ITO, Ward - 12(4), Kolkata V. M/s. Manimaya Holdings Pvt. Ltd., Kolkata

ITA 439/KOL/2009

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5066 (ITAT-KOLKATA)
• Duration Of Justice: 7 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 08-03-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 20-03-2009
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Capital asset; Business income; Opportunity of being heard; Question of law; Assessment record
• Section: 133(6); 131; 68

Judgement Text

1 ITA NO.439/KOL/2009-M/S. MANIMAYA HOLDINGS PVT. LTD . A.Y.2005-06 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH A KOL KATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI M.B ALAGANESH, AM ] ITA NO.439/KOL/2009 ASSESSMENT YEAR : 2005-06 I.T.O., WARD-12(4) , -VERSUS- M/S. MANIMAYA HOLDIN GS PVT.LTD KOLKATA KOLKATA (PAN:AACCM0598E) (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI SALLONG YADEN, ADDL.CIT ,SR.DR FOR THE RESPONDENT: SHRI SUBASH AGARWAL, ADVOCATE DATE OF HEARING : 08.03.2016. DATE OF PRONOUNCEMENT : 6.4.2016. ORDER PER N.V.VASUDEVAN, JM: THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 31.12.2008 OF CIT(A) XXXII, KOLKATA, RELATING TO AY 2005-06. 2. GROUND NO.1 RAISED BY THE REVENUE READS AS FOLLO WS :- 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS NOT JUSTIFIED IN GIVING THE DIRECTION THAT THE PROFIT O N SALE OF SHARES AND SECURITIES HELD BY WAY OF INVESTMENT IS TO BE ASSESSED AS CAPITAL ASS ETS INSTEAD OF BUSINESS INCOME AS DETERMINED BY THE A.O. 3. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF BUYING AND INVESTING IN SHARES. IN THE COURSE OF ASSESSMENT PR OCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD DECLARED SHORT TERM CAPITAL GAIN ON SA LE OF SHARES OF RS.29,07,728/-. AO WAS OF THE VIEW THAT THE ASSESSEE HAD TWO PORTFOLI OS OF SHARES. ONE SET OF SHARES WERE SHOWN IN THE BOOKS OF ACCOUNT AS STOCK-IN-TRADE AND THE PROFIT ON PURCHASE AND SALE OF THESE SHARES WERE DECLARED AS INCOME FROM BUSINESS. THE OTHER SET OF SHARES WERE HELD AS INVESTMENT AND THE GAIN ON SALE OF THESE SHARES HAD BEEN DECLARED AS SHORT TERM 2 ITA NO.439/KOL/2009-M/S. MANIMAYA HOLDINGS PVT. LTD . A.Y.2005-06 CAPITAL GAIN. HE WAS OF THE VIEW THAT THE SHORT TER M CAPITAL GAIN DECLARED BY THE ASSESSEE OUGHT TO BE ASSESSED AS INCOME FROM BUSINE SS. 4. IN RESPONSE TO THE QUERY BY THE AO IN THIS REGA RD THE ASSESSEE SUBMITTED AS FOLLOWS :- 1. THAT THE ASSESSEE COMPANY HAS SHOWN THE SAID SH ARES AS INVESTMENT AND NOT STOCK- IN-TRADE. 2. THAT THE ASSESSEE COMPANY HAS RESOLVED IN ITS BO ARD MEETING THAT THE COMPANY WOULD BUY SUCH SHARES FOR INVESTMENT PURPOSES ONLY. HENCE , THE MOTIVE OF THE ASSESSEE COMPANY WAS TO INVEST IN SHARES. 3. THAT THE ASSESSEE COMPANY IS NOT BUYING AND SELL ING SHARES EVERY DAY. 4. THAT SOME OF THE SHARES PURCHASED BY THE ASSESSE E COMPANY WERE HELD BY IT FOR MORE THAN 3 TO 4 MONTHS. 5. THAT IN COMPARISON TO PAID UP CAPITAL OF THE COM PANY, THE INVESTMENT IN SHARES WAS NOT EXCESS. 6. THAT THE NEGATIVE RESULTS OF THE TRANSACTIONS WE RE NOT HEAVY. HENCE, THE PROFIT FROM PURCHASE AND SALES OF SHARES HELD INVESTMENT IN SHARES SHOULD BE TREATED AS INCOME FROM CAPITAL GAIN AND NOT THE BUS INESS PROFIT. 5. THE AO HOWEVER WAS OF THE VIEW THAT SHORT TERM C APITAL GAIN DECLARED BY THE ASSESSEE WAS TO BE CONSIDERED AS INCOME FROM BUSINE SS FOR THE FOLLOWING REASONS :- A) THE ASSESSEE WAS ALREADY ENGAGED IN THE BUSINESS OF BUYING AND SELLING OF SHARES OR UNITS. B) IT WAS CARRYING ON THE AFORESAID ACTIVITY IN A SYST EMATIC AND ORGANISED MANNER AND THEREFORE INCOME FROM BUYING AND SALE OF UNITS HAD TO BE RECORDED AS ARISING FROM BUSINESS. C) CONSIDERING THE VOLUME AND FREQUENCY OF THE TRANSAC TIONS CARRIED OUT BY THE ASSESSEE IT CANNOT BE SAID THAT THE ASSESSEE MERELY REALISING THE GAIN OF APPRECIATION OF A CAPITAL ASSET. THE AO REFERRED TO SEVERAL DECISIONS AND WAS OF THE VIEW THAT THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE CONTAINED AS ONE OF THE PRINCIPLE OBJECTS OF THE ASSESSEE AS BUYING AND SELLING OF SHARES AND THIS FACT INDICATE D THAT THE GAIN IN QUESTION HAD TO BE RECORDED AS ONE FROM BUSINESS. CERTAIN OTHER DECISI ONS REFERRED TO BY THE AO IN THE 3 ITA NO.439/KOL/2009-M/S. MANIMAYA HOLDINGS PVT. LTD . A.Y.2005-06 ORDER OF ASSESSMENT ARE ON THE POINT AS TO WHEN AN ACTIVITY COULD BE CONSIDERED AS EARNING TO CARRY ON BUSINESS. AFTER REFERRING TO TH E GENERAL PROPOSITION EMANATING FROM CERTAIN JUDICIAL PRONOUNCEMENTS AO CAME TO THE CONC LUSION THAT PURCHASE AND SALE OF SHARES WAS IN THE NATURE OF BUSINESS AND INCOME THE RE FROM HAD TO BE ASSESSED FROM BUSINESS INCOME. 6. AGGRIEVED BY THE ORDER OF AO ASSESSEE PREFERRED APPEAL BEFORE CIT(A). BEFORE CIT(A), THE ASSESSEE POINTED OUT THAT EVEN INVESTME NT COULD BE CARRIED OUT BY THE ASSESSEE IN A SYSTEMATIC AND ORGANISED MANNER AND D OING SO NEED NOT NECESSARILY LEAD TO THE CONCLUSION THAT THE ASSESSEE WAS ENGAGED IN CARRYING ON BUSINESS OF BUYING AND SELLING SHARES. WITH REGARD TO THE VOLUME OF TRANSA CTIONS THE ASSESSEE SUBMITTED THAT VOLUME OF PURCHASE AND SALE OF SHARES WHICH RESULTE D IN SHORT TERM CAPITAL GAIN IS NEGLIGIBLE COMPARED TO THE CAPITAL OF THE ASSESSEE. WITH REGARD TO THE FREQUENCY OF THE TRANSACTIONS THE ASSESSEE POINTED OUT THAT SOMETIME S THE BROKER PURCHASE OR SELL SHARES DEPENDING UPON THE MARKET CONDITIONS. THEREFORE THE FREQUENCY OF TRANSACTION COULD BE MORE BUT THAT CANNOT BE DECISIVE TO COME TO A CO NCLUSION THAT THE ASSESSEE WAS CARRYING ON BUSINESS OF PURCHASE AND SALE OF SHARES . THE ASSESSEE POINTED OUT THAT THE BOARD OF DIRECTORS OF THE ASSESSEE PASSED A RESOLUT ION WHEREBY THE ASSESSEE CONSCIOUSLY DECIDE TO HAVE A SEPARATE PORTFOLIO OF INVESTMENT IN SHARES AND THEREFORE THE MOTIVE OF THE ASSESSEE WAS TO HOLD THOSE SHARES AS INVESTMENT AND NOT AS STOCK IN TRADE OF BUSINESS OF THE ASSESSEE. MORE IMPORTANTLY THE ASSESSEE POINTED OUT THAT THE SHARES IN QUESTION WERE TREATED AS INVESTMENT IN BO OKS OF ACCOUNTS OF THE ASSESSEE AND THAT WOULD BE A VERY DECISIVE FACTOR IN COMING TO T HE CONCLUSION THAT GAIN ON SALE OF THOSE SHARES HAD TO BE RECORDED AS CAPITAL GAIN. TH E ASSESSEE ALSO POINTED OUT THAT THERE IS NO PROHIBITION IN LAW TO HAVING TWO PORTFO LIOS ONE AS INVESTMENT AND THE OTHER AS STOCK IN TRADE. 7. THE ASSESSEE PLACED RELIANCE ON SEVERAL JUDICIAL PRONOUNCEMENTS IN SUPPORT OF THE CONTENTIONS AS SET FORTH ABOVE. THE CIT(A) ON C ONSIDERATION OF THE AFORESAID SUBMISSIONS WAS OF THE VIEW THAT IN THE BOOKS OF AC COUNT THE SHARES IN QUESTION WERE 4 ITA NO.439/KOL/2009-M/S. MANIMAYA HOLDINGS PVT. LTD . A.Y.2005-06 TREATED AS INVESTMENT AND NOT AS STOCK IN TRADE. CI T(A) RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS MADAN G OPAL RADHEYLAL 73 ITR 652 AND CIT VS ASSOCIATED TRIAL DEVELOPMENT CO.LTD. 82 ITR 586 WHEREIN IT WAS HELD THAT THERE IS NO PROHIBITION IN LAW FOR A PERSON TO HOLD A PARTICULAR COMMODITY AS STOCK IN TRADE OF THE BUSINESS AND AT THE SAME TIME HOLD SIMILAR COMMODITY AS INVESTMENT. THE HONBLE COURT HELD THAT ONE HAS TO GATHER THE I NTENTION OF THE PERSONS HOLDING A COMMODITY. THEREAFTER THE CIT(A)REFERRED TO THE DEC ISIONS OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS TRISHUL INVESTMENT S LTD. 305 ITR 434 FOR THE PROPOSITION THAT PURCHASE OF SHARES OUT OF BORROWED FUNDS ON WHICH INTEREST WAS PAID CANNOT BE THE BASIS TO DECIDE THAT THE SHARES SO PU RCHASED WERE TO BE RECKONED AS STOCK IN TRADE OF BUSINESS CARRIED OUT BY THE ASSESSEE. C IT(A) RELIED ON THE DECISION OF ITAT MUMBAI IN THE CASE OF S RANGWALA VS ACIT 11 SOT 627 (MUM) FOR THE PROPOSITION THAT WHEN SHARES ARE HELD AS INVESTMENT VOLUME OF T RANSACTIONS CANNOT ALTER THE NATURE OF TRANSACTION. BASED ON THE DECISIONS REFERRED TO ABOVE CIT(A) CAME TO THE CONCLUSION THAT GAIN ON SALE OF SHARES HELD BY THE ASSESSEE AS INVESTMENT HAS TO BE ASSESSED AS CAPITAL GAIN AND NOT AS INCOME FROM BUS INESS. 8. AGGRIEVED BY THE ORDER OF CIT(A) REVENUE HAS RA ISED GROUND NO.1 BEFORE THE TRIBUNAL. 9. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED DR AND THE LEARNED COUNSEL FOR THE ASSESSEE. THE LEARNED DR PLACED RELIANCE ON THE ORDER OF AO. THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE ORDER OF CI T(A). HE ALSO PLACED RELIANCE ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS MERLIN HOLDING (P)LTD (2016) 65 TAXMANN.COM 37 (CALCUTTA) WHEREIN THE HONBLE CALCUTTA HIGH COURT OBSERVED AS FOLLOWS :- 6. THESE ARE THE FACTS AND CIRCUMSTANCES, WHICH AC CORDING TO HIM, GO TO SHOW THAT THE ASSESSEE PRIMARILY IN THE BUSINESS OF DEALING IN S HARES RATHER THAN IN THE BUSINESS OF INVESTMENT. THE FREQUENCY OF TRANSACTION HIGHLIGHTED BY MR. SAR AF IS NOT DECISIVE ON EITHER SIDE. FREQUENCY ALONE CANNOT SHOW THAT THE INTENTION WAS NOT TO MAKE AN INVESTMENT. THE LEGISLATURE HAS NOT MADE ANY DISTIN CTION ON THE BASIS OF FREQUENCY OF TRANSACTION. THE BENEFIT OF SHORT-TERM CAPITAL GAIN CAN BE AVAILED FOR ANY PERIOD OF 5 ITA NO.439/KOL/2009-M/S. MANIMAYA HOLDINGS PVT. LTD . A.Y.2005-06 RETENTION UPTO 12 MONTHS. ALTHOUGH A CEILING HAS BE EN PROVIDED BUT THERE IS NO INDICATION AS REGARDS THE FLOOR, WHICH CAN BE AS LI TTLE AS ONE DAY. WHEN THAT IS THE POSITION IN LAW AND THE INVESTOR HAS ADDUCED PROOF TO SHOW THAT SOME TRANSACTIONS WERE INTENDED TO BE BUSINESS TRANSACTION, SOME TRANSACTI ONS WERE INTENDED TO BE BY WAY OF INVESTMENT AND SOME TRANSACTIONS WERE BY WAY OF SPE CULATION AND THE REVENUE HAS NOT BEEN ABLE TO FIND FAULT FROM THE EVIDENCE ADDUCED T HEN THE MERE FACT THAT THERE WERE 1000 TRANSACTIONS IN A YEAR OR THE MERE FACT THAT T HE MAJORITY OF THE INCOME WAS FROM THE SHARE DEALING OR THAT THE MANAGING DIRECTOR OF THE ASSESSEE IS ALSO A MANAGING DIRECTOR OF A FIRM OF SHARE BROKERS CANNOT HAVE ANY DECISIVE VALUE. THE QUESTION ESSENTIALLY IS A QUESTION OF FACT. THE CIT APPEAL A ND THE LEARNED TRIBUNAL HAVE CONCURRENTLY HELD AGAINST THE VIEWS OF THE ASSESSIN G OFFICER. ON THE BASIS OF THE SUBMISSIONS MADE BY THE LEARNED ADVOCATE FOR THE AP PELLANT, IT IS NOT POSSIBLE TO SAY THAT THE VIEWS ENTERTAINED BY THE CIT APPEAL OR THE LEARNED TRIBUNAL WERE NOT A POSSIBLE VIEW. THEREFORE, THE JUDGMENT CANNOT BE SA ID TO BE PERVERSE. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HO NBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GOPAL PUROHIT 188 TAXMAN 140(BOM). 10. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. THE ISSUE TO BE DECIDED IS AS TO WHETHER THE STCG ON TRANSACTION OF PURCHASE AND SALE OF SHARES UNDERTAKEN BY THE ASSESSEE DURING THE PREVIOUS YEAR IS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AS CLAIMED BY THE REVENUE OR INCOME UNDER THE HEAD CAPITAL GAIN AS CONTENDED BY THE ASSESSEE. BEFORE WE DEAL WITH THE FACTS OF THE CASE OF THE ASSESSEE, WE WILL BRIEFLY NARRATE THE PRINCIPLES AP PLICABLE IN DECIDING THE ABOVE ISSUE AS LAID DOWN IN SEVERAL JUDICIAL PRONOUNCEMENTS :- (A) WHETHER A TRANSACTION OF SALE AND PURCHASE OF SHAR ES WERE TRADING TRANSACTIONS OR WHETHER THEY WERE IN THE NATURE OF INVESTMENTS I S MIXED QUESTION OF LAW AND FACT. CIT VS. HOLCK LARSEN, 60 ITR 67 (SC). (B) IT IS POSSIBLE FOR AN ASSESSEE TO BE BOTH AN INVEST OR AS WELL AS A DEALER IN SHARES. WHETHER A PARTICULAR HOLDING IS BY WAY OF INVESTMEN T OR FORMED PART OF STOCK IN TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE AND IT IS FOR THE ASSESSEE TO PRODUCE EVIDENCE FROM HIS RECORDS AS TO WHETHER HE MAINTAINED ANY DISTINCTION BETWEEN SHARES WHICH WERE HOLD BY HIM A S INVESTMENTS AND THOSE HOLD AS STOCK IN TRADE. (CIT VS. ASSOCIATED INDUSTRIAL D EVELOPMENT CO. LTD., 82 ITR 586 (SC). (C) TREATMENT IN THE BOOKS BY AN ASSESSEE WILL NOT BE C ONCLUSIVE. IF THE VOLUME, FREQUENCY AND REGULARITY WITH WHICH TRANSACTIONS AR E CARRIED OUT INDICATE SYSTEMATIC AND ORGANIZED ACTIVITY WITH PROFIT MOTIV E, THEN IT WOULD BE A CASE OF BUSINESS PROFITS AND NOT CAPITAL GAIN. CIT VS. MOT ILAL HIRABHAI SPG. AND WVG. CO. LTD., 113 ITR 173 (GUJ); RAJA BAHADUR VISWSHWAR A SINGH VS. CIT, 41 ITR 685 (SC). 6 ITA NO.439/KOL/2009-M/S. MANIMAYA HOLDINGS PVT. LTD . A.Y.2005-06 (D) PURCHASE WITHOUT AN INTENTION TO RESELL WHERE THEY ARE SOLD UNDER CHANGED CIRCUMSTANCES WOULD BE CAPITAL GAINS. CIT VS. PKN, 60 ITR 65 (SC). PURCHASE WITH AN INTENTION TO RESELL WOULD RENDER THE GAIN P ROFIT ON SALE BUSINESS PROFIT DEPENDING ON THE CIRCUMSTANCES OF THE CASE LIKE NAT URE AND QUANTITY OF ARTICLE PURCHASED, NATURE OF THE OPERATION INVOLVED. SAROJ KUMAR MAZUMDAR VS. CIT, 37 ITR 242 (SC). (E) NO SINGLE FACT HAS ANY DECISIVE SIGNIFICANCE AND TH E QUESTION MUST DEPEND UPON THE COLLECTIVE EFFECT OF ALL THE RELEVANT MATERIALS BROUGHT ON RECORD. JANKI RAM BAHADUR RAM VS. CIT, 57 ITR 21 (SC). 10.1. THE ABOVE TESTS HAVE AGAIN BEEN REITERATED B Y THE CBDT IN ITS CIRCULAR ISSUED ON THE ISSUE. KEEPING IN MIND, THE ABOVE BROAD P RINCIPLES, WE SHALL NOW EXAMINE THE CASE OF THE ASSESSEE. THE ASSESSEE DURING THE PREVI OUS YEAR HAD ENTERED INTO TRANSACTIONS OF PURCHASE OF SHARES GIVING RAISE TO SHORT TERM CAPITAL GAIN. AS FAR AS SHORT TERM CAPITAL GAIN IS CONCERNED, THERE WERE IN ALL ABOUT 36 COMPANIES SHARES WHICH WERE PURCHASED AND SOLD WHICH GAVE RAISE TO S HORT TERM CAPITAL GAIN EARNED BY THE ASSESSEE. THE ASSESSEE HELD AS INVESTMENTS SHA RES IN ABOUT 77 COMPANIES OUT OF WHICH SHARES OF ONLY 36 COMPANIES WERE SOLD DURING THE PREVIOUS YEAR. THESE DETAILS ARE AVAILABLE IN THE PAPER BOOK FILED BY THE REVENU E BEFORE THE TRIBUNAL. THE PERIOD OF HOLDING VARIES BETWEEN 6 DAYS TO LESS THAN 1 YEAR. THE ABOVE TRANSACTIONS WERE EFFECTED BY ACTUAL DELIVERY OF SHARES AT THE TIME O F PURCHASE AND SALE. THE FACTORS WHICH GO IN FAVOUR OF THE ASSESSEE THAT THE INCOME IN QUESTION IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAIN ARE THE FACT THAT AS FOLLOW S: 1. THE VOLUME AND FREQUENCY OF THE TRANSACTIONS ARE NO T VERY HIGH. 2. THE ASSESSEE HELD THE SHARES AS INVESTMENT IN ITS B OOKS OF ACCOUNTS AND NOT AS STOCK-IN-TRADE. 3. THE ASSESSEE HAS RECEIVED DIVIDEND ON SHARES OF RS. 5,34,771/- WHICH SHOWS THAT INVESTMENT ACTIVITY AND GETTING RETURNS WAS TH E MOTIVE OF THE ASSESSEE. 4. THE ASSESSEE HAS PASSED A SPECIFIC BOARD RESOLUTION BY WHICH IT RESOLVED TO MAKES INVESTMENT IN SHARES AND THAT SUCH INVESTMENT S WERE TO BE REGARDED NOT AS STOCK-IN-TRADE BUT AS INVESTMENTS. 5. NO BORROWED FUNDS WERE USED TO PURCHASE SHARES HELD AS INVESTMENTS. 6. THE VOLUME OF INVESTMENT IN COMPARISON TO THE SHARE CAPITAL OF THE ASSESSEE IS NOT VERY HIGH. 7 ITA NO.439/KOL/2009-M/S. MANIMAYA HOLDINGS PVT. LTD . A.Y.2005-06 11. IN THE LIGHT OF THE ABOVE CIRCUMSTANCES PREVAI LING IN THE CASE OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE CONCLUSION OF THE CIT(A) T HAT THE INCOME FROM SALE OF SHARES DECLARED BY THE ASSESSEE AS CAPITAL GAIN HAS TO BE ACCEPTED AS CORRECT AND CALLS FOR NO INTERFERENCE. 12. FOR THE REASONS GIVEN ABOVE, WE UPHOLD THE ORD ER OF THE CIT(A) AND DISMISS GR.NO.1 RAISED BY THE REVENUE. 13. GROUND NO.2 RAISED BY THE REVENUE READS AS FOLL OWS :- 2. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITIONS OF RS.87,50,000 /- MADE BY THE A.O. ON ACCOUNT OF UNEXPLAINED CASH CREDIT. 14. DURING THE PREVIOUS YEAR THE SHARE CAPITAL OF T HE ASSESSEE INCREASED TO A SUM OF RS.80,05,000/-. 39 COMPANIES HAD SUBSCRIBED TO THE SHARE CAPITAL OF THE ASSESSEE. SHARE PREMIUM RECEIVED BY THE ASSESSEE ON THESE SHA RES WAS RS.3,20,20,000/-. OUT OF 39 COMPANIES AO ISSUED NOTICE U/S 131 OF THE ACT TO THE FOLLOWING PARTIES. NAME SHARE CAPITAL SHARE PREMIUM 1.ELENBARRIE COMMERCIAL LTD. 5,40,000 21,60,000 19 SYNAGOGUE STEET KOLKATA 2.NPEC CAPITAL MARKETS LTD. 7,10,000 28,40,000 19, SYNAGOGUE STREET,KOLKATA 3.RELIANCE OIL CO.PVT. LTD. 5,00,000 20,00,000 1 KYD STREET, KOLKATA HOWEVER, THE NOTICES U/S 131 WERE RETURNED UNSERVED FROM THE ABOVE THREE PARTIES. THE NOTICES FROM PARTIES AT SL. NO.1 AND 2 WERE RETURNE D UNSERVED BY THE POSTAL AUTHORITIES ON 17.12.2007. THE NOTICE FROM PARTY AT SL. NO.3 WAS R ETURNED UNSERVED BY THE POSTAL AUTHORITIES ON 18.12.2007. SINCE THE ABOVE CREDITS IN THE BOOK S OF THE COMPANY COULD NOT BE VERIFIED THE AO CALLED UPON THE A/R OF THE ASSESSEE TO PRODUCE T HE ABOVE PARTIES VIDE ORDER SHEET ENTRY DATED 19.12.07 WHICH READ AS UNDER SHRI S.K.JHUNJHUNWALA A/R APPEARED. IT HAS BEEN OB SERVED THAT NOTICE U/S 131 WAS ISSUED TO FOLLOWING PARTIES WHICH HAVE BEEN RETURNE D UNSERVED. IN THIS RESPECT HE IS REQUESTED TO PRODUCE THE PARTIES FOR RECORDING OF S TATEMENT U/S 131. NPEC CAPITAL MARKETS LTD. ELLENBARRIE COMMERCIAL LTD. 8 ITA NO.439/KOL/2009-M/S. MANIMAYA HOLDINGS PVT. LTD . A.Y.2005-06 RELIANCE OIL CO.PVT. LTD. CASE ADJ. TO 24.12.07 THE ASSESSEE COULD NOT PRODUCE THE PARTIES ON 24.12 .2007 AND TILL DATE OF PASSING OF ASST. ORDER THE ASSESSEE DID NOT PRODUCE THE ABOVE PARTIES. THEREFORE, THE AO TREATED THE CREDITS IN THE BOOKS OF THE ASSESSEE AS UNEXPLA INED AND IN VIEW OF THE PROVISIONS OF SECTION 68, THE ABOVE AMOUNTS TOTALLING RS.87,50,00 0 WAS TREATED BY THE AO AS UNEXPLAINED CASH CREDITS IN THE BOOKS OF THE ASSESS EE AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 15. ON APPEAL BY THE ASSESSEE CIT(A) HELD AS FOLLOW S :- I HAVE PERUSED THE ASSESSMENT ORDER AND ASSESSEES SUBMISSIONS. FROM PERUSAL OF ASSESSMENT RECORDS IT IS OBSERVED THAT THE A.O. ISS UED NOTICES U/S 133(6) OF THE ACT, TO THE ABOVE MENTIONED THREE PARTIES. IN COMPLIANCE TH EREOF THESE PARTIES SUBMITTED CONFIRMATIONS CONFIRMING THE SUBSCRIPTION TO THE SH ARE CAPITAL OF THE ASSESSEE. THEY ALSO SUBMITTED COPIES OF THEIR BALANCE SHEETS, PROFIT AN D LOSS A/CS, EVIDENCES OF HAVING FILED RETURNS OF INCOME FOR RELEVANT PERIOD, COPIES OF SH ARES APPLICATION FORMS, AND COPIES OF RELEVANT EXTRACTS OF THEIR BANK STATEMENTS EVIDENCI NG THE SOURCES OF PAYMENTS FOR SUCH SUBSCRIPTION. THEY ALSO SUBMITTED THEIR PA NO. IN T HEIR CONFIRMATION. IT WILL ALSO BE PERTINENT TO MENTION HAVE THAT ALL THESE PERSONS AR E CORPORATE ENTITIES. IN THE LIGHT OF THESE FACTS, IN MY OPINION, THE SUBSCRIPTION TO THE CAPITAL OF THE ASSESSEE BY THE ABOVE MENTIONED THREE PERSONS WAS A DEQUATELY EXPLAINED. HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. LOVELY EXPORTS PV T. LTD. (299 ITR 268) HAS HELD THAT THE ASSESSEE HAS TO, PRIMA FACIE, PROVE:- (I) THE I DENTITY OF THE CREDITOR/SUBSCRIBER, (2) THE GENUINENESS OF THE TRANSACTION, NAMELY, WHETHER IT HAS BEEN TRANSMITTED THROUGH BANKING OR OTHER INDISPUTABLE CHANNELS; AND (3) THE CREDITW ORTHINESS OR FINANCIAL STRENGTH OF THE CREDITOR/SUBSCRIBER. IT WAS ALSO HELD THAT: (I) IF RELEVANT DETAILS OF THE ADDRESS OF PAN IDENTITY OF THE CREDITOR/SUBSCRIBER ARE FURNISHED T O THE DEPARTMENT ALONG WITH COPIES OF THE SHAREHOLDERS REGISTER, SHARE APPLICATION FORMS, SHARE TRANSFER REGISTER ETC. IT WOULD CONSTITUTE ACCEPTABLE PROOF OR ACCEPTABLE EXP LANATION BY THE ASSESSEE; (II) THE DEPARTMENT COULD NOT BE JUSTIFIED IN DRAWING AN ADV ERSE INFERENCE ONLY BECAUSE THE CREDITOR/SUBSCRIBER FAILS OR NEGLECTS TO RESPOND TO ITS NOTICES. IN THE INSTANT CASE, (I) THE SUBSCRIBER DID NOT REPUDIATE THE TRANSACTIONS, RATHER THEY CONFIRMED THE TRANSACTIONS (2) THE TRANSACTIONS WER E THROUGH BANKING CHANNELS, (3) THEY SUBMITTED THEIR PERMANENT ACCOUNT NO. TO THE A.O. ( 4) THEIR IDENTITIES WERE ESTABLISHED BY THE FACT THAT NOTICES IS U/S.133(6) OF THE ACT. ISSUED BY THE A.O. WERE SERVED UPON THEM AND THEY FILED THEIR CONFIRMATIONS IN RESPONSE THERE OF, (5) THEY ALSO SUBMITTED COPIES OF EVIDENCE OF HAVING FILED THEIR RETURNS OF INCOME (6) THEY SUBMITTED THE RELEVANT PORTIONS OF THEIR BANK STATEMENTS EVIDENCI NG THE SOURCE OF PAYMENTS FOR THE SHARES SUBSCRIBED (7) THEY SUBMITTED COPIES OF THEI R BALANCE SHEETS AND PROFIT AND LOSS ACCOUNT OF THE RELEVANT PERIOD. 9 ITA NO.439/KOL/2009-M/S. MANIMAYA HOLDINGS PVT. LTD . A.Y.2005-06 IN THE LIGHT OF THE ABOVE FACTS, I AM OF THE V IEW THAT THE ASSESSEE HAS ESTABLISHED IDENTITY OF THE SUBSCRIBERS, GENUINENESS OF THE TRA NSACTIONS AND CREDITWORTHINESS OF THE PAYER. ACCORDINGLY, ALL INGREDIENTS REQUIRED FOR EX PLAINING A CASH CREDIT ARE FULFILLED. THEREFORE THE ADDITION MADE BY THE A.O. ON THIS ACC OUNT IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 16. AGGRIEVED BY THE ORDER OF CIT(A) REVENUE HAS R AISED GROUND NO.2 BEFORE THE TRIBUNAL 17. THE LEARNED DR PLACED RELIANCE ON THE ORDER OF AO. IT WAS SUBMITTED BY HIM THAT MERE FILING OF CONFIRMATION IN RESPONSE TO NOT ICE U/S.133(6) OF THE ACT WILL NOT BE SUFFICIENT TO EXPLAIN CREDIT IN THE BOOKS OF AN ASS ESSEE. THAT PROCESS WILL ONLY DISCHARGE THE PRIMARY ONUS THAT LAY ON THE ASSESSEE . IF THE AO WANTS TO EXAMINE THE CREDITOR, THE AO HAS TO RESORT TO PROVISIONS OF SEC .131 OF THE ACT AND SUMMON THE CONCERNED CREDITOR AND IF THE AO HAS SUFFICIENT MAT ERIAL TO DOUBT THE CREDITWORTHINESS OR GENUINENESS OF THE TRANSACTION, THE BURDEN WOULD SHIFT TO THE ASSESSEE TO SHOW THAT THE ABOVE TWO ASPECTS ARE ALSO FULLY AND SATISFACTO RILY EXPLAINED. SINCE THE SUMMONS U/S.131 OF THE ACT COULD NOT BE SERVED, THE ONUS WO ULD SHIFT TO THE ASSESSEE TO PRODUCE THE CREDITOR FOR EXAMINATION BY THE AO OR F URNISH THE CORRECT ADDRESS OF THE CREDITOR. IN THE EVENT OF THE ASSESSEE NOT IN THE KNOWLEDGE OF THE PRESENT WHEREABOUTS OF THE ASSESSEE, HE SHOULD SAY SO. THE ASSESSEE HA VING FAILED TO DO SO, THE ADDITION OUGHT TO HAVE BEEN SUSTAINED BY THE CIT(A). THE LE ARNED COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF CIT(A). REFERENCE IS ALSO MA DE TO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS VRINDAVAN FARMS (P )LTD IN ITA.71/2015 DATED 12.08.2015 WHEREIN THE HONBLE DELHI HIGH COURT TOO K A VIEW THAT WHEN COMPLETE PARTICULARS OF THE SHARE APPLICANTS WERE FURNISHED TO THE AO BY THE ASSESSEE AND IF THE AO FAILS TO CONDUCT AN INQUIRY NO ADDITION CAN BE M ADE IN THE HANDS OF THE ASSESSEE U/S 68 OF THE ACT. HE FURTHER SUBMITTED THAT THE A DDITIONAL SHARE CAPITAL RAISED BY THE ASSESSEE DURING THE PREVIOUS YEAR FROM THE AFORESAI D PARTIES WAS RS.46.50 LAKHS. THE OPENING BALANCE AS ON 01.04.2005 IN THE CASE OF TH ESE THREE PARTIES HAVE ALSO BEEN ADDED AS UNEXPLAINED CREDIT U/S 68 OF THE ACT. THE CHART ANNEXED TO THE ORDER WILL SHOW THE OPENING BALANCE AND THE SHARE CAPITAL RECE IVED FROM THREE PARTIES DURING THE 10 ITA NO.439/KOL/2009-M/S. MANIMAYA HOLDINGS PVT. LTD . A.Y.2005-06 PREVIOUS YEAR. IT WAS CONTENDED BY HIM THAT THE OPE NING BALANCE IN SHARE CAPITAL ACCOUNT CANNOT BE A SUBJECT MATTER OF SCRUTINY U/S 68 OF THE ACT AS THEY CANNOT SAID TO BE CREDIT ENTRY IN THE BOOKS OF ACCOUNT OF THE ASSE SSEE FOR THE PREVIOUS YEAR. IT WAS CONTENDED BY HIM THAT SEC.68 OF THE ACT APPLIES ONL Y TO CREDIT IN THE BOOKS OF ACCOUNT OF AN ASSESSEE FOR THE PREVIOUS YEAR AND THE OPENIN G BALANCE CANNOT BE SAID TO BE A CREDIT ENTRY IN THE BOOKS OF ACCOUNTS OF THE PREVIO US YEAR. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS RI GHTLY POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE ADDITIONAL S HARE CAPITAL BY THE ASSESSEE DURING THE PREVIOUS YEAR FROM THE AFORESAID PARTIES WAS R S.46.50 LAKHS. THE OPENING BALANCE AS ON 01.04.2005 IN THE CASE OF THESE THREE PARTIES HAVE ALSO BEEN ADDED AS UNEXPLAINED CREDIT U/S 68 OF THE ACT. THE CHART ANN EXED TO THE ORDER WILL SHOW THE OPENING BALANCE AND THE SHARE CAPITAL RECEIVED FRO M THREE PARTIES DURING THE PREVIOUS YEAR. AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL F OR THE ASSESSEE THE OPENING BALANCE IN SHARE CAPITAL ACCOUNT CANNOT BE A SUBJECT MATTER OF SCRUTINY U/S 68 OF THE ACT AS THEY CANNOT SAID TO BE CREDIT ENTRY IN THE BOOKS OF ACCO UNT OF THE ASSESSEE FOR THE PREVIOUS YEAR. AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL F OR THE ASSESSEE IN ANY EVENT THE OPENING BALANCE IN THE CAPITAL ACCOUNT COULD NOT HA VE BEEN ADDED U/S 68 OF THE ACT. THEREFORE ADDITION U/S.68 OF THE ACT TO THE EXTENT OF RS.41 LACS DESERVES TO BE DELETED AS TO THIS EXTENT THE CREDIT ENTRY IN THE BOOKS OF THE ASSESSEE IS NOT AN CREDIT OF THE PREVIOUS YEAR RELEVANT TO AY 2005-06. 19. AS FAR AS THE CREDIT ENTRY IN THE BOOKS OF THE ASSESSEE IN RESPECT OF THE AFORESAID THREE PARTIES DURING THE PREVIOUS YEAR TOTALLING RS .46.50 LACS IS CONCERNED, WE FIND THAT THE REVENUE HAS NOT DENIED THE FACT THAT IN THE CO URSE OF ASSESSMENT PROCEEDINGS THREE OF THE SHARE APPLICANTS NAMELY ELLENBARRIE COMMERCI AL LTD., NPEC CAPITAL MARKETS LTD AND RELIANCE OIL CO.PVT. LTD HAD FILED CONFIRMA TION BEFORE THE AO. IN RESPONSE TO NOTICE U/S 133(6) OF THE ACT THESE CONFIRMATIONS A RE BEING FILED BEFORE US AND COPY OF THE SAME IS AT PAGES 18, 29 AND 46 OF THE ASSESSEE S PAPER BOOK. ALL THE SUPPORTING PARTICULARS LIKE THE SHARE APPLICATIONS, ASSESSMENT PARTICULARS AND BALANCE SHEET ETC 11 ITA NO.439/KOL/2009-M/S. MANIMAYA HOLDINGS PVT. LTD . A.Y.2005-06 HAVE BEEN FURNISHED BEFORE THE AO. THUS IT IS CLEAR FROM THOSE CONFIRMATIONS THAT THE ASSESSEE HAS DISCHARGED HIS PRIMARY ONUS U/S 68 OF THE ACT. AO WANTED TO EXAMINE THOSE PARTIES BY ISSUING SUMMONS U/S 131 OF THE ACT . IN THE HEARING BEFORE THE AO ON 19.12.2007 THE AO CALLED UPON THE ASSESSEE TO PRODU CE THE AFORESAID THREE PARTIES FOR EXAMINATION. THE COMPLIANCE DATE WAS FIXED FOR 24.1 2.2007 BUT 20 TH AND 21 ST HAPPENED TO BE SATURDAY AND SUNDAY. IT IS THEREFORE CORRECT ON THE PART OF THE LEARNED COUNSEL FOR THE ASSESSEE TO CONTEND THAT THE TIME FRAME ALLOWED TO THE ASSESSEE BY THE AO WAS VERY SHORT. THE ASSESSEE HAD ONLY DISCHARGED HIS PR IMARY ONUS THAT LAY ON THE ASSESSEE. SINCE THE AO WANTED TO EXAMINE THE CREDI TOR, THE AO RESORTED TO PROVISIONS OF SEC.131 OF THE ACT AND ISSUED SUMMON TO THE CONC ERNED CREDITORS. ONLY ON SUCH EXAMINATION CAN THE AO COME TO A CONCLUSION WITH RE GARD TO IDENTITY, CAPACITY AND GENUINENESS OF THE TRANSACTION IN QUESTION. IF THE AO HAS SUFFICIENT MATERIAL TO DOUBT THE CREDITWORTHINESS OR GENUINENESS OF THE TRANSACT ION, THE BURDEN WOULD SHIFT TO THE ASSESSEE TO SHOW THAT THE ABOVE TWO ASPECTS ARE ALS O FULLY AND SATISFACTORILY EXPLAINED. SINCE THE SUMMONS U/S.131 OF THE ACT COULD NOT BE S ERVED, THE ONUS IN OUR VIEW WOULD SHIFT TO THE ASSESSEE TO PRODUCE THE CREDITOR FOR E XAMINATION BY THE AO OR FURNISH THE CORRECT ADDRESS OF THE CREDITOR. IN THE EVENT OF T HE ASSESSEE NOT IN THE KNOWLEDGE OF THE PRESENT WHEREABOUTS OF THE ASSESSEE, HE SHOULD SAY SO. THE ASSESSEE HAVING FAILED TO DO SO, THE CIT(A) OUGHT TO HAVE CALLED FO R A REMAND REPORT FROM THE AO AFTER EXAMINATION OF THE CREDITORS WITH A DIRECTION TO TH E ASSESSEE TO FURNISH THE CORRECT PARTICULARS OF THE ASSESSEE. THE FACT THAT THE TRA NSACTIONS IN QUESTION HAS BEEN DONE THROUGH BANKING CHANNELS WILL ALONE NOT BE SUFFICIE NT TO PROVE THE GENUINENESS OF THE TRANSACTIONS. IN OUR VIEW THE CIT(A) OUGHT TO HAV E RESORTED TO THE ABOVE PROCESS AND WITHOUT DOING SO OUGHT NOT TO HAVE DELETED THE ADDI TION MADE BY THE AO. SINCE THERE WAS LACK OF PROPER OPPORTUNITY TO THE ASSESSEE BEFO RE THE AO AND SINCE THE CIT(A) HAS ALSO NOT AFFORDED THE ASSESSEE AN OPPORTUNITY T O PRODUCE THE CREDITORS FOR EXAMINATION BY THE AO, WE ARE OF THE VIEW THAT IT W OULD BE JUST AND PROPER TO SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND REMAND TH E SAME TO THE AO FOR FRESH CONSIDERATION. THE ASSESSEE IS DIRECTED TO FURNISH THE PROPER ADDRESS FOR SERVICE ON THE CREDITORS AND ASSIST THE AO IN PROCURING THE PR ESENCE OF THE CREDITORS. THE AO 12 ITA NO.439/KOL/2009-M/S. MANIMAYA HOLDINGS PVT. LTD . A.Y.2005-06 WILL EXAMINE THE CREDITOR ON THEIR INVESTMENT IN TH E SHARE CAPITAL OF THE ASSESSEE ONLY TO THE EXTENT OF RS.46.50 LACS AS SET OUT IN THE AN NEXURE TO THIS ORDER. THE AO WILL DECIDE THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY GROUND NO.2 RAISED BY THE REVENUE IS TR EATED AS PARTLY ALLOWED. 20. IN THE RESULT THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSE. O RDER PRONOUNCED IN THE COURT ON 6.4.2016. SD/- SD/- [M.BALAGANESH ] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 6.4.2016. [RG PS] COPY OF THE ORDER FORWARDED TO: 1.M/S. MANIMAYA HOLDINGS PVT. LTD., 235/2A, A.J.C.B OSE ROAD, KOLKATA-700020. 2. I.T.O. WARD-12(4), KOLKATA. 3. CIT(A)-XXXII, KOLKATA 4. CIT-IV, KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER, ASST. REGISTRAR, ITAT, KOLKATA BENCHES 13 ITA NO.439/KOL/2009-M/S. MANIMAYA HOLDINGS PVT. LTD . A.Y.2005-06