GROVER VINEYARDS LTD, MUMBAI V. ITO WD 1(1)(4), MUMBAI

ITA 3509/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6743 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 19-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S PADMAJA
• Assessee Lawyers: L RAGH A VENDRA RAO
• Keywords: Unexplained cash credit; Business income; Opportunity of being heard; Source of fund; Retrospective amendment; Question of law; Onus to prove
• Section: 143(3); 14A; 133(6); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3419/MUM/2016 ASSESSMENT YEAR: 2009 - 10 INCOME TAX OFFICER WARD 1(1)(4) ,531 A/579 AAYAKAR BHAVAN, M.K.ROAD MUMBAI - 400020 VS. M/S GROVER VINEYARDS PVT. LTD., 107 /8 , 1 ST F LOOR, ARCADIA, N.C.P.A. LANE, NARIMAN POINT, MUMBAI - 400021. PAN NO. AAACG3592Q APPELLANT RESPONDENT ITA NO. 3509/MUM/2016 ASSESSMENT YEAR: 2009 - 10 M/S GROVER VINEYARDS LTD. ANAND BHAVAN, 348, DR. D.N. ROAD, FORT, MUMBAI - 400001 VS. INCOME TAX OFFICER WARD 1(1)(4) MUMBAI. PAN NO. AAACG3592Q APPELLANT RESPONDENT REVENUE BY : MS. S. PADM A JA, CIT( DR ) ASSESSEE BY : MR. L. RAGH A VENDRA RAO, AR DATE OF HEARING : 03 /04/2018 DATE OF PRONOUNCEMENT: 27/06/2018 M/S GROVER VINEYARDS ITA NO. 3509, 3419/MUM/2016 2 ORDER PER N.K. PRADHAN, AM THE CAPTIONED CROSS APPEALS - ONE BY THE REVENUE AND THE OTHER BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS) - 2 , MUMBAI AND ARISE OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961 (THE ACT). AS COMMON ISSUES ARE INVOLVED, WE ARE PROCEEDING TO DISPOSE THEM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 3419/MUM/2016 ASSESSMENT YEAR: 2009 - 10 2 . WE BEGIN WITH THE 2 ND & 3 RD GROUND OF APPEAL AND THEN COME TO THE 1 ST GROUND. THE 2 ND GROUND OF APPEAL WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN GRANTING RELIEF TO THE ASSESSES ON THE ACTION OF THE ASSESSING OFFICER, WHO RIGHTLY REJECTED THE BOOKS IN THE LIGHT OF VERIFICATION CARRIED OUT U/S. 133(6) OF THE ACT DURING THE REMAND P ROCEEDINGS AND ESTIMATED THE PROFITS. 3 . IN A NUTSHELL , THE FACTS ARE THAT THE ASSESSING OFFICER (AO) CALLED FOR INFORMATION FROM VARIOUS PARTIES BY ISSUING NOTICES U/S 133(6) WITH WHOM THE ASSESSEE CLAIMED TO HAVE ENTERED INTO BUSINESS TRANSACTIONS LIKE P URCHASE AND SALES. HAVING FOUND THE DISCREPANCIES, THE AO ASKED THE ASSESSEE TO RECONCILE THE SAME. IN RESPONSE TO IT, THE ASSESSEE FILED DETAILS AND EXPLANATIONS BEFORE THE AO ALONG WITH UNSIGNED LEDGER ACCOUNTS OF THE PARTIES IN ITS BOOKS, COPIES OF SAMP LE BILLS, AGREEMENT ETC. HOWEVER, THE AO WAS NOT CONVINCED WITH THE SAID EXPLANATION OF THE M/S GROVER VINEYARDS ITA NO. 3509, 3419/MUM/2016 3 ASSESSEE AND REJECT ED THE BOOKS OF ACCOUNTS ON THE BASIS OF UNRECONCILED AND UNCONFIRMED DIFFERENCES. PARTICULARLY, THE AO FOUND DIFFERENCES IN PRODUCTION AS COMPAR ED TO CONSUMPTION OF BOTTLES, CAPSULES, CORKS, SCREW CAPS . ALSO THE AO OBSERVED THAT THE DIFFERENCE IN RATIO OF MATERIAL CONSUME TO FINISHED GOODS AT 15.53% AS REFLECTED IN THE TAX AUDIT REPORT IS VERY HIGH IN COMPARISON TO THE NORMS OF THE INDUSTRY. THE A SSESSEE HAD DISCLOSED GROSS TOTAL SALES AT RS.14,64,15,061/ - . THIS SALE VALUE REPRESENTED 12,47,268 BOTTLES. THE MANUFACTURING AND OPERATING EXPENSES TOWARDS THESE SALES ARE REPORTED AT RS.11,02,36,390/ - WHICH WORKS OUT TO RS.88.40 PER BOTTLE. THE AO APPLI ED THIS RATE TO THE EXCESS PRODUCTION WHICH COMES TO RS.2,39,49,416/ - (270921 X 88.40) AND CAME TO A FINDING THAT THIS AMOUNT OF EXPENSE HAS BEEN INCURRED BY ASSESSEE OUTSIDE THE BOOKS OF ACCOUNTS. THE AO HAS MENTIONED THAT HE HAD GIVEN AN OPPORTUNITY TO T HE ASSESSEE TO PRODUCE THE PRODUCTION RECORD, STOCK RECORD. BUT THE ASSESSEE FAILED TO PRODUCE THE SAME. IN VIEW OF THE ABOVE , THE AO MADE A DISALLOWANCE BY ADOPTING A NET PROFIT RATIO. THE BASIS ADOPTED BY HIM IS THAT THE ASSESSEE HAD SHOWN GP RATIO OF TH E YEAR AT 24.88% AND NP AT ( - ) 92.84% AS COMPARED TO THE PREVIOUS YEARS FIGURE OF 33.42% AND 5.10% RESPECTIVELY. THE TURNOVER OF NET SALES ARE SHOWN AT RS.13,75,92,238/ - FOR THE CURRENT YEAR AND RS.21,71,18,446/ - FOR THE PREVIOUS YEAR. THE AO ASSESSED THE NET PROFIT OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR AT 5.10% OF NET SALES WHICH WORKS OUT TO RS.70,17,208/ - AS AGAINST THE NET LOSS DISCLOSED BY THE ASSESSEE AT ( - ) RS.12,77,42,331/ - . THUS THE AO BROUGHT TO TAX THE AMOUNT OF RS.70,17,208/ - . M/S GROVER VINEYARDS ITA NO. 3509, 3419/MUM/2016 4 4 . AGG RIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) OBSERVED THAT THE AO HAD ALREADY ISSUED NOTICE U/S 133(6) TO 17 SUNDRY CREDITORS OUT OF WHICH 8 CREDITORS REPLIED WITH DISCREPANCIES IN THE ACCOUNTS AS COMPAR ED TO THE ASSESSEES BOOKS OF ACCOUNTS. FURTHER 6 PARTIES HAVE NOT REPLIED AT ALL AND ON ANOTHER 5 PARTIES, NOTICES COULD NOT BE SERVED ON THE ADDRESS GIVEN BY THE ASSESSEE - COMPANY. HAVING CONSID ERED THE REMAND REPORT FILED BY THE AO, THE LD. CIT(A) CONFIR MED 1/5 TH OF THE PROFIT. THUS, THE LD. CIT(A) CONFIRMED AN AMOUNT OF RS.14,03,457/ - OUT OF THE TOTAL ADDITION OF RS.70,17,288/ - . 5 . WE HAVE PERUSED THE RELEVANT MATERIAL ON RECORD. AS MENTIONED HEREINBEFORE, THE ADDITION WAS MADE BY THE AO BECAUSE THE ASSESSEE FAILED TO RECONCILE THE DIFFERENCE BETWEEN THE SUNDRY CREDITORS (FARMERS) AND THE ASSESSEE - COMPANY. IT HAS BEEN RECO RDED BY THE LD. CIT(A) THAT 6 PARTIES HAVE NOT REPLIED AT ALL AND ON ANOTHER 5 PARTIES, NOTICES COULD NOT BE SERVED ON THE ADDRESS GIVEN BY THE ASSESSEE - COMPANY. THERE IS NO BASIS ON THE PART OF THE LD. CIT(A) IN CONFIRMING 1/5 TH OF THE NET PROFIT OF RS.70,17,208/ - ESTIMATED BY THE AO . IN VIEW OF THE ABOVE FACTS, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER TO THE FILE OF THE AO TO MAKE A DE NOVO ORDER, AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE DIRECT THE ASSESSEE TO FI LE THE RELEVANT DOCUMENTS/EVIDENCE BEFORE THE AO THUS THE 2 ND GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. M/S GROVER VINEYARDS ITA NO. 3509, 3419/MUM/2016 5 6 . THE 3 RD GROUND OF APPEAL WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE UNDER SECTION 68 OF THE ACT ON THE ISSUE OF SHARE APPLICATION AND SHARE PREMIUM DESPITE THE FACT THAT THE ASSESSEE COULD NOT EXPLAIN THE REASONABILITY OF THE SHARE PREMIUM AND CREDITWORTHINESS OF THE CREDITORS FULLY EVEN DURING T HE REMAND PROCEEDINGS? IN THE LIGHT OF THE ABOVE THE ISSUE MAY BE SET ASIDE FOR FRESH ADJUDICATION BY THE ASSESSING OFFICER. THE ASSESSEE HAD INTRODUCED SHARE CAPITAL OF RS.70,22,820/ - AND SHARE PREMIUM OF RS.12,28,99,350/ - . THE SHARES WERE ALLOTTED AT A P REMIUM OF RS.175 PER SHARE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO FURNISH COMPLETE DETAILS OF THE ABOVE TRANSACTION AND ALSO EXPLAIN THE SOURCE OF FUNDS, NATURE OF RECEIPT, STATUTORY APPROVALS TAKEN AND JUSTIF Y THE BASIS OF CHARGING OF SHARE PREMIUM. IN RESPONSE TO IT, AS RECORDED BY THE AO, THE ASSESSEE COULD SUBMIT ONLY THE LEDGER EXTRACTS OF THE SHARE CAPITAL AND SHARE APPLICA TION MONEY RECEIVED. SINCE THE SAID LEDGER DID NOT DISCLOSE THE COMPLETE DETAILS OF THE TRANSA CTION WITH REGARD TO NAME, ADDRESS, IDENTITY OF SUBSCRIBERS, THEIR SOURCE OF INVESTMENT, THE AO AGAIN ASKED THE ASSESSEE TO FILE THE COMPLETE DETAILS. IN RESPONSE TO IT THE ASSESSEE FILED BEFORE THE AO A COPY OF THE LEDGER ACCOUNT FROM ASSESSEES BOOKS, EX TRACTS OF BANK STATEMENT, A COPY OF FOREIGN INWARD REMITTANCE DATED 20.05.2009 ISSUED BY HSBC BANK FOR THE REMITTANCE OF RS.9,99,22,120/ - . THE AO NOTED THAT THE FOREIGN INWARD REMITTANCE CERTIFICATE SUBMITTED SHOWS ONLY THE REMITTERS NAME AS MARBLE ARC NV S PCC LTD., C /O MULTICONSULT LTD. THERE ARE NO OTHER DETAILS SUCH AS ADDRESS, PLACE OF RESIDENCE ETC. AGAIN, THE M/S GROVER VINEYARDS ITA NO. 3509, 3419/MUM/2016 6 ASSESSEE VIDE LETTER DATED 26.12.2011 FILED FURTHER CORRESPONDENCE WITH THEIR BANKER DATED 14.02.2011 IN CONNECTION WITH DELAYED COMPLETION OF FORMALITIES IN THIS REGARD. THE ASSESSEE ALSO FILED SOME E - MAIL CORRESPONDENCE OF NOVEMBER 2010 BETWEEN THE DIRECTOR OF THE COMPANY AND HIS CONTACTS AS ABROAD. THE AO NOTED THAT THE ABOVE CORRESPONDENCE DID NOT PERTAIN THE YEAR UNDER CONSIDERATION BUT TO T HE SUBSEQUENT YEAR. THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE AND HELD THAT (I) THE LEDGER SUBMITTED BY THE ASSESSEE SHOWS ONLY AN AMOUNT OF RS.10,49,22,195/ - AS INCREAS E IN SHARE CAPITAL AND PREMIUM WHEREAS THE TOTAL INCREASE IN THE BALANC E SHEET SHOWS RS.12,99,22,170/ - , (II) THE ASSESSEE HAS NEITHER FILED ANY CONFIRMATION NOR NAME AND ADDRESS OF THE SUBSCRIBERS, (III) THERE WAS NO EVIDENCE OF ANY APPLICATION RECEIVED, CORRE SPONDENCE MADE, JUSTIFICATION FOR THE SAID PREMIUM, UTILIZATION OF THE SECURITIES PREMIUM IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANY ACT, (IV) THE CORRESPONDENCE FILED ARE NOT PERTAINING TO THE YEAR UNDER CONSIDERATION BUT THE SUBSEQUENT YEAR, (V) TH E ADVANCE MONEY REMITTANCE TOWARDS SHARE SUBSCRIPTION IS STATED TO HAVE BEEN RECEIVED FROM A MAURITIUS BASED COMPANY, WHEREAS THE CORRESPONDENCE OF E - MAIL FILED BEFORE THE AO REFERRED TO INDIAN OWNERS OF WINERIES IN UK AND FRANCE, (VI) THE SHARE PREMIUM WA S STATED TO HAVE BEEN DETERMINED ON THE BASIS OF INVESTMENT IN ANOTHER COMPANY WHICH IS NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE. IN VIEW THEREOF, THE AO MADE AN ADDITION OF RS.12,99,22,170/ - AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT. M/S GROVER VINEYARDS ITA NO. 3509, 3419/MUM/2016 7 7 . AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. CIT(A) CALLED FOR A REMAND REPORT FROM THE AO. THE AO FILED A REPLY ON 29.07.2015 AND THE LD. CIT(A) HAS EXTRACTED IT AT PAGE 13 O F HIS ORDER DATED 26.02.2016 WHICH IS REPRODUCED BELOW. 'ON VERIFICATION OF DOCUMENTS IT IS SEEN THAT PAYMENTS TOWARDS SUBSCRIPTION OF SHARE AND SHARE PREMIUM HAS BEEN RECEIVED FROM EXISTING SHAREHOLDER M/S. HINDUSTAN EXPORT & IMPORT: CORPN. PVT . LTD. NEW SHAREHOLDERS NAMELY MR. JAITHIRTH RAO AND M/S. MARBLE ARCH INVESTMENTS PCC LTD., MAURITIUS HAVE ALSO SUBSCRIBED TOWARDS ALLOTMENT OF SHARES. COPIES OF FORM NO.23, FORM NO. 2, FORM NO. 3, COPIES OF BOARD RESOLUTIONS, COPY OF AMENDED MEMORANDUM & ARTICLE OF ASSOCIATION INDICATES THAT THE ASSESSEE HAD COMPLIED WITH REQUIREMENT OF MINISTRY OF CORPORATE AFFAIRS DURING THE PERIOD FROM 05.03.2009 TO 23.03.2009. ON VERIFICATION OF CASE RECORDS, IT IS SEEN THAT SHARE SUBSCRIPTION AMOUNTING TO RS.9,99,22,120/ - (EQUIVA LENT TO 20,69,210 USD) IN RESPECT OF M/S, MARBLE ARCH INVST. LTD. IS RECEIVED BY THE ASSESSES ON 31.12.2008 THROUGH FOREIGN INWARD REMITTANCE FROM (FIRCNO.2008001188) OF HSBC BANK (MAURITIUS) IN TO STANDARD CHARTERED BANK. DURING THE REMAND PROCEEDINGS THE ASSESSES SUBMITTED CONSOLIDATED FINANCIAL STATEMENT OF THE INVESTOR FAR RECOGNITION OF SOURCE OF SUBSCRIPTION. ANOTHER SHARE SUBSCRIBER MR. JAITHIRTH RAO FROM WHOM THE ASSESSES CLAIM TO HAVE BEEN RECEIVED RS.50,00,000/ - TOWARDS ALLOTMENT OF SHARES, ALTHOU GH SUCH TRANSACTION APPEARING IN THE BANK ACCOUNT STATEMENT REMAINED UNPROVED. THE ASSESSEE FAILED TO FURNISH NECESSARY CONFIRMATION FROM THE SAID PARTY. SUCH DENIAL TENDS TO ATTRIBUTE THE ADMISSION THAT THE ASSESSES DID NOT HAVE ANYTHING TO OFFER FOR INSPECTION. AS IT IS MISLEADING AND IS NOWHERE NEAR THE FACT. IT IS PERTINENT TO MENTION HERE THAT THE FACTS STATED BY THE ASSESSES COMPANY I TSELF CREATE A PRIMA FACIE DOUBT REGARDING THE GENUINENESS OF THE ALLEGED CASH CREDITS. M/S GROVER VINEYARDS ITA NO. 3509, 3419/MUM/2016 8 7 .1 THE LD. CIT(A) OBSERVED THAT AS REPORTED BY THE AO, THE AMOUNT WAS RECEIVED THROUGH PROPER CHANNEL AND AFTER COMPLYING WITH THE NECESSARY REQUIREMENT OF MINISTRY OF CORPORATE AFFAIR. THEN , RELYING ON THE DECISION IN CIT V. LOVELY EXPORTS P. LTD. (2008) 216 CTR 195 (SC), THE LD. CIT(A) DELETED THE ADDITION OF RS.12,99,22,170/ - MADE BY THE AO. 8 . BEFORE US, THE LD. DR RELIES ON THE DECISION IN MAJOR METALS LTD. V. U OI (WP NO. 397 OF 2011) BY THE HONBLE BOMBAY HIGH COURT AND THE ORDER OF THE ITAT F BENCH MUMBAI IN DCIT V. M/S VARSITY EDUCATION MANAGEMENT (ITA NO. 486/MUM/2015) FOR THE AY 2011 - 12. IN THE CASE OF MAJOR METALS LTD . (SUPRA), THE ISSUE WAS BEFORE THE SETTLEMENT COMMISSION U/S 245C SEEKING A SETTLEMENT OF A CASE AS DEFINED IN SECTION 245A(B). IN THAT CASE THE COMMISSIONER OF INCOME TAX WAS DIRECTED BY THE COMMISSION TO SUBMIT A FACTUAL REPORT U/S 245D(3) ON SEVERAL ASPECTS INCLUDING, INTER ALIA , THE F OLLOWING: (B) TO VERIFY THE GENUINENESS OF LOANS AND CREDITWORTHINESS OF THE ENTITIES WHO ARE SAID TO HAVE GIVEN LOANS OF RS.3 CRORE EACH I.E. M/S TRISTAR AGENCIES PVT. LTD. AND M/S OLEANDER MFG. AND CREDIT PVT. LTD. DURING FY 2007 - 08 AND FY 2008 - 09, AN D ALSO TO ENQUIRE INTO THE GENUINENESS OF CONVERSION OF THE LOANS TO SHARE CAPITAL AND SHARE PREMIUM BY ISSUE OF SHARES. THE HONBLE HIGH COURT OBSERVED AT PARA 23 THAT IT IS IN THIS BACKGROUND THAT THE SETTLEMENT COMMISSION HAS ARRIVED AT A CONSIDERED FINDING OF FACT THAT THE TRANSACTIONS OF THE TWO COMPANIES WERE NOT M/S GROVER VINEYARDS ITA NO. 3509, 3419/MUM/2016 9 GENUINE TRANSACTIONS; THAT THE TWO COMPANIES LACKED A CREDIT STANDING WHICH WOULD HAVE ENABLED THE M TO PAY LARGE AMOUNTS TOWARDS SHARE PREMIUM OF RS.990/ - ON A FACE VALUE OF RS.10/ - PER SHARE AND THAT NEITHER THE PAST PERFORMANCE OR THE FINANCIALS OF THE PETITIONERS ITSELF WOULD JUSTIFY THE PAYMENT OF SUCH A LARGE PREMIUM. THE HONBLE HIGH COURT HELD THAT: 25. NOW, IT IS THIS DECISION OF THE DELHI HIGH COURT AGAINST WHICH A SPECIAL LEAVE PETITION BEFORE THE SUPREME COURT CAME TO BE DISMISSED ON 11 JANUARY 2008. IN CIT V. LOVELY EXPORTS (P.) LTD. [2008] 6 DTR 308 (SC) WHILE DISMISSING THE SPECIAL LEAVE PETITION THE SUPREME COURT OBSERVED THAT IF THE SHARE APPLICATION MONEY WAS RECEIVED BY THE ASSESSEE FROM ALLEGEDLY BOGUS SHAREHOLDERS WHOSE NAMES WERE GIVEN TO THE ASSESSING OFFICER, THE DEPARTMENT WAS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW. ON THIS GROUND, THE SUPREME COURT WHILE DISMISSING THE SPECIAL LEAVE PETITION FOUND NO INFIRMITY IN THE JUDGMENT OF THE DELHI HIGH COURT. THE PRINCIPLE WHICH WAS EMPHASISED BY THE DELHI HIGH COURT IN THE CASE OF LOVELY EXPORTS WAS FOLLOWED BY ANOTHER DIVISION BENCH IN CIT V. VALUE CAPITAL SERVICES (P.) LTD. [2008] 307 ITR 334 (DELHI). IN CIT V. OASIS HOSPITALITIES (P.) LTD. [2011] 331 ITR 119 (DELHI), A DIVISION BENCH OF THE DELHI HIGH COURT OBSERVED THAT THE INITIAL BURDEN MUST BE UPON THE ASSESSEE TO EXPLAIN THE NATURE AND SOURCE OF THE SHARE APPLICATION MONEY R ECEIVED. IN ORDER TO DISCHARGE THIS BURDEN, THE ASSESSEE IS REQUIRED TO PROVE: (A) IDENTITY OF SHAREHOLDER; (B) GENUINENESS OF TRANSACTION; AND (C) CREDIT WORTHINESS OF SHAREHOLDERS. AS FAR AS THE CREDITWORTHINESS OF THE SUBSCRIBER IS CONCERNED, THAT CAN B E PROVED BY PRODUCING A BANK STATEMENT OF THE SUBSCRIBER SHOWING THAT IT HAS SUFFICIENT BALANCE IN ITS ACCOUNT TO ENABLE IT TO SUBSCRIBE TO THE SHARE CAPITAL. THE DELHI HIGH COURT HELD THAT ONCE THE INITIAL BURDEN HAS BEEN DISCHARGED, THE OBSERVATIONS OF T HE SUPREME COURT IN THE CASE OF LOVELY EXPORTS (P.) LTD. ( SUPRA ) M/S GROVER VINEYARDS ITA NO. 3509, 3419/MUM/2016 10 WOULD SUGGEST THAT THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THE INDIVIDUAL ASSESSMENTS IN THE CASE OF ALLEGED BOGUS SHAREHOLDERS IN ACCORDANCE WITH LAW AND IS NOT REMEDILESS. THIS WOULD BE MORE SO WHEN THE ASSESSEE IS A PUBLIC LIMITED COMPANY AND HAS ISSUED SHARE CAPITAL TO THE PUBLIC AT LARGE AS IN SUCH CASES THE COMPANY CANNOT BE EXPECTED TO KNOW EVERY DETAIL PERTAINING TO THE IDENTITY AND FINANCIAL WORTH OF THE SUBSCRIBER. HOWEVER, THE I NITIAL BURDEN ON THE ASSESSEE WOULD BE SOME WHAT HEAVY IN CASE THE ASSESSEE IS A PRIVATE LIMITED COMPANY WHERE THE SHAREHOLDERS ARE CLOSELY RELATED BECAUSE IN SUCH A CASE THE ASSESSEE CANNOT FEIGN IGNORANCE ABOUT THE STATUS OF THE PARTIES. THE JUDGMENT OF A DIVISION BENCH OF THIS COURT IN CIT V. CREATIVE WORLD TELEFILMS LTD. [2011] 333 ITR 100 (BOM.) IS ALONG THE SAME LINES. 8 .1 IN THE CASE OF M/S VARSITY EDUCATION MANAGEMENT (SUPRA), THE TRIBUNAL HELD AS UNDER: 10. AFTER TAKING INTO CONSIDERATION THE AFOREMENTIONED FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT THE ADDITION OF RS.43,02,88,434/ - WAS MADE U/S 6S ON ACCOUNT OF PA R T OF THE SHARE PREMIUM NOT BEING EXPLAINED TO THE SATISFACTION OF THE AO. THERE ARE THREE ASPECTS OF CASH CREDITS U/S 68 AND THESE ARE (I) IDENTITY OF THE CREDITOR, (II) CREDITWORTHINESS OF THE CREDITOR AND (III) G ENUINENESS OF THE TRANSACTION. HERE IN THI S CASE, THE GENUINENESS OF THE TRANSACTION IS NOT SATISFACTORILY EXPLAINED TO THE ASSESSING OFFICER. AFTER HAVING BEEN ASKED TO EXPLAIN THE BASIS FOR THE SHARE PREMIUM OVER AND ABOVE THE VALUATION AS PER RBI GUIDELINES, THE BURDEN OF PROOF SHIFTED TO THE A SSESSES AND THIS HAS NOT BEEN PROPERLY DISCHARGED BY THE ASSESSEE. THE CIT(A) FAILED TO APPRECIATE THIS FACT AND ALSO THE RELIANCE OF THE AO ON THE DECISION IN MAJOR METALS OF THE JURISDICTIONAL BOMBAY HIGH COURT. IN VIEW OF THE DISCUSSION, THE ORDER OF CI T(A) IS SET ASIDE AND THE ADDITIONS MADE U/S 68 BY AO ARE UPHELD. M/S GROVER VINEYARDS ITA NO. 3509, 3419/MUM/2016 11 9 . ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESSEE RELIES ON THE ORDER PASSED BY THE LD. CIT(A). IT IS SUBMITTED BY HIM THAT SECTION 68 DOES NOT TALK ABOUT VALUATION OF SHARES AND IS NOT APPLICABLE TO NON - RESIDENT INVESTMENT. ALSO THE LD. COUNSEL FILE S A COPY OF FEMA NOTIFICATION ON TRANSFER OF SECURITY BY A PERSON RES IDENT OUTSIDE INDIA. 1 0 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IN THE INST ANT CASE, THE INITIAL BURDEN HAS BEEN DISCHARGED BY THE ASSESSEE. FROM THAT PERSPECTIVE, THE CASE OF THE ASSESSEE IS DISTINGUISHABLE FROM THE DECISIONS RELIED ON BY THE LD. DR, WHICH WE HAVE DISCUSSED AT PARA 9 & 9.1 ABOVE. WE ARE CONCERNED HERE WITH THE AY 2009 - 10. A SIMILAR ISSUE AROSE BEFORE THE HONBLE BOMBAY HIGH COURT IN CIT M/S GAGANDEEP INFRASTRUCTURE PVT. LTD. (ITA NO. 1613 OF 2014) ORDER DATED 28.03.2017. THE FOLLOWING QUESTION OF LAW WAS RAISED: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE TRIBUNAL WAS JUSTIFIED IN DELETING THE ADDITION OF RS.7,53,50,000/ - UNDER SECTION 68 OF THE ACT BEING SHARE CAPITAL/SHARE PREMIUM RECEIVED DURING THE YEAR WHEN THE ASSESSING OFFICER HELD THE SAME AS UNEXPLAINED CASH CREDIT? THE H ONBLE HIGH COURT HELD : WE FIND THAT THE PROVISO TO SECTION 68 OF THE ACT HAS BEEN INTRODUCED BY THE FINANCE ACT 2012 WITH EFFECT FROM 1ST APRIL, 2013. THUS IT WOULD BE EFFECTIVE ONLY FROM THE ASSESSMENT YEAR 2013 - 14 ONWARDS AND NOT FOR THE SUBJECT ASSES SMENT YEAR. IN FACT, BEFORE THE TRIBUNAL, IT WAS NOT EVEN THE CASE OF THE REVENUE THAT SECTION 68 OF THE ACT AS IN FORCE DURING THE SUBJECT YEARS HAS TO BE READ/UNDERSTOOD AS THOUGH THE PROVISO ADDED SUBSEQUENTLY EFFECTIVE ONLY M/S GROVER VINEYARDS ITA NO. 3509, 3419/MUM/2016 12 FROM 1ST APRIL, 2013 WAS ITS NORMAL MEANING. THE PARLIAMENT DID NOT INTRODUCE TO PROVISO TO SECTION 68 OF THE ACT WITH RETROSPECTIVE EFFECT NOR DOES THE PROVISO SO INTRODUCED STATES THAT IT WAS INTRODUCED 'FOR REMOVAL OF DOUBTS' OR THAT IT IS 'DECLARATORY'. THEREFORE, IT IS NOT OPEN TO GIVE IT RETROSPECTIVE EFFECT, BY PROCEEDING ON THE BASIS THAT THE ADDITION OF THE PROVISO TO SECTION 68 OF THE ACT IS IMMATERIAL AND DOES NOT CHANGE THE INTERPRETATION OF SECTION 68 OF THE ACT BOTH BEFORE AND AFTER THE ADDING OF THE PROVISO. IN ANY VIEW OF THE MATTER THE THREE ESSENTIAL TESTS WHILE CONFIRMING THE PRE - PROVISO SECTION 68 OF THE ACT LAID DOWN BY THE COURTS NAMELY THE GENUINENESS OF THE TRANSACTION, IDENTITY AND THE CAPACITY OF THE INVESTOR HAVE ALL BEEN EXAMINED BY THE IMPUGNED ORDER OF THE TRIBUNAL AND ON FACTS IT WAS FOUND SATISFIED. FURTHER IT WAS A SUBMISSION ON BEHALF OF THE REVENUE THAT SUCH LARGE AMOUNT OF SHARE PREMIUM GIVES RISE TO SUSPICION ON THE GENUINENESS (IDENTITY) OF THE SHAREHOLDERS I.E. THEY ARE BOGUS. THE APEX COURT IN LOV ELY EXPORTS (P.) LTD. ( SUPRA ) IN THE CONTEXT TO THE PRE - AMENDED SECTION 68 OF THE ACT HAS HELD THAT WHERE THE REVENUE URGES THAT THE AMOUNT OF SHARE APPLICATION MONEY HAS BEEN RECEIVED FROM BOGUS SHAREHOLDERS THEN IT IS FOR THE INCOME TAX OFFICER TO PROCEED BY REOPENING THE ASSESSMENT OF SUCH SHAREHOLDERS AND ASSESSING THEM TO TAX IN ACCORDANCE WITH LAW. IT DOES NOT ENTITLE THE REVENUE TO ADD THE SAME TO THE ASSESSEE'S INCOME AS UNEXPLAINED CASH CREDIT. IN THE ABOVE CIRCUMSTANCES AND PARTICULARLY IN VIEW OF THE CONCURRENT FINDING OF FACT ARRIVED AT BY THE CIT(A) AND THE TRIBUNAL, THE PROPOSED QUESTION OF LAW DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THUS NOT ENTERTAINED. 1 0 .1 AGAIN IN THE C ASE OF CIT V. ORCHID INDUSTRIES (P) LTD. (2017) 88 TAXMANN.COM 502 (BOMBAY) , T HE HONBLE BOMBAY HIGH COURT FOLLOWED THE DECISION IN GAGANDEEP INFRASTRUCTURE (P) LTD. (SUPRA). M/S GROVER VINEYARDS ITA NO. 3509, 3419/MUM/2016 13 1 1 . THUS, FOLLOWING THE DECISION IN GAGANDEEP INFRASTRUCTURE (P) LTD. AND ORCHID INDUSTRIES (P) LTD . NARRATED HEREINBEFORE, WE UPHOLD THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION MADE BY THE AO U/S 68 OF RS.12,99,22,170/ - . THUS THE 2 ND GROUND OF APPEAL IS DISMISSED. 1 2 . THE 1 ST GROUND OF APPEAL 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN ADMITTING FRESH EVIDENCE CONTRAVENTION OF PROVISIONS OF RULE 46A OF THE I.T. RULES 1962, BECAUSE IN THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAD RAISED VARI OUS QUERIES AND HAD GIVEN SUFFICIENT OPPORTUNITY TO FURNISH EVIDENCES TO SUPPORT ITS CLAIMS MADE BEFORE MAKING DISALLOWANCES IN THE ASSESSMENT. AS MENTIONED HEREINBEFORE , THE LD. CIT(A) HAS CALLED FOR A REMAND REPORT FROM THE AO WHICH CONTAINS INTER ALIA T HE ESTIMATION OF NET PROFIT OF RS.70,17,208/ - AND AN ADDITION OF RS.12,99,22,170/ - U/S 68 OF THE ACT. THE AO HAS SUBMITTED A REMAND REPORT DATED 29.07.2015 TO THE LD. CIT(A). AFTER CONSIDERING THE REMAND REPORT AND THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS PASSED THE APPELLATE ORDER DATED 26.02.2016. WE REFER HERE TO PARA 6 AND PARA 10 OF THE ORDER PASSED BY THE LD. CIT(A). THEREFORE, THERE IS NO MERIT IN THE 1 ST GROUND OF APPEAL THAT THE LD. CIT(A) HAS CONTRAVENED RULE 46A OF INCOME TAX RULES, 1962 BY ADMITTING FRESH EVIDENCE. THEREFORE, THE 1 ST GROUND OF APPEAL IS DISMISSED. M/S GROVER VINEYARDS ITA NO. 3509, 3419/MUM/2016 14 13. IN THE RESULT, THE APPEAL FILED BY THE R EVENUE IS PARTLY ALLOWED . ITA NO. 3509/MUM/2016 ASSESSMENT YEAR: 2009 - 10 14. WE BEGIN WITH THE 2 ND & 3 RD GROUND OF APPEAL . THEN 4 TH & 5 TH . THE 1 ST GROUND OF APPEAL BEING GENERAL IN NATURE REQUIRES NO ADJUDICATION. THE 2 ND & 3 RD GROUND OF APPEAL 2. THE LD. CIT(A) I S NOT JUSTIFIED IN GRANTING A RELIEF OF ONLY RS.56,13,830 BEING 80% OF THE NET PROFIT ADDITION ADOPTED / ESTIMATED BY THE ASSESSING OFFICER OF RS.70,17,208/ - AS AGAINST THE LOSS RETURNED AT RS.12,77,42,331. HE FAILED TO APPRECIATE THAT ASSESSING OFFICER HA D ARBITRARILY ARRIVED AT THIS FIGURE OF RS,70,17,208 WITHOUT ANY BASIS OR FINDING SPECIALLY WITH THE SUBMISSION OF REMAND REPORT, THE LD. CIT(A) HAS FURTHER ERRED IN NOT DISCUSSING THE NET LOSS OF RS.12,77,42,331 BASED ON THE PROFIT & LOSS ACCOUNT AS CLAIM ED IN THE RETURN OF INCOME SPECIFICALLY CONTESTED VIDE GROUND NO, 1.1. THE NET LOSS AS PER PROFIT & LOSS ACCOUNT MAY PLEASE BE DIRECTED TO BE ALLOWED. 3. THE LD. CIT(A) HAS ERRED IN SUSTAINING RS.14,03,457 BEING 1/5 OF THE ESTIMATED PROFIT BY THE LEARNED ASSE SSING OFFICER OF RS.70,17,208 BY STATING IN VIEW OF THE REMAND REPORT GIVEN BY THE ASSESSING OFFICER AND FOR THE DISCREPANCIES NOTED BY THE ASSESSING OFFICER WHICH READS AS UNDER : - 'THE AFORESAID FINDINGS STIPULATE THAT THE TRANSACTIONS WITH THE PARTIES A RE ACCEPTABLE, HOWEVER, A FEW OF THE TRANSACTIONS, PARTICULARLY PURCHASES OF GRAPES FROM FARMERS ARE NOT BEING SUPPORTED BY THIRD PAN CONFIRMATIONS. THE ABOVE FACTS REGARDING THE TRANSACTIONS BY THE ASSESSE MAY KINDLY BE TAKEN ON RECORD AND THE NECESSARY I NTERPRETATION TO BE MADE IN ACCORDANCE TO MERIT'. M/S GROVER VINEYARDS ITA NO. 3509, 3419/MUM/2016 15 UNDER THESE FACTS AND CIRCUMSTANCES WHEN ALL NECESSARY DOCUMENTS ARE GIVEN TO THE AUTHORITIES BELOW WHAT IS 'THIRD PARTY CONFIRMATION' IS NOT CLEAR OR CONVEYS ANY JUSTIFICATION TO SUSTAIN RS.14,03,457 (I.E. 20% OF RS.70,17,208). IT IS TO BE NOTED THAT PAYMENTS TO FARMERS ARE ALL DIRECTLY TO THEIR BANK ACCOUNTS THROUGH RTGS / NEFT AND OBVIOUSLY THERE COULD BE NO THIRD - PARTY VOUCHERS OR CONFIRMATION. HENCE THE SUSTENANCE OF RS.14.03,457 DESERVES TO BE DELETED. 15. WE HAVE DEALT WITH THE FACTS IN RESPECT OF 2 ND & 3 RD GROUND OF APPEAL AT PARA 4 HEREINBEFORE. FACTS BEING SAME, AS PER THE DECISION AT PARA 5 HEREINBEFORE, THE ABOVE GROUND S OF APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. 16. THE 4 TH & 5 TH GROUND OF APPEAL. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW THE AUTHORITIES BELOW HAVE ERRED IN MAKING/SUSTAINING AN ADDITION OF RS.65,000 / - U/S 14A R.W.R. 8D AND HENCE DESERVES TO BE DELETED. WITHOUT PREJUDICE TO GROUND 4 ABOVE THE AUTHOR ITIES BELOW HAVE ERRED IN ARRIVING AT RS.65,000 / - AS BEING 0.5% OF INVESTMENT OF RS.1,30,00,000/ - . ON THE CONTRARY 0.5% OF AVERAGE INVESTMENT WILL WORK OUT OF RS.32,500 / - . HENCE ADDITION IS RESTRICTED TO BE AT RS.32,500 / - BEING AVERAGE INVESTMENT THE 1 ST D AY AND LAST DAY OF THE PREVIOUS YEAR. 17. THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME. HOWEVER, THE AO COMPUTED THE DISALLOWANCE UNDER RULE 8D AT RS.8,85,492/ - . AFTER CONSIDERING THE DISALLOWANCE OF GROSS INTEREST ALREADY MADE, THE AO RESTRICTED THE D ISALLOWANCE TO RS.65,000/ - U/S 14A R.W. RULE 8D. M/S GROVER VINEYARDS ITA NO. 3509, 3419/MUM/2016 16 IN CIT V. LAKHANI MARKETING INC . (2014) 49 TAXMANN.COM 257 (P&H) AND CHEMINVEST LTD. V. CIT (2015) 378 ITR 33 (DEL), IT IS HELD THAT UNLESS AND UNTIL, THERE IS RECEIPT OF EXEMPTED INCOME FOR THE CONCERNED ASSESSMENT YEARS (DIVIDEND FROM SHARES), SECTION 14A OF THE ACT CANNOT BE INVOKED. SUCH BEING THE POSITION, WE DELETE THE DISALLOWANCE OF RS.6 5,000/ - . THUS THE 4 TH AND 5 TH GROUND OF APPEAL ARE ALLOWED. 1 8 . THUS THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 19 . TO SUM UP, THE APPEAL S ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 27/06/2018. SD/ - SD/ - ( C.N. PRASAD ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 27/06/2018 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI