords: Unexplained cash credit; Source of fund; Question of law
• Section: 131; 68; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH KOLKATA BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.34/Kol/2021 Assessment Year: 2012-13 Income-tax Officer, Ward-4(1), Kolkata. Vs. Moonview Conclave Pvt. Ltd. 63, Radha Bazar Street, Dalhousie, Kolkata-700001. (PAN: AAHCM7818C) (Appellant) (Respondent) Present for: Appellant by : Shri Manoj Kataruka, Advocate Respondent by : Shri Subhendu Datta, CIT, DR Date of Hearing : 10.07.2023 Date of Pronouncement : 31.08.2023 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the revenue is against the order of Ld. CIT(A)-7, Kolkata vide order no. 350/CIT(A)-7/Ward-4(2)/Kol/15-16 dated 28.08.2020 passed against the assessment order by ITO, Ward- 4(2), Kolkata u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 29.03.2015 for AY 2012-13. 2. Revenue has raised the following grounds of appeal: “1. "That on the fact and circumstances of the case, the Ld. CIT(A) has erred in granting relief to the assessee on account of addition on undisclosed cash credit u/s 68 of Rs.13,57,35,500/- though the assessee has failed to prove the genuineness of transaction and creditworthiness of the share applicants. 2. That on the facts and the circumstances of the case, the Ld. CIT(A) has erred in overlooking the principles which has been laid down by the Hon'ble Supreme Court in the case of Pr.CIT(Central)-l, Delhi Vs. NRA Iron & Steel Pvt. Ltd. (412 ITR 161), which suggests that the assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of 2 ITA No.34/Kol/2021 Moonview Conclave Pvt. Ltd., AYs: 2012-13 the AO., failure of which, would justify addition of the said amount to the income of the assessee. 3. That on the facts and the circumstances of the' case, the Ld. CIT(A) was not justified in ignoring the principle which has been laid down by the Hon'ble Supreme Court in the case of Pr. CIT (Central)-l, Delhi Vs. NRA Iron & Steel Pvt. Ltd. (412 ITR 161), which also suggests that the Assessing Officer is duty bound to investigate the creditworthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name lenders. In the facts of the case, in spite of best efforts made by the assessing officer, he could not verify the same as there was no response from companies to whom shares were allotted on private placement basis. Thus, the decision of the Ld. CIT(A) is erroneous in holding that the share application money including share premium was not the assessee's own income. 4. That on the facts and the circumstances of the case, the order of the Ld. CIT(A) is erroneous in ignoring the aspect of Section 68 of the Act and giving relief to the assessee. The principle which has been laid down by the Hon'ble Supreme court in the case of Pr. (Central)-l, Delhi Vs. NRA Iron & Steel Pvt. Ltd. (412 ITR 161), also suggests that if the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit- worthiness, then the genuineness of the transactions would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act. In the facts of the case, the Ld. CIT(A) completely ignored this aspect, thus he has erred in giving relief to the assessee. 5. That on the fact and circumstances of the case, the Ld. CIT(A) was not justified in deleting the addition of Rs. 13,57,35,500/- made u/s 68 wherein the identity, genuineness and creditworthiness of investor companies remained unsubstantiated, as they failed to appear before the A.a. against summons issued u/s 131 ignoring the decision of Hon'ble Supreme court in the case of Pr. CIT (Central)-l, Delhi Vs. NRA Iron & Steel Pvt. Ltd. (412 ITR 161). 6. That on the fact and circumstances of the case, the Ld. CIT(A) was incorrect in granting relief where the assessee failed to discharge its legal obligation to prove the receipt of share capital and share premium money to the satisfaction of the A.O. 7. That on the fact and circumstances of the case, the Ld. CIT(A) was not justified in allowing the appeal without considering the fact that the sources of share application money including share premium were not properly explained by the assessee and it lacked any real profit-making business credence. 8. That on the fact and circumstances of the case, the Ld. CIT(A) was not justified in ignoring the facts that the creditworthiness of the subscribing companies were not established before the A.O, during the course of the assessment proceedings, though the onus of providing the identity of the creditor vests solely with the assessee. 9. That on the fact and circumstances of the case, the Ld. CIT(A) has erred in not considering the facts that the real intention of the assessee company for introducing such huge amount in the form of share application money in its business only to introduce its unaccounted money in the form of fresh share capital.” 3 ITA No.34/Kol/2021 Moonview Conclave Pvt. Ltd., AYs: 2012-13 3. Brief facts of the case are that assessee filed its return of income on 21.09.2012, reporting a total income of Rs.535/-. Case was selected for scrutiny through CASS for which statutory notices were issued and served on the assessee. Against the said notices, assessee through its Authorised Representative filed various details and documents to explain the return filed by the assessee for the year under consideration. In the course of the assessment, Ld. AO noted that assessee has raised share capital including share premium, totalling for an amount of Rs.13,57,35,500/-. Ld. AO sought details and explanation on this from the assessee for which summon u/s. 131 of the Act was issued to the director of the assessee which could not be complied with. 3.1. Assessee company has issued its share capital to the following allottees: Sl. No. Name Address Amount (Rs.) No. of shares allotted 1. Shareen Hire Purchase Pvt. Ltd. 2, Lal Bazar Street, 1 st Floor, R. No. 107C, Kolkata-700 001. 3,20,00,000/- 32000 2. Ortem Estates Pvt. Ltd. 14-C, M. D. Road, 4 th floor, Kolkata-700007. 3,20,00,000/- 32000 3. Review Securities Pvt. Ltd. 14-C, M. D. Road, 4 th floor, Kolkata-700007. 3,45,00,000/- 34500 4. Sayonara Fashions Trade Pvt. Ltd. 2, Lal Bazar Street, 1 st Floor, R. No. 107C, Kolkata-700 001. 3,70,00,000/- 37000 3.2. Not convinced by the details and documentary evidence placed on record, Ld. AO by applying the test of human probability made the addition u/s. 68 of the Act. Aggrieved, assessee went in appeal before the Ld. CIT(A), who after elaborately dealing with the facts of the case on all the three dimensions of section 68 of the Act in respect of identity and creditworthiness of the share subscribing companies and 4 ITA No.34/Kol/2021 Moonview Conclave Pvt. Ltd., AYs: 2012-13 also the genuineness of the transactions, deleted the addition so made. Aggrieved, the revenue is now in appeal before the Tribunal. 4. Before us, Shri Subhendu Datta, CIT, DR represented the revenue and Shri Manoj Kataruka, Advocate represented the department. 5. Ld. Counsel for the assessee submitted that to establish the identity and creditworthiness of the shareholders and genuineness of the transactions, assessee has submitted all the relevant details and documents in the course of assessment as well as appellate proceedings, details of which are tabulated in the order of Ld. CIT(A) in para 4.1 and is extracted below for ease of reference: 5 ITA No.34/Kol/2021 Moonview Conclave Pvt. Ltd., AYs: 2012-13 6 ITA No.34/Kol/2021 Moonview Conclave Pvt. Ltd., AYs: 2012-13 5.1. Ld. Counsel reiterated that the share subscribing companies are body corporate, registered with ROC and are assessed to income tax. He further stated that these subscribing companies had confirmed the transactions, filed relevant papers and documents and also explained the source of funds. He thus, emphasized that assessee had discharged its primary onus casted upon it u/s. 68 of the Act. According to him, the onus thus shifted to the Ld. AO to disprove the material placed before him. Without doing so, the addition made by the Ld. AO is based on conjectures and surmises and, therefore, cannot be sustained. 5.2. Ld. Counsel also emphasized on the fact that in addition to other evidence, assessee has submitted letter from the subscribers in response to notice issued u/s. 133(6) of the Act, confirming the investment made in the share capital of the assessee. He submitted that when a confirmation is submitted, it cannot be ignored. The confirmations made are to be prima facie considered as correct unless evidence is brought on record to falsify the claim made therein. According to him, even in the submissions including ITRs, audit reports, share application details etc. as listed above, the Ld. AO has not found fault in any of the details submitted and simply proceeded to make addition in respect of the amount of share capital and premium. 7 ITA No.34/Kol/2021 Moonview Conclave Pvt. Ltd., AYs: 2012-13 5.3. On the three basic ingredients for any cash credit viz., identity, creditworthiness of the subscribers and the genuineness of the transactions, Ld. Counsel submitted that all of these are fulfilled. In this respect he submitted as under: (i) On identity : - All the shareholders are regular income tax assessees and have filed their income tax returns. Ld. Counsel thus emphasized that identity of all the four share subscribers is well established and cannot be doubted. Further, he submitted that these subscribers are body corporate registered under the Companies Act, 1956. ii) On creditworthiness: To establish the creditworthiness of the four subscribers, details relating to source of fund in the hands of these shareholders represented by their respective net worth were furnished along with their respective bank statements and audited financial statements. The details of source of fund furnished by the assessee are reproduced in the table below: It was thus, submitted that the above table unequivocally testifies and proves that the subscribers had sufficient fund for making investment in the share capital of the assessee. 8 ITA No.34/Kol/2021 Moonview Conclave Pvt. Ltd., AYs: 2012-13 iii) On genuineness of the transaction: It was submitted that the amounts were invested by the subscribers through proper banking channel which is duly reflected in the respective financial statements of the subscribers. Since the investments reflected in their respective financial statements and the source of such investments by them in the assessee has been accepted by the department in their respective assessments, already referred above, are thus genuine and transaction cannot be doubted. 6. Per contra, Ld. Sr. DR placed reliance on the order of the Ld. AO. 7. We have heard the rival contentions and perused the material available on record and have given our thoughtful consideration to the elaborate observations and findings given by the Ld. CIT(A) while giving relief to the assessee. At the outset, we note that notices u/s. 133(6) of the Act were issued by the Ld. AO to all the four subscribers, who had replied giving all the details and documents required by the Ld. AO along with confirming the transaction of they making investment in the share capital of the assessee. We also take note of the undisputed fact of assessments made by the department for the four share subscribers as tabulated above, which establishes the identity, creditworthiness of the share subscribers and the genuineness of the transactions. 7.1. From the perusal of the paper book and the documents placed therein, it is vivid that all the share applicants are (i) income tax assessees, (ii) they are filing their income tax returns, (iii) share application form and allotment letter is available on record, (iv) share application money was made by account payee cheques, (v) details of the bank accounts belonging to share applicants and their bank statements, (vi) in none of the transactions there are any deposit of cash 9 ITA No.34/Kol/2021 Moonview Conclave Pvt. Ltd., AYs: 2012-13 before issuing cheques to the assessee, (vii) all the share applicants are having substantial creditworthiness represented by their capital and reserves. 7.2. We also take note of the elaborate and well reasoned findings and decisions arrived at by the Ld. CIT(A) by taking into consideration all the details and documents placed on record. The relevant findings and decisions are extracted as under: 10 ITA No.34/Kol/2021 Moonview Conclave Pvt. Ltd., AYs: 2012-13 11 ITA No.34/Kol/2021 Moonview Conclave Pvt. Ltd., AYs: 2012-13 12 ITA No.34/Kol/2021 Moonview Conclave Pvt. Ltd., AYs: 2012-13 13 ITA No.34/Kol/2021 Moonview Conclave Pvt. Ltd., AYs: 2012-13 14 ITA No.34/Kol/2021 Moonview Conclave Pvt. Ltd., AYs: 2012-13 And the burden shifted upon the AO whereas no adverse material hs been brought on record. In such case, provision of Sec. 68 cannot be invoked.” 7.4. Before concluding, to give our finding, we place reliance on the following judicial precedents to buttress our observations and conclusions : i) The decision of Hon’ble Jurisdictional High Court of Calcutta in the case of CIT v. Dataware Pvt. Ltd. in ITAT No. 263 of 2011 dated 21.09.2011 wherein Hon’ble jurisdictional High Court held that “After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness" of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence.” ii) Decision of Hon’ble jurisdiction High Court of Calcutta in the case of CIT Vs. Sagun Commercial P. Ltd. (ITA No. 54 of 2001 dated 17.021.2011) wherein it was held as under: “After hearing the learned advocate for the appellant and after going through the materials on record, we are at one with the Tribunal below as well as the Commissioner of Income-tax (Appeals) that the approach of the Assessing Officer cannot be supported. Merely because those applicants were not placed before the Assessing Officer, such fact could not justify disbelief of the explanation offered by the assessee when details of Permanent Account Nos. payment details of shareholding and other bank transactions relating to those payments were placed before the Assessing Officer. It appears that the Tribunal below has recorded specifically that the Assessing Officer totally failed to consider those documentary evidence produced by the assessee in arriving at such conclusion. We, therefore, find no reason to interfere with the decision passed by the Commissioner of Income-tax (Appeals) and the Tribunal below and answer the questions formulated by the Division Bench in the affirmative and against the Revenue. The appeal is, thus, dismissed." 15 ITA No.34/Kol/2021 Moonview Conclave Pvt. Ltd., AYs: 2012-13 iii) Decision of Hon’ble Madras High Court in the case of CIT v. Creative World Telefilms P. Ltd. (2011) 333 ITR 100 (Mad) wherein it was held as under: “In the case in hand, it was not disputed that the assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the Assessing Officer to make proper investigation and reach the shareholders. The Assessing Officer did nothing except issuing summons which were ultimately returned back with an endorsement "not traceable". The Assessing Officer ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the Assessing Officer. In the above circumstances, the view taken by the Tribunal could not be faulted. No substantial question of law was involved in the appeal.'' iv) Decision of Hon’ble Madras High Court in the case of Pranav foundations Ltd. (2015) 229 Taxman 58 (Mad) is also referred wherein it was held as under: “In view of the fact that all the four parties, who are subscribers of the shares, are limited companies and enquiries were made and received from the four companies and all the companies accepted their investment. Thus, the assessee has categorically established the nature and source of the said sum and discharged the onus that lies on it in terms of section 68. When the nature and source of the amount so invested is known, it cannot be said to undisclosed income. Therefore, the addition of such subscriptions as unexplained credit under section 68 is unwarranted.” 7.5. In the course of assessment proceeding, Ld. AO directed the assessee to produce the director of the assessee and also the directors of the subscriber companies along with relevant documentary evidence and details which was not complied with. Ld. Counsel submitted that mere non-appearance of directors is no basis for invoking provisions of section 68 of the Act for which he placed reliance on the decision of Hon’ble Supreme Court in the case of CIT v. Orissa Corporation (P) Ltd. (1986) 159 ITR 78 (SC) wherein it was held as under: 16 ITA No.34/Kol/2021 Moonview Conclave Pvt. Ltd., AYs: 2012-13 “In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so- called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such could arise. The High Court was, therefore, right in refusing to refer the questions sought for. Decision of the High Court affirmed.” 8. Further, in respect of ground nos. 2, 3, 4 and 5, reference to the judgment of Hon’ble Supreme Court in the case of NRA Iron & Steel Pvt. Ltd. (412 ITR 161) is found to be distinguishable on facts in as much as in the said decision, Ld. AO has made extensive enquiries and some of investors were found to be non-existent. Upon going through the facts involved in that judgment, it is noted that, in the decided case the AO had made extensive enquiries and from that he had found that some of the investor companies were non-existent, which is certainly not the case before the undersigned. In the decided case, certain investor companies also failed to produce their bank statements proving the source for making investments in assessee company. In the facts o f the present case however not only have the shareholders furnished their bank statements and investment schedules to establish the source of funds but they have also furnished their respective sources of funds in response to notices issued by the AO u/s. 133(6) of the Act. 17 ITA No.34/Kol/2021 Moonview Conclave Pvt. Ltd., AYs: 2012-13 9. Considering the facts and circumstances narrated and analysed above, all the details and documents placed on record corroborating the claim of the assessee, the judicial precedents referred above and detailed and exhaustive exercise undertaken by the Ld. CIT(A), we unhesitatingly uphold the order of Ld. CIT(A) without any interference. Accordingly, addition made by the Ld. AO towards share capital including share premium of Rs.13,57,35,500/- is directed to be deleted. Thus, grounds taken by the revenue in this regard are dismissed. 10. In the result, appeal of the revenue is dismissed. Order pronounced in the open court on 31 st August, 2023. Sd/- Sd/- (Sanjay Garg) (Girish Agrawal) Judicial Member Accountant Member Dated: 31st August, 2023 JD, Sr. P.S. Copy to: 1.The Appellant: 2.The Respondent:. 3.CIT(A)-7, Kolkata 4.CIT 5.DR, ITAT, Kolkata Bench, Kolkata //True Copy// By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata