AI Insights
The case involves the Income Tax Department's appeal against the order of the Ld.CIT(A) which had deleted the addition made by the Assessing Officer under section 68 of the Income Tax Act, 1961. The addition pertained to Rs. 4,50,00,000 received as share application money by M/s. Shubham Motiwala & Jewellers Pvt. Ltd. The Assessing Officer had questioned the identity, creditworthiness, and genuineness of the transactions, leading to the addition. However, the Ld.CIT(A) found that the assessee had provided sufficient evidence to prove these aspects, including the financial statements of the investors and the valuation report of the shares. The Tribunal upheld the Ld.CIT(A)'s decision, noting that the Revenue had not substantiated its claims with adequate evidence and had not conducted a thorough investigation.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 123680 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 year(s) 8 month(s) 1 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
16-02-2023
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
G
Next Hearing Date
06-12-2022
Assessment Year
2014-2015
Appeal Filed On
14-06-2018
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G”, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND SHRI SANDEEP SINGH KARHAIL, HON'BLE JUDICIAL MEMBER ITA NO.4210/MUM/2018 (A.Y: 2014-15) DCIT – 13(2)(2) 1 st Floor, Room No. 146 Aayakar Bhavan, M.K. Road Mumbai - 400020 v. M/s. Shubham Motiwala & Jewellers Pvt. Ltd., Shop No. 5, Unity Heights, Chincholi JN, SV Road, Malad, Mumbai – 400064 PAN: AAHCS1597A (Appellant) (Respondent) Assessee Represented by : Shri Madhur Agrawal & Shri Prateek Jain Department Represented by : Richa Gulati Date of Hearing : 07.12.2022 Date of Pronouncement : 17.02.2023 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the revenue against order of the Learned Commissioner of Income Tax (Appeals)-21, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 19.03.2018 for the A.Y. 2014-15. 2. Brief facts of the case are, assessee filed its return of income on 30.09.2014 for the A.Y. 2014-15 declaring total income of ₹.56,53,360/- 2 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., after claiming deduction u/s. 80G and 80GGB of Income-tax Act, 1961 (in short “Act”) and the return was processed u/s. 143(1) of the Act. The case was selected for scrutiny and notices u/s. 143(2) and 142(1) were issued and served on the assessee. In response, Authorised Representative attended and filed relevant information as called for. 3. Assessee is engaged in the business of manufacturing and trading of jewellery and labour job work. During the assessment proceedings, Assessing Officer observed that assessee is a private limited company incorporated on 01.04.2003. The assessee is having an authorized share capital of ₹.1,00,00,000/- [10,00,000 equity shares of ₹.10/- each]. He observed that as per Schedule '1' to the audited Balance Sheet as on 31.03.2014, assessee raised equity share capital of ₹.30,00,000/- equity shares bearing face value of ₹.10/- each on which assessee has shown to have received share premium of ₹.4,20,00,000/- [@ ₹.140/- per share] as declared in Schedule '2' to the audited Balance Sheet. On the basis of information available on record, the shares were issued to the following new shareholders. 3 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., Sr. No. Name & address of the person Address of the assessee No. of equity shares Share Capital [with premium @ Rs.140/- Each] (Rs.) 1 Signora Finance Private Limited Office No. 15, Ground floor, Basant Pride, thakur Complex, Kandivali (East), Mumbai 400101. 120000 18000000 2 Abbilasba Money Operation Private Limited A-604, Building No.27, Mhada Colony, Chindivali, Andheri (East), Mumbai 400 072. 40000 6000000 3 Hare Krishna Securities Private Limited No.405, B wing, Pragati Apartment, Building No. 2, Greenfield Complex, Meera Road (East). 30000 4500000 4 Panama Overseas Private Limited A-103, Building No.27A, Mhada Colony, Chindivali, Andheri (East), Mumbai 400 072 50000 7500000 5. Choice Exterio and Interio Private Limited C-17, Anuroop Society No. 003, Sector 11, shanti Nagar, Meera Road (East) 6000 9000000 Total 300000 45000000 4. Authorised representative of the assessee was asked to furnish the following details, which was submitted i.e., (i). Copy of share application Form/confirmation. (ii). Copy of bank statement of the shareholders (iii). Copy of board resolution, (iv). copy of acknowledgement of IT return filed by the shareholders, (v). Copy of balance sheet and P&L account of the shareholders. 4 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., 5. Further, Authorised representative of the assessee was asked to produce the shareholders before the Assessing Officer failing which the addition may be confirmed and at the same time Authorised representative of the assessee was asked to furnish the copy of share valuation report. In response, authorised representative of the assessee furnished copy of the share valuation certificate (as per DCF Method) along with copies of financial statements for the succeeding financial years. Since assessee has not produced any shareholders before the Assessing Officer and also no explanation on the basis of valuation of shares, and the basis adopted on the profit projected for arriving the future profitability of the company, Assessing Officer observed that assessee has not proved identity, creditworthiness and genuineness of the transactions and failed to bring on shareholders to record the statement on oath. Therefore, he proceeded to make the addition u/s. 68 of the Act. 6. Further, Assessing Officer observed that assessee is holding investments worth of ₹.64,27,639/- at the end of the year as against NIL as at the end of the preceding year. Therefore, the investment in equity shares are made during the year under consideration. He observed that 5 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., assessee has claimed exemption of dividend income of ₹.37,367/-. However, assessee has not attributed any expenses which have been incurred to carry out the activity of investments. Accordingly, he invoked section 14A and Rule 8D of I.T. Rules to disallow the expenditure under Rule 8D(2) of ₹.4,480/-, 8D(2)(ii) of ₹.35631/- and 8D(2)(iii) of ₹.16069/- and he disallowed the 14A disallowance as determined above under normal provisions as well as under MAT calculations. 7. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and filed the detailed submissions before him, for the sake of clarity it is reproduced below: - "The Appellant submit that the addition made by the AO needs to be deleted from the fact that the appellant company has duly submitted the details of the share application money received of Rs. 4,50,00,000/- by submitting the following documents:- 1. Partywise details of share application money received alongwith their Name, Address and PAN 2. Share Application Form /Confirmation, 3. Bank Statement of Shareholders, 4. Board Resolution, 5. Acknowledgement of IT Return of Shareholders, 6. Audited Balance Sheet and P&L Account of the Shareholders. The same are enclosed in the Paper Book-(Page 26-156) It is an accepted principle that in case of additions u/s 68, the following needs to be proved: - 6 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., 1. Identity of the party 2 Credit worthiness of the party 3 Genuineness of the transaction. The Appellant submit that the primary onus as to the explanation of share application money received is complete as the appellant has furnished as follows: 1. The identity is proved as Acknowledgement of Return is submitted. 2. The creditworthiness of the party is proved on submission of Bank statement and Audited Financials 3. The genuineness of transaction is proved on submission of Bank statement and audited financials, Board Resolution and Share Application Form. The appellant submit that the observation made by the Ld. AO regarding the identity, creditworthiness and genuineness of the transaction is due to non- submission of complete details / documents by the appellant company which is totally wrong as the appellant had submitted all the aforementioned details and your honour will appreciate the fact that these details are sufficient to prove the identity, creditworthiness and genuineness of transaction. The AO has made wrong allegation and had not considered the submission made before him. The Ld. AO wants to disbelieve the transaction merely on the reason that the appellant company failed to furnish any of the documents in originals. Sir, appellant respectfully submits that unless there are originals there cannot be a copy of the same. Sir appellant could not deny the fact that when appellant have copies of certain documents then there must be originals as well. And only because original documents could not be furnished for verification, the identity could not be challenged. There is no requirement in the law which says the documents should be submitted in original. Your honour submission of original documents or copy of the same does not change the fact that transaction took place and the same can be verified from the details such as bank statements and financials of appellant and investors. During the assessment proceedings various other details has also been submitted by the appellant company such as Acknowledgement of Return of Income filed by the Shareholders, Balance Sheet and Profit & Loss account of the Shareholders etc, which is sufficient enough to prove the identity of the investor company. As regards the creditworthiness of the transaction is concerned appellant would like to bring your honur's kind attention towards the fact that the appellant company has submitted copy of Bank Statement of the Shareholders highlighting the transaction of share application money received which itself is enough to show that the above mentioned investor companies were having credibility to invest in the share of the appellant company. The entire transaction is done through proper banking channel and with cheque/RTGS NEFT. And to establish the genuineness of the transaction of share capital the appellant have already submitted board resolution, share application form and the bank statement reflecting investment made along with valuation certificate of shares of the 7 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., company. This also proves the existence of the investing companies which cannot be denied merely on the basis that none of them were produced for examination. The observation made by of the Ld. AO that the appellant company could not justify such a huge sum of share premium of Rs. 140/- per share. In this regards it is humbly submitted before your honour that the appellant company has submitted copy of valuation certificate of shares along with copies of the financials of the succeeding financial years, during the course of assessment proceedings which in itself is sufficient to justify the working of share premium of Rs. 140/- per share. The valuation certificate is self- explanatory with regards to basis of valuation, basis of projection, basis of depreciation, profit after tax, increase or decrease on working capital and addition to fixed assets, free cash to the firm discount factor, present value, etc. which has been claimed by the Ld. AO as unexplained. The Ld. AO has also mentioned that no explanation has been offered for valuation method adopted by the appellant company, whereas the Ld. AO himself has mentioned in his order that copy of share valuation certificate (as per DCF Method) along with copies of financial statements of succeeding financial years were submitted, which shows that the Ld. AO has framed the order without considering the facts available on record. This certificate is issued by the independent authority who has taken all the factors into consideration before issuing the same and therefore the genuineness of the same cannot be challenged. The observation of the Ld. AO that the appellant company failed to produce any of the shareholders during the course of assessment proceedings to examine him by recording his statement. In this regard, it is important to note that the appellant company has already submitted necessary documents in relation to transaction of share capital which were sufficient enough to prove the transaction. Sir, appellant state that it has fumished all the requisite details in relation to share capital introduced and had also made its efforts to convince these investors to produce before the Ld. AO for cross examination but appellant could not compel them for the same. Sir appellant humbly submit that the Ld. AO had all the powers, like issuance of notice u/s 133(6) to call for information or issuance of summons u/s 131 to call for personal presence of the individual investors for examination of them by recording their statement, to compel these investor to produce before him and submit details but he failed to exercise any of his power and instead transferred his onus on the appellant company to produce these investor companies for verification. The Ld. AO further failed to conduct any independent enquire which draws any adverse inference against the appellant company. The Ld. AO has nowhere mentioned the failure on the part of the appellant or how the reply filed by the appellant contradicted the independent enquires if any made by the Ld. AO which clearly shows that he acted in biased and prejudice manner. The appellant company submits that after submission of the required documents, the AO has not pointed out any defect in the documents. It is further submitted that the transaction under consideration was recorded in appellant's as well as investor's books of accounts and the same was also 8 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., shown in the returns filed with ROC. The transactions are duly explained &supported by the documents which clearly establish the nature and source of transactions. Thus it is submitted that the provisions of section 68 are not applicable in the present case. The provisions of section 68 are reproduced below: "68. 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, satisfactory, 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 consists 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 credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited: and b) Such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in 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.]" At the cost of repetition it is submitted that since the source and nature of the amount is duly explained and the sum is already recorded in the books of the account, the provisions of section 68 are not applicable in the present case. The appellant company has proved the nature of the credit as the same is appearing as share capital and share premium and also proved the source of the credit by submitting necessary evidence from the party from whom the amount has been received. The appellant company submits that it is not required to prove the source of the source in case of share application money. The appellant company submits that once the AO has got the evidences required, he should have verified the same and the real source of the money should have been investigated. However, no such things have been done by the Ld. AO in this regard. Your honour the appellant relies on the following judicial pronouncements, in support of its submissions as mentioned in the preceding paragraphs: 1. CIT vs. Lovely Exports 216 CTR 195 44(SC): The Court while dismissing the SLP recorded some reasons as well albeit in brief, which is as under: "2. Can the amount of share money be regarded as undisclosed income under s.68 of IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share 9 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment." 2. CIT vs. Steller Investments Ltd. 251 ITR 263 (SC) the Hon'ble Apex Court held as under: Section 68, read with section 256, of the Income-tax Act, 1961- Cash credits - ITO accepted increase in assessee's subscribed capital - Commissioner, in section 263 proceedings, set aside ITO's order holding that there was a device used by assessee for converting black money by issuing shares and ITO failed to conduct detailed investigation into genuineness of shareholders - Tribunal reversed Commissioner's order and rejected reference application - High Court held that no question of law arose out of Tribunal's order Whether Tribunal came to a conclusion on facts and as such no interference was called for - Held, yes 3. Orissa Corporation P. Ltd. [159/TR 78(SC) Facts: For the accounting year ending on 31-12-1961, corresponding to the assessment year 1962-63, the ITO did not accept the assessee's accounts showing cash credit of Rs. 1,50,000, shown to have been received by way of loans from three individual creditors of Calcutta under hundis. The assessee produced before the ITO letter of confirmation, the discharged hundis and particulars of the different creditors and general index numbers with the Income- tax Department. Attempts had been made to bring those creditors before the Income Tax Officer by issue of notices under section 131, but the said notices were returned with the endorsement left. The ITO, therefore, treated the entire amount of Rs. 1,50,000 as unproved cash credit and added the same to the income of the assessee. The appeal of the assessee to the AAO was dismissed. Thereafter there was further appeal to the Tribunal. In the meantime on the basis of assessment order proceeding was taken under section 271(1)(c) and the IAC imposed a penalty of Rs. 50,000. An appeal against the imposition of penalty was also filed before the Tribunal. The Tribunal noted that if the assessee could not produce these persons alleged to be the creditors, it did not follow automatically that the adverse inference should be drawn that these amounts represented undisclosed income of the assessee. It was further noted that the creditors were the income tax assessees and while being assessed they had made statements before the respective ITOS admitting that they were allowing their names to be lent without really giving loans as creditors of the different assessees. A list of the assessee had also been given but the name of the present assessee did not figure in that list. It, thus, concluded that the revenue was not justified in drawing adverse inference against the assessee and adding these amounts to the assessment of the assessee. It, accordingly, also deleted the penalty imposed. The revenue sought for statement of the case on both these 10 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., aspects, i.e., on the aspect of the addition of Rs. 1,50,000 to the total income of the assessee and also on the imposition of penalty. The Tribunal refused to refer any statement of case to the High Court on those questions. The revenue went up in an application under section 256(2) before the High Court. The High Court also refused to accede to the prayers of the revenue. On appeal. Held 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 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. 4. ShreeBarkhaSynthetics Ltd. [2701TR 477(Raj)]. Section 68 of the Income-tax Act, 1961- Cash credits - Assessment year 1997-98- Whether where Tribunal deleted addition made on account of unexplained share application money on basis of finding arrived at on appreciation of relevant facts that assessee had discharged his initial burden and revenue had failed to discharge its burden to controvert claim of assessee, Tribunal's order gave rise to any question of law - Held, no- Whether, where Tribunal deleted addition of unsecured loan and interest paid thereon on basis of finding that there was existence of investors and their confirmation had been obtained, conclusions being findings of fact based on material on record, could be said to be perverse so as to give rise to any question of law- Held, no 5. PritamDaftary[2831TR259(Cal). Section 68 of the Income-tax Act, 1961- Cash credits - Assessment year 1989-90- Assessee was a director of CCPL-A diary was seized in course of seizure against CCPL which reflected that CCPL received consideration amount in cheque as well as in cash against flats purchased under a project It was alleged that while cheques were accounted, cash entries were unaccounted - Assessee explained that cash amount belonged to CCPL and CCPL had disclosed said amount before Settlement Commission - Revenue, however, rejected explanation and added same to total income - Whether, on facts, addition of sum was not justified - Held. Yes. 11 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., Section 68 of the Income-tax Act, 1961 Cash credits - Assessee had requested one 'S' to make payment of Rs. 1,00,000 to RICCO on his behalf and debit to his account-Accordingly 'S' paid said sum to RICCO by a draft and said sum along with interest was credited by assessee in his accounts in name of 'S'- Revenue brought said cash credits to income of assessee Whether it was incumbent upon revenue to enquire about genuineness and credit worthiness of creditor and not having done so, impugned addition could not be sustained-Held, yes 6. CIT Vs. Divine Leasing 299 ITR 268 (SC): section 68, read with section 69, of the Income-tax Act, 1961 Cash Credits - Assessment years 1984-85 to 1986-87 Whether if Assessing Officer harbours doubts of legitimacy of any subscription he is empowered, nay duty- bound, to carry out thorough investigations, but if Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat subscribed capital as undisclosed income of assessee - Held, yes Assessee-company commenced its business of extending finance to industrial enterprises in January. 1984 Assessee received subscription to public issue through banking channels and thereafter allotted shares to subscribers - Assessing Officer made additions on account of amount received by way of share capital by assessee under section 68- Tribunal noted that assessee was a public limited company which had received subscriptions to public issue through banking channels and shares were allotted in consonance with provisions of Securities Contracts (Regulation) Act, 1956, as also rules and regulations of Delhi Stock Exchange and complete details had been furnished by assessee - Tribunal further recorded that Assessing Officer had not brought any positive material or evidence which would indicate that shareholders were (a) benamidars or (b) fictitious persons or (c) that any part of share capital represented company's own income from undisclosed sources Tribunal, accordingly, deleted additions - Whether Tribunal was justified in doing so - Held, yes. 7. Sophia Finance Ltd. [205 ITR 98(Del) Under section 68 it is clear that the ITO has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of share application money. The use of the words 'any sum found credited in the books' in section 66 indicates that the said section is very widely worded and an ITO is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money. If the amount credited is a capital receipt then it cannot be taxed but it is for the ITO to be satisfied that the true nature of the receipt as that of capital. Merely because the company chooses to show the receipt of the money as capital does not preclude the ITO from going into the question whether this is actually so. Section 68 would nearly empower him to do so. 12 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., Where, therefore, the assessee represents that it has issued shares on the receipt of share application money then the amount so received would be credited in the books of account of the company. The ITO would be entitled to enquire, and it would indeed be his duty to do so, whether the alleged shareholders do infact exist or not. If the shareholders exist then, possibly, no further enquiry need be made. But if the ITO finds that the alleged shareholders do not exist then, in effect, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons. The use of the words 'may be charged' (Emphasis supplied) in section 68 clearly indicates that the ITO would then have the jurisdiction, if the facts so warrant, to treat such a credit to be the income of the assessee. Section 68 clearly permits an ITO to make enquiries with regard to the nature and source of any or all the sums credited in the books of account of the company irrespective of the nomenclature or the source indicated by the assessee. In other words, the truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of account can be gone into by the ITO. In the case of Stellar Investment Ltd. (supra) the ITO had accepted the increased subscribed share capital. Section 68 was not referred to and the observations in the said judgment cannot mean that the ITO cannot or should not go into the question as to whether the alleged shareholders actually existed or not. If shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as capital receipt and to that extent the observations in the case of Stellar Investment Ltd. (supra) are correct but if, on the other hand, the assessee offers no explanation at all or the explanation offered is not satisfactory the provisions of section 68 may be invoked. In the present case also the ITO did not make any enquiries as to the existence or genuineness of the shareholders and, therefore, the Commissioner revised the order under section 263. The Tribunal did not advert to this finding of the Commissioner at all and it did not hold that enquiries as to the existance of the share holders were made by the ITO. What was relevant, in the first instance, was whether the shareholders existed and in the absence of such an enquiry whether action was validly taken under section 263 or not was certainly a question of law which should have been referred. The ratio of the decision of the Supreme Court in CIT v. Biju Patnaik [1986] 160 ITR 674 was clearly applicable here. It is equally well settled that in order to bring out the real controversy in issue the High Court can reframe a question. In the present case the real controversy was whether the Commissioner was right in coming to the conclusion that the ITO had not made the necessary enquiries and action under section 263 of the Act was called for. Thus, a question of law did arise from the Tribunal's order. 13 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., 8. HindustanTea Trading Co.Ltd. [263/TR 289(Cal) The power of the Assessing Officer under section 68 is not an absolute one. It is subject to his satisfaction where explanation is offered. The power is absolute where the assessee offers no explanation. The satisfaction with regard to explanation is in effect an in-built safeguard in section 68 protecting the interest of the assessee. It provides for an opportunity to the assessee to explain the nature and source of the fund. Once it is explained, it is incumbent on the Assessing Officer to consider the same and form an opinion whether the explanation is satisfactory or not. The expression used in the section clearly lays the burden on the assessee to explain the nature and source of the fund. Unless explanation is offered, the Assessing Officer is free to treat the fund as income of the assessee from undisclosed sources chargeable to tax. Once explanation is offered, the Assessing Officer is bound to consider the same. Such consideration is guided by sound principle of law. The opinion so formed must be reasonable and based on materials and shall not be perverse. The extent of the power of the Assessing Officer while considering the materials produced by the assessee is very wide. It is a question of examining as to whether the apparent is real. The Assessing Officer is empowered to lift the corporate veil and examine the real nature of the transaction. In the process, it may exercise its power of examining the materials. It may require the assessee to produce further materials if so required. It may seek information from other sources on the basis of the material produced. In the process of enquiry, the assessee has no right of hearing. But the assessee has a right to challenge the conclusion arrived at on the basis of the enquiry made. The assessee may point out the perversity in the finding. It may question the validity of the process undertaken. It may point out that a particular material was not considered. It may also point out that the enquiry made was not reasonable or was half-heartedly done. The process of enquiry is such that the assessee has to offer the explanation and produce the material in support of such explanation and then it can do no further. The onus then shifts on the revenue to scrutinize the materials and form an opinion on the basis thereof. For the purpose of scrutinizing the materials, it may utilize its powers to seek attendance of any witnesses or disclosure of any information in exercise of its power under section 131. It may seek information from other sources in exercise of its power under section 133. Once a reasonable enquiry is made, then the Assessing Officer can do no further except arriving at a conclusion on the basis of such materials. If the conclusion is adverse wholly or in part to the interest of the assessee, it is incumbent on the Assessing Officer to intimate or inform the conclusion arrived at to the assessee. When such information or intimation is received by the assessee, the onus shifts on the assessee. He may furnish further explanation or information to support its contention. If further information or materials are furnished, the Assessing Officer is bound to examine the same and form its final opinion and pass an appropriate order. Such opinion is also subject to examination by the Commissioner (Appeals) or the Tribunal and if it involves a question of law, it is also subject to scrutiny by the High Court under section 256. Findings of fact may also form a basis of a question of law if the inference drawn from the facts found is not in consonance with the legal principles or the 14 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., findings are perverse. In such a case, the High Court may interfere. If two views are possible, even if the High Court is of the other view, it cannot interfere with the view taken by the taxing authority. [Para 6] In the instant case, it was not a cash transaction but obtained through cheques and that too through nationalized banks after having invited subscription through public advertisement. Therefore, when income-tax file number was given, it was for the ITO to enquire into the same and find out the creditworthiness of the subscribers and genuineness of the transaction. If after making such enquiry, the ITO would have come to the conclusion against the creditworthiness of the subscriber and genuineness of the transaction, then the question would have been otherwise. [Para 16] Applying the above principle, in the instant case, so far as the 12 persons who were not found in the given addresses on enquiry were concerned, it could be said that the identity of those persons had not been established. Therefore, the second stage of ascertaining their creditworthiness or the genuineness of the transaction was not required to be gone into and on the percentage basis the authority was entitled to proceed on the basis thereof. But so far as the rest were concemed, when the income-tax file numbers were given, the income-tax authority ought to have inquired into the same. It was further contended that except the subscriber of 1000 shares, the income-tax file numbers relating to the rest of the subscribers were furnished. The authority was free to disbelieve those 1000 shares to be genuine transaction. But when the income-tax file numbers were disclosed, even though despite service of notices, the 14 persons failed to respond, it was incumbent on the income-tax authority to ascertain from the income-tax file numbers whether the files were in existence and on the basis of such files the identity of the shareholders could be established or not and their creditworthiness and genuineness of the transaction could be proved. Until such enquiry was made, it would not be said that the income- tax authority had acted upon the materials so disclosed. The onus may not be discharged simply on production of the materials but, at the same time, once the materials are produced by the assessee and which are already on record, it is incumbent on the taxing authority to find out the creditworthiness of such materials and only after ascertaining the same, it can come to a conclusion. Otherwise, it will be a half-hearted or incomplete enquiry on the basis whereof no definite conclusion can be arrived at. [Para 22] In the circumstances, the income-tax authority should have made proper enquiry in the matter and then come to a conclusion. Therefore, the reference was answered in the negative in favour of the assessee and the case was remanded for fresh decision by the Tribunal. The order of the Tribunal was set aside to that extent only. [Para 23] 9. Dwarkadhish Investment (P) Ltd. [330 ITR298(Dell). In any matter, the onus of proof is not a static one. Though in section 68 proceedings, the initial burden of proof lies on the assessee, yet once he 15 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., proves the identity of the creditors/share applicants by either furnishing their PAN numbers or income-tax assessment numbers and shows the genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the revenue. Just because the creditors/share applicants could not be found at the address given, it would not give the revenue the right to invoke section 68. One must not lose sight of the fact that it is the revenue which has all the powers and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the 'source of source' [Para 8] Therefore, in the instant case, no question of law arose from the Tribunal's order and the revenue's appeal was to be dismissed. [Para 11] 10. Kamdhenu Steel & Alloys Ltd. (2012) 19 taxmann.com 26 (Delhi) From the various decisions, it is clear that the initial burden lies on the assessee to explain the nature and source of the share application money received by the assessee. It is also clear that the assessee has to satisfactorily establish the identity of the shareholders, the genuineness of the transaction and the creditworthiness of the shareholders. At the same time, it is also well established principle of law that in any matter, the onus brought is not a static one. Though initial burden is upon the assessee, once he proves the identity of credits/share application by either fumishing Permanent Account Numbers or copies of bank accounts and shows the genuineness of the transaction by showing that money in the banks is by account payee cheques or by draft, etc., then the onus to prove the same would shift to the revenue. [Para 3] In the instant case, it is not in doubt that the assessee had given the particulars of registration of the investing/applicant companies; confirmation from the share applicants; bank accounts details and had shown payment through account payee cheques, etc. With these documents, it can be said that the assessee had discharged its initial onus. With the registration of the companies, their identity stands established, the applicant companies were having bank accounts, they had made the payment through account payee cheques. [Para 12] No doubt, what the Assessing Officer observed may make him suspicious about such companies, either their existence, which may be only on papers and/or genuineness of the transactions, when he found that investing companies are not available at given addresses or that the issuance of the cheque representing share application money preceded by the deposit of cash in the bank account of these investment companies. [Para 13] The important question which arises at this stage is as to whether on the basis of these facts, could it be said that it is the assessee which has not been able to explain the source and receipt of money. According to the assessee, he had given the required information to explain the source and was not obligated to prove source of the money. It is the submission of the 16 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., assessee that even in case there is some doubt about the source of money in giving into coffers of the share applicants which they invested with the assessee, it would not automatically follow that the said money belongs to the assessee and becomes unaccounted money. The assessee appears to be correct on this aspect. Something more which was necessary and required to be done by the Assessing Officer was not done. The Assessing Officer failed to carry his suspicion to logical conclusion by further investigation. After the registered letters sent to the investing companies had been received back undelivered, the Assessing Officer presumed that these companies did not exist at the given address. No doubt, if the companies are not existing, i.e., they have only paper existence, one can draw the conclusion that the assessee had not been able to disclose the source of amount received and presumption under section 68 for the purpose of addition of amount at the hands of the assessee. But, it has to be conclusively established that the company is non-existence. [Para 14] The Assessing Officer did not bother to find out from the office of the Registrar of Companies, the addresses of those companies from where the registered letter received back undelivered. If the address was same at which the letter was sent or the Inspector visited and no change in address was communicated, perhaps it may have been one factor. In support of the conclusion which the Assessing Officer wanted to arrive at, that, by itself, cannot be treated as the conclusive factor. The applicant companies have PAN and assessed to income tax. No effort was made to examine as to whether those companies were filing the income tax retum and if they were filing the same, then what kind of returns those companies were filing. If there was no return, this could be another factor leading towards the suspicion nurtured by the Assessing Officer. Further, if the returns were filed and scrutiny thereof reveals that such returns were for namesake, this could yet another be contributing factor in the direction the Assessing Officer wanted to go. Likewise, when the bank statements were filed, the Assessing Officer could find out the addresses given by those applicant companies in the bank, who opened the bank accounts and are the signatories, who introduced those bank accounts and the manner in which transactions were carried out and the bank accounts operated. This kind of inquiry would have given some more material to the Assessing Officer to find out as to whether the assessee can be convicted with the transactions which were allegedly bogus and or companies were also bogus and were treated for namesake. Just because the creditors/share applicants could not be found at the address given, it would not give the revenue a right to invoke section 68 without any additional material to support such a move. [Para 15] In the instant case, it is projected by the revenue that the Directorate of Income Tax (Investigation) had purportedly found such a racket of floating bogus companies with sole purpose of lending entries. But, it is unfortunate that all this exercise is going in vain as few more steps which should have been taken by the revenue in order to find out causal connection between the cash deposited in the bank accounts of the applicant in bank and the assessee were not taken. It is necessary to link the assessee with the 17 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., source when that link is missing, it is difficult to fasten the assessee with such a liability. [Para 17] A delicate balance has to be maintained while walking on the tight rope of sections 68 and 69. On the one hand, no doubt, such kind of dubious practices are rampant and on the other hand, merely because there is an acknowledgement of such practice would not mean that in any of such cases coming before the Court, the Court has to presume that the assessee in question are indulged in that practice. To make the assessee responsible, there has to be proper evidence. It is equally important that an innocent person cannot be fastened with liability without cogent evidence. One has to see the matter from the point of view of such companies (like the assessee herein) who invite the share application money from different sources or even public at large. It would be asking for a moon if such companies are asked to find out from each and every share applicant/subscribers to first satisfy the companies about the source of their funds before investing. It is for this reason the balance is struck by catena of judgments in laying down that the department is not remediless and is free to proceed to reopen the individual assessment of such alleged bogus shareholders in accordance with the law. [Para 18] In conclusion, once adequate evidence/material is given, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it is 'created' evidence, the revenue is supposed to make thorough probe of the nature indicated above before it could nail the assessee and fasten the assessee with a liability under sections 68 and 69. [Para 19] The revenue understood the limitation of their case. For this reason, a fervent plea was made that this case be remitted back to the Assessing Officers to enable him to make further investigation. [Para 20] However, in the facts and circumstances of these cases, it would be difficult to give such an opportunity to the revenue. There are number of reasons for denying this course of action which are mentioned below: (i) It is not a case where some procedural defect or irregularity had crept in the order of the Assessing Officer. Had that been the situation, and the additions made by the Assessing Officer were deleted because of such infirmity, viz., violation of principle of natural justice, the Court could have given a chance to the Assessing Officer to proceed afresh curing such procedural irregularity. One example of such a case would be when statement of a witness is relied upon, but opportunity to cross-examine is not afforded to the assessee. (ii) On the contrary, it is a case where the Assessing Officer(s) did not collect the required evidence which they were supposed to do. To put in otherwise, once the assessee had discharged its onus and the burden 18 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., shifted on the Assessing Officer(s), they could not come out with any cogent evidence to make the additions. No doubt, the Assessing Officer(s) could have embarked upon further inquiry. If that was not done and the Assessing Officer(s) did not care to discharge the onus which was laid down, for this negligence' on the part of the Assessing Officer(s), he cannot be provided with fresh innings. (iii) The order of the Assessing Officer(s) had merged in the order of the Commissioner (Appeals) and in some of the cases the assessees had succeeded. (iv) The Court is acting as appellate Court and has to act within the limitations provided under section 26A. The appeals can be entertained only on substantial questions of law. In the process, the Court is to examine as to whether the order of the Tribunal is correct or any substantial question of law arises therefrom. The Tribunal has passed the impugned orders, sitting as appellate authority on the basis of available record. When the matter is to be examined from this angle, there is no reason or scope to remit the case back to the Assessing Officer(s) once it is found that on the basis of material on record, the order of the Tribunal is justified. Even the Tribunal acts purely as an appellate authority. In that capacity, the Tribunal has to see whether the assessment framed by the Assessing Officer, all for that matter, orders of the Commissioner (Appeals) were according to law and purportedly framed on facts and whether there was sufficient material to support it. It is not for the Tribunal to start investigation. The Tribunal is only to see as to whether the additions are sustainable and there is adequate material to support the same; if not the addition has to be deleted. At that stage, the Tribunal would not order further inquiry. It is to be kept in mind that the Assessing Officer is prosecutor as well as adjudicator and it is for the Assessing Officer to collect sufficient material to make addition. There may be exceptional circumstances in which such an inquiry can be ordered but normally this course is not resorted to. [Para 21] In the facts of these cases, where the appeals relate to the assessment years, which are of 7-8 years old or even more and going by the nature of evidence which is required, it may not be apposite to make such an order. [Para 22] 11. Ainara India Ltd.[2012] 19 taxmann.com 95 (Delhi) A process of cross-examination of a person on the strength of whose statement an adverse conclusion had been drawn against the assessee would serve purpose. The step of cross-examination of a witness is inherent in the process of appreciating the evidences to bring the truth and reality to surface. Therefore, the Assessing Officer's conduct in denying the assessee a right to cross-examine concerned persons was against the basic rules of evidences, and for that reason, the statements of persons recorded by the Investigation wing would have no evidentiary value against the assessee. It was the case where during the appellate proceedings, the Assessing Officer was given an opportunity by the Commissioner (Appeals) to allow the assessee to cross-examine the concerned persons, but the 19 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., Assessing Officer had failed to do so by specifically asserting that it would not serve any purpose. Therefore, in these circumstances, restoring the matter back to the Assessing Officer would not serve any purpose. The Commissioner (Appeals) had appreciated and considered that aspect of the matter in its right and correct perspective and was justified in holding that the Assessing Officer was not justified in making additions only based on the statements given by the certain unrelated persons for coming to the conclusion that the various parties did not exist at the given address, without providing proper opportunity of cross-examination. [Para 10] Initial burden to prove the identity of the creditors or share applicants can be discharged by the assessee by either furnishing their PAN or income- tax assessment number. In the instant case, it was not in dispute that the assessee had furnished PAN or copy of income-tax returns of all the share applicants and the same had not been found to be false or untrue by the Assessing Officer. The assessee had also produced the certificate of incorporation of company under the Companies Act along with their identification number. All these documents were duly furnished before the Assessing Officer and the Assessing Officer had not brought any material to the contrary. The Assessing Officer had merely stated that the assessee had not been able to prove the identity of the creditors or share applicants because they were not found available at the given addresses by the Investigation Wing but that by itself was not sufficient to controvert the various documents or papers filed by the assessee such as PAN, copy of income-tax return, copy of certificate of incorporation and other The assessee had also produced the bank details of the share applicants which would indicate and establish that all the share applicants were existing account holders and were operating the bank account as per norms fixed by the bank. Therefore, identity of the creditors can be said to have been proved by the assessee and department had not been able to rebut the same. It was not in dispute that the assessee had received the share application money by account payee cheques and details of the bank accounts of share applicants as well as of the assessee had been duly furnished. Therefore, it was to be held that the assessee had been able to discharge its initial burden to prove the identity of the creditors and genuineness of the transaction. The same could not be rejected merely because the creditors or share applicants could not be found at the address given and it would not give the revenue the right to invoke section 68. Therefore, the order of the Commissioner (Appeals) in deleting the addition could not be said to be improper and unjustified. [Para 11] It was also pertinent to note that on the basis of the same report of Investigation Wing to the effect that applicant companies were not found to existing at the given addresses and the directors were also not available at the addresses given as per the enquiry conducted by Investigation Wing, share application money received by the assessee during the assessment year 2006-07 was treated by the Assessing Officer to be unexplained income of the assessee, and on an appeal, the same was deleted by the Commissioner (Appeals) by giving identical reasons and basis as given in this assessment year. It had been pointed out that the Department had not preferred any appeal against the Commissioner (Appeals)'s order 20 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., pertaining to the assessment year 2006-07. It was also noted by the Commissioner (Appeals) in his order that facts and circumstances of the instant case were identical to the assessment year 2006-07 which was as such accepted by the Assessing Officer in his remand report. Therefore, on this count also, the Department had no case in the present assessment year inasmuch as the finding given by the Commissioner (Appeals) assessment year 2006-07 had been accepted by the department. [Para 15] Therefore, the order of the Commissioner (Appeals) in deleting the addition on account of share capital received by the assessee from various share applicants during the year under consideration was to be upheld. 12. (2015) 58 taxmann.com 45 (Calcutta) Chandela Trading Co. (P.) Ltd. 1. Section 69A of the Income-tax Act, 1961 Unexplained moneys (Loan) - Assessment year 2005-06 - Whether where omission on part of creditors to subject themselves to enquiry initiated by revenue or non-furnishing of accounts by them could not lead to conclusion that creditors lacked identity - Held, yes - Whether where particulars of transactions with them furnished by assessee were uncontroverted, addition as undisclosed income was not justified - Held, yes [Para 7] [In favour of assessee] II. Section 69 of the Income-tax Act, 1961 Unexplained investments (Share dealings) Assessment year 2005-06 Whether where payment was made by assessee for purchase of shares after expiry of accounting year and same was supported by bank statement, payment was not bogus and addition was not justified-Held, yes [Para 10]. In the above judicial precedents the Hon'ble courts, has held that when the appellant has given names and addresses of the Shareholders /Loan parties /creditors and the said Investors /Loan parties /Creditors are income tax assesses whose index numbers are with the revenue, the initial burden lay on the assessee gets discharged. It was further held that where an appellant gives the correct name and addresses of the alleged Investors /Loan parties / Creditors, their PAN numbers, it could be said that he has discharged his onus to prove the genuineness of credits in his accounts and unless the revenue authority issues notice to test the genuineness of the transaction or the capacity of the Investors//Creditor /Lender to pay, the amount cannot be assessed in the hands of the appellant. In the above decisions, it has also been held that where the assessee furnishes full details regarding the Investors /Lendor /Creditors, it is up to the department to pursue the matter further to trace these and examine their creditworthiness. In light of the above decisions, the appellant too, has duly discharged its onus by providing all the details of Investors. In view of the above appellant most humbly submit before your honor that the action of the learned A.O. in adding to the income of the appellant the above amount of Rs. 4,50,00,000/- on account of Share Application Money is totally unjustified 21 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., for which relief needs to be given to the appellant by deleting the said addition in full. The Appellant submit that as per the requirements of the law it has produced the various documents in support of the receipt of share application money. It is not a case that the parties have not been found or the notices have not been served to doubt the identity of the parties. Once the department has comes to know the where about of the party, it is respectfully submitted that the Assessing Officer has more power to make the party appear before him than the Appellant. However, it is important to note that even the AO have not applied his mind on the documents furnished before him as no analysis of the same was shown to have been made. The Appellant has satisfactorily discharges the onus casted on it about the explanation of the source of the amount received and the nature of the receipt. The Appellant submit that it has allotted shares to the said parties and filed relevant forms with the ROC which is public document and the Ld. AO could have verified the same from ROC site. This action further proves that the transaction was genuine as the Appellant has allotted shares against the receipt of share application money. This further shows that the amount received by the Appellant has been genuinely paid by the respective investors. The Appellant therefore submits that in all probabilities, the provisions of section 68 cannot be made applicable on the amount received by the Appellant from these investors. The Appellant therefore prays that the addition made on account of unexplained cash credit of Rs. 4,50,00,000/- may kindly be deleted." 8. After considering the submissions of the assessee Ld.CIT(A) decided the issue in favour of the assessee by bringing on record balance sheet and Profit and Loss Account of the shareholders namely Signora Finance Private Limited, Abhilasha Money Operations Private Limited, Harekrishana Securities Private Limited, Panama Overseas Pvt. Ltd., and Choice Exterio and Interio Private Limited in his order and with the following observations: - 22 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., “From the above financial statement of the companies it is clear that the investor companies are having regular business activity. The Reserve & Surplus and long term loans of these companies are more than the investment made. Thus, the Creditworthiness of the Investor Companies does not appear to be in doubt. further. The AR has relied on the decision in the case of M/s Arceli Reality Ltd. ITAT Mumbai ITA No. 6492/Mum/2016 dated 21.04.2017 as the facts of the case are similar. “If the totality of facts and the judicial pronouncements, discussed hereinabove, are analyzed, we are of the considered opinion that the onus caste upon the assessee, as provided u/s 68 of the Act, has been duly discharged by the assessee as the identity of the share subscribers, creditworthiness and genuineness of the transaction is not in doubt or it can be said that the same has been proved/explained by the assessee. Now, The onus has reverted back upon the Revenue to prove otherwise. The Ld. Assessing Officer merely relied upon the information received from the investigation wing and did not made any independent enquiry. The Assessing Officer was expected to disprove the claim of the assessee with the help of evidence, if any, received from the investigation wing, as has been claimed by the Revenue. The Revenue has nowhere proved that any malafide is done by the assessee. Failure to do so, vitiate the addition made under the set of facts. Reference can be made to the decision in CIT vs Orissa Corporation Pvt. Ltd. 158 ITR 78 (SC) and the ratio laid down in Khandelwal Construction vs CIT 227 ITR 900(Guw.). The satisfaction has to be derived from the relevant facts and that to on the basis of proper enquiry by the Assessing Officer and such enquiry must be reasonable and just In the present case, the Assessing Officer has not brought any evidence on record that the amounts received from M/s Alka Diamond Industries Ltd. and M/s Yash-V- Jewels Ltd, are merely accommodation entries. As mentioned earlier, the Ld. Assessing Officer has acted merely on the basis of information received from the Investigation wing. The ratio laid down by Hon'ble Delhi High Court in CIT vs Vrindaban Farms Pvt. Ltd. squarely gives shelter to the assessee, wherein, it was held that if the identity and 23 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., other details of share applicant are available, the share application money cannot be treated as undisclosed income in the hands of the company. In the present case, the assessee even has proved the source of source, therefore, the creditworthiness was also proved, consequently, no addition made u/s 68 of the Act can be said to be justified. The ratio laid down in Creative World Telefilms Ltd. (supra) by Hon'ble jurisdictional High Court squarely comes to the rescue of the assessee. The assessee duly furnished the proof of identity like PAN, bank account details from the bank, other relevant material, genuineness of the transaction, payment through banking channel and even the source of source, therefore, the assessee has proved the conditions laid down u/s 68 of the Act. It is also noted that in spite of repeated request, the Ld. Assessing Officer did not provide opportunity to cross examine the concerned persons and even the relevant information and allegation, if any, made therein, which has been used against the assessee, was not provided to the assessee. At this stage, we add here that mere information is not enough rather it has to be substantiated with facts. The information may and may not be correct. For fastening the liability upon anybody, the Department has to provide the authenticity of the information to the person against whom such information is used. The principle of natural justice, demands that without confronting the assessee of such evidence, if any, or the information, no addition can be made. Even otherwise, as per Article-265 of the Constitution of India, only legitimate taxes has to be levied and collected. In our humble opinion, the assessee has duly discharged the onus caste upon it, therefore, respectfully following the decisions from Hon'ble Apex Court, Hon'ble High Courts and Hon'ble jurisdictional High Court, we reverse the order of the Ld. Commissioner of Income Tax (Appeal), resultantly, this ground of the assessee is allowed". The AR also relied on the decision of Hon'ble Supreme Court in the case of Orissa Corporation (supra) that no specific incriminating material was brought on record which proves the investment is non- 24 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., genuine. The AR submitted that the assessing officer has not been able to bring on record any direct or corroborative evidence that the share capital and share premium received is unexplained as covered u/s 68. I am in argument with the above contention of the appellant. In the light of the above, the addition made u/s 68 as unexplained share capital and share premium is not justified in facts of the case and in law. In view of the facts mentioned above and following the judicial decisions especially jurisdictional decision of Hon'ble ITAT Mumbai, the addition made of Rs. 4,50,00,000/- u/s 68 in the case of the appellant is deleted. Thus, this ground of appeal no. 1 is allowed.” 9. With regard to 14A disallowance Ld.CIT(A) gave relief to the assessee restricting the disallowance to the extent of exempt income earned by the assessee by relying on various case law. 10. Aggrieved revenue is in appeal before us, raising following grounds in its appeal: - “1. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs. 4,50,00,000/- being share capital & share premium treated as unexplained cash credit u/s. 68 of the 1. T Act, without appreciating the fact that the identity & creditworthiness of the parties and the genuineness of the transactions could not be proved by the assessee. 2. On the facts and circumstances of the case and in law, the CIT(A) has erred in restricting the addition made u/s 14 A of the Act to Rs. 21,498/- in contravention of the provisions of Rule 8D of the Income-tax Rules, 1962 3. The appellant prays that the order of CIT(A) on the above ground be set aside and that of Assessing Officer be restored. 4. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.” 25 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., 11. At the time of hearing, Ld. DR brought to our notice Page No. 2 of the Assessment Order and submitted that Assessing Officer has repeatedly asked the assessee to bring the shareholders which assessee has failed to comply. Further, she brought to our notice Page No. 29 of the appellate order and compared the same with Page No. 5 of the Assessment Order wherein Assessing Officer has asked the assessee to give the various details for determining the valuation of shares whereas Ld.CIT(A) has accepted the financial report of the investors as proper and came to the conclusion that they are not just dummy companies. She objected to the findings of the Ld.CIT(A) and submitted that Ld.CIT(A) has merely accepted the financials submitted by the assessee. Further, she relied on the written submissions filed by her, for the sake of clarity it is reproduced below: - “2. Comments: The undersigned wishes to submit a few points regarding the decision of the Ld. CIT(A) above: 2.1 Assessment Order: The Assessing officer has made the addition of Rs 4.50 Cr on the basis of sound investigation and strong evidence. Certain important findings of the Assessing officer are brought to your kind notice. 2.1.1 During the financial year under consideration the assessee had issued equity shares to following concerns: Name of the Concern Share capital and Share premium paid (in Rs.) Signora Finance Pvt. Ltd. 18000000 Abhilasa Money operation Pvt. Ltd 6000000 Hare Krishna Securities Pvt. Ltd. 4500000 Panama Overseas Pvt ltd. 7500000 Choice Exterio and Interio Pvt. Ltd. 9000000 26 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., 2.1.2 The AO issued summons u/s 131 to the Director of the assessee company and gave multiple opportunities to the assessee to produce the shareholders. However, despite opportunity being given, the assessee failed to produce the party to substantiate the identity and creditworthiness of the shareholders and genuineness of the transaction even though the burden of proof is on it. Refer Para 8 & 9 (Page5 of order) and para 10.4 (Page 7 of the order). 2.1.3 The AO noted that the financials of the company dont justify the share premium of Rs 140/- on the shares with face value of Rs 10/ The AO had given multiple opportunities to the assessee to justify the high share premium in support of genuineness of the transaction in question. Refer Para 5.7.10.3 of the order. 2.1.4 The AO had relied on the judgments in the case of Vijay umar Talwar v CIT 2011 [330 ITR 1, CIT v P Mohanakala [2007] 161 Taxman 169/291 ITR 278 (SC) and CIT V Orissa Copn. (P) Ltd. [1986]159 ITR 78 to hold that AO can go behind the legal form and find out substance having regard to the economic realities behind the legal faced. 2.1.5 In view of this, the AO held that all ingredients of genuine cash credits identity. creditworthiness and genuineness was not proved by the assessee to the satisfaction of the AO and made an addition of Rs 4.50 Cr u/s 68 of the IT Act. 2.2 CIT(A) order: The Ld.CIT(A) deleted this addition on the basis of the following findings. These findings are discussed against each point. 2.2.1 Notices u/s 133(6): The CIT(A) held that the AO did not examine the investor either by issuing notice u/s 133(6) or by issuing summon u/s 131 of the Act to the investor companies And by submitting all documents the assessee had discharged its burden and the onus shifts to AO(Page 29 of the CIT(A) order) Your kind attention is drawn to Para 8 & 9 (Page5 of assessment order) and para 10.4 (Page 7 of the order) wherein the AO gave multiple opportunities to the Director of the assessee company to attend the proceedings and to produce the shareholders who had invested in assessee's company. However, the assessee failed to discharge its burden. It is also noted that this was a case of private placement of shares by the assessee. Hence, the shareholders are known to the assessee and the onus was on him to produce them before the assessing officer. 2.2.2 Assessee's onus: The Ld CIT(A) held that the assessee discharged its onus by submitting various documents This is not a valid assertion The assessee has made various submissions to this Bench that was made before the AO and the Ld CIT(A) as well. The requisite documents in the Paper book are tabulated as follows with Page Numbers. 27 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., Name of the Concern Signora Finance Pvt. Ltd. Abhilasa Money operation Pvt. Ltd Hare Krishna Securities Pvt. Ltd. Panama Overseas Pvt ltd. Choice Exterio and Interio Pvt. Ltd. Share Application form 51- 78- 102 127-128 155- ITR Acknowledgement 26 56 80 104 130 Audited Financials 27-onwards 57-onwards 81-onwards 105-onwards 131-onwards Bank Statement 47 77 101 125 151-onwards At the outset, it is reiterated that in view of the investigation and inquiries done in this case the discussion of this note and the judgements discussed in detail in this note, the documents submitted by the assessee in this Paper book fail to justify in any way the identity, creditworthiness or genuineness of these transactions. Hence, the assessee has not discharged its onus Each of these documents submitted by the assessee are discussed in further detail in subsequent paragraphs. 2.2.3 Bank Transactions: The Ld CIT(A) also noted that the transactions of investments had occurred through banking channels. Hence there is no question regarding their genuineness. The Ld.CIT(A) has however not discussed the financials of the share applicants and whether they had means to invest in assessee company Neither Ld. CIT(A) had considered the entire facts of the case including the fact that the assessee failed to produce the shareholders in front of the assessee. The creditworthiness and genuineness is not established just because the transaction was made through a Bank account. In the case of Suman Poddar vs ITO [2019] 112 taxmann.com 329 (Delhi), the Hon'ble Delhi High Court has upheld in Para 7 of its order where the following observations of the Hon'ble ITAT (internal Para 11) are reproduced. "Similarly the bank statements provided by the assessee to prove the genuineness of the transactions cannot be considered in view of the judgment of Hon'ble court in the case of Pratham Telecom India Pvt Ltd, wherein, it was stated that bank statement is not sufficient enough to discharge the burden" (Emphasis provided) This judgement of the Hon'ble Delhi High Court was further confirmed by the Hon'ble Supreme Court in [2019] 112 taxmann.com 330 (SC) where the SLP filed by the assessee was dismissed. Further, the Bank statements of these entities show a clear pattern of alternating credit and debit entries. This shows that this entity has no balance or creditworthiness whatsoever but was used for provide accommodation entries. A similar pattern is seen in all bank statements which prove beyond doubt that these entities do not have any funds with them and thus fail to possess the wherewithal to pay such huge share application money. 2.2.4 Creditworthiness of the Investors: The Ld CIT(A) on Page 46 of its order notes that the investor companies are having regular business activity and the Reserves & Surplus and long term loans of these companies 28 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., are more than investment made And accordingly held that the creditworthiness of the investor companies is not in doubt. L. CIT(A) has, however failed to appreciate the financials of the investor companies which clearly establish that they do not have any genuine business nor do they have the means for investing in assessee company The Audited Accounts for these concerns as submitted by the assessee are summarized as under: Name of the Concern Business Turnover(ln Rs.) Salary (ln Rs.) Net profit (ln Rs.) Signora Finance Pvt Ltd Trading in shares and securities 112699614 1356900 203657 Abhilasa Money operations Private Ltd do. 76734600 245300 316691 Hare Krishna Securities Pvt Ltd do. 103312607 2957500 123713 Panama Overseas Pvt Ltd do. 557404836 2455600 154774 Choice Exterio And Interio Pvt Ltd do. 410817584 5364500 443816 It is noticed that these entities have very high turnover but very low administrative expenses and very low net profit. To run entities that have turnovers over Rs 10 Crores there is a need to for considerable expenses towards salary, electricity, rent, etc. The Profit percentage is not even 1% for these entities. In numbers that that defy logic, the total salary expenses for all employees annually for all these entities are miniscule against huge turnovers. The discussion above clearly brings out a pattern of entities that provide accommodation entries and do not conduct any genuine business. 2.2.5 Further analysis of the financials of the above concerns show that the source of funds for investing in assessee's company were Interest free loans or/and Share premium received by these concerns from other unknown parties. Name of Bogus Concern Reserves and Surplus Share Premium received Interest free Long term Borrowings Share premium paid to a Signora Finance Pvt Ltd 144902789 138600000 229000000 18000000 Abhilasa Money operation Private Ltd 47546007 44305800 82466950 6000000 Hare Krishna Securities Pvt Ltd 136162 - 22500000 4500000 Panama Overseas Ovt Ltd 2049323 - 284000000 7500000 Choice Exterio And Interio Pvt Ltd 2358066 - 92041000 9000000 It has already been noted above that none of these concerns had any networth or genuine business to justify high share premium or/and loans. Hence, AO had rightly questioned the credit worthiness of these shareholders. The onus was on the assessee to produce the parties and establish source of the source in such a scenario. Provisions of Section 68 lay the onus on the assessee to establish the nature and source of funds credited in the hands of the person as well on whose name credit is recorded in books of the assessee company(Proviso (b) of Section 68 of the Act). 29 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., 2.3. Reliance is placed on the order of the Hon'ble Mumbai ITAT in the case of Pratham Telecom (1) Pvt Ltd ITA No 1468/Mum/2013 which has held in Para 5.3 of its order that: “From the above discussion in our opinion, it can safely be stated that mere production of PAN or assessment particulars does not establish the identity of a person. The identification of a person includes the place of work the staff and the fact that that person was actually carrying on business and further recognition of the company or individual in the eyes of public. PANs are allotted on the basis of applications without actual de facto verification of the identity or ascertainment of the active nature of business activity. PANs are allotted as a facility to the Revenue to keep track of transactions PAN s cannot blindly and without consideration of surrounding circumstances be treated as sufficiently disclosing the identity of the person in a case of accommodation entries, in view of the link between the entry providers and incriminating evidence, the mere filing of PAN s, acknowledgment of Income-tax returns of the entry providers and bank account statements, is not sufficient to discharge the onus on the assessee. In the case of private limited companies, generally persons advancing loans would be known to the directors or shareholders directly or indirectly. After advancing loans they will not lose touch or become incommunicado. In such cases the assessee cannot simply furnish details and remain quiet even when notices issued to the creditors are returned unserved and uncomplied with The assessee cannot plead as a general proposition that they had received summons and it was for the AO to enforce the attendance of the shareholders. The court or Tribunal should be convinced about the identity, creditworthiness and genuineness of the transactions. The onus to prove the three factum is on the assessee as the facts are within the personal knowledge of the assessee. Mere production of incorporation details, PAN s or Income-tax returns may not be sufficient when surrounding and attending facts predicate a cover up The production of incorporation details, permanent account numbers or Income- tax details may indicate completion of paper work or documentation but the genuineness, creditworthiness and Identity of the investment and the investors are deeper and obtrusive than mere completion of paper work or documentation. Coming up with some proof of identity of some of the entries in question could lead to some kind of inference, but, from that inference or from the fact that the transactions were through banking channels, it does not necessarily follow that satisfaction as to the creditworthiness of the parties or the genuineness of the transactions in question would also have been established." [Emphasis provided] All the assertions made by the Ld CIT(A) in his order are worthily dealt with in the above order of the Mumbai ITAT. 30 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., 2.4 Further reliance is placed on the decision of Apex court in the case of Principal CIT Vs. NRA Iron & Steel Pvt. Ltd SLP No 29855/2018 wherein the hon'ble court had discussed the issue of Share capital/premium in detail as under: "11 The principles which emerge where sums of money are credited as Share Capital/Premium are: i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity fo make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit-worthiness 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. iii. 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 transaction would not be established in such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act. .. 13. The lower appellate authorities appear to have ignored the detailed findings of the AO from the field enquiry and investigations carried out by his office. The authorities below have erroneously held that merely because the Respondent Company-Assessee had filed all the primary evidence, the onus on the Assessee stood discharged The lower appellate authorities failed to appreciate that the investor companies which had filed income tax returns with a meagre or nil income had to explain how they had invested such huge sums of money in the Assesse Company Respondent. Clearly the onus to establish the credit worthiness of the investor companies was not discharged. The entire transaction seemed bogus, and lacked credibility. The Court/Authorities below did not even advert to the field enquiry conducted by the AO which revealed that in several cases the investor companies were found to be non-existent and the onus to establish the identity of the investor companies, was not discharged by the assessee. 14. The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify 31 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., addition of the said amount to the income of the Assessee" (emphasis supplied) 3. Summary of arguments: It is thus submitted that is inconceivable that some unknown entities can subscribed to shares in assessee's company and paid Rs 4,50,00,000, to the assessee, and yet the assessee is not even able to produce them. The documents filed by the assessee are self-serving documents and cannot be accepted irrespective of the ground realities. In the present case, all that the assessee has proved is existence of the person as the transactions have taken place through banking channels Just because a person existed it does not mean that all the transactions with him are genuine and the person had means to subscribe to assessee's shares. The onus is on the assessee to demonstrate that the transactions are genuine, in the normal course of business, and bonafide. This onus has not been discharged by the assessee. 4. It is therefore prayed that the AO's order be upheld.” 12. On the other hand, Ld. AR submitted that assessee has issued the shares based on the valuation report. He brought to our notice Page No.157 of the Paper Book in which valuation report is placed on record. Further, he submitted that there is no allegation on the shareholders as bogus and further, he submitted that profit is not the criteria for deciding the creditworthiness, it is enough, shareholders has enough funds in the business to make the investment. Further, he submitted that to record the statement u/s. 131 of the Act time given was only 15 days. However, all the documents relating to issue of shares and valuation were already filed before the Assessing Officer. 32 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., 13. With regard to 14A disallowance both counsels fairly agreed that as per the judicial precedents disallowance u/s. 14A is restricted to the extent of exempt income. 14. Considered the rival submissions and material placed on record, we observe that assessee has issued share capital along with share premium to the extent of ₹.4.5 crores which includes issue of premium @140 per share to five shareholders. At the time of hearing, assessee has filed all the relevant documents like party wise details of share application and confirmations, bank statements of shareholders, board resolutions, IT returns of all the shareholders and audited balance sheet and Profit and Loss Account of the shareholders. Further, assessee also filed the valuation of the shares based on the DCF Method. We observe from the record that assessee has complied by filing all the required documents before the Assessing Officer. However, grievance of the Assessing Officer is that assessee has not produced any shareholders before him to record the statements. We observe from the order of the Ld.CIT(A) that he has evaluated the various documents submitted before him and he came to the conclusion that the various shareholders have proved their creditworthiness and Ld.CIT(A) has analysed the Profit and Loss Account 33 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., and Balance Sheet of each shareholder in his order. Further, we observe from the submissions of the Ld.DR that there is no enough profit in the business of the shareholders to make such investments. We are not inclined to accept the above submissions of the Ld. DR that it is not enough that the shareholders have to earn the profit then only they are allowed to make investments. As per the judicial precedent it is enough that the shareholders should have enough funds in the business to make the investments. Therefore, we are inclined to accept the findings of the Ld.CIT(A) that all the shareholders have enough creditworthiness to make the investments. With regard to genuineness of the transactions we observe that assessee has issued share capital along with share premium by following due process of law for issue of shares and it has filed all the relevant information along with share valuation before the Assessing Officer. Therefore, it is only a capital transaction which assessee has received the share only through bank. Therefore, as far as assessee is concerned it has proved the genuineness of the transactions. Therefore, we do not find any reason to interfere with the findings of the Ld.CIT(A). As far as the identity is concerned, there is no dispute, hence, after considering the overall facts on record we do not see any reason to interfere with the findings of the Ld.CIT(A). 34 ITA NO.4210/MUM/2018 (A.Y: 2014-15) M/s. Shubham Motiwala & Jewellers Pvt. Ltd., 15. With regard to 14A disallowance it is clear from the findings of the Ld.CIT(A) that he has disallowed disallowance u/s. 14A to the extent of exempt income earned by the assessee. This is as per the settled positon of law as far as disallowance u/s. 14A is concerned. Accordingly, grounds raised by the revenue are dismissed. 16. In the result, appeal filed by the Revenue is dismissed. Order pronounced in the open court on 17 th February, 2023 Sd/- Sd/- (SANDEEP SINGH KARHAIL) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 17/02/2023 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Assessee 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum
Other Referred Cases
CIT vs. Lovely Exports, CIT vs. Steller Investments Ltd., Orissa Corporation P. Ltd. vs. ITO, ShreeBarkhaSynthetics Ltd. vs. ITO, PritamDaftary vs. ITO, CIT vs. Divine Leasing, Sophia Finance Ltd. vs. ITO, HindustanTea Trading Co.Ltd. vs. ITO, Kamdhenu Steel & Alloys Ltd. vs. ITO
Laws Referred To
Income-tax Act, 1961
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