Gabani Polyster Pvt.Ltd., Surat V. The Income tax Officer, Ward-1(2), Surat

ITA 3979/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6641 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-03-2010
• Assessment Year: 1999-2000
• Appeal Filed On: 30-10-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P SHAH
• Assessee Lawyers: H N SINGH
• Keywords: Unexplained cash credit; Gift; Additional evidence
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH (BEFORE S/SHRI D.T. GARASIA, JUDICIAL MEMBER AND A.N. PAHUJA, ACCOUNTANT MEMBER) ITA.NO.3979/AHD/2007 ASSTT.YEAR : 1999-2000 GABANI POLYESTER PVT. LTD. 11-A, BAMBAWADI PATEL INDUSTRIAL ESTATE KATARGAM, SURAT. VS. ITO, WARD-1(2) SURAT. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI J.P. SHAH ASSESSEE BY : SHRI H.N. SINGH O R D E R PER D.T. GARASIA, JUDICIAL MEMBER: THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF THE CIT(A)-I, SURAT DATED 31-8 -2007. 2. SINCE GROUND NO.(I) IS NOT PRESSED AND THE GROUN D NO.(III) BEING CONSEQUENTIAL BOTH ARE DISMISSED. NOW THE ONLY GROU ND NO.(II) IS PRESSED FOR HEARING WHICH READS AS UNDER: (II) THE LD.CIT(A) ERRED IN CONFIRMING ADDITION OF RS.16,23,000/- UNDER SECTION 68 IN RESPECT OF SHARE CAPITAL WHEN T HE ASSESSEE HAD FURNISHED ALL THE EVIDENCE. 3. IN THE ASSESSMENT ORDER, THE AO FOUND THAT THE A SSESSEE HAS RECEIVED LOAN FROM SEVEN PERSONS WITH COMMON FEATURES THAT T HEY ALL RECEIVED MONEY BY WAY OF GIFT/LOAN FROM THEIR FATHER OR GRANDFATHER B EING THE SAME PERSON VIZ. SHRI JAIRAMBHAI PATEL. SHRI JAIRAMBHAI WAS HOLDING LAND ADMEASURING 80 BIGHAS AND ONLY KHARIF CROP WAS GROWN THERE BECAUSE NO IRRIGATION FACILIT Y WAS AVAILABLE. DURING THE STATEMENT OF BABUBHAIK, ELDE ST SON OF LATE JAIRAMBHAI ADMITTED THAT AFTER DEDUCTING THE AGRICULTURAL EXPE NSES, THE AVERAGE SALE WAS ONLY RS.1000 PER BIGHA FOR THE YEAR AND THEREFORE THE TOTAL AMOUNT OF GIF T/LOANS FROM JAIRAMBHAI OF RS.4 LAKHS IS UNEXPLAINABLE. THE AO POINTED OUT THAT THE ITA.NO.3979/AHD/2007 -2- SHARE CAPITAL OF SHRI MULJIBHAI AMBABHAI GABANI HUF OF RS.5 LAKHS, SHRI KANJIBHAI M. PATEL OF RS.1.5 LAKHS AND SMT.SHARDABE N G. SANDANI OF RS.5.73 LACS REMAINED UNEXPLAINED. THE AO HELD THE FOLLOW ING SHARE CAPITAL IN RESPECT OF THE FOLLOWING PERSONS AS UNEXPLAINED CASH CREDIT S IN THE HANDS OF THE ASSESSEE: I) DHARMENDRABHAI L. PATEL RS.50,000/- II) DAMJIBHAI J. PATEL RS.50,000/- III) MANOJBHAI B. PATEL RS.90,000/- IV) MANULABEN N. PATEL RS.60,000/- V) NARENDRA J. PATEL RS.40,000/- VI) RAJESH J. PATEL RS.50,000/- VII) VIMLABEN D. PATEL RS.60,000/- VIII) MULJIBHAI G. GABANI(HUF) RS.5,50,000/- IX) KANJIBHAI M. PATEL RS.1,50,000/- X) SHARDABEN G.SANDANI RS.5,73,000/- TOTAL RS.16,23,000/- THEREFORE, THE AO TREATED THIS AMOUNT AS UNEXPLAINE D CASH CREDIT. THE AO FURTHER FOUND THAT THE IN THE CASE OF SHARDABEN SAN DANI, IT WAS NOTICED THAT HER CASE RECORDS WERE IMPOUNDED BY THE DEPARTMENT DURIN G THE COURSE OF A SURVEY U/S.133A CONDUCTED BY THE INVESTIGATION WING AT THE PREMISES OF SHRI PANKAJ DANAWALA ON 11-3-2005. SHRI PANKAJ DANAWALA WAS FO UND TO HAVE CREATED LARGE AMOUNT OF BOGUS CAPITAL WITHOUT ANY DOCUMENTA RY EVIDENCE WITH THE INTENTION TO PROVE ENTRIES. SHRI DANAWALA DURING T HE COURSE OF SURVEY PROCEEDINGS, IN HIS STATEMENT, ADMITTED THAT THE ME THOD ADOPTED FOR CREATING BOGUS CAPITAL WAS BY INCREASING THE OPENING CAPITAL WITHOUT MATCHING THE SAME WITH THE CLOSING BALANCE OF THE LAST YEAR. HE FURT HER ADMITTED THAT THE SECOND METHOD WAS TO SHOW BOGUS GIFTS FROM AN EARLIER YEAR IN THE NAME OF VARIOUS DONORS EVEN WHEN THERE WAS NO SUCH GIFT. THEREFOR E IT WAS HELD THAT SHARADABEN HAS NO SOURCE AND THAT HE WAS CREATING B OGUS CAPITAL AND THE AO MADE THE ADDITION. THE CIT(A) CONFIRMED THE SAME. DURING THE COURSE OF HEARING, BOTH THE PARTIES AGREED THAT THE ISSUE IN CONTROVERSY COVERED BY THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS . M/S.LOVELY EXPORTS PVT. LTD., ITA NO.953/2006 DATED 11-1-2008 AND THE DECIS ION OF CHHATTISGARH HIGH ITA.NO.3979/AHD/2007 -3- COURT IN THE CASE OF ACIT VS. VENKATESHWAR ISPAT PV T. LTD., 319 ITR 393. FURTHER SIMILAR ISSUE WAS TAKEN BY THE DELHI HIGH C OURT IN THE CASE OF BHAV SHAKTI STEEL MINES P.LTD. VS. CIT, 320 ITR 619 (DEL ). 4. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT I N THE CASE OF LOVELY EXPORTS P. LTD. (SUPRA), THE HONBLE SUPREME COURT HAS HELD AS UNDER: CAN THE AMOUNT OF SHARE MONEY BE REGARDED AS UND ISCLOSED INCOME UNDER SECTION 68 OF THE INCOME TAX ACT, 1961 ? WE F IND NO MERIT IN THIS SPECIAL LEAVE PETITION FOR THE SIMPLE REASON THAT I F THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE-COMPANY FROM THE ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES ARE GIVEN TO THE AO, THEN THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSME NTS IN ACCORDANCE WITH LAW. HENCE, WE FIND NO INFIRMITY WITH THE IMP UGNED JUDGMENT. SUBJECT TO THE ABOVE, SPECIAL LEAVE PETITION IS DIS MISSED. SIMILARLY, IN THE CASE OF BHAV SHAKTI STEEL MINITE S P. LTD. VS. CIT, 320 ITR 619 (DELHI) THE FOLLOWING HAS BEEN HELD: HELD, ALLOWING THE APPEAL, THAT THE ORDER OF THE C OMMISSIONER (APPEALS) SHOWED THAT HE HAD EXAMINED THE QUESTION OF IDENTITY, CREDITWORTHINESS AND GENUINENESS OF EACH OF THE SHA REHOLDERS. THE COMMISSIONER (APPEALS) HAD CONSIDERED IN DETAIL THE CASE OF EACH OF THE SHAREHOLDERS AND CAME TO THE CONCLUSION O{FACT THAT THE IDENTIFY AND CREDITWORTHINESS OF THE SHAREHOLDERS AND THE GENUIN ENESS OF THE TRAY LION STOOD ESTABLISHED. THE COMMISSIONER (APPEALS) HAD NOT ONLY FOUND THAT THE IDENTITY OF EACH OF THE SHAREHOLDERS STOOD ESTABLISHED BUT HAD ALSO EXAMINED THE FACT THAT EACH OF THEM WERE INCOM E-TAX ASSESSEES AND HAD DISCLOSED THE SHARE APPLICATION MONEY IN THEIR ACCOUNTS WHICH WERE DULY REFLECTED IN THEIR INCOME-TAX RETURNS AS WELL AS IN THEIR BALANCE- SHEETS. THEREFORE, THE FINDING RETURNED BY THE TRI BUNAL TO THE CONTRARY COULD NOT BE ACCEPTED AS IT WAS CONTRARY TO THE REC ORD. IN ANOTHER CASE OF THE CHHATTISGARH HIGH COURT IN THE MATTER OF ACIT VS. VENKATESHWAR ISPAT PVT. LTD., 319 ITR 393 THE F OLLOWING OBSERVATIONS ARE ALSO RELEVANT TO THE PRESENT ISSUE: ITA.NO.3979/AHD/2007 -4- IF THE SHARE APPLICATIONS ARE RECEIVED BY THE ASS ESSEE FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES ARE GIVEN TO THE AS SESSING OFFICER, THEN THE DEPARTMENT IS FREE TO PROCEED TO REOPEN TH EIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW, BUT IT CANNOT B E REGARDED AS THE UNDISCLOSED INCOME OF T ASSESSEE. IN THE ASSESSMENT PROCEEDINGS RELATING TO THE ASSES SMENT YEAR 1989- 90, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO ESTABLISH THE IDENTITY AND CREDITWORTHINESS OF THE SHARE APPLICAN TS AS THE BALANCE- SHEET REFLECTED A CAPITAL AMOUNT OF RS. 26,45,200. THE ASSESSING OFFICER, NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, ADDED RS. 13,36,000 TOWARDS HOLDINGS OF THE SHAREHOLDERS, WHO SE CONFIRMATIONS COULD NOT BE ADDUCED. THE COMMISSIONE R (APPEALS) ACCEPTED THE ADDITIONAL EVIDENCE UNDER RULE 46A OF THE INCOME-TAX RULES, 1962, ADDUCED BY THE ASSESSEE HOLDING THAT T HE SHAREHOLDERS INVESTMENT WAS CONFIRMED DURING THE ASSESSMENT PROC EEDINGS. THIS WAS CONFIRMED BY THE TRIBUNAL. ON APPEAL: HELD, DISMISSING THE APPEAL, THAT THE COMMISSIONER (APPEALS) AS WELL AS THE TRIBUNAL RIGHTLY WERE JUSTIFIED IN DELE TING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNEXPLA INED INVESTMENT IN SHARE CAPITAL. CIT V. LOVELY EXPORTS P. LTD. [2009] 319 ITR (ST.) 5 (SC) FOLLOWED CIT V. LOVELY EXPORTS P. LTD. [2009] 319 ITR (ST.) 5 (SC) (PARAS 6, 9) WE RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF TH E HONBLE SUPREME COURT AND THE HONBLE HIGH COURTS, WE ALLOW THE APPEAL OF THE ASSESSEE. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 9 TH APRIL, 2010. SD/- SD/- (A.N.PAHUJA) ACCOUNTANT MEMBER (D.T. GARASIA) JUDICIAL MEMBER PLACE : AHMEDABAD DATE : 09-04-2010 ITA.NO.3979/AHD/2007 -5- VK* COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER AR, ITAT, AHMEDABAD