ITO, Ward-6(2), Hyderabad V. M/s Neozone Bio Sciences Private Limited, Hyderabad

ITA 350/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74477 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 20-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: K SESHA PRASAD; B VAMSI KRISHNA
• Keywords: Unexplained cash credit; Source of fund
• Section: 143(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 350/HYD/2013 ASSESSMENT YEAR: 2008-09 INCOME-TAX OFFICER, WARD 16(2), HYDERABAD. VS. M/S NEOZENE BIO SCIENCES PVT. LTD., HYDERABAD. PAN AACCN4644E APPELLANT RESPONDENT REVENUE BY: SRI JEEVAN LAL LAVIDIYA ASSESSEE BY: S/SRI K. SESHA PRASAD & B. VAMSI KRISHNA DATE OF HEARING: 23/01/2014 DATE OF PRONOUNCEMENT: 23/01/2014 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF THE CIT(A)-V, HYDERABAD DATED 17/12/2012 F OR THE ASSESSMENT YEAR 2008-09 WHEREIN THE REVENUE HAS RAI SED THE FOLLOWING SUBSTANTIAL GROUNDS: 1) CIT(A) ALLOWED RELIEF TO THE ASSESSEE IGNORING T HE REMAND REPORT WHICH IS BASED ON STATEMENTS OF THE INVESTOR S RECORDED DURING THE COURSE OF REMAND PROCEEDINGS. THE CIT(A) ERRED IN NOT CONSIDERING THE REMAND REPORT OF THE ASSESSING OFFICER WHICH IS BASED ON FACTS AND EVIDENCES. 2) THE CIT(A) OUGHT TO HAVE CONSIDERED THAT THE THR EE INGREDIENTS REQUIRED TO BE SATISFIED FOR ACCEPTING CASH CREDIT I.E. IDENTITY OF THE INVESTOR, CREDITWORTHINESS OF THE INVESTOR AND GENUINENESS OF THE TRANSACTION. HOWEVER, CIT(A) RELIED ONLY ONE CONDITION OF IDENTITY OF THE INVESTOR. THE CIT(A) OUGHT TO HAVE CONSIDERED ABOVE THREE CONDITIONS WER E SATISFIED. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PHARMACEUTICALS. FOR THE AY 2008-09, ITA NO. 350/HYD/2013 M/S NEOZENE BIO SCIENCES PVT. LTD. 2 THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 30/03/2009 ADMITTING A LOSS OF RS. 2,44,129/-. ASSESSMENT UNDE R 143(3) OF THE ACT WAS COMPLETED DETERMINING THE TOTAL INCOME AT R S. 48,62,271/- BY MAKING AN ADDITION OF RS. 51,06,400/-. 4. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E COMPANY IS IN RECEIPT OF SHARE APPLICATION MONEY FROM NINE PERSONS, ALL AGGREGATING TO RS. 51,06,400/- AND THE BIFURCATION OF THE ABOVE SHARE APPLICATION MONEY IS AS UNDER: S.NO. NAME OF THE SHARE APPLICANT AMOUNT (RS.) 1. SRI N. NARASIMHA REDDY 5,08,400 2. SMT. P. LEELAVATHI 10,00,000 3. SMT. K. HYMAVATHI 3,00,000 4. SMT P. SUBBALAKSHMI 8,82,000 5. SRI P.V. RATNAM 3,00,000 6. SRI K. SUBBAIAH 3,00,000 7. SRI P. NAGESWARA RAO 10,66,000 8. SRI PVSPS PRASAD 3,00,000 9. SRI V. RAMA KRISHNA 4,50,000 4.1 THE ASSESSING OFFICER ASKED THE ASSESSEE TO FUR NISH CONFIRMATIONS FROM THE ABOVE SHARE APPLICANTS AND P ROVE THEIR CREDITWORTHINESS ABOVE THEIR RESPECTIVE INVESTMENT IN THE ASSESSEE COMPANY. IN RESPONSE, THE ASSESSEE FILED ONLY CONFI RMATIONS FROM THE INVESTORS BUT HAD NOT PROVED THEIR GENUINENESS. SINCE THE ASSESSEE FAILED TO DISCHARGE ITS ONUS OF PROVING TH E CREDITWORTHINESS OF THE INVESTORS, THE ASSESSING OF FICER TREATED THE SAID SHARE APPLICATION MONEY OF RS. 51,06,400/- AS UNEXPLAINED AND BROUGHT TO TAX THE SAME. 5. BEFORE THE CIT(A) THE ASSESSEE FILED WRITTEN SUB MISSIONS AND CONFIRMATIONS ALREADY FURNISHED BEFORE THE ASSESSIN G OFFICER WHEREIN APART FROM CONFIRMING THE INVESTMENT MADE B Y THEM THE SHARE APPLICANTS ALSO MENTIONED THEIR SOURCE OF INC OME FOR INVESTING AND SOME OF THE SHARE APPLICANTS HAD ALSO GIVEN THEIR PANS. THEREFORE, THE CIT(A) ASKED THE ASSESSING OF FICER TO FURNISH ITA NO. 350/HYD/2013 M/S NEOZENE BIO SCIENCES PVT. LTD. 3 A REMAND REPORT ON THE VERACITY OF THE CONFIRMATION S FILED BEFORE HIM. 5.1 THE ASSESSING OFFICER FILED HIS REMAND REPORT O N 27/11/2012 WHEREIN THE ASSESSING OFFICER HAD SUMMONED THE SHA RE APPLICANTS AFTER RECEIPT OF LETTERS FROM THE CIT(A) AND STATEM ENTS WERE RECORDED FROM THE SHARE APPLICANTS. ENCLOSING FIVE SUCH SWORN STATEMENTS, THE ASSESSING OFFICER MENTIONED THAT AL L THE INVESTORS ARE FAMILY MEMBERS OF THE DIRECTORS OF THE ASSESSEE COMPANY AND ON EXAMINATION IT WAS FOUND THAT THEY HAVE NO VERIF IABLE SOURCES OF INCOME TO INVEST IN THE ASSESSEE COMPANY. HE FURTHE R ADDED THAT EVEN THE DIRECTORS WERE UNABLE TO FURNISH ANY EVIDE NCE IN SUPPORT OF THEIR INVESTMENT. 5.2 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE AND REMAND REPORT FROM THE ASSESSING OFFICER, THE CIT(A ) OBSERVED THAT ALL THE PERSONS APPEARED AND CONFIRMED THAT THEY HA VE INVESTED IN THE ASSESSEE COMPANY THE RESPECTIVE AMOUNTS AND REG ARDING THE SOURCES FOR THE SAME, ALL HAVE MENTIONED THAT EVIDE NCES WILL BE FILED SHORTLY. HE FURTHER OBSERVED THAT AS THE ASSE SSING OFFICER HAD ALREADY FORWARDED HIS REMAND REPORT ON 27/11/2012 A ND THE ASSESSEE APPEARED ON 10/12/2012 AND FILED A BUNCH O F PAPERS FROM ALL THE SHARE APPLICANTS, WHICH CONTAIN SOME PATTAD AR PASS BOOKS EVIDENCING LAND HOLDINGS IN THEIR NAMES INCLUDING I NCOME CERTIFICATES FROM THE REVENUE AUTHORITIES, COPIES O F REGISTERED SALE DEEDS EVIDENCING SALE OF PROPERTIES BY SOME OF THE SHARE APPLICANTS AND LOAN/ PERSONAL LOAN STATEMENTS FOR T HE RELEVANT PERIOD. 5.3 THE CIT(A) NOTED THAT THE EVIDENCES FILED BY TH E SHARE APPLICANTS IN SUPPORT OF THE SOURCES OF THE INCOME FOR INVESTMENT IN SHARE APPLICATION MONEY, THE ASSESSING OFFICER HAD STATED THAT MERE FILING OF CONFIRMATIONS IS NOT ENOUGH AND THE ASSESSEE SHOULD ITA NO. 350/HYD/2013 M/S NEOZENE BIO SCIENCES PVT. LTD. 4 PROVE THE CREDITWORTHINESS OF THE SHARE APPLICANTS. THE CIT(A) WAS OF THE VIEW THAT BEFORE MAKING SUCH STATEMENT, IT I S NOT UNDERSTOOD, WHAT EFFORTS THE ASSESSING OFFICER HAD PUT INTO DIS PROVE THE CREDITWORTHINESS OF THE SHARE APPLICANTS AND WHEN A LL THE CONFIRMATIONS WERE FILED BY THE SHARE APPLICANTS, THE ASSESSING OFFICER HAD GONE THROUGH THE SAME AND MERELY COMMEN TED ABOUT THE CREDITWORTHINESS OF THE SHARE APPLICANTS. FURTH ER, THE CIT(A) NOTED THAT HE HAD NOT CAUSED ANY ENQUIRIES BEFORE D OUBTING THE CREDITWORTHINESS OR THE GENUINENESS OF THE TRANSACT ION AND THE ASSESSMENT ORDER DOES NOT SPEAK OF ANYTHING OTHER T HAN MERE SUSPICION OF THE ASSESSING OFFICER ON THE TRANSACTI ON AS A WHOLE AND NO VERIFICATION WAS CARRIED OUT TO DISPROVE THE VERACITY OF THE CONFIRMATIONS FILED BEFORE HIM OR THE CREDITWORTHIN ESS OF THE INVESTORS. THE CIT(A) OBSERVED THAT AS TRANSPIRED F ROM THE REMAND REPORT, IT IS ONLY DURING THE COURSE OF REMAND REPO RT STAGE, AN ATTEMPT WAS MADE TO CALL THE SHARE APPLICANTS AND Q UESTION ABOUT THE GENUINENESS OF THE TRANSACTION AND THE SOURCES THEREOF. IN VIEW OF THE SAID OBSERVATIONS, THE CIT(A) HELD AS FOLLOW S: 5.9 IN CASE ON HAND, THE IDENTITY OF THE SHARE APPL ICANTS WAS PROVED BY FILING INITIAL CONFIRMATION LETTERS A ND ALSO WHEN THE ASSESSING OFFICER HAD SUMMONED THEM DURING REMA ND REPORT PROCEEDINGS, FIVE OUT OF SIX PERSONS APPEARE D AND HAD GIVEN SWORN STATEMENTS CONFIRMING THEIR SHARE OF IN VESTMENT AS SHARE APPLICATION MONEY IN THE APPELLANT COMPANY . THE IDENTITY OF THE SHARE APPLICANTS WAS PROVED BEYOND DOUBT EVEN AT THE PRELIMINARY STAGE OF THE ASSESSMENT PRO CEEDINGS. FOLLOWING THE DECISION OF THE APEX COURT IN THE CAS E OF LOVELY EXPORTS PVT. LTD., CITED SUPRA, THE APPELLANT CANNO T BE BURDENED ONCE IT HAS PROVED THE IDENTITY OF THE SHA RE APPLICANTS BEYOND DOUBT AND FILED LETTERS IN WRITIN G CONFIRMING THEIR SHARE OF INVESTMENTS IN THE COMPANY. THEREFOR E, THE ADDITION MADE IN THE CASE OF THE APPELLANT COMPANY CANNOT BE SUSTAINED AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE US. ITA NO. 350/HYD/2013 M/S NEOZENE BIO SCIENCES PVT. LTD. 5 7. BEFORE US, THE LEARNED DR SUBMITTED THAT THE CIT (A) IS NOT JUSTIFIED IN DELETING THE ADDITION RELYING ON THE C ONFIRMATION LETTERS FILED BY THE ASSESSEE FROM THE SHARE APPLICANTS AS THE ASSESSEE FAILED TO ESTABLISH THE CREDITWORTHINESS OF THE SHA RE APPLICANTS. 8. ON THE OTHER HAND, THE LEARNED AR CONTENDED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE SUBMI TTED THE IDENTITY OF THE INVESTORS AND CONFIRMATIONS FROM TH EM AND DESPITE THE SUBMISSION OF DOCUMENTS AND THE INFORMATION, TH E ASSESSING OFFICER TREATED THE SHARE APPLICATION MONEY AS UNEX PLAINED CASH CREDIT U/S 68 OF THE ACT. HE SUBMITTED THAT BEFORE THE REVENUE AUTHORITIES THE ASSESSEE HAS FURNISHED THE INFORMAT ION, NAMELY, I) THE IDENTITY OF THE PERSONS WHO HAD INVESTED AS SHA RE APPLICATION WAS GIVEN, II) PAN OF THE APPLICANTS SUBMITTED, III ) SWORN STATEMENTS WERE RECORDED AND IV) PROOF OF THEIR SOU RCES INCLUDING THE LAND HOLDINGS WAS GIVEN AND THE LOAN DETAILS WE RE GIVEN. HE, THEREFORE, POINTED OUT THAT THESE SUBMISSIONS SATIS FY THE THREE IMPORTANT ASPECTS, NAMELY, THE IDENTITY, CREDITWORT HINESS AND THE GENUINENESS OF THE TRANSACTIONS FOR TREATING THE SH ARE APPLICATION MONEY AS SUCH AND AS UNEXPLAINED CASH CREDIT. HE, THEREFORE, SUBMITTED THAT WHEN THE ASSESSEE SUBMITTED THE APPL ICANTS DETAILS OF SHARE APPLICATION MONEY AND THEIR SOURCE OF INCO ME, THE SHARE APPLICATION MONEY CANNOT BE CONSIDERED AS UNEXPLAIN ED CREDIT U/S 68 OF THE ACT. FOR THIS PROPOSITION, HE RELIED ON T HE VARIOUS CASE LAWS, INCLUDING THE FOLLOWING CASE LAWS: A) CIT VS. LOVELY EXPORTS , 216 CTR (SC) 195 [2008 ] B) CIT VS. LANCO INDUSTRIES LTD., 242 ITR 357 (AP) C) ACIT VS. M/S AMR HOSPITALITY SERVICES LTD., ITA NO. 275/HYD/2012. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE REVE NUE AUTHORITIES. IN THE PRESENT CASE, THE ASSESSING OFFICER ON ENQUI RY CAME TO THE ITA NO. 350/HYD/2013 M/S NEOZENE BIO SCIENCES PVT. LTD. 6 CONCLUSION THAT THE ASSESSEE PRODUCED ONLY CONFIRMA TION LETTERS WHEREIN THE IDENTITY OF THE SHARE APPLICANTS IS ONL Y ESTABLISHED BUT THEIR CREDITWORTHINESS HAS NOT BEEN ESTABLISHED BY THE ASSESSEE. WHEN THE CIT(A) CALLED FOR A REMAND REPORT, THE ASS ESSING OFFICER RECORDED THE STATEMENTS OF FIVE SHARE APPLICANTS DU RING THE REMAND PROCEEDINGS. ADMITTEDLY, ALL THE INVESTORS ARE FAMI LY MEMBERS OF THE ASSESSEE COMPANY AND MOST OF THEM DO NOT HAVE V ERIFIABLE SOURCES OF INCOME. SMT. K. HYMAVATHI, SRI PVSPS PRA SAD AND SRI V. RAMA KRISHNA HAVE MADE INVESTMENTS IN CASH AND E VEN PAN OF SOME OF THE SHARE APPLICANTS HAVE NOT BEEN PRODUCED BY THE ASSESSEE. THE CIT(A) WAS OF THE OPINION THAT MERE F ILING OF CONFIRMATION LETTERS ARE ENOUGH TO PROVE THE GENUIN ENESS OF THE TRANSACTION AND CAPACITY OF THE INVESTORS. HE WAS A LSO OF THE OPINION THAT THE ASSESSING OFFICER WAS NOT CAUSED N ECESSARY ENQUIRIES TO ESTABLISH CREDITWORTHINESS OF THE PART IES. WE ARE OF THE OPINION THAT IT IS NOT THE DUTY OF THE ASSESSING OF FICER TO PROVE CREDITWORTHINESS OF THE INVESTORS AND IT IS THE DUT Y OF THE ASSESSEE TO ESTABLISH CREDITWORTHINESS OF THE INVESTORS. 9.1 IN THE CASE OF CIT VS. NIVEDAN VANIJYA NIYOJAY LTD, [2003] 130 TAXMAN 153 (CAL.), THE HONBLE HIGH COURT HELD THAT AFTER THE INITIAL ONUS WAS DISCHARGED BY ASSESSEE, THE INCOME TAX AUTHORITIES HAVE MADE ENQUIRIES AND HAD COMMUNICATED THE RESULT OF THE ENQUIRY TO THE ASSESSEE AND REQUIRED THE ASSESSEE T O PRODUCE THE SUBSCRIBERS WHO PROVIDED SUCH CREDIT, IN ORDER TO E STABLISH ITS CASE. BUT THE ASSESSEE DID NOT DO SO. ON THIS BASIS ADDIT ION MADE BY THE ASSESSING OFFICER U/S 68 OF THE IT ACT WAS CONFIRME D. 9.2 IN THE CASE OF LOVELY EXPORTS P. LTD., [2008] 2 99 ITR 268 (DELHI), THE HONBLE HIGH COURT DISMISSED THE APPEA L OF THE REVENUE ON THE GROUND THAT HAD ANY SUSPICION STILL REMAINED IN THE MIND OF THE ASSESSING OFFICER HE COULD HAVE INITIAT ED COERCIVE PROCESS BUT THIS COURSE OF ACTION HAD NOT BEEN ADO PTED. THE SAID ITA NO. 350/HYD/2013 M/S NEOZENE BIO SCIENCES PVT. LTD. 7 DECISION WAS UPHELD BY THE HONBLE SUPREME COURT, W HICH IS REPORTED IN 216 CTR 196. THE SAID CASE CANNOT BE AP PLIED TO THE FACTS OF THE CASE UNDER CONSIDERATION AS IN THE PRE SENT CASE THE FACTS ARE DIFFERENT AS THE AO ENQUIRED 5 PERSONS AN D FOUND THAT THEY HAVE NO VERIFIABLE INCOME. THUS, IT CANNOT BE SAID THAT THE ASSESSING OFFICER HAS NOT CARRIED OUT ANY ENQUIRY I N THIS CASE. THE ASSESSEE HAS ONLY FILED CONFIRMATION LETTERS FROM T HE SHARE APPLICANTS, WHEREIN ONLY IDENTITY OF THE APPLICANTS HAS BEEN ESTABLISHED, BUT, THE CREDITWORTHINESS OF THE SHARE APPLICANTS HAS NOT BEEN ESTABLISHED. THEREFORE, IN OUR OPINION, TH E CIT(A) HAS NOT JUSTIFIED IN DELETING THE ADDITION IN ITS ENTIRETY AND, HENCE, IN THE INTEREST OF JUSTICE WE DIRECT THE ASSESSEE TO PRODU CE FULL DETAILS OF THE SHARE APPLICANTS INCLUDING THEIR RETURNS OF INC OME, PAN, ADDRESS AND OTHER DETAILS BEFORE THE ASSESSING OFFI CER TO SUBSTANTIATE ITS CLAIM. IF THE EVIDENCES ARE FOUND TO BE CORRECT IN RESPECT OF ALL THE SHARE APPLICANTS, THE ASSESSING OFFICER IS DIRECTED TO CONSIDER THE SAME AND DECIDE THE ISSUE IN ACCORD ANCE WITH LAW. 10. IN THE RESULT, APPEAL OF THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 23/01/2014. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 23/01/2014. KV COPY FORWARDED TO: 1. ITO, WARD 16(2), HYDERABAD 2. NEOZENE BIO SCIENCES PVT. LTD., VILLA NO. 40, RA MKY PEARL, OPP. LANE TO SATAVAHANA HIGH SCHOOL, KPHB, HYDERABAD 500 072. 3. CIT(A)-V, HYDERABAD 4. CIT-IV, HYDERABAD. 5. THE DR, ITAT, HYDERABAD ITA NO. 350/HYD/2013 M/S NEOZENE BIO SCIENCES PVT. LTD. 8