Belgium Glass & Ceramics Pvt. Ltd., Baroda V. The ACIT,Circle-1(1), Ahmedabad

ITA 552/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0189 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 22-07-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 14-02-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Unexplained cash credit
• Section: 68

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M BELGIUM GLASS & CERAMICS (P) LTD., PADRA JAMBUSAR HIGHWAY ROAD, DABHASA VILLAGE, PADRA, DIST. BARODA. VS. THE ASSTT. CIT, CIRCLE 191), BARODA. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI S. N. SOPARKAR, AR REVENUEBY:- SHRI R. K. DHANESTA, DR O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS:- (1) THE LD. CIT(A)-VI, BARODA HAS ERRED IN LAW AND IN F ACTS IN CONFIRMING THE ACTION OF THE AO IN MAKING AN ADDITI ON OF RS.20,48,500/- TREATING THE RECEIPT OF SHARE APPLIC ATION MONEY AS UNEXPLAINED CASH CREDIT RECEIVED FROM VARIOUS PE RSONS. THE ADDITION OF RS.20,48,500/- BEING ERRONEOUS IN LAW A ND IN FACTS IS PRAYED TO BE DIRECTED TO BE DELETED. (2) THE LD. CIT(A)-VI, BARODA HAS ERRED IN LAW AND IN F ACTS IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING AN A MOUNT OF RS.3,00,000/- OUT OF SALARY PAID TO RELATIVES OF TH E DIRECTORS, IN COMPLETE DISREGARD TO THE AVAILABLE FACTS AND LAW. THEREFORE, THE CLAIM AS MADE BY THE APPELLANT, IS PRAYED TO BE ALL OWED. 2. THE FACTS OF THE CASE ARE THAT THE COMPANY IS EN GAGED IN THE BUSINESS OF MANUFACTURING OF GLASS FRIT & GLAZE MIX TURE. THE ASSESSEE ITA NO.552/AHD/2008 ASST. YEAR :2003-04 2 FILED RETURN OF INCOME DECLARING AN INCOME OF RS.7, 15,107/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT ASSESSEE HAS RECEIVED SHARE APPLICATION MONEY FROM 15 PERSONS TO TALING TO RS.20,,48,500/-. THE DETAILS OF THE NAMES, AMOUNT R ECEIVED ARE GIVEN BY THE AO IN THE ASSESSMENT ORDER. HE NOTICED THAT THE PERSONS FROM WHOM AMOUNT WERE RECEIVED, WERE NOT ASSESSED TO TAX. THE AO REQUIRED THE ASSESSEE TO ESTABLISH THE IDENTITY, CREDITWORTHINES S AND GENUINENESS OF THE TRANSACTIONS. THE ASSESSEE SUBMITTED CONFIRMATIONS AND AVAILABLE PROOF IN RESPECT OF CREDITWORTHINESS OF THE SUBSCRIBERS TO T HE CAPITAL. IN RESPECT OF THE PERSONS WHO WERE NOT ASSESSED TO TAX THE ASSESS EE FURNISHED CONFIRMATION AND COPY OF EXTRACTS FROM 7/12 RECORDS SHOWING THE AGRICULTURAL HOLDINGS BY THE RESPECTIVE SUBSCRIBERS . THE ASSESSEE PRODUCED TWO PERSONS NAMELY SHRI NAVINBHAI KARSANBH AI DESAI AND SHRI RAMESHBHAI KANJIBHAI SUREJA FROM WHOM A SUM OF RS.1 ,78,500/- AND RS.1,00,000/- WERE TAKEN AS SHARE APPLICATION MONEY . IT WAS ADMITTED BY THESE TWO PERSONS THAT THEY HAVE INVESTED MONEY IN THE COMPANY BUT FURTHER SUBMITTED THAT THEY HAVE NOT RECEIVED THE S HARE CERTIFICATE SO FAR. THE AO WAS, HOWEVER, NOT SATISFIED WITH THIS EXPLAN ATION AND TREATED THE SUM OF RS.20,48,500/- AS ASSESSEES INCOME UNDER SE CTION 68. 3. THE LD. CIT(A), HOWEVER, CONFIRMED THE ADDITION BY HOLDING THAT ASSESSEE HAS FAILED TO DISCHARGE THE ONUS WHICH LAY ON HIM. HE IN THIS REGARD OBSERVED AS UNDER :- 5.4 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE REMAND REPORT AS WELL AS THE REPLY TO THE REMAND REPORT. S ECTION 68 ESSENTIALLY CONTAINS A DEEMING PROVISION WHICH APPLIES WHEN THE ASSESSEES EXPLANATION ABOUT A CASH CREDIT FOUND IN HIS BOOKS IS REJECTED. 5.4.1 IT IS NECESSARY FOR THE ASSESSEE TO PROVE PR IMA FACE THE TRANSACTION WHICH RESULTS IN A CASH CREDIT IN HIS BOOKS OF ACCOUNT. S UCH PROOF INCLUDES PROOF OF THE IDENTITY OF HIS CREDITOR, THE CAPACITY OF SUCH CRED ITOR TO ADVANCE THE MONEY AND, LASTLY, THE GENUINENESS OF THE TRANSACTION. THESE THINGS MU ST BE PROVED PRIMA FACIE BY THE 3 ASSESSEE AND ONLY AFTER THE ASSESSEE HAS ADDUCED EV IDENCE TO ESTABLISH PRIMA FACIE THE AFORESAID, THE ONUS SHIFTS ON THE DEPARTMENT. MEREL Y ESTABLISHING THE IDENTITY OF THE CREDITOR IS NOT ENOUGH [SHANKAR INDUSTRIES VS. CIT (1978) 114 ITR 689 (CAL); C. KANT & CO. VS. CIT (1980) 126 ITR 63 (CAL); PRAKASH TEXT ILE AGENCY VS. CIT (1980) 121 ITR 890 (CAL); ORIENTAL WIRE INDUSTRIES P. LTD. VS. CIT (1981) 131 ITR 688 (CAL); CIT VS. UNITED COMMERCIAL & INDUSTRIAL CO. (P) LTD. (1991) 187 ITR 596, 599(CAL)]. 5.4.2 MERE FILING OF CONFIRMATORY LETTERS DOES NOT DISCHARGE THE ONUS THAT LIES ON THE ASSESSEE [BHARAT P. LTD. VS. CIT (1978) 111 ITR 951 (CAL); CIT VS. J. WALKER & CO. (1979) 117 ITR 690, 694 (CAL); CIT VS. UNITED COMME RCIAL & INDUSTRIAL CO. (P) LTD. (1991) 187 ITR 596, 599 (CAL)]. 5.4.3 ALL THE SAID DEPOSITORS WERE CLAIMED TO BE AG RICULTURISTS. HOWEVER, DETAILS OF SALE BILLS OF HAVING SOLD THE CROPS, AGRICULTURAL E XPENSES, ETC. WERE NOT PRODUCED IN ASSESSMENT OR IN APPEAL STAGE. ALSO IT COULD NOT BE SHOWN THAT AFTER TAKING CARE OF HOUSEHOLD EXPENSES, SOCIAL OBLIGATIONS AND AGRICULT URAL EXPENSES THESE CREDITORS WOULD HAVE SUFFICIENT FUNDS AVAILABLE TO JUSTIFY SU CH INVESTMENTS. MERE FILING OF AFFIDAVITS AT LATER STAGE OF PROCEEDINGS IS SELF SE RVING PIECE OF EVIDENCE AND IT CANNOT FULFILL THE BASIC REQUIREMENTS OF SECTION 68. NO DO UBT THE AFFIDAVIT IS PIECE OF EVIDENCE BUT THE GENUINENESS OF THE AFFIDAVIT AND THE AVERME NT MADE THEREIN HAS TO BE PROVED WHICH THE APPELLANT HAS FAILED TO DO -CIT VS. TECHN ICAL GLASS INDUSTRIES 281 ITR 61 (ALL). 5.4.4 THE ASSERTIONS BY AO IN THE REMAND REPORT AND THE ASSESSMENT ORDER HAVE NOT BEEN REBUTTED BY THE AUTHORISED REPRESENTATIVE. THE PRIMARY REQUIREMENTS OF ESTABLISHING THE CASH CREDITS, THUS, HAVE NOT BEEN SATISFIED BY THE APPELLANT. THEREFORE, THE CREDITS OF RS.20,48,500/- HAVE BEEN JUSTIFIABLY ADDED BY AO TO THE TOTAL INCOME. 4. AGAINST THIS THE LD. AR FOR THE ASSESSEE SUBMITT ED THAT ONCE IT IS ADMITTED FACT THAT ASSESSEE HAS RECEIVED SHARE APPL ICATION MONEY AND SUBSCRIBERS HAVE ADMITTED TO HAVE SUBSCRIBED INTO T HE SHARE CAPITAL AND NO FURTHER ENQUIRIES ARE REQUIRED TO BE MADE. HE REFER RED TO VARIOUS DECISIONS OF THE COURTS INCLUDING THAT OF HON. APEX COURT IN CIT VS. LOVELY EXPORTS (P) LTD. (2008) (ITI)-GJX-0181 (SC). IN FAC T HON. DELHI HIGH COURT HAD DECIDED THE ISSUE IN CIT VS. M/S DIVINE L EASING & FINANCE LTD. (2009) 299 ITR 268 (DEL). IN CIT VS. LOVELY EX PORTS (P) LTD. (SUPRA) SLP FILED BY THE DEPARTMENT HAS BEEN DISMIS SED BY HON. APEX COURT AND THE DECISION OF HON. DELHI HIGH COURT WAS AFFIRMED HOLDING THAT IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE COMPANY FROM ALLEGED BOGUS SHARE HOLDERS WHOSE NAMES ARE GI VEN TO THE AO THEN 4 THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THEIR I NDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW. 5. THE LD. DR ON THE OTHER HAND, RELIED ON THE ORDE RS OF AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE ISSUE OF SHARE A PPLICATION MONEY HAS BEEN CONSIDERED BY VARIOUS COURTS AND IT HAS BEEN H ELD THAT WHERE SHARE APPLICANTS ADMIT TO HAVE MADE THE PAYMENT OF SHARE APPLICATION MONEY, NO FURTHER ENQUIRY IS REQUIRED TO BE MADE INTO THE CREDITWORTHINESS AND FURTHER GENUINENESS OF THE TRANSACTION IN THE CASE OF THE ASSESSEE COMPANY. IN OTHER WORDS, THE INGREDIENTS OF SECTION 68 ARE DEEMED TO HAVE BEEN SATISFIED IF IDENTITY OF SHARE APPLICANT IS KNOWN AND HE ADMITS TO HAVE MADE THE PAYMENT OF SHARE APPLICATION MONEY . THIS VIEW HAS BEEN HELD BY VARIOUS COURTS AND THE TRIBUNAL AS UND ER :- 1. A-ONE HOUSING COMPLEX VS. ITO (2008) 299 ITR 327 IT AT (DEL) 2. CIT VS. ELECTRO POLYCHEM LTD. (2007) 294 ITR 661 (M AD) 3. CIT VS. ELAK INVESTMENT (P) LTD. (2006) 287 ITR 135 . 4. UMA POLYMERS (P) LTD. VS. DCIT (2006) 284 ITR 001 ( AT) (JODH) 5. SHRI BARKHA SYNTHETICS VS. ACIT (2006) 283 ITR 377 (RAJ) IN THIS REGARD HON. DELHI HIGH COURT IN CIT VS. M/S DIVINE LEASING & FINANCE LTD. (SUPRA) LAID DOWN ABOVE PROPOSITION OF LAW WHICH HAS NOW BEEN APPROVED BY THE HON. APEX COURT IN CIT VS. LO VELY EXPORTS (P) LTD. (SUPRA) AS UNDER :- CAN THE AMOUNT OF SHARE MONEY BE REGARDED AS UNDIS CLOSED INCOME UNDER S.68 OF IT ACT, 1961? WE FIND NO MERIT IN THIS SPECIAL LEAVE P ETITION FOR THE SIMPLE REASON THAT IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSE SSEE COMPANY FROM ALLEGED BOGUS 5 SHARE HOLDERS, WHOSE NAMES ARE GIVEN TO THE AO, THE N THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN A CCORDANCE WITH LAW. HENCE, WE FIND NO INFIRMITY WITH THE IMPUGNED JUDGMENT. SUBJECT TO THE ABOVE, SPECIAL LEAVE PETITION IS DIS MISSED. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS WE HOLD THAT ONCE IDENTITIES OF THE SUBSCRIBERS ARE ESTABLISHED AND THEY CONFIRM TO HAVE PAID THE MONEY TO THE ASSESSEE COMPANY THE INGREDIENTS OF SECTION 68 ARE SATISFIED AND THERE IS NO CASE OF MAKING ANY ADDITION UNDER SECTI ON 68. THIS GROUND OF ASSESSEE IS ACCORDINGLY ALLOWED. 7. GROUND NO.2 RELATES TO DISALLOWANCE OF RS.3 LACS OUT OF SALARY PAID TO THE RELATIVES OF THE DIRECTORS. AS PER THE FACTS AVAILABLE ON RECORD THE ASSESSEE COMPANY PAID A SUM OF RS.1,50,000/- EACH T O SMT. SEJAL BHAVESH VACHHANI AND SMT. BENABEN HITESH VACHHANI WHO WERE RELATED TO THE DIRECTORS OF ASSESSEE COMPANY. WHEN ASKED TO JUSTIFY PAYMENTS VIS--VIS THEIR EDUCATION QUALIFICATIONS AND SERVIC ES RENDERED BY THEM IT WAS REPLIED THAT BOTH THE LADIES ARE GRADUATES AND DEVOTED FOUR DAYS IN A WEEK TOWARDS OFFICE ADMINISTRATION AND BOTH ARE ASS ESSED TO TAX. BUT NO EVIDENCE IN SUPPORT OF THIS CONTENTION WAS GIVEN. T HE AO DID NOT FIND THE REPLY SATISFACTORY AND MADE THE ADDITION. THE LD. C IT(A) CONFIRMED THE ADDITION ON THE GROUND THAT THERE IS NO EVIDENCE OF ANY SERVICES RENDERED BY THE TWO LADIES. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT(A) ON THIS POINT. ONCE THERE IS NO EVIDENCE OF RENDERING ANY SERVICE BY THE TWO LADIES TO THE ASSESSEE COMP ANY THE QUESTION OF ANY PAYMENT TO THEM WOULD NOT ARISE. THEREFORE, THE CLAIM THAT THE EXPENSES SAID TO HAVE BEEN INCURRED FOR THE BUSINES S PURPOSES OF THE 6 ASSESSEE CANNOT BE ACCEPTED. ACCORDINGLY, THIS GROU ND OF ASSESSEE IS REJECTED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 6/8/2010 SD/- SD/- (BHAVNESH SAINI) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBE R AHMEDABAD, DATED : 6/8/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD