ITO, New Delhi V. M/s. Central Plastics Pvt. Ltd., Delhi

ITA 65/DEL/2017

AI Insights

The case revolves around an appeal by the Income Tax Officer (ITO) against M/s Central Plastics Pvt Ltd concerning the assessment year 2012-13. The primary issue was the addition of Rs. 5,79,99,060 as income under section 68 of the Income-tax Act, 1961, due to alleged non-genuineness of share premium received by the assessee. The Assessing Officer had doubts about the creditworthiness of the share applicants and the genuineness of the transactions, leading to the addition. However, the CIT(A) reversed this decision, finding that the assessee had provided sufficient evidence to substantiate the transactions. The Tribunal, referencing various judicial precedents, supported the CIT(A)'s decision, emphasizing that the Revenue failed to substantiate its claims and that the assessee had adequately demonstrated the legitimacy of the share premium received.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 300854 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-05-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 03-01-2017
• Other Referred Cases: PCIT Vs. Radius Industries ITA No. 182/2022, CIT Vs. Kamadhenu Steel and Alloys Ltd 361 ITR 220, Commissioner of Income Tax Vs. Divine Leasing and Finance Ltd. [299 ITR 268], CIT Vs. M/s Creative World Telefilms Ltd. (in ITA No.2182 of 2009), Commissioner of Income Tax Vs. P. Mohanakala [(2007) 291 ITR 278 (SC)]
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gift; Share purchase agreement; Source of fund; Non compliance
• Section: 68; 69; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘B’ BENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No. 65/DEL/2017 [A.Y. 2012-13] The I.T.O Vs. M/s Central Plastics Pvt Ltd Ward – 5(4) 435/1, Budh Vihar Bazaar Road New Delhi Mundka, Delhi & J-215, Ground Floor, Saket, New Delhi PAN – AADCC 3214 A (Applicant) (Respondent) Assessee By : Shri Gaurav Kabra, CA Department By : Shri Shankar Lal Verma, Sr. DR Date of Hearing : 29.05.2023 Date of Pronouncement : 31.05.2023 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER:- This appeal by the Revenue is preferred against the order of the CIT(A)-2, New Delhi dated 16.09.2016 pertaining to Assessment Year 2012-13. 2 2. The solitary grievance of the Revenue is that the ld. CIT(A) erred in deleting the addition of Rs. 5,79,99,060/- made by the Assessing Officer u/s 68 of the Income-tax Act, 1961 [the Act, for short]. 3. Briefly stated, the facts of the case are that the assessee filed its return of income electronically on 26.09.2012 declaring loss of Rs. 18,581/-. Return was selected for scrutiny assessment and, accordingly, statutory notices were issued and served upon the assessee. Return was selected for scrutiny for the reason “Large Share Premium Received”. 4. While scrutinizing the return of income, the Assessing Officer noticed that the assessee has received share premium as under: Sl. No. Name of the share applicant No. of shares Face Value per Premium Per share Total value of shares 1 Confiance Trading Pvt. Ltd. 59523 10 410 2,49,99,660 2 Monarch Infraprojects Pvt. Ltd. 59523 10 410 2,49,99,660 3 Khandelwal SRK Estate Pvt.Ltd. 19047 10 410 79,99,740 Total 1,38,093 5,79,99,060 3 5. After collecting the addresses of the share applicant companies, the Assessing Officer issued notices u/s 133(6) of the Act. Share applicants were asked to submit the following documents in support of the transactions: (a) Copy of the ledger amount of the assessee maintained by the share applicants. (b) Confirmation for any receipt/payment made to the assessee (c) Copies of letter/correspondence/communication made with the assessee (d) Copy of contract/agreement forming the basis for such deal (e) Whether any advertisement in any media was given by the assessee regarding issue of such shares at premium (f) How was the share premium decided (g) Who negotiated and signed the deal (h) Copy of Bank Statement for F. Y. 2011-12. (i) Copy of ITR, Computation of Income, P&L A/c and audited Balance Sheet for F.Y. 2011-12 and 2012-13.” 4 6. The Assessing Officer observed that none of the share applicants responded. A show cause notice was issued to the assessee and the assessee was asked to file reply for the following questions: (a) You have not furnished any details, confirmation, identity, genuineness and creditworthiness of the share applicants who have provided premium. You are required to furnish a reply as to why the share application money received on premium amounting to Rs. 5,66,51,156/- should not be added to your income. (b) Please state as to how and when and on what basis the Share Premium was decided. Please give the name(s) and addresses of your companies directors who have decided the Share Premium. Also give the complete name and address of the directors of those companies who have been a party to the decision related to issuance of shares at premium. Please furnish the proof of correspondence i.e. letters, emails, advertisement etc related to this item. Please furnish copy of Board meeting minutes. (c) Furnish documentary evidence relating to the project or any asset for which profits will be gained/have been gained so far. (d) Any other details, explanation, confirmation which you may rely upon to prove your case.” 7. In its reply, the assessee furnished the balance sheet, confirmation and share application form, copy of ITR and bank statement of share holder and explained that all the share applicants have shown investments in their respective balance sheet. 5 8. In so far as premium amount is concerned, a report obtained from the Chartered Accountant was filed justifying the premium on the basis of future projections. 9. After considering the reply and documents, the Assessing Officer formed a belief that the share applicants have no credit worthiness as they have not done any business or earned any income and even the bank statement of the share applicants does not cover the entire financial year and have debited the entry preceding the credit entry. 10. The Assessing Officer further observed that as per the bank statement, receipt of funds have been shown from some source which is immediately followed by transfer of same amount of fund to another set of companies. According to the Assessing Officer, bank accounts are merely a conduit to give entries to different companies. 11. The Assessing Officer was convinced that the share applicants failed to establish the credit worthiness and completed the assessment proceedings by making an addition of Rs. 5,79,99,060/- u/s 68 of the Act. 6 12. The assessee carried the matter before the ld. CIT(A) and reiterated its claim of genuineness of the transactions and supplied supporting documents once again. 13. After considering the facts and submissions and documentary evidences and after referring to various judicial decisions, the ld. CIT(A) was satisfied that the balance sheet of the share applicant companies revealed that they had sufficient source of funds to invest in the company and referred to the following chart: Sl. No. Name of the Share Applicant Share Capital as per Balance Sheet (Rs.) Reserves as per Balance sheet (Rs.) Total Investment (Rs.) Investment in the appellant company (Rs.) 1. M/s. Confiance 14,88,880/- 4,86,10,800/- 9,35,59,500/- 2,49,99,660/- 2. M/s. Monarch Infraprojects Pvt. Ltd. 26,00,000/- 4,74,94,870/- 5,02,99,500/- 2,49,99,660/- 3. ___ M/s. Khandelwal SRK Estate Pvt. Ltd. 19,20,000 /- 3,20,80,000/- 4,87,34,540/- 79,99,740/ - 7 14. The ld. CIT(A) was convinced that the assessee has discharged the initial onus u/s 68 of the Act and directed the Assessing Officer to delete the impugned addition. 15. Before us, the ld. DR strongly supported the findings of the Assessing Officer and read the relevant observations of the Assessing Officer while making the addition u/s 68 of the Act. The ld. DR reiterated that none of the share applicants responded to the notice issued by the Assessing Officer u/s 133(6) of the Act. 16. Per contra, the ld. counsel for the assessee reiterated what has been stated before the lower authorities. 17. We have given thoughtful consideration to the orders of the authorities below. It is not in dispute that the assessee has furnished complete details in relation to share applicant companies, their confirmations, Income tax particulars, bank statements and financial statements. The evidences include the following: i) Name and address of the investor; ii) PAN of the investor; 8 iii) Income tax Jurisdiction of the investor; iv) Detail of amounts received and made of receipt, cheque no, date of cheque, amount of cheque; v) Confirmation by the investor company; vi) Share application form and share certificate; vii) Bank statement of the investor company; viii) Master data from ROC online sites of the investor company showing them as active company; and ix) Acknowledgement of return of income of the investor company alongwith audited financial statements. 18. The entire basis for dismissing the vortex of evidences is the fact that the notice u/s 133(6) of the Act issued by the Assessing Officer was returned unserved. 19. The Hon'ble High Court of Delhi in the case of PCIT Vs. Radius Industries ITA No. 182/2022 and CM Application Nos. 28829 to 28830/2022 order dated 04.07.2022 has categorically held that “It is settled law that non compliance of notice u/s 133(6) of the Act to all the entities giving unsecured loans cannot be sole basis for making addition u/s 68 of the Act”. 9 20. It would be per pertinent to refer to the observations made by the Hon'ble High Court of Delhi in the case of CIT Vs. Kamadhenu Steel and Alloys Ltd 361 ITR 220 and same read as under: “6. What kind of proof is to be furnished by the assessee, is the question. It has come up for discussion in various judgments rendered by this Court, other Courts as well as the Supreme Court. The law was discussed by a Division Bench of this Court in the case of Commissioner of Income Tax Vs. Divine Leasing and Finance Ltd. [299 ITR 268]. Since the entire gamut of case law as on that date was visited in the said judgment, we may initiate our discussion by taking note of this case. In this case, the Court highlighted the menace of conversion of unaccounted money through the masquerade or such channels of investment in the share capital of a company and thus stressed upon the duty of the Revenue to firmly curb the same. It was also observed that, in the process, the innocent assessee should not be unnecessary harassed. A delicate balance must be maintained. It was, thus, stressed: "15. There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessed it should not be harassed by the Revenue‟s 10 insistence that it should prove the negative. In the case of a public issue, the Company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The Company must, however, maintain and make available to the AO for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of Section 68 and 69 of the IT Act. The burden of proof can seldom be discharged to the hilt by the assessed; if the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company." XXX XXX 15. At this stage, we would like to refer to the judgment of the Bombay High Court in the case of CIT Vs. M/s Creative World Telefilms Ltd. (in ITA No.2182 of 2009 decided on 12.10.2009). The relevant portion of this order is reproduced below: 11 "In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PA/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the Assessing Officer to make proper investigation and reach the shareholders. The Assessing Officer did nothing except issuing summons which were ultimately returned back with an endorsement 'not traceable'. In our considered view, the Assessing Officer ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the Assessing Officer. In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is involved in the appeal. XXXX XXX 21. We may also usefully refer to the judgment of the Supreme Court in the case of Commissioner of Income Tax Vs. P. Mohanakala [(2007) 291 ITR 278 (SC)]. In that case, the assessee had received foreign gifts from one common donor. The payments were made to them by instruments issued by foreign banks and credited to the respective accounts of the assessees by negotiations through bank in India. The evidence indicated that the donor was to receive suitable compensation from the assessees. The AO held that the gifts though apparent were not 12 real and accordingly treated all those amounts which were credited in the books of account of the assessee, as their income applying Section 68 of the Act. The assessee did not contend that even if their explanation was not satisfactory the amounts were not of the nature of income. The CIT (A) confirmed the assessment. On further appeal, there was a difference of opinion between the two Members of the Appellate Tribunal and the matter was referred to the Vice President who concurred with the findings and conclusions of the AO and the CIT (A). On appeal, the High Court re- appreciated the evidence and substituted its own findings and came to the conclusion that the reasons assigned by the Tribunal were in the realm of surmises, conjecture and suspicion. On appeal to the Supreme Court, the Court while reversing the decision of the High Court held that the findings of the AO, CIT (A) and the Tribunal were based on the material on record and not on any conjectures and surmises. That the money came by way of bank cheques and was paid through the process of banking transaction as not by itself of any consequence. The High Court misdirected itself and erred in disturbing the concurrent findings of fact. While doing so, the legal position contained in Section 68 of the Act was explained by the Supreme Court by assessing that a bare reading of Section 68 of the Act suggests that (i) there has to be credit of amounts in the books maintained by the assessee; (ii) such credit has to be a sum of money during the previous year; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books or (b) the 13 explanation offered by the assessee, in the opinion of the AO, is not satisfactory. It is only then that the sum so credited may be charged to income tax as the income of the assessee of that previous year. The expression "the assessee offers no explanation" means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the AO is required to be formed objectively with reference to the material on record. Application of mind is the sine qua non for forming the opinion. In cases where the explanation offered by the assessee about the nature and source of the sums found credited in the books is not satisfactory there is, prima facie, evidence against the assessee, viz., the receipt of money. The burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was a receipt of an income nature. The burden is on the assessee to take the plea that even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature.” 14 21. In light of the aforementioned judicial rulings, we find that in the case in hand, the investors throughout have confirmed the investment and no material has been led by the Assessing Officer to even allege that such investment was made from the coffers of the assessee company as it is not the case of the Revenue that the assessee has purchased cheque by paying cash to the investor company. 22. The investors are corporate entities duly assessed to tax and have made investment through banking channel from their own sources which fact has neither been denied nor rebutted in the assessment nor by the first appellate authority. This is also evident from the chart exhibited elsewhere. 23. Considering the facts of the case in totality, we are of the considered opinion that the assessee has discharged the primary onus cast upon it by provisions of section 68 of the Act. It is not the case of the Revenue that the assessee is a beneficiary of accommodation entry. 15 24. The Assessment Year under consideration is Assessment Year 2012-13 and for this Assessment Year, the assessee is not required to establish source of source. 25. In view of the evidences brought on record and referred to hereinabove, we direct the Assessing Officer to delete the addition of Rs. 5,79,99,060/-. Ground raised by the Revenue stands dismissed. 26. In the result, the appeal of the Revenue in ITA No. 65/DEL/2017 is dismissed. The order is pronounced in the open court on 31.05.2023. Sd/- Sd/- [ANUBHAV SHARMA] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 31 st May, 2023. VL/ 16 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr.PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr.PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order