ITO 12(2)(2), MUMBAI V. ELEGANT CREATIONS P . LTD, MUMBAI

ITA 5632/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6683 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 19-09-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S PADMAJA
• Assessee Lawyers: VIPUL J SHAH
• Keywords: Opportunity of being heard; Additional evidence
• Section: 143(3); 133(6); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 5632/MUM/2016 ASSESSMENT YEAR: 2012 - 13 INCOME TAX OFFICER 12(2)(2), ROOM NO. 146A, 1 ST FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. VS. M/S ELEGANT CREATIONS PVT. LTD. 701, MEENAXI APT. GOKULDHAM, GOREGAON (E), MUMBAI - 400063, PAN NO. AAACE5295L APPELLANT RESPONDENT REVENUE BY : MS. S. PADMAJA, DR ASSESSEE BY : MR. VIPUL J. SHAH , AR DATE OF HEARING : 17 /04/2018 DATE OF PRONOUNCEMENT: 28 /06/2018 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE REVENUE. THE RELEVANT ASSESSMENT YEAR IS 2012 - 13 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMIS SIONER OF INCOME TAX (APPEALS) - 20 , MUMBAI [IN SHORT CIT(A) ] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). M/S ELEGANT CREATIONS PVT. LTD. ITA NO. 5632/MUM/2016 2 2. THE GROUNDS OF APPEALS READ AS UNDER: 1. WHETHER ON THE FACT CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.3,85,00,000/ - MADE ON ACCOUNT OF NON - GENUINE SHARE CAPITAL AND SHARE PREMIUM. 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN ADMITTING AND CONSIDERI NG THE ADDITIONAL EVIDENCES OF THE ASSESSMENT ORDER AND NOT APPRECIATING THAT THE ASSESSEE HAS MISREPRESENTED THAT THESE EVIDENCES WERE SUBMITTED BEFORE THE ASSESSING OFFICER. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AN D THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE ASSESSEE IS A PRIVATE LIMITED COMPANY. IT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2012 - 13 ON 11.09.2012 DECLARING TOTAL INCOME OF RS.2,00,540/ - . IT HAD RECEIVED SHARE PREMIUM MONEY DURING THE FINANCIAL YEAR (FY) 2011 - 12 FROM THE FOLLOWING PERSONS . SR. NO. NAME OF THE CONCERN NO. OF SHARES ALLOTTED SHARE CAPITAL ( RS. ) SHARE PREMIUM ( RS. ) TOTAL AMOUNT PAID ( RS. ) 1. AARIKA STEEL AND METAL PVT. LTD. 2,500 25,000 4,75,000 5,00,000 2. PARRA NETA INDUSTRIES LTD. 27,500 2,75,000 52,25,000 55,00,000 3. SPECIALITY PAPERS LTD. 12,500 1,25,000 23,75,000 25,00,000 4. MANILAL M. LIMBANI 1,25,000 12,50,000 2,37,50,000 2,50,00,000 5. JAYSHREE M. LIMBANI 25,000 2,50,000 47,50,000 50,00,000 M/S ELEGANT CREATIONS PVT. LTD. ITA NO. 5632/MUM/2016 3 1,92,500 19,25,000 3,65,75,000 3,85,00,000 3.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) ISSUED NOTICE U/S 133(6) TO THE ABOVE PARTIES FROM WHOM SHARE SUBSCRIPTION MONEY WAS RECEIVED. HOWEVER, THE NOTICES WERE RETURNED UNSERV ED BY THE POSTAL AUTHORITIES IN RESPECT OF PARTY AT SERIAL NO. ( 1 ) , ( 2 ) , ( 4 ) AND (5). IN RESPECT OF PARTY AT SERIAL NO. (3), THE AO DID NOT RECEIVE ANY CONFIRMATION OR COMPLIANCE TILL THE DATE OF FINALIZATION OF THE ASSESSMENT ORDER. THEREAFTER, THE AO VIDE OFFICE LETTER DATED 15.03.2015 ASKED THE ASSESSEE TO PRODUCE THE PARTIES ALONG WITH BOOKS OF ACCOUNTS AND OTHER DETAILS TO ESTABLISH THE IDENTITY AND CREDITWORTHINESS OF THE ABOVE PARTIES. FURTHER, THE AO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE VIDE LETTER DATED 15.03.2015 STATING THEREIN THAT IN CASE OF FAILURE TO COMPLY WITH THE ABOVE, THE CLAIM MADE IN RESPECT OF SHARE APPLICATION MONEY RECEIVED SHALL BE TREATED AS NON - GENUINE AND ADDED BACK TO THE TOTAL INCOME. HOWEVER, THERE WAS NO COMPLIANCE BY THE ABOVE PARTIES. ALSO THE ASSESSEE FAILED TO PRODUCE THEM WITH SUPPORTING EVIDEN CE. CONSEQUENTLY, THE AO FAILED TO VERIFY THE TRANSACTION OF SHARE CAPITAL/SHARE PREMIUM MONEY RECEIVED BY THE ASSESSEE. THE AO NOTED THAT MERELY PRODUCING PAN NO. OR BALANCE SHEET ETC. OF INVESTING COMPANY DO NOT ESTABLISH THE IDENTITY OF THE PERSON. THE AO THUS HELD THAT THE ASSESSEE HAD NOT GENUINELY RECEIVED THE SHARE APPLICATION AMOUNT AND THEREFORE, HE MADE AN ADDITION OF RS.3,85,00,000/ - U/S 68 OF THE ACT. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) OBSERVED AT PARA 5. 5 OF HIS M/S ELEGANT CREATIONS PVT. LTD. ITA NO. 5632/MUM/2016 4 APPELLATE ORDER DATED 16.06.2016 THAT THREE COMPANIES WERE EXISTING AND THEY HAD CONFIRMED THAT THEY HAD CONTRIBUTED TO THE SHARE CAPITAL OF THE ASSESSEE. REGARDING THEIR CREDITWORTHINESS, THE LD. CIT(A) FURTHER OBSER VED THAT THE ASSESSEE HAD FILED COPY OF PAN CARDS, BANK STATEMENTS, BALANCE SHEET AND P&L ACCOUNT, SHARE APPLICATION FORMS, BOARD RESOLUTION EMPOWERING THE APPLICANT COMPANY TO INVEST IN THE ASSESSEE - COMPANY. THEN, THE LD. CIT(A) HELD : IT EMERGES OUT F ROM THE RECORD THAT THESE COMPANIES HAVE DULY RECORDED THESE INVESTMENTS IN THEIR BOOKS OF ACCOUNTS WHICH WERE DULY AUDITED DURING THE RELEVANT FINANCIAL YEAR. THUS, THE COMPANIES HAVE DEMONSTRATED THESE BALANCE IN THEIR BALANCE SHEETS IN THE SHAPE OF INVE STMENT AS WELL LOAN AND ADVANCES. AS REGARDS THE TWO APPLICANTS FOR SHARE APPLICATION MR. MANILAL H LIMBANI AND MRS. JAYSHREE H HIMBANI IT IS SUBMITTED THAT THESE ARE NON - RESIDENTS AND ARE BASED AT OMAN AND HENCE ARE NOT AVAILABLE AT THE INDIAN ADDRESS DUR ING THEIR STAY OVERSEAS. THEY HAVE CONTRIBUTED THE MONEY THROUGH BANKING CHANNEL. THE NEXT ISSUE IS ABOUT THE GENUINENESS OF THE TRANSACTION. THE ASSESSEE HAS PRODUCED THE DETAILS OF BANK ACCOUNTS. ALL SHARE APPLICATION MONEY HAVE BEEN ISSUED THROUGH BANKI NG CHANNEL. THERE IS NO CASH TRANSACTION WHICH COULD COMPEL ONESELF TO ASSUME THAT THE TRANSACTIONS WERE NOT GENUINE. DRAWING THE ABOVE CONCLUSION BY RELYING ON DECISION IN CIT V. LOVELY EXPORTS (P) LTD. 216 CTR 295 (SC), OASIS HOSPITALITIES P. LTD. (2011) 333 ITR 119 (DEL), SOPHIA FINANCE LTD. 205 ITR 98 (DEL) (FB), CIT V. CREATIVE WORLD TELEFILMS LTD. (2011) 333 ITR 100, CIT V. MOHANAKALA (2007) 291 ITR 278 (SC), CIT V. STELLAR INVESTMENT LTD . (1991) 192 ITR 287 (DEL), CIT V. GANGESHWARI METAL PVT. LTD . 361 ITR 10 (DEL), THE LD. M/S ELEGANT CREATIONS PVT. LTD. ITA NO. 5632/MUM/2016 5 CIT(A) DELETED THE ADDITION OF RS.3,85,00,000/ - MADE BY THE AO U/S 68 OF THE ACT. 5. BEFORE US, THE LD. DR SUBMITS THAT THE LD. CIT(A) HAS WRONGLY HELD THAT THE ADDITIONAL EVIDENCE WAS FILED BEFORE THE AO. THE CONCLUSION AR RIVED AT BY THE LD. CIT(A) ON THE BASIS OF SUCH ADDITIONAL EVIDENCE MAY NOT BE CONSIDERED AS THOSE DOCUMENTS WERE NOT FILED BEFORE THE AO. THUS THE LD. DR SUBMITS THAT THE ORDER PASSED BY THE LD. CIT(A) BE SET ASIDE. 6. ON THE OTHER HAND, THE LD. COUNSEL O F THE ASSESSEE FILES A PAPER BOOK (P/B) STATING THAT THE COPY OF THE DOCUMENTS CONTAINED THEREIN WERE FILED BEFORE THE AO. IT IS HIS CONTENTION THAT THE LD. CIT(A) HAS RIGHTLY ARRIVED AT A DECISION ON THE BASIS OF DOCUMENTS WHICH WERE BEFORE THE AO. THUS T HE LD. COUNSEL SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE BONE OF CONTENTION HERE IS WHETHER THE COPY OF DOCUMENTS RELIED ON BY THE LD. CIT(A) MENTIONED AT PARA 4 H EREINBEFORE WERE SUBMITTED BEFORE THE AO OR NOT. NOWHERE IN THE P/B , THERE IS EVIDENCE THAT THE COPY OF THE SAID DOCUMENTS WERE FILED BEFORE THE AO. THE AO HAS MENTIONED AT PARA 2 OF HIS ORDER DATED 27.03.2015 THAT THE ASSESSEE FAILED TO ESTABLISH THE CRED ITWORTHINESS OF THE ABOVE PARTIES BY FILING THE RELEVANT DOCUMENTS/EVIDENCE. ON THE OTHER HAND, THE LD. CIT(A) OBSERVED THAT THOSE DOCUMENTS WERE FILED BEFORE THE AO. M/S ELEGANT CREATIONS PVT. LTD. ITA NO. 5632/MUM/2016 6 AS WE HAVE MENTIONED ABOVE, THERE IS NO EVIDENCE EMANATING FROM THE P/B THAT THE COPY O F SAID DOCUMENTS WERE FILED BEFORE THE AO. ONCE THESE WERE FILED BEFORE THE CIT(A), HE SHOULD HAVE ALLOWED THE AO TO HAVE HIS SAY. RULE 46A(3) OF INCOME TAX RULES 1962 ENJOINS UPON THE FIRST APPELLATE AUTHORITY, IF HE THINKS IT PROPER TO ADMIT ADDITIONAL O R FRESH EVIDENCE, TO ALLOW AND AFFORD A REASONABLE OPPORTUNITY TO THE AO - (I) TO EXAMINE THE EVIDENCE OR DOCUMENT SO PRODUCED BY THE ASSESSEE APPELLANT; (II) TO CROSS - EXAMINE ANY EVIDENCE SO PRODUCED; AND (III) TO PRODUCE ANY EVIDENCE OR DOCUMENT OR AN Y WITNESS IN REBUTTAL OF THE ADDITIONAL EVIDENCE SO PRODUCED. UNLESS SUCH AN OPPORTUNITY HAS BEEN ALLOWED TO THE AO, THE FRESH EVIDENCE SO PRODUCED CANNOT BE TAKEN INTO ACCOUNT BY THE FIRST APPELLATE AUTHORITY. AS MENTIONED HEREINBEFORE THERE IS NO EVI DENCE THAT THE COPIES OF THE SAID DOCUMENTS WERE FILED BEFORE THE AO. THUS, WITHOUT ALLOWING THE AO TO HAVE HIS SAY, THE LD. CIT(A) HAS VIOLATED THE PROVISIONS OF RULE 46A. 7.1 IT IS WELL - SETTLED THAT IN ORDER TO DISCHARGE THE ONUS U/S 68, THE ASSESSEE MU ST PROVE THE FOLLOWING: (I) THE IDENTITY OF THE CREDITOR, (II) THE CAPACITY OF THE CREDITOR TO ADVANCE MONEY; AND M/S ELEGANT CREATIONS PVT. LTD. ITA NO. 5632/MUM/2016 7 (III) THE GENUINENESS OF THE TRANSACTION. IN MAJOR METALS LTD. V. UOI (WP NO. 397 OF 2011), THE HONBLE BOMBAY HIGH COURT HELD THAT: 25. NOW, IT IS THIS DECISION OF THE DELHI HIGH COURT AGAINST WHICH A SPECIAL LEAVE PETITION BEFORE THE SUPREME COURT CAME TO BE DISMISSED ON 11 JANUARY 2008. IN CIT V. LOVELY EXPORTS (P.) LTD. [2008] 6 DTR 308 (SC) WHILE DISMISSING THE SPECIAL LEAVE PETITI ON THE SUPREME COURT OBSERVED THAT IF THE SHARE APPLICATION MONEY WAS RECEIVED BY THE ASSESSEE FROM ALLEGEDLY BOGUS SHAREHOLDERS WHOSE NAMES WERE GIVEN TO THE ASSESSING OFFICER, THE DEPARTMENT WAS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN A CCORDANCE WITH LAW. ON THIS GROUND, THE SUPREME COURT WHILE DISMISSING THE SPECIAL LEAVE PETITION FOUND NO INFIRMITY IN THE JUDGMENT OF THE DELHI HIGH COURT. THE PRINCIPLE WHICH WAS EMPHASISED BY THE DELHI HIGH COURT IN THE CASE OF LOVELY EXPORTS WAS FOLLO WED BY ANOTHER DIVISION BENCH IN CIT V. VALUE CAPITAL SERVICES (P.) LTD. [2008] 307 ITR 334 (DELHI). IN CIT V. OASIS HOSPITALITIES (P.) LTD. [ 2011] 331 ITR 119 (DELHI), A DIVISION BENCH OF THE DELHI HIGH COURT OBSERVED THAT THE INITIAL BURDEN MUST BE UPON THE ASSESSEE TO EXPLAIN THE NATURE AND SOURCE OF THE SHARE APPLICATION MONEY RECEIVED. IN ORDER TO DISCHARGE THIS BURDEN, THE ASSESSEE IS REQU IRED TO PROVE: (A) IDENTITY OF SHAREHOLDER; (B) GENUINENESS OF TRANSACTION; AND (C) CREDIT WORTHINESS OF SHAREHOLDERS. AS FAR AS THE CREDITWORTHINESS OF THE SUBSCRIBER IS CONCERNED, THAT CAN BE PROVED BY PRODUCING A BANK STATEMENT OF THE SUBSCRIBER SHOWING THAT IT HAS SUFFICIENT BALANCE IN ITS ACCOUNT TO ENABLE IT TO SUBSCRIBE TO THE SHARE CAPITAL. THE DELHI HIGH COURT HELD THAT ONCE THE INITIAL BURDEN HAS BEEN DISCHARGED, THE OBSERVATIONS OF THE SUPREME COURT IN THE CASE OF LOVELY EXPORTS (P.) LTD. ( SUPRA ) WOULD SUGGEST THAT THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THE INDIVIDUAL ASSESSMENTS IN THE CASE OF ALLEGED BOGUS SHAREHOLDERS IN ACCORDANCE WITH LAW AND IS NOT REMEDILESS. THIS WOULD BE MORE SO WHEN THE ASSESSEE IS A PUBLIC LIMITED COMPANY AND HAS I SSUED SHARE CAPITAL TO THE PUBLIC AT LARGE AS IN SUCH M/S ELEGANT CREATIONS PVT. LTD. ITA NO. 5632/MUM/2016 8 CASES THE COMPANY CANNOT BE EXPECTED TO KNOW EVERY DETAIL PERTAINING TO THE IDENTITY AND FINANCIAL WORTH OF THE SUBSCRIBER. HOWEVER, THE INITIAL BURDEN ON THE ASSESSEE WOULD BE SOME WHAT HEAVY IN CASE T HE ASSESSEE IS A PRIVATE LIMITED COMPANY WHERE THE SHAREHOLDERS ARE CLOSELY RELATED BECAUSE IN SUCH A CASE THE ASSESSEE CANNOT FEIGN IGNORANCE ABOUT THE STATUS OF THE PARTIES. THE JUDGMENT OF A DIVISION BENCH OF THIS COURT IN CIT V. CREATIVE WORLD TELEFILM S LTD. [2011] 333 ITR 100 (BOM.) IS ALONG THE SAME LINES. 7.2 IN VIEW OF THE ABOVE POSITION OF LAW, WE SET ASIDE HIS ORDER AND RESTORE THE MATTER TO THE FILE OF THE AO TO MAKE A DE NOVO ORDER, KEEPING IN MIND OUR OBSERVATION AT PARA 7.1 HEREINBEFORE AND AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. WE DIRECT THE ASSESSEE TO FILE THE RELEVANT DOCUMENTS/EVIDENCE BEFORE THE AO. 8. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT 28 /06/2018 SD/ - SD/ - ( C.N. PRASAD ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 28 /06/2018 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI