ITO, Ward - 11(2), Kolkata, Kolkata V. M/s. R.B. Horticulture & Animal Projects Co. Ltd., North 24 Parganas

ITA 632/KOL/2011

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3356 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 10-09-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 25-04-2011
• Court: TRIBUNAL
• Department Lawyers: PINAKI MUKHERJEE JCITLD
• Keywords: Unexplained cash credit; Share purchase agreement; Question of law
• Section: 143(3); 133(6); 68

Judgement Text

ITA NO. 632/KOL/2011--C-AM M/S. R.B HORTICULTURE & ANIMAL PROJ. CO.LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, K OLKATA BEFORE : SHRI M.BALAGANESH, ACCOUNTANT MEMBER, AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO. 632/KOL/2011 A.Y: 2007-08 INCOME TAX OFFICER VS. M/S. R.B HORTICULT URE & WARD 11(2), KOLKATA ANIMAL PROJECTS CO. LTD PAN: AA DCR5459C (APPELLANT) (RES PONDENT) FOR THE APPELLANT: SHRI PINAKI MUKHERJEE, J CIT, LD.DR FOR THE RESPONDENT: NONE APPEARED DATE OF HEARING: 11-01-2016 DATE OF PRONOUNCEMENT: 20 - 01-2016 ORDER SHRI M.BALAGANESH, AM THIS APPEAL OF THE REVENUE ARISES OUT OF THE ORDER OF THE LEARNED CIT (A),XII, KOLKATA IN APPEAL NO. 816/XII(2)/09-10 DATED 22- 02-2011 FOR THE ASSESSMENT YEAR 2007- 08 AGAINST THE ORDER OF ASSESSMENT PASSED BY THE LD.AO U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER AN ADDITION COULD BE MADE U/S 68 OF THE ACT IN THE HANDS OF THE ASSESSEE COMPANY WITH REGARD TO RECEIPT OF EQUITY SHARE CAPITAL , PREFERENCE SHARE CAPITAL AND PREFERENCE SHARE APPLICATION MONEY TOTALING TO RS. 60,00,000/- DURING THE YEAR IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASS ESSEE IS A PUBLIC LIMITED COMPANY INCORPORATED ON 2.1.2007 AND ACCORDINGLY THE ASST Y EAR 2007-08 IS THE FIRST YEAR OF ASSESSEE AND IS ENGAGED IN THE BUSINESS OF POULTRY FARMING AND OTHER ALLIED BUSINESS. DURING THE ASST YEAR UNDER APPEAL, THE ASSESSEE RAI SED THE FOLLOWING SHARE CAPITAL :- ITA NO. 632/KOL/2011--C-AM M/S. R.B HORTICULTURE & ANIMAL PROJ. CO.LTD 2 A) 100000 EQUITY SHARES OF RS 10 EACH FROM TOTALLY SEVEN PERSONS - RS.10,00,000 B) 25000 REDEEMABLE PREFERENCE SHARES OF RS 100 EA CH FROM 837 PERSONS RECEIVED IN CASH - RS. 25,00,000 IN ADDITION TO THE ABOVE, THE ASSESSEE WAS ALS O IN RECEIPT OF RS. 25,00,000/- BEING ADVANCE PREFERENCE SHARE CAPITAL RECEIVED IN CASH F ROM 744 PERSONS. THE ASSESSEE IS AN AGRO BASED COMPANY AND MOST OF T HE SHARE APPLICANTS WERE RESIDING IN RURAL AREAS, WERE HAVING ONLY AGRICULTU RAL INCOME AND NOT PROVIDED WITH BANKING FACILITY AND DO NOT HAVE TAXABLE INCOME UND ER THE ACT. THE ASSESSEE STATED THAT THE LIST OF SHAREHOLDERS REPRESENTING RETURN O F ALLOTMENT IN FORM NO.2 WAS DULY FILED WITH THE REGISTRAR OF COMPANIES. CERTAIN SHA RE APPLICANTS WERE ALSO PRODUCED BEFORE THE LEARNED AO TOGETHER WITH THEIR RESPECTIV E IDENTITY AND ADDRESS PROOF. EQUITY SHARE CAPITAL RS 10,00,000/- THE LEARNED AO OBSERVED THAT THE SHARES WERE ALLOTT ED TO SRI RANJIT KR. BAIDYA (MANAGING DIRECTOR) , SRI SUJIT BAIDYA (DIRECTOR), MS. SWAPNA BAIDYA, KAUSHIK BAIDYA, DIPAYAN ROY, CHANDANA BAIDYA AND ALAKESH SA RDAR TOTALING TO RS. 10,00,000/-. THE LEARNED AO CALLED FOR INFORMATIO N U/S 133(6) OF THE ACT TO RANJIT KR.BAIDYA, SWAPNA BAIDYA AND SUJIT BAIDYA AND OBSER VED THAT THE MONIES WERE RECEIVED IN CASH FOR ALLOTMENT OF EQUITY SHARES. THE OTHER SUBSCRIBERS OF EQUITY SHARES ALSO INTRODUCED THEIR CAPITAL IN CASH. THE LEARNED AO ADDED THE SAME AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT. PREFERENCE SHARE CAPITAL RS 25,00,000/- THE LEARNED AO OBSERVED THAT THE ASSESSEE HAD RECEI VED SUM OF RS. 25,00,000/- FROM 837 PERSONS IN CASH TO WHOM PREFER ENCE SHARES WERE ALLOTTED BY THE ASSESSEE. ON OBTAINING THE DETAILS OF THE NAMES A ND ADDRESSES OF THE SHARE APPLICANTS, ITA NO. 632/KOL/2011--C-AM M/S. R.B HORTICULTURE & ANIMAL PROJ. CO.LTD 3 THE LEARNED AO SOUGHT TO OBTAIN INFORMATION U/S 133 (6) OF THE ACT FROM BISHNUPADA SARKAR, NIRMAL PATRA, LIPIKA PATI AND NAGENDRA NATH PRAMANIK. HE FOUND THAT THE REPLY WAS RECEIVED FROM NAGENDRA NATH PRAMANIK STAT ING THAT HE HAD SUBSCRIBED TO PREFERENCE SHARE CAPITAL TO THE TUNE OF RS. 10,000/ - WITH THE ASSESSEE COMPANY BUT DID NOT PRODUCE ANY EVIDENCE REGARDING THE SOURCE OF FU ND. IN RESPECT OF BISHNUPADA SARKAR, NIRMAL PATRA AND LIPIKA PATI, THE NOTICES W ERE RETURNED UNSERVED BY THE POSTAL DEPARTMENT. THE ASSESSEE FURNISHED COPIES OF CONFI RMATION LETTERS FROM SHARE APPLICANTS NAMELY LIPIKA PATI, NIRANJAN SARKAR, BIS HNUPADA SARKAR, MANORANJAN MONDAL, SUKDEV DAS, NIRMAL PATRA AND BUPAL JODDAR. THE LEARNED AO OBSERVED THAT ALL THESE SHARE APPLICANTS HAD PAID MONIES IN CASH TO THE ASSESSEE COMPANY AND THEIR SOURCES OF FUNDS WERE NOT PROVED TO PROVE THE GENUI NENESS OF TRANSACTIONS. THE LEARNED AO ACCORDINGLY OBSERVED THAT THE ASSESSEE H AD NOT PROVED THE IDENTITY AND CREDITWORTHINESS OF SHARE APPLICANTS AND HAD NOT ES TABLISHED THE GENUINENESS OF TRANSACTIONS AND HENCE THE MONIES RECEIVED BY THE A SSESSEE COMPANY IN THE GUISE OF SUBSCRIPTION OF PREFERENCE SHARE CAPITAL IS TO BE T REATED AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT. ADVANCE PREFERENCE SHARE CAPITAL RS 25,00,000/- THE LEARNED AO OBSERVED THAT THE ASSESSEE HAD RECEI VED SUM OF RS. 25,00,000/- FROM 744 PERSONS IN CASH AS ADVANCE FOR PREFERENCE SHARE CAPITAL BY THE ASSESSEE. ON OBTAINING THE DETAILS OF THE NAMES A ND ADDRESSES OF THE SHARE APPLICANTS, THE LEARNED AO SOUGHT TO OBTAIN INFORMATION U/S 133 (6) OF THE ACT FROM CERTAIN PERSONS. HE FOUND THAT THE REPLY WAS RECEIVED FRO M NIKHIL DAS AND KADAM MONDAL AMONG OTHERS BUT THEY DID NOT PRODUCE ANY EVIDENCE ABOUT THEIR CREDITWORTHINESS BUT THEY HAD CONFIRMED THE PAYMENT OF MONIES IN CASH TO ASSESSEE TOWARDS ADVANCE FOR PREFERENCE SHARE CAPITAL. THE LEARNED AO ACCORDING LY OBSERVED THAT THE ASSESSEE HAD NOT PROVED THE IDENTITY AND CREDITWORTHINESS OF SHA RE APPLICANTS AND HAD NOT ITA NO. 632/KOL/2011--C-AM M/S. R.B HORTICULTURE & ANIMAL PROJ. CO.LTD 4 ESTABLISHED THE GENUINENESS OF TRANSACTIONS AND BRO UGHT THE ADVANCE TOWARDS PREFERENCE SHARE CAPITAL AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT. 4. ON FIRST APPEAL, THE ASSESSEE STATED THAT ALL THE DETAILS OF SHARE APPLICANTS HAVE BEEN PRODUCED BEFORE THE LEARNED AO. THE ASSESSEE STATED THAT IT IS ENGAGED IN AGRO BASED INDUSTRY AND ALMOST ALL THE SHARE SUBSCRIBERS ARE RESIDING IN RURAL AREAS AND HAVING AGRICULTURAL INCOME AND ARE AGRICULTURISTS W HO DO NOT HAVE TAXABLE INCOME. THE ASSESSEE FURTHER STATED IN RESPONSE TO NOTICES U/S 133(6) OF THE ACT, SHARE APPLICANTS WHO RECEIVED THE NOTICES IN TIME, REPLIE D TO THE LEARNED AO CONFIRMING THE CONTRIBUTIONS MADE BY THEM, TOWARDS EQUITY OR PREFE RENCE SHARE CAPITAL OR ADVANCE TOWARDS PREFERENCE SHARE CAPITAL. IN SOME CASES, THE LETTERS WERE RETURNED UNSERVED ONLY BY THE POSTAL DEPARTMENT AND EVEN IN SUCH CASE S, THE CONFIRMATIONS WERE FILED BY THE ASSESSEE BEFORE THE LEARNED AO. THE SHARE APPL ICANTS ALSO CONFIRMED THAT THE SOURCES OF FUNDS ARE FROM THEIR AGRICULTURAL ACTIVI TIES. IN SOME CASES, THE PARTIES WERE LIVING IN REMOTE VILLAGES IN SUNDERBANS AREA AND HE NCE THE POSTAL DEPARTMENT HAD RETURNED THE NOTICES UNSERVED. CERTAIN PARTIES LIKE SRI NIRMAL PATRA, SUKDEV DAS, BHUPAL JODDAR, MANORANJAN MONDA, BISHNUPADA SARKAR AND NIRANJAN SARKAR CAME PERSONALLY TO MEET THE LEARNED AO AND SUBMITTED THE IR REPLY. HOWEVER, THE LEARNED AO CHOSE NOT TO TAKE ANY DEPOSITION FROM THEM. TH E ASSESSEE STATED THAT THE CREDITWORTHINESS OF THE SUBSCRIBERS CANNOT BE DOUBT ED BECAUSE ALL OF THEM ARE AGRICULTURISTS AND THEY HAVE ALL CONTRIBUTED SMALL AMOUNTS IN CASH TOWARDS SHARE SUBSCRIPTION. THE ASSESSEE COMPANY HAD ISSUED SHA RE CERTIFICATES TO ALL OF THEM WHEREVER SHARES ARE ALLOTTED IN THE ASST YEAR UNDER APPEAL AND FOR THE ADVANCE AGAINST PREFERENCE SHARES, THEY HAVE BEEN ALLOTTED SHARES I N THE NEXT ASST YEAR. THE ASSESSEE HAS COMPLIED WITH THE LEGAL FORMALITIES BY FILING F ORM 2 AND FORM 5 TO REGISTRAR OF COMPANIES WHICH WERE ALSO PRODUCED BEFORE THE LEARN ED AO. THE COPIES OF VOTER ID CARDS AND SHARE CERTIFICATES WERE ALSO ENCLOSED BEF ORE THE LEARNED AO TO ESTABLISH THE EXISTENCE OF SHARE APPLICANTS. THE CASH FLOW STATE MENTS OF SHARE APPLICANTS WERE ALSO PRODUCED BEFORE THE LEARNED AO. THE LEARNED CIT( A) FOUND THAT THE LEARNED AO ITA NO. 632/KOL/2011--C-AM M/S. R.B HORTICULTURE & ANIMAL PROJ. CO.LTD 5 HAS ADDED THE ENTIRE SHARE CAPITAL AND ADVANCE PREF ERENCE SHARE CAPITAL BY ISSUING LETTERS TO ONLY FEW OF THE SHARE SUBSCRIBERS OUT OF THE LARGE NUMBER OF THEM. THE LEARNED CIT(A) DULY APPRECIATED THE CONTENTIONS OF THE ASSESSEE AND ALSO RELIED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS LOVELY EXP ORTS PVT LTD REPORTED IN 216 CTR 195 (SC) AND ACCORDINGLY DELETED THE ADDITIONS U/S 68 OF TH E ACT. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE U S ON THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.10/ - LAKH ON ACCOUNT OF SHARE CAPITAL THOUGH GENUINENESS AND CREDITWORTHINESS OF TRANSACTIONS COULD NOT BE PROVE D BY THE ASSESSEE. 2. LD. CIT(A) ERRED IN DELETING ADDITIONS OF RS. 25 LAKH TOWARDS REDEEMABLE PREFERENCE SHARE AND RS. 25 LAKH ADVANCE AGAINST PREFERENCE SHARE WITHOUT APPRECIATING THE M ERITS OF THE CASE AS WELL AS NOT EXAMINING THE IDENTITY, GENUINE NESS AND CREDITWORTHINESS. 3. LD. CIT(A) ERRED IN APPRECIATING THE FEASIBILIT Y OF RECEIVING SUCH HUGE AMOUNT OF SHARE CAPITAL BY A NE WLY FORMED COMPANY FROM 1581 PERSONS BY CASH WITHIN A VERY SHO RT PERIOD. 5. THE LEARNED DR PRAYED FOR SET ASIDE OF THIS ISSUE TO THE FILE OF THE LEARNED AO TO ENABLE THE LEARNED AO TO VERIFY THE SHARE SUBSCRIBE RS IN FULL. 6. WE HAVE HEARD THE LEARNED DR AND WHEN THE CAS E WAS CALLED ON FOR HEARING , NONE WAS PRESENT ON BEHALF OF THE ASSESSEE. HOWEV ER, WE FIND FROM THE FILE THAT THE ASSESSEE HAD FILED A DETAILED PAPER BOOK AND WRITTE N SUBMISSIONS. HENCE THE CASE IS DISPOSED OFF BASED ON THE ARGUMENTS OF THE LEARNED DR AND WRITTEN SUBMISSIONS AND PAPER BOOK ALREADY AVAILABLE ON RECORD. THE FAC TS STATED IN THE LEARNED CIT(A) WERE NOT CONTROVERTED BY THE LEARNED DR BEFORE US. WE FIND THAT THE ASSESSEE HAD GIVEN THE COMPLETE DETAILS ABOUT THE SHARE APPLICANTS CLE ARLY ESTABLISHING THEIR IDENTITY , CREDITWORTHINESS AND GENUINENESS OF TRANSACTION PRO VED BEYOND DOUBT AND HAD DULY DISCHARGED ITS ONUS IN FULL. NOTHING PREVENTED TH E LEARNED AO TO MAKE ENQUIRIES FROM THE ASSESSING OFFICERS OF THE CONCERNED SHARE APPLICANTS FOR WHICH EVERY DETAILS ITA NO. 632/KOL/2011--C-AM M/S. R.B HORTICULTURE & ANIMAL PROJ. CO.LTD 6 WERE VERY MUCH MADE AVAILABLE TO HIM BY THE ASSESSE E. WE FIND THAT THE RELIANCE PLACED BY THE LEARNED CITA ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS LOVELY EXPORTS (P) LTD REPORTED IN (2008) 21 6 CTR 195 (SC) IS VERY WELL FOUNDED, WHEREIN, IT HAS BEEN VERY CLEARLY HELD TH AT THE ONLY OBLIGATION OF THE COMPANY RECEIVING THE SHARE APPLICATION MONEY IS TO PROVE THE EXISTENCE OF THE SHAREHOLDERS AND FOR WHICH THE ASSESSEE HAD DISCHAR GED THE ONUS OF PROVING THEIR EXISTENCE AND ALSO THE SOURCE OF SHARE APPLICATION MONEY RECEIVED. 6.1. WE ALSO FIND THAT THE IMPUGNED ISSUE IS ALSO COVERED BY THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS ROSEBERRY MERCANTILE (P) LTD IN GA NO. 3296 OF 2010 ITAT NO. 241 OF 2010 DATED 10.1.2011 , WHEREIN THE QUESTIONS RAISED BEFORE THEIR LORDSHIPS AND DECISION RENDERED THEREO N IS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) OUGHT TO HAVE UPHELD THE ASSESSMENT ORDER AS THE TRANSACTION ENTERED INTO BY THE ASSESSEE WAS A SCHEME FOR LAUNDERING BLACK MONEY IN TO WHITE MONEY OR ACCOUNTED MONEY AND THE LD. CIT(A) OUGHT TO HAVE HE LD THAT THE ASSESSEE HAD NOT ESTABLISHED THE GENUINENESS OF THE TRANSACT ION. HELD AFTER HEARING THE LEARNED COUNSEL FOR THE APPELLANT AND AFTER GOING THROUGH THE DECISION OF THE SUPREME COURT IN THE CASES OF C IT VS M/S LOVELY EXPORTS PVT LTD, WE ARE AT ONE WITH THE TRIBUNAL BE LOW THAT THE POINT INVOLVED IN THIS APPEAL IS COVERED BY THE SAID SUPR EME COURT DECISION IN FAVOUR OF THE ASSESSEE AND THUS, NO SUBSTANTIAL QUE STION OF LAW IS INVOLVED IN THIS APPEAL. THE APPEAL IS DEVOID OF ANY SUBSTA NCE AND IS DISMISSED. 6.2. WE FIND THAT THE ISSUE IS ALSO COVERED BY THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS VALUE CAPITAL SERVICES P LTD REPORTED IN (2008) 307 ITR 334 (DEL) , WHEREIN IT WAS HELD THAT : IN RESPECT OF AMOUNTS SHOWN AS RECEIVED BY THE ASS ESSEE TOWARDS SHARE APPLICATION MONEY FROM 33 PERSONS, THE ASSESSING OF FICER REQUIRED THE ASSESSEE TO PRODUCE ALL THESE PERSONS. WHILE ACCEP TING THE EXPLANATION AND ITA NO. 632/KOL/2011--C-AM M/S. R.B HORTICULTURE & ANIMAL PROJ. CO.LTD 7 THE STATEMENTS GIVEN BY THREE PERSONS THE ASSESSING OFFICER FOUND THAT THE RESPONSE FROM THE OTHERS WAS EITHER NOT AVAILABLE O R WAS INADEQUATE AND ADDED AN AMOUNT OF RS. 46 LAKHS PERTAINING TO 30 PE RSONS TO THE INCOME OF THE ASSESSEE. THE COMMISSIONER (APPEALS) UPHELD TH E DECISION OF THE ASSESSING OFFICER. ON APPEAL, THE TRIBUNAL SET ASI DE THE ORDER OF THE COMMISSIONER (APPEALS) AND DELETED THE ADDITIONS. ON FURTHER APPEAL : HELD, DISMISSING THE APPEAL, THAT THE ADDITIONAL BU RDEN WAS ON THE DEPARTMENT TO SHOW THAT EVEN IF THE SHARE APPLICANT S DID NOT HAVE THE MEANS TO MAKE THE INVESTMENT, THE INVESTMENT MADE BY THEM ACTUALLY EMANATED FROM THE COFFERS OF THE ASSESSEE SO AS TO ENABLE IT TO BE TREATED AS THE UNDISCLOSED INCOME OF THE ASSESSEE. NO SUBSTANTIAL QUESTION OF LAW AROSE. 6.3. WE FIND THAT THE ARGUMENT OF THE LEARNED DR TO SET ASIDE THIS ISSUE TO THE FILE OF THE LEARNED AO FOR VERIFICATION OF SHARE SUBSCRIBER S WOULD NOT SERVE ANY PURPOSE AS THE RATIO DECIDED IN THE ABOVE CASES IS THAT IN ANY CASE, NO ADDITION COULD BE MADE IN THE HANDS OF THE RECIPIENT ASSESSEE. IN VIEW OF T HE AFORESAID FINDINGS AND RESPECTFULLY FOLLOWING THE DECISION OF THE APEX COURT (SUPRA), J URISDICTIONAL HIGH COURT (SUPRA) AND DELHI HIGH COURT (SUPRA) , WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) AND ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 20 -01-2016 SD/- ( S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE 20 -01/2016 ITA NO. 632/KOL/2011--C-AM M/S. R.B HORTICULTURE & ANIMAL PROJ. CO.LTD 8 1.. THE APPELLANT: INCOME TAX OFFICER, WARD 11(2) , P7 CHOWRINGHEE SQ, 6 TH FL., KOL-69. 2 THE RESPONDENT: M/S. R.B HORTICULTURE & ANIMAL P ROJECTS CO.LTD VILL + P.O HASANABAD DIST 24 PGS(N) PIN 743426. 3 /THE CIT, 4.THE CIT(A ) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR **PRADIP SPS COPY OF THE ORDER FORWARDED TO:-