M/s Davalagiri property Developers Private Limited , Bangalore V. The Deputy Commissioner of Income Tax Circle-2(1)(2), Bangalore

ITA 568/BANG/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 4754 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 19-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V. SRINIVASAN
• Keywords: Unexplained cash credit; Income from undisclosed sources; Search and seizure; Onus to prove; Set aside
• Section: 68; 133(6); 195; 251; 191; 43; 48; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No.568/Bang/2019 Assessment year: 2009-10 M/s. Davalagiri Property Developers Pvt. Ltd., Prerana Chambers, No.26, 2 nd Floor, Nehru Nagar Main Road, Kumara Park West, Bangalore – 560 048. PAN: AACCD 3575A Vs. The Deputy Commissioner of Income Tax, Circle 2[1][2], Bangalore. APPELLANT RESPONDENT Appellant by : Shri V. Srinivasan, Advocate Respondent by : Shri Priyadarshi Mishra, Addl.CIT(DR)(ITAT), Bengaluru. Date of hearing : 09.03.2022 Date of Pronouncement : 11.04.2022 O R D E R Per Chandra Poojari, Accountant Member This appeal by the assessee is directed against the order dated 31.8.2018 of the CIT(Appeals)-2, Bengaluru for the assessment year 2009-10 on the following grounds:- “1. The orders of the authorities below in so far as they are against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The learned CIT[A] is not justified in upholding the addition made of Rs.2,00,00,000/- u/s. 68 of the Act in respect of ITA No.568/Bang/2019 Page 2 of 15 the share application money received by the appellant from Shree Balaji Krupa Enterprises under the facts and in the circumstances of the appellant's case. 3. The learned CIT[A] ought to have appreciated that the appellant had proved the identity, genuineness and capacity of the aforesaid share applicant and hence, the appellant had discharged the onus cast upon it and hence, there was no justification to sustain the addition under the facts and the circumstances of the appellant's case. 4. The learned CIT[A] is not justified in holding that the proviso to sec. 68 of the Act has retrospective effect without appreciating that the said proviso casts a fresh burden on the appellant to establish the source of the source of share application money received and hence, the same cannot be regarded as having retrospective operation. 5. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s. 234-B and 234-C of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled. 6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.” 2. The facts are that the appellant had received share application money of Rs. 2,00,00 000/-, from M/s. Sree Balaji Krupa Enterprises No. 25 & 26, 2nd BMT Complex, Margosa Road, Malleshwaram, Bangalore- 560003. The details of the receipt are as under:- Sl. No. Date Chq.No. Name of Bank Amount 1. 2.7.2008 546719 Andhra Bank Rajajinagar Branch 1,00,00,000 2. 2.7.2008 546721 Andhra Bank Rajajinagar Branch 1,00,00,000 Total 2,00,00,000 ITA No.568/Bang/2019 Page 3 of 15 3. This investment as share application money came to light during AY 2010-11 wherein it was treated as unexplained cash credits. The AO made addition of Rs.2 crores as unexplained cash credits. The CIT(Appeals) deleted the addition for AY 2010-11 with the finding that at the most this cash credit could be considered for the AY 2009-10. Accordingly for the AY 2009-10 under appeal, the AO called the assessee to prove the transaction. The assessee filed confirmation letter by furnishing all the details to establish the identity and the details of bank account as the transaction was made through banking channels. The AO issued letter u/s. 133(6) to the creditor calling for confirmation of the said transaction. Sine there was no response, the AO concluded the assessment by making the addition. The CIT(Appeals) called for a factual report from the AO of Sri Harsha Vardhan, Prop. of Sree Balaji Krupa Enterprises (creditor). confirmed the order of the AO and upheld the order of the AO. Against this, the assessee is in appeal before us. 4. The ld. AR submitted that in this case, for the AY 2010-11 the AO himself issue notice u/s. 133(6) to the creditor, Sree Balaji Krupa Enterprises and the party produced the following documents:- • The Cheque details • The Bank statement • The Copy of Memorandum of Understanding. • PAN • Confirmation of the transaction 5. As such, according to the ld. AR, the assessee proved the identity and capacity of the lendor and genuineness of the transaction. However, the observation of the AO that the party was not in a position to explain the ITA No.568/Bang/2019 Page 4 of 15 source of the amount is contrary to the above facts. Without going through the details furnished by the creditor, the AO stopped the enquiry at that point and called the assessee to prove the creditworthiness of the concerned creditor. He could have collected the same from the party itself as that party was willing to cooperate with the department. He submitted that the assessee had discharged the primary onus by furnishing the name, address, PAN, bank statement, copy of MOU, etc. The ld. AR submitted that it cannot be said that the creditor did not furnish the details sought from them. He submitted that the assessee is not required to establish the source of source and if primary onus is discharged, the burden shifts to the department. The AO needs to discharge his burden and reach an objective satisfaction. The amount can be assessed in the hands of the creditor under other applicable provisions of law like section 69. He submitted that in the present case there was no enquiry by the AO or addition made in the hands of the creditor. Being so, no addition could be made on this count in the hands of the assessee. He relied on the following decisions :- (1) CIT v. Lovely Exports (P) Ltd. [2008] 216 CTR 195 (SC) wherein it was held that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of the assessee company. (2) CIT v. Stellar Investment Ltd. [2001] 115 Taxman 99 (SC) : It was held that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, could the amount of share capital be regarded as undisclosed income of the assessee. It might be that there were some bogus shareholders in whose names shares had been issued and the money might have been provided by some other persons and if the assessment of the persons who were alleged to have really advanced the money ITA No.568/Bang/2019 Page 5 of 15 was sought to be reopened, that would have made some sense but there was no reason why this amount of increased share capital could be assessed in the hands of the company itself. (3) CIT v. Divine Leasing & Finance Ltd. [2007] 158 Taxman 440 (Del) : The Delhi High Court held that the amount of share application money received by a Company from alleged bogus shareholders could not be regarded as undisclosed income u/s. 68 when the assessee furnished details regarding shareholders. If the names of the alleged bogus shareholders are given to the AO, then the department is free to proceed to reopen their individual assessments in accordance with law. The Supreme Court upheld this view. (4) CIT v. STL Extrusion (P.) Ltd. [ 2011] 333 ITR 269 : Where Assessee had duly discharged its onus by furnishing names, age, address, date of filing application of share, number of shares of each subscriber, the AO was not justified in making addition u/s 68. (5) CIT v. Arunananda Textiles (P.) Ltd. [2011] 203 Taxman 32 (Mag.)/15 taxmann.com 226 (Kar.) It was not for the Assessee to place material before the Assessing Officer about creditworthiness of the shareholders. Once the company had given the addresses of the shareholder and their identity was not in dispute, it was for the Assessing Officer to make further inquiry with the investors about their capacity to invest the amount in shares. (6) CIT v. Dwarkadhish Investment (P.) Ltd. [2010] 194 Taxman 43/ [2011] 330 ITR 298 (Delhi) Once the Assessee proves the identity of creditors / share applicants, by either furnishing their PAN or income —tax assessment numbers, and shows genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, onus of proof would shift to revenue. (7) CIT v. Creative World Telefilms Ltd. [20111 203 Taxman 36/333 ITR 100/15 taxtnann.com 183 (Bom.) Once documents like PAN card, bank account details or details from the bankers were given by the Assessee, onus shifts upon the Assessing Officer and it is on him to reach the ITA No.568/Bang/2019 Page 6 of 15 shareholders. The Assessing Officer could not burden the Assessee merely on the ground that summons issued to the investors were returned hack with the endorsement not traceable. (8) CIT v. Lovely Exports (P) Ltd -:(2009) 319 ITR (St) 0005 Addition under section 68 Share application money--SLP was filed before Supreme Court and question before court was; can the amount of share money be regarded as undisclosed income under section 68 of IT Act, 1961. Held: No merit is found in SLP. for the• simple' reas.0 that if the share 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, no infirmity is found with the impugned judgment. Special Leave Petition is dismissed. It cannot be regarded as undisclosed income of Assessee-company. (9) CIT v. Gobi Textiles Ltd. (2001) 294 ITR 0663: Burden of proof--Alleged share application money not proved to be genuine--AO found that Assessee had been in receipt of certain sums as share application money during the relevant assessment year. He noted that out of share application substantial sums were received from persons who were not income tax assesses. Hence the Assessee was required to prove genuineness of the transactions by producing persons who had deposited more than Rs. l lakh. The Assessee- company produced salary certificates of 10 persons and land holding papers of certain properties but did not produce any person. On consideration of the particulars furnished by the Assessee, the AO was of the view that except one person others were not capable of depositing money in cash• out of their savings. On that view, the AO treated the share application money as unexplained cash credit under section 68 and added• the same in the income of the Assessee. The AO also levied penalty under section 271(1) (c). The CIT (A) upheld the order of AO however, the Tribunal allowed appeal of the Assessee. The Tribunal in its order has recorded a clear finding to the effect that in the instant case, the AO had listed the shareholders and found some of them were retired ITA No.568/Bang/2019 Page 7 of 15 employees of the bank, some of them were working employees of the bank and rest of them were agriculturists. The AO did not dispute that those persons did not exist. Though the assessing officer directed the Assessee-company to produce the persons, he did not take the minimum pain of issuing notice to any one of the persons when the details about them were very much available with him. Thus the AO failed in his duty and obligation to disprove the claim of the Assessee to the effect that the depositors were not genuine persons. The Tribunal further recorded a finding that the action of the AO in arriving at a conclusion that the persons with low salary income would not have mobilised the fund was based on Wild guess and doubting the capacity of the persons on surmises. It further held that the AO failed to prove that the shareholders were not possessing money to pay the share application money. According to the Tribunal, the Assessee discharged the onus cast upon it by providing the basic materials and it was the AO who failed to prove the contrary. Held: Rightly so. The Assessee had discharged the onus cast upon it by providing the basic materials and it was the AO who failed to prove the contrary and, therefore, as the explanation offered by the Assessee could not be considered to be unreasonable or not acceptable as the sum w4s credited in books of account maintained by the Assessee. Penalty deletion by, the Tribunal was, therefore, justified. (10) CIT v. Electro Polychem Ltd. 294 ITR 0661 :(2008) Income from undisclosed sources--Addition under section 68Share application money--Even if it was assumed that the subscribers to the increased share capital was not genuine and share application was in the name of fictitious names, under no circumstances could the amount of share capital be regarded as undisclosed income of the Assessee-company. (11) CIT v. Winstral Petrochemicals (P) Ltd. :( 2011) 330 ITR 0603. Income from undisclosed sources--Addition under section 68Share application money--The share application money was received by the Assessee-company through banking channels and it was finding of fact by the Tribunal that Assessee had established identity of subscribers from the documents, i.e., confirmation from applicants, PAN number, ITA No.568/Bang/2019 Page 8 of 15 details of PAN, address of Assessee-company and other details, therefore, addition could not be made on the ground that on one and same address Assessee-company was carrying business with other company as there was no legal bar to more than one company being registered at the same addresses. (12) CIT v. Orbital Communication (P) Ltd. :( 2010) 327 ITR 0560. Income from undisclosed sources--Addition made under section 68--AO made an addition of Rs. 1,70,00,000 on account of share application money received by the Assessee- company. Commissioner (Appeals) and Tribunal had deleted the addition on the ground that Assessee had produced substantial evidence to establish the identity and creditworthiness of the shareholder and the genuineness of share application. Therefore, non-production of shareholder could not be considered to negate the evidentiary value of rest of the material. Held: Share application money cannot be regarded as undisclosed income of Assessee under section 68. Accordingly appeal was dismissed. (ANX-15) (13) Asstt. CIT v. Venkateshwar Ispat (P) Ltd. :( 2009) 319 ITR 0393. Income from undisclosed sources--Addition under section 68Share application money-¬In assessment proceedings AO called upon Assessee to establish identity and creditworthiness of share applicants. In order to confirm investment, notices were issued to shareholders to their given addresses. In some cases letters sent were returned UN served with remarks that address was not complete or other similar reason. AO not satisfied with Assessee's explanation made addition. Commissioner (Appeals) accepted Assessee's appeal on basis of additional evidence and also keeping in view the fact that for subsequent assessment year shareholders investment was confirmed during assessment proceedings. Tribunal dismissed revenue's appeal. Held: If share application money was received by Assessee from alleged bogus shareholders whose names were given to AO, then department was free to proceed to reopen their individual assessments in accordance with law, but it could not be regarded as undisclosed income of Assessee. In view of binding judgment of Supreme Court in Lovely Exports (P) ITA No.568/Bang/2019 Page 9 of 15 Ltd. (2009) 319 ITR (St.) 5(SC) as also findings recorded by Commissioner (Appeals) which had been subsequently confirmed by Tribunal, there arose no question of law in appeal. (14) CIT v. Value Capital Services (P) Ltd. :( 2008) 307 ITR 0334. Income from undisclosed sources--Addition under section 68- -Cash receipts for share transactions--Assessee received share application money from 33 persons. AO required Assessee to produce all these persons. AO accepted the explanation and the statement given by three of the persons and found that the response from others was either not available or was inadequate. AO made addition to the total income of Assessee. CIT (A) upheld the view taken by AO. Tribunal accepted the existence of applicants and set aside the order of the CIT (A). Held: If the existence of applicant is proved, no further inquiries are necessary. It is difficult for the Assessee to show the creditworthiness of strangers. That the additional burden is on the revenue to show that even if the applicant does not have the means to make the investment, the investment made by the applicant actually emanated from the coffers of the Assessee so as to enable the investment to be treated as the undisclosed income of the Assessee. (15) CIT v. Kishor Lai Construction Ltd. :( 2010) 191 TAXMAN 0194. Income from undisclosed sources--Addition under section 68--Share application money--Assessee had sold certain shares to M/s. Y, during the financial year ending on 31-3-1999. A sum of Its. 49, 41,030 was payable by M/s. Y as on 31-3-1999 on this account. This amount was paid in the year in question by cheques drawn on Union Bank of India (UBI). The search and seizure operation was conducted in the premises of M/s. Y in March, 2002. On 7-3-2002 statements of Sh. M and Sh. O.P. of M/s. Y were recorded under section 132(4). In this statement Sh. M denied having any account in U. This was the reason for opening the assessment by issuing notice under section 148. AO treated the receipt of aforesaid consideration as sham and bogus in view of the statement of Mr. M. that M/s. Y had no such account with 'UBI. According to AO Assessee had introduced his own unaccounted cash through the above transactions. AO, therefore, concluded that ITA No.568/Bang/2019 Page 10 of 15 this receipt was to be treated as unexplained cash credit and made the addition under section 68, as the AO was of the view that Assessee failed to discharge its onus to prove genuineness of the transaction. Held: Assessee had proved its. identity ,by. filing confirmation of 'Y' and their assessment particulars. Payment received in relevant year was of debt due in earlier year. Payment was received through cheque and encashed in UI31 through 'Y' account. Despite 'Y' denial, record of bank proves the same thus the Assessee had proved its burden of proof, now it was for the revenue to discharge its burden of proof to bogus transaction. 6. Thus the ld. AR submitted that in case of cash credit like deposits, advances, share capital, loans or others, the following is the position:- • Primary onus is on the Assessee • An Assessee does not have to establish source of source; • If primacy onus is discharged, burden shifts to Tax Department; • AO needs to discharge his burden and reach an objective satisfaction; • AO has discretion to assess cash credits; • In a given case the amount can be assessed in the hands of investor/lender under Other applicable provisions of law, like, section 69. 7. According to the ld. AR, in the present case, the assessee has discharged the burden upon him and no addition could be made in the hands of assessee. 8. Regarding amendment to section 68 of the Act, the ld. AR submitted that it provides that if any sum is found credited in the books of an Assessee and he either: (a) Does not offer any explanation about nature and source of money; or (b) Explanation offered by him is not to the satisfaction of Assessing Officer; ITA No.568/Bang/2019 Page 11 of 15 then, such amount can be taxed as his income. 9. The primary onus of satisfactory explanation of such credits is on Assessee. Where the Assessee had discharged its primary onus by furnishing names, age, address, date of, filing application of share, documents like PAN card, bank account details Or detail from the bankers, memorandum of understanding, share application money could not be regarded as undisclosed income u/s. 68 in view of the decisions cited supra. 10. It was submitted that the amendment carried to section 68 of the Act with effect from 01-04-2013, clearly justifies the above understanding, as the amendment was incorporated, particularly, to overcome the in sufficiency of section 68 and the judicial pronouncements. This is very much evident from the Objective of the amendment. Finance Act, 2012 inserts two provisos to section 68, with effect from 1-4-2013 (assessment year 2013-14). First proviso to enlarges the onus of a closely held company and provides that if a closely held company receives any shares application money or share capital or share premium or the like, it should also establish the source of source (that is, the resident from whom such money is received). Second proviso provides that the first proviso will not apply if the receipt if sum (representing share application money or share capital or share premium etc.) is from a VCC or VCF [referred in section 10(23FB)]. 11. Objective of the amendment — As explained in the Memorandum: "Certain judicial pronouncements have created doubts about the onus of proof and the requirements of this section, particularly, in cases where the sum which is credited as share capital, share premium etc. 12. Judicial pronouncements, while recognizing that the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company needs to be prevented, have ITA No.568/Bang/2019 Page 12 of 15 advised a balance to be maintained regarding onus of proof to be placed on the company. The Courts have drawn a distinction and emphasized that in case of private placement of shares the legal regime should be different from that which is followed in case of a company seeking share capital from the public at large. 13. In the case of closely held companies, investments are made by known persons. Therefore, a higher onus is required to be placed on such companies besides the general onus to establish identity and credit worthiness of creditor and genuineness of transaction. This additional onus needs to be placed on such companies to also prove the source of money in the hands of such shareholder or persons making payment towards issue of shares before such sum is accepted as genuine credit. If the company fails' to discharge the additional onus, the sum shall be treated as income of the company and added to its income. 14. The ld. AR submitted that from the above, it is very clear that the share application money of Rs. 2,00,00,000/- could not have been treated as undisclosed income u/s 68 of the Act, as the "share application money" was outside the scope of the said section, in view of the fact the assessee had discharged its primary onus as held by the decisions cited supra. The widened scope of the section 68 is effective from 01-04-2013 and the impugned order is for the AY 2010-11. 15. On the other hand, the ld. DR submitted that in the case of Pragati Financial Management P. Ltd. [2017] 82 taxmann.com 12 (Calcutta) it was held that even under unamended provisions of section 68, an income-tax officer was not precluded from making an inquiry as to true nature and source of sum found credited in books even if same was credited as receipt of share application money. Further, the Calcutta High Court in the case of Subhlakshmi Vanijya P. Ltd. v. CIT, 43 ITR 48 (Cal) held that amendment ITA No.568/Bang/2019 Page 13 of 15 to section 68 by insertion of proviso is clarificatory and hence retrospective. He supported the orders of the lower authorities. 16. We have heard both the parties and perused the material on record. In this case, the assessee received alleged money from M/s. Sree Balaji Krupa Enterprises No. 25 & 26, 2nd BMT Complex, Margosa Road, Malleshwaram, Bangalore- 560003. The details of the receipt are as under:- Sl. No. Date Chq.No. Name of Bank Amount 1. 2.7.2008 546719 Andhra Bank Rajajinagar Branch 1,00,00,000 2. 2.7.2008 546721 Andhra Bank Rajajinagar Branch 1,00,00,000 Total 2,00,00,000 17. This amount was treated as share application money in the assessment year under consideration. The assessee filed cheque details, bank account statement, copy of MoU, confirmation of the transactions with PAN No. By going through the above documents, the lower authorities were not satisfied regarding the identity, credit-worthiness and genuineness of the transactions. The documents furnished by the assessee clearly established the identity of the party from whom assessee received the said share application money. The assessee has proved that it received the money from Sree Balaji Krupa Enterprises having its PAN AJHPM 1729J. Regarding capacity of the share applicant, the assessee produced copy of the balance sheet and statement of income along with return copy for AY 2009-10. This amount of Rs.2 crores has been duly reflected under the head “Other Advances” at page 215 of the PB as below:- ITA No.568/Bang/2019 Page 14 of 15 “OTHER ADVANCES Davalagiri Property Developers Pvt. Ltd. 2,00,00,000 .............. .............. ............. .............. 14,07,89,816” 18. As such, the assessee proved the capacity of Shri Harsha Vardhan, to make the share application money to the assessee. Further, there is a MoU dated 22.10.2008 with the assessee to invest a sum of Rs.5 crores. Out of this, Rs.2 crores is invested by Sree Balaji Krupa Enterprises, which has been filing return of income with the department and assessee filed copy of that return for AY 2009-10 bearing ack. No.91372457123125 placed at page 110 of PB. Further the amount has been received by the assessee through banking channel for which the assessee furnished the cheque Nos. issued on Andhra Bank, Rajajinagar Branch. This shows the genuineness of the transaction. Being so, the issue is squarely covered by the judgment of the Supreme Court in the case of Lovelyl Exports, 216 CTR 195 (SC) and the judgment of the Karnataka High Court in the case of CIT v. ASK Brothers Ltd., 333 ITR 111 (Kar) and CIT v. Arunananda Textiles P. Ltd. , 333 ITR 116 (Kar) and the judgment of the Supreme Court in CIT v. Stellar Investments Ltd., 251 ITR 263 (SC). Being so, in our opinion, the assessee discharged all the burden cast upon it with regard to identity and capacity of the lender and genuineness of the transaction and the department is not able to bring on record any material contrary to these facts brought on record by the assessee. Therefore, we are of the view that the share application money of Rs.2 crores is a genuine investment made by Shri Harsha Vardhan, Proprietor of Sree Balaji Krupa Enterprises, No. 25 & 26, 2nd BMT Complex, Margosa Road, Malleshwaram, Bangalore- 560003. As such, we have no hesitation in deleting the addition made by the AO and confirmed by the CIT(Appeals). Accordingly, the grounds raised by the assessee are allowed. ITA No.568/Bang/2019 Page 15 of 15 19. In the result, the appeal by the assessee is allowed. Pronounced in the open court on this 11 th day of April, 2022. Sd/- Sd/- ( BEENA PILLAI ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore, Dated, the 11 th April, 2022. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.