M/s. Layog Properties Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 753/DEL/2017

AI Insights

The case involves M/s. Layog Properties Pvt. Ltd., a private limited company engaged in real estate, which appealed against the order of the Commissioner of Income Tax (Appeals) confirming the addition of Rs. 36,00,000 to its income for the Assessment Year 2012-13. The addition was made under section 68 of the Income Tax Act, 1961, due to unexplained cash credits from two shareholders, Late Shri Arvind Mittal and Shri Avdesh Mittal, who were relatives of the directors and had subscribed to shares in cash. The Tribunal found that the assessee did not satisfactorily explain the source of these cash investments, despite the shareholders' affidavits claiming income from agricultural activities and sales of residential plots.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302723 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 09-08-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 09-02-2017
• Other Referred Cases: CIT vs. Lovely Exports P. Ltd., CIT vs. Focus Exports Pvt. Ltd., Principal CIT vs. NRA Iron & Steel (P) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Gift; Source of fund; Retrospective amendment; Valuation report; Onus to prove; Set aside
• Section: 131; 68; 271(1)(c); 40(b); 234B; 133(6); 208; 22

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E”: NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND MS. ASTHA CHANDRA, JUDICIAL MEMBER ITA No. 753/Del/2017 Asstt. Year 2012-13 O R D E R PER ASTHA CHANDRA, JM The appeal filed by the assessee is directed against the order dated 21.11.2016 of the Ld. Commissioner of Income Tax (Appeals)-5, Delhi (“CIT(A)”) pertaining to Assessment Year (“AY”) 2012-13. 2. The assessee has taken the following grounds of appeal:- “1. That on the facts and in the circumstances of the petitioner company's case, the learned Commissioner of Income tax (Appeals) erred in law and on facts in not holding, that the sufficient opportunity was not given to the Petitioner Company to present its case before the learned assessing officer. 2. That on the facts and in the circumstances of the petitioner company's case, the learned Commissioner of Income tax (Appeals) erred in law and on facts in upholding the action of the learned assessing officer in making the additions of Rs.3600000 under section 68 of the Income tax M/s. Layog Properties Pvt. Ltd. N-18, First Floor, Malviya Nagar, New Delhi – 110 017 PAN AABCL9997R Vs. ITO Ward-15(2) New Delhi. (Appellant) (Respondent) Assessee by: Shri Salil Aggarwal, Sr. Advocate, Shri Shailesh Gupta, Advocate, Shri Madhur Aggarwal, Advocate Department by: Ms. Smita Singh, Sr. DR Date of Hearing: 10.08.2023 Date of pronouncement: 13.09.2023 ITA No. 753/Del/2017 2 Act, 1961 for the reasons stated in the order of the first appellate authority. 3. That on the facts and in the circumstances of the petitioner company's case, the learned Commissioner of Income tax (Appeals), erred in law and on facts in confirming the action of the learned assessing officer charging interest amounting to Rs.432438 and Rs. 10976 respectively under section 234B and 234C of the Act.” 3. Ground No.1 has not been pressed. It is dismissed as not pressed. 4. Ground No. 3 relating to charging of interest under section 234B and 234C of the Income Tax Act, 1961 (the “Act”) is consequential in nature. 5. We now consider ground No. 2 which relates to confirmation of addition of Rs. 36,00,000/- under section 68 of the Act by the Ld. CIT(A). Briefly stated, the assessee is a private limited company engaged in the business of real estate and dealing in immovable properties. It filed its return for AY 2012-13 on 27.09.2012 declaring income of Rs. 17,12,600/-. The case was selected for scrutiny. In response to statutory notice(s) along with questionnaire, compliance was made. The Ld. Assessing Office (“AO”) found that during the year the assessee had raised share application money/share premium from six parties. Out of these two parties namely Late Shri Arvind Mittal and Avdesh Mittal had subscribed share application money and share premium in cash amounting to Rs. 22 lakhs and Rs. 14 lakhs respectively. On query made by the Ld. AO it was submitted that these two parties are agriculturists and owned lands in village Kairana Distt. Shamli (UP) and others. They were not maintaining any bank account and investment by them was made out of cash received from sale of agricultural produce and sale of residential plots. Both of them were relatives of the directors of the assessee company. 6. The Ld. AO issued notice under section 133(6) dated 29.01.2015 to Shri Arvind Mittal (Late) through wife Smt. Nirmala Mittal to furnish requisite details. The summons under section 131 of the Act was issued to Shri Avdesh Mittal who appeared on 11.03.2015 before the Ld. AO. He recorded the statement of Shri Avdesh Mittal. The Ld. AO was not satisfied ITA No. 753/Del/2017 3 with the evidence produced and explanation offered by the said two parties. Consequently, the sum of Rs. 36,00,000/- credited in the books of the assessee company in the name of the said two parties was added to the income of the company under section 68 of the Act. 7. Aggrieved, the assessee appealed before the Ld. CIT(A) who confirmed the impugned addition after considering the written submission of the assessee filed before him (extracted in para 3.4 of the appellate order) by recording his findings and observations as under:- “3.5. I have given my utmost consideration to the submissions made and perused the documentary evidences that were filed before the AO and are again filed in the paper book during the present proceedings. As per the affidavit of Smt. Nimala Mittal, wife and legal heir of late Sh. Arvind Mittal, her late husband derived Income from agriculture an account of fruit orchards of 14 Bighas & 19 Bissas at Khata No. 573, Kalrana and about three acres at khasra nos. 325, 326, 329, 330 & 57 Panjeeth Village, Kairana. An amount of Rs. 22 Lakhs was invested in cash in the company on 09.06.2011 for purchase of 4400 equity shares of face value of Rs. 10 and premium of Rs. 490 per share. At the outset, it is seen that the share holder has claimed to have earned Rs. 20,57,000/- from sale of fruits and vegetables and dairy farming, the breakup of which is as under:- Sl. No. Particulars of land Area Present value Crops cultivated Income earned 1. Khatra no. 573, Kairana in the name of father of Arvind Mittal 14 Bighas, 19 Bissas Approx. Rs.1.80 cr. Fruits 1342000 2. Khasra no. 325, 326, 329, 330 and 57, Panjeeth, Kairana 3 acres. (15 Bighas) Approx. Rs. 1.20 crs. Vegetables 4,65,000 3. DairyFarming 2,50,000 Total 20,57,000 3.5.1 Therefore, it is seen that the sources of investments are not entirely explained. Even with regard to the sources explained, I have perused the land revenue extract of khata no. 573, Kairana available at Page 34 of the paper book and find that the total land is 11 bighas included in the checkbandi Khata Khatoni and not 14 Bighas & 19 Bissas. No details have been submitted before me to show that the entire amount received on account of ITA No. 753/Del/2017 4 fruit cultivation was available for the said investment. If, as argued, the land was being looked after by late Arvind Kumar Mittal, as per family arrangement, then it would be necessary for the undersigned to understand the family situation that is how big was the family, whether or not there was a joint family, who were the members, what were the expenses etc. in order to be convincing to the undersigned that the entire Income from the fruit orchard was available for investment. No such details are available in the affidavit filed before the AO. It is incongruous that the person would have available such large income in the form of cash earned, perhaps over the period of several years, when banking channels were very much available. It is understood from the public domain that there were at least half a dozen banks (SBI, ICICI bank, PNB, OBC, Canara Bank) operational at village Kairana, Shamll, Distt. Muzaffarpur in U.P. It is also pertinent to note here that before the AO part of the explanation rendered was that some income had been earned from the sale of residential property that was sold by Sh. Sadhu Ram father of late Arvind Mittal for Rs. 3.5 lacs on 25.11.2011. These detalls have not furnished before the undersigned but I find myself in agreement to the AO that the investment in shares precedes the sale of the property and therefore could not be explained as a source of investment. The other three acres (15 Bighas) of land were supposedly cultivated at Khasra Nos.325, 326, 329, 330 and 57 at Panjeeth Village, Tehsil- Kairana. As per the Khata Khatoni file at pages 35 to 44 of the paper book, these lands were owned by some other persons in the relevant F.Y. and were purchased Jointly in the name of Smt. Maganmurti, the wife of Sh. Sadhuram and Sh. Shivam Goyal S/o Sh. Chandraprakash Goyal in the year 2013 only. The details of purchase of these lands by the above persons are as under:- Sl. No. Description of land Land holding Investment made Date of transfer 1. Khasra 325 3.553 hectare 15.07.2013 2. Khasra 326 12080 hectare 15,00,000 24.07.2013 3. Khasra 329 0,3300 hectare 5,50,000 15.07.2013 4. Khasra 330 0.6900 hectare 17.50,000 24.07.2013 3.5.2 The claim of the appellant is that these lands were in possession of Sh. Sadhuram and late Arvind Kumar Mittal but registration was done later due to legal problems of ownership. From the above details, which are the only details furnished, I fall to see, In the absence of any other corroborating evidence, how the furnishing of the khata khatoni can be of any help to explain the sources. On the contrary, it is noted that the family of the two share holders, late Arvind Kumar Mittal and Sh. Avdhesh Mittal have, in fact, made substantial investments, in land. Neither the year of registration of these immovable properties nor the share in the land holding have been brought on record. But it would be difficult to presume that sufficient funds ITA No. 753/Del/2017 5 were available for share investment when these Investments in land have also been made during the corresponding period to the year under appeal. 3.5.3. The other share holder Sh. Avdhesh Kumar Mittal was present before the AO on 11.03.2015 in which he claimed to have invested a sum of Rs. 14 lacs on 02.08.2011 and the sources were explained as having been generated from sale proceeds of crops grown on agricultural lands and sale of residential plots. Hence his identity stands proved but no substantiating documents in the form of evidence for sale of crops, expenses Incurred or statement of affairs showing the cash receipts and withdrawals on account of both the sources Le. agricultural land and sale of residential properties were filed before the AQ. The AO has noted that the three residential plots were sold on dates subsequent to the date of investment in shares i.e. on 14.03.2011, 08.04.2011 and 10.05.2011 for amounts of Rs. 4.90 lacs, Rs. 1.60 lacs and Rs, 2 lacs respectively. Since there was incongruity between the observation of the AO that the Investment in shares preceded the sale of the residential plots, the AR was requested to furnish the ledger accounts of all. share holders, loan creditors and bank accounts, in order to verify the dates and sources of the investments made during the year. 3.5.4 I have perused the documents relled upon including the affidavit of Sh. Avdhesh Mittal filed at page 12 of the paper book and find myself not convinced with the sources explained. As can be seen from the record of holdings, except one piece of land of 0.91 hectares at Kairana Village which is jointly owned with his brother Sh. Rajnish Kumar Mittal none of the land deed furnished (at pages 15-24 of the paper book) are in the name of this person. The land deed show that the land at Khataun 218, Keshopur, Samalkha, Distt. Panipat is owned by Sh. Praveen Kumar Mittal S/o Sh. Sadhuram Mittal and Sh. Pradeep Kumar Mittal another son of Sh. Sadhuram Mittal, Similarly, the land at khasra nos. 691, 710, 711, 712, 713, 716, 719, 720, 721, 723, 727, 724 & 725 at Panjeeth Village, Kairana are registered in the name of M/s Pukhraj Sugars P. Ltd. whose registered office is 208 Kedia Chambers, S.B Road, Malad (West), Bombay. At page 11 of the paper book is a certificate of the Pradhan of the Gram Panchayat, Panjeeth stating that these lands of approximately 4.31 hectares are being cultivated for several years by Sh. Avdhesh Kumar Mittal. There are no substantiating documents to show that such is the case. No agreement with Pukhraj Sugars P. Ltd., nor any evidence of cultivation of crops either in Panjeeth or Kairana have been filled. No statement of affairs have been filed either before the A.O or in the present proceedings to show the sources of income and expenses thereof. Even the details explaining the joint cultivation of crops with the other siblings at Keshopur or Kairana or the affirmations of the siblings have not been filed by the share holder. In these circumstances it is difficult to accept the proposition that a sum of Rs. 14 lakhs was easily available with the said person. I also find discrepancies between the affidavit dated 22.01.2015 filed before the AO wherein the sources are mentioned entirely on account of agricultural activities and there is no mention of the sale of residential properties. The AR has claimed that these persons are carrying out regular agricultural activities ITA No. 753/Del/2017 6 even at present and regularly paying land revenue tax. However, the facts on record show that in most of the cases the land revenue tax has been paid by the persons in whose name the lands were registered. Although briefly mentioned by the AR in the written submission that cash was available with both the shareholders from the sale of family owned agricultural land from time to time, no details in this regard have been filed in the paper book. Keeping in view the entire conspectus of the discussion herein above there is found no merit that the contention of the appellant that the genuineness and creditworthiness of the shareholders stand established. 3.6 The issue involved here is addition u/s 68. Normally the burden is on revenue to show that a receipt which is sought to be taxed is in the nature of income and where the income is exempt under the taxing provisions, the burden is on the assessee to show that it is exempt. However, under the deeming provisions of section 68, any sum, representing a receipt or credit in the books of the assessee is Itself an evidence against the assessee, unless the assessee explains the nature and source of such credits. If it falls to rebut the evidence available in the form of credit entry in its books, it can be added as Income. This has been the consistent judicial interpretation of section 68 by the Hon'ble Supreme Court in the cases of Govindaraju Mudaliyar (34 ITR 807), Kale Khan Mohd. Hanif (50 ITR 1), Devi Prasad Biswanath Prasad (72 ITR 194), Sumati Dayal (214 ITR 801) and so on. The Supreme Court in the case of P. Mohana Kala (291 ITR 278) explains the meaning of the expression 'the assessee offers no explanation' appearing in section 68 to mean that the assessee offers no proper, reasonable and acceptable explanation. It was held that the opinion of the AO for not accepting the explanation offered is required to be formed objectively with reference to proper appreciation of material on record and other attending circumstances available. The import of section 68 was explained by the Hon'ble Delhi High Court in CIT vs. Focus Exports Pvt. Ltd. (228 Taxman 88) wherein caution was advised in cases where self serving statements had been relied upon by an assessee and it was held that where the assessee failed to offer a lucid, reasonable and acceptable explanation regarding the source and nature of credit, the AO is entitled to draw Inference that the receipt are that of an assessable nature. The High Court observed as under: "9. A bare reading of Section 68 of the Act suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be a sum during the previous year and if the assessee offers no explanation about the nature and source of such credit or the explanation offered is not satisfactory, then the sums so credited can be treated as income of the assessee for that previous year. The expression no explanation is offered or the explanation offered is not satisfactory puts an onus on the assessee to offer a lucid, reasonable and acceptable explanation before the Assessing Officer and thereupon the Assessing Officer should form an opinion accepting or rejecting the explanation based upon appreciation of facts/materials and other attending circumstances. Section 68 of the Act was examined in A. Govindarajulu Mudallar v. CIT, [19581 34 ITR 807 (SC) observing that there were ample authorities for the proposition that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during an accounting year, the Assessing Officer is entitled to draw inference that the receipts are of an assessable nature. Whether explanation should be accepted or not is not to be examined factually but having regard to test of human probabilities and normal course of conduct. Reference can be made to ITA No. 753/Del/2017 7 CIT v. Durga Prasad More [1971] 82 ITR 540 (SC), CIT v. Daulat Ram Rawatmull, [1973] 87 ITR 349 (SC) and other cases referred to in CIT v. Nova Promoters & Finlease (P.) Ltd. [2012] 342 ITR 169/206 Taxman 207/18 taxmann.com 217 (Delhi). In these cases, it has been observed that what is apparent must be considered real until it is shown that there are reasons to believe that the apparent is not real. Caution must be exercised on self-serving statements made in the documents as they are easy to make and rely upon in case an assessee wants to evade taxes. Proof is required and the assessing authorities should not put blinkers while looking at the documents before them. Surrounding circumstances are equally Important.” 3.6.1. One of the vital ingredients of section 68 is the power of the AO to ask the assessee to prove the creditworthiness of the creditor/shareholder for the purpose of section 68. In the case of Divine Leasing & Finance Ltd.(158 Taxman 440), the legal regime regarding the burden of proof in the case of public placement of shares vis-à-vis private placement of shares was discussed by the jurisdictional High Court. In the case of a public issue, the company concerned could not be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers but in the case of private limited company where the parties are related or known to each other the burden of proof was much more and therefore it was expected that some credible evidence of the creditworthiness of the Investor should be taken on record. Relief was granted to the assessee as it was the case of public placement. This aspect of the shareholder vis a vis private limited company relationship was also discussed in a subsequent decision of the Delhi High Court in Globus Securities & Finance (264 CTR 481) and also in the case of NR Portfolio Pvt. Ltd. [IT Appeal Nos. 1018 & 1019 of 2011, dated 22- 11-2013] which held merely producing PAN number or assessment particulars did not establish the identity of the person. The actual and true identity of the person or a company was the business undertaken by them. Where the share subscribers did not any genuine business activity and the bank account revealed mere rotation of money, the bank accounts, therefore, did not reflect their creditworthiness or even genuineness of the transaction. The beneficiaries, including the respondent assessee, did not give any share- dividend or Interest to the said entry motive normal in case of Investment, was entirely absent. When there is surrounding evidence and material manifesting and revealing involvement of the assessee in the "transaction" and the same was not entirely an arm's length transaction, resort or reliance to the usual doctrine of "source of source" may be operators/subscribers. The profit counter-productive and contrary to equity and justice and the assessee would be required to prove the unimpeachable creditworthiness of the share subscribers: The High Court held in the case of N.R Portfolio (supra) as under: “29. In CIT v. Nipun Builders & Developers (P.) Ltd. (2013) 350 TTR 407 (Delhi), this principle has been reiterated holding that the assessee and the Assessing Officer have to adopt a reasonable approach and when the initial onus on the assessee would stand discharged depends upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call monies, dividends, warrants etc. have to be sent and the relationship is/was a continuing one. In such cases, therefore, the assessee cannot simply furnish details and remain quiet even when summons issued to shareholders under Section 131 return ITA No. 753/Del/2017 8 unserved and uncomplied. This approach would be unreasonable as a general proposition as the assessee cannot plead that they had received money, but could do nothing more and it was for the assessing officer to enforce for to holders attendance. Some cases might require or justify visit by the Inspector to ascertain whether the shareholders/subscribers were functioning or available at the addresses, but it would be incorrect to state that the assessing officer should get the addresses from Registrar of Companies' website or search for the addresses of shareholders and communicate with them. Similarly, creditworthiness was not proved by mere issue of a cheque or by furnishing a copy of statement of bank account. Circumstances might require that there should be some evidence of positive nature to show that the said subscribers had made a genuine investment, acted as angel investors, after due diligence or for personal reasons. Thus, finding or a conclusion must be practicable, pragmatic and might in a given case take into account that the assessee might find it difficult to unimpeachably establish creditworthiness of the shareholders. 30. What we perceive and regard as correct position of law is that the court or tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three factum is on the assessee as the facts are within the assessee's knowledge. Mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, Identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, controls and manage them." 3.6.3 A distillation of the legal precedents discussed herein above shows that the assessee has to prima facie prove the identity of the creditor/subscriber, the genuineness of the transaction and the creditworthiness or the financial strength and when the assessee is not in a position to prove beyond doubt the creditworthiness, the AO is duty bound to investigate the same and the veracity of the transaction. In the present case the verification by the AO as well as by the undersigned shows that while the identity of the two share holders might be established,, In view of the receipts through non banking channels and the discrepancies and shortcoming in the sources explained for the investment in shares, the genuineness and creditworthiness of the transaction in questions remains a big question. 3.6.4 At this stage it would be relevant to state that the share application forms, the form no. 2 filed with ROC, evidencing the allotment of shares and even the ledger account of share holders have not been placed in the paper book in order to indicate that any shares were allotted to these shareholders. It is also relevant to note that, out of the investment of Rs. 22 lakhs and Rs. 14 Lakhs respectively by late Sh. Arvind Mittal and Sh. Avdhesh Mittal respectively, the share premium alone amounts to Rs. 21,56,000/- and Rs. 13,72,000/-. It somewhat incongruous to note that share application money have been received of Rs. 3,55,000/- from one of the Directors, Smt. Anuradha Goel and Rs. 11,50,000/- has been received from Sh. Shubham Goel another Director without any share premium, in the relevant assessment year. Apparently the two share holders were related to the Directors and have invested in the purchase of shares due to their faith In the company (as per the submissions filed before A.O dated 17.03.2015). This argument is ITA No. 753/Del/2017 9 considered but found fallacious, as the company was incorporated in the financial year 2010-11 and this was the second year of operation (as per the submissions filed before A.O dated 23.12.2014). The company received share capital of Rs. 1 lakh and no business was carried out in the previous assessment year 2011-12. It In fact incurred loss of Rs. (-) 24,350/- in that year. No business activities were carried out in that year. During the current year the appellant received loans and share application money from its two directors totalling Rs. 37,25,000/-, capital from other persons totalling Rs. 76,00,000/- out of which investments in commercial spaces in Ghaziabad have been made, totalling Rs. 1.20 crores. The rent received from these commercial properties and commission Incomes are the only sources of income earned during the year. These activities carried out do not Indicate sufficient commercial and business considerations which would promote faith in the minds of investors. The fact that the own directors of the company have not acquired shares at premium vis-à-vis the other share holder lends rooms for suspicion and doubt regarding the nature and source of the share capital received. The assessee has not also filed any valuation report before the AO or the undersigned to justify the issuance of shares of Rs.10 per share at the premium of Rs. 490 per share while the assessee company was a newly incorporated company, having no business/project in hand and having no net worth of its own during the time the share capital was received. 3.6.5 At this stage it is necessary to consider the argument of the AR as to whether the proviso to section 68 which was inserted by the Finance Act, 2012 is retrospective or not? The case of the AR is that since the assessment year Involved in 2012-13, the facts of the case are squarely covered by the decisions rendered prior to the insertion of the aforesaid proviso. This issue has recently been decided by the Mumbai ITAT in the case of Royal Rich Developers P. Ltd. dated 24.08.2016 (1.T.A. Nos.1835 & 1836/Mum/2014) and after exhaustive discussion of decisions on the issue, the ITAT has reached the conclusion that the law introduced by Finance Act, 2012 w.e.f 01.04.2013 was always applicable for all private limited companies and the onus u/s 68 was always applicable to these companies. The rationale and operative part of the order reads as under: *13.x. It is settled rule of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation. Ordinarily the courts are required to gather the intention of the legislature from the overt language of the provision as to whether it has been made prospective or retrospective, and if retrospective, then from which date. However, some times what happens is that the substantive provision, as originally enacted or later amended, fails to clarify the intention of the legislature. In such a situation if subsequently some amendment is carried out to clarify the real Intent, such amendment has to be considered as retrospective from the date when the earlier provision was made effective. Such clarificatory or explanatory amendment is declaratory. As the later amendment clarifies the real Intent and declares the position as was originally intended, it takes retroactive effect from the date when the original provision was made effective. Normally such clarificatory amendment is made retrospectively effective from the earlier date. It may also happen that the clarificatory or explanatory provision introduced later to depict the real intention of the legislature is not specifically made retrospective by the statute. Notwithstanding the fact that such amendment to the substantive provision has been given ITA No. 753/Del/2017 10 prospective effect, the judicial or quasi-judicial authorities, on a challenge made to it, can justifiably hold such amendment to be retrospective. The justification behind giving retrospective effect to such amendment is to apply the real intention of the legislature from the date such provision was initially introduced. The intention of the legislature while introducing the provision is gathered, inter alia, from the Finance Bill, Memorandum explaining the provision of the Finance Bill etc. 13.y. The facts of CIT v. Gold Coin Health Food (P.) Ltd. [2008] 304 ITR 308/172 Taxman 386 (SC) are that the Finance Act, 2002 amended Explanation 4 to section 271(1)(c) with effect from 01.04.2003 providing that the penalty would be imposed even if the returned income is loss. In the case of Virtual Soft Systems Ltd. v. CIT [2007] 289 ITR 83/159m Taxman 155 (SC) (a Bench comprising of two Hon'ble Judges) it was held that prior to the amendment with effect from 1st April, 2003 penalty for concealment of income could not be levied in the absence of any positive income. Doubt was expressed over the correctness of this view by a subsequent Bench. Thereafter in the case of Gold Coin Health Food (P.) Ltd. (supra), a bench of three Hon'ble Judges overruled the judgment In the case of Virtual Soft Systems Ltd. (supra) by holding that Explanation 4 to section 271(1)(c)(i) regarding the imposition of penalty, even if there is a loss, is clarificatory and not substantive. It was held to be applying even to the assessment years prior to 1st April, 2003, being the date from which it was brought into force. Thus, it can be easily noticed that the retrospective effect to the amendment to Explanation 4 by the Finance Act, 2002 has been given by holding that the position even anterior to such amendment was the same inasmuch as the penalty was imposable even in the case of loss. The intention of the legislature was found to be Imposing penalty in all such cases even prior to the amendment and that is how this amendment was held to be clarificatory and therefore, retrospective. 13.z. Similar is the position in the case of CIT v. Kanji Shivjl & Co. [2000] 242 ITR 124/108 Taxman 531 (SC), Explanation 2 to section 40(b) was introduced with effect from 1st April, 1985 providing that where an individual is a partner in a firm otherwise than as partner in representative capacity, interest paid by the firm to such individual shall not be taken into account for the purposes of clause (b) to section 40. The Hon'ble Supreme Court in the case of Brij Mohan Das Laxman Das V. CIT [1997] 223 ITR 825/90 Taxman 41 held this insertion to be declaratory in nature and hence retrospective. In this case it was held that the interest paid by the firm to a partner on his individual deposits is not hit by section 40(b), if the person is a partner not in his Individual capacity but as representing HUF. The same view was taken in Suwalal Anandilal Jain v. CIT (1997) 224 ITR 753/91 Taxman 337 (SC). However in Rashik Lal & Co. v. CIT [1998] 229 ITR 458/96 Taxman 16 (SC), somewhat contrary view was expressed. That is how the matter came up before the larger bench of the Hon'ble Supreme Court in Kanji Shivji & Co. (supra). In this case Explanation 2 to section 40(b) has been held as declaratory and hence retrospective in operation by affirming the judgments in the cases of Brij Mohan Das Laxman Das (supra) and Suwalal Anandilal Jain (supra). 13.aa. A survey of the above judgments makes it patent that any amendment to the substantive provision which is aimed at clarifying the existing position or removing unintended consequences to make the provision workable has to be treated as retrospective notwithstanding the fact that the amendment has been given effect prospectively. In our considered opinion the border line between a substantive provision having retrospective or One needs to appreciate the nature of the original provision in conjunction with the amendment. Once a provision has been given retrospective effect by the legislature, it shall continue to be retrospective. If on the other hand, if the statute prospective effect, is quite prominent does not amend it retrospectively, then one has to dig out the intention of the Parliament at the time when the original provision was incorporated and also the new intention of the original provision, then it will always be considered as retrospective. Like the case of Gold Coin Health Food (P.) Ltd. (supra) in which the Hon'ble Supreme Court held that the amendment to Explanation 4 to section 271(1)(c)(iii) simply clarified the position which was existing since inception of the provision that the penalty is leviable on concealment irrespective of the fact whether ultimately assessed income is positive or negative. Similarly in the case of Kanji Shivji & Co. (supra), the Hon'ble Apex Court held that the purpose of ITA No. 753/Del/2017 11 Explanation 2 to section 40(b) was simply to clarify that the Income-tax Act recognizes individual status of a person as different from his representative capacity. This Explanation did not bring in a new provision but clarified that the position was so since the introduction of the provision itself. In this class of clarificatory or explanatory amendments to the substantive provisions, the object is always to clarify the intention of the legislature as it was there at the time of Insertion of the original provision. That is the reason for which the clarificatory amendments are always retrospective irrespective of the date from which effect has been given to them by the legislature. 13.ab. Armed with the above understanding of the retrospective or prospective effect, let us analyze whether or not the insertion of proviso to section 68 is clarificatory? We have noted above that for ruling out the application of section 68, the assessee must satisfy the AO as to the identity and capacity of the creditor in addition to the genuineness of transaction. When we advert to the language of section 68, it transpires that it refers to any sum credited in the books of an assessee maintained for any previous year. The expression 'any sum credited' has not been specifically defined in the provision. Thus, it would extend to all the amounts credited in the books of account. A sum can be credited in the books of account, which would invariably either find its place either on the income side of the Profit and loss account or in the liability side of the balance sheet. Items credited to the Profit and loss account are themselves income and hence there can be no reason to make addition once again for them. Items appearing on the liability side of the balance sheet can be loans or share capital etc. Once there is specific reference in section 68 for applying it to any sum credited, there can be no reason to restrict its application only to loans and not to share capital. The burden of proof under 68 can be no different in respect of issue of share capital by closely held companies vis-à-vis loans or gifts. The Hon'ble jurisdictional High Court in Maithan International (supra), Active Traders (P) Ltd.(supra), Mimec (India) (P.) Ltd. (supra) and Nivedan Vanijya Niyojan Ltd. (supra) has specifically held that the above three Ingredients are required to be satisfied even in case of issue of share capital by a closely held company. First two out of the above four judgments have considered the judgment in the case of Lovely Exports (P.) Ltd. (supra). It shows that the intention of the legislature, as interpreted by the Hon'ble jurisdictional High Court, is always to cast duty on the assessee to prove the satisfaction of the three Ingredients in case of transaction of issue of share capital by a closely held company in the same way as is in the case of transaction of loans. 13.ac. At this juncture, it would be relevant to note the relevant part of the Memorandum explaining the provisions of the Finance Bill, 2012, which is as under:- "Section 68 of the Act provides that if any sum is found credited in the books of an assessee and such assessee (i) does not offer any explanation about nature and source of money or (ii) the explanation offered by the assessee is found to be not satisfactory by the Assessing Officer. then, such amount can be taxed as income of the assessee. The onus of satisfactorily explaining such credits remains on the person in whose books such sum is credited If such person fails to offer an explanation or the explanation is not found to be satisfactory then the sum is added to the total income of the person. Certain judicial pronouncements have created doubts about the onus of proof and the requirements of this section, particularly, in cases where the sun which is credited as share capital, share premium etc. 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 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. ITA No. 753/Del/2017 12 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 one, the sum shall be treated as income of the company and added to its income. It is therefore, proposed to amend section 68 of the Act to provide that the nature and source of any sum credited, as share capital, share premium, etc, in the books of a closely held company shall be treated as explained only if the source of funds is also explained by the assessee-company in the hands of the resident-shareholder. However, even in the care of closely held companies, it is proposed that this additional omur of satisfactorily explaining the source in the hands of the shareholder, would not apply if the shareholder is a well regulated entity, Le.. a Venture Capital Fund, Venture Capital Company registered with the Securities and Exchange Board of India(SEBI) This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent years." 13.ad. A careful perusal of the first para of the Memorandum brings out that the onus of satisfactorily explaining issue of share capital with premium etc. by a closely held company is on the company. In the next para, it has been clarified that : '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.... Next para recognizes that judicial pronouncements, while considering 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 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. After going through the above parts of the Memorandum explaining provisions of the Finance Bill, there remains no doubt whatsoever that the onus has always been on the closely held companies to prove the issue of share capital etc. by the company in terms of section 68. An analysis of the above discussed judgments, including four from the Hon'ble jurisdictional High Court, reveals that section 68 has been understood as casting obligation on the closely held companies to explain the amount of share capital etc. credited in its books of account. When we read the Memorandum explaining the provisions of the Finance Bill, it becomes vivid that certain contrary judicial pronouncements created doubts about the onus of proof and the requirements of this section. Thus, the amendment makes it manifest that the intention of the legislature was always to cast obligation on the closely held companies to prove receipt of share capital etc. to the satisfaction of the AO and it was only with the aim of setting to naught certain contrary judgments which 'created doubts' about the onus of proof by holding that there was no requirement on the company to prove the share capital etc. and as such no addition could be made in the hands of company even if such shareholders are bogus. As the amendment aims at clarifying the position of law which always existed, but was not properly construed in certain judgments, there can be no doubt about the same being retrospective in operation. 13.ae. The about discussed judgments from the Hon'ble Summit Court holding a clarificatory substantive provision as retrospective, despite the same being made applicable from a particular year, fully govern the position under consideration. It is Interesting to note that the judgment of the Hon'ble jurisdictional High Court in Mathan International (supra) holding that the burden of proving the credit of share capital etc. is on a closely held company and failure to do so attracts the rigour of section 68, has been delivered on 21.1.2015, much after the amendment carried out by the Finance Act, 2012. This case pertains to pre-amendment era as the order of the tribunal assailed in this case is dated 24.6.2011. It shows that the Hon'ble High Court has also impliedly approved the proposition that the position anterior to the A.Y. ITA No. 753/Del/2017 13 2013-14 was the same inasmuch as the onus to prove the share capital by a closely held company was on it. We, therefore, hold that the amendment to section 68 by insertion of proviso is clarificatory and hence retrospective. The contrary arguments advanced by the Id. AR, being devoid of any merit, are hereby jettisoned." 3.6.6 Keeping in view the entire conspectus of the discussion herein above it is held that the genuineness and creditworthiness of the two share holders Late Sh. Arvind Mittal and Sh. Avdhesh Mittal, have not been proved. The onus for explaining these sums in its books of accounts in cash do not stand satisfactorily explained by the appellant company. Consequently the addition under section 68 of Rs. 36 lakhs is hereby confirmed.” 8. Dissatisfied, the assessee is in second appeal before us and ground No. 2 relates thereto. 9. At the outset, the Ld. AR submitted that proviso to section 68 of the Act has been inserted by the Finance Act, 2012 w.e.f. 1.4.2013 which is applicable from AY 2013-14 whereas in the case of the assessee AY 2012-13 is under consideration. Source of source was not the requirement before AY 2013-14 and the amendment is prospective in nature. 9.1 The Ld. AR pointed out that during assessment proceedings both the parties confirmed their respective investment in cash in affidavits filed before the Ld. AO stating therein the fact of earning substantial agricultural income by carrying on agricultural activities on their own family lands and also on the land belonging to others. However, the Ld. AO did not examine the deponants of the affidavit. The Ld. AR relied on the decision of Hon’ble Delhi High Court in the case of CIT vs. Lovely Exports P. Ltd. (2008) 299 ITR 268 (Del). 9.2 The Ld. AR also submitted that once the assessee has discharged its burden of proving identity, capacity and genuineness of transaction, the onus shifts to the Ld. AO. If the Ld. AO is not satisfied with the material placed on record, he should have enforced the attendance of the creditors. The assessee is not supposed to know the source of source of creditor (prior to 01.04.2013). Even the Ld. AO is precluded from raising such a query. In the absence of enquiry/investigation made by the Ld. AO, no addition can ITA No. 753/Del/2017 14 be made under section 68 of the Act. In support of the above proportions reliance was placed on a number of precedents. 10. The Ld. DR supported the order of the Ld. CIT(A). He submitted that burden can’t be shifted merely by producing evidence/material before the Ld. AO. Irrespective of amendment brought w.e.f. 01.04.2013 the basic burden of proving the identity, creditworthiness and genuineness of the transaction has to be successfully discharged by the assessee which has not been done. He submitted that it is hard to believe that such huge cash was kept at home when banking facilities are available. He referred to the decision in the case of P.K. Noorjahan 237 ITR 570. 11. We have given our careful thought to the rival submissions and perused the record. The undisputed facts are that two individuals namely Mr. Arvind Mittal (since deceased) & Mr. Avdesh Mittal made investment in cash of Rs. 22 lakhs and Rs. 14 lakhs towards purchase of 4400 and 2800 equity shares of face value of Rs. 10/- and premium of Rs. 490 per share respectively of the assessee private limited company during the year. Admittedly both the investors are related to the directors of the assessee company. Since the above sums are credited in the books of the assessee company maintained for the previous year relevant to AY 2012-13 onus to prove the nature and source thereof lay on the assessee company. It is now settled that to obviate the mischief of section 68 of the Act, the assessee has to establish the identity of the creditor investor his creditworthiness and genuineness of the transactions. 11.1 Before the Ld. AO/CIT(A) the assessee offered explanation that Late Mr. Arvind Mittal had kept the entire cash of Rs. 22 lakhs at home earned from cultivation of fruits, vegetable and dairy farming but no convincing explanation was forthcoming as to what prevented him to avail the benefit of banking facilities when half a dozen bank branches of SBI, ICIC bank, PNB, OBC and Canara Bank were operational in his village Kairana, Shamli, Distt. Muzaffarpur, UP. Part of investment was explained to be out of sale of residential property by father of Late Mr. Arvind Mittal but the Ld. ITA No. 753/Del/2017 15 AO/CIT(A) recorded the finding that investment in shares preceded the sale of the said property and hence could not be explained as a source of investment. Moreover, even the availability of cash for being invested in shares has been doubted on the ground of investment made towards purchase of land during the period which corresponds to the year under consideration. 11.2 For investment of cash of Rs. 14 lakhs by Mr. Avdesh Mittal towards purchase of shares, it was explained that the source was generated from sale proceeds of crops grown on agricultural lands and sale of residential plots. The Ld. AO/CIT(A) both were not convinced with the sources explained. On examining the documents including the affidavit of the investor, the Ld. CIT(A) recorded the finding that it was difficult to accept that a sum of Rs. 14 lakhs was available with him. It was also noticed that the affidavit of the creditor explained the source of cash only from the agricultural activities and there was no mention at all of the sale of residential properties. 11.3 For the reasons aforesaid the Ld. AO/CIT(A) did not accept the contention raised by the assessee that the genuineness and creditworthiness of the two investors were established. The Ld. CIT(A) referred to the decision of the Hon’ble Delhi High Court in CIT vs. Focus Exports Pvt. Ltd. 228 Taxman 88 (Delhi) wherein the Hon’ble Delhi High Court advised caution where self serving statements have been relied upon by an assessee and no lucid reasonable and acceptable explanation is offered by the assessee regarding the nature and source of credit entry in its books. We are of the considered view that the assessee’s case before us falls in this category. We cannot be oblivious of the glaring fact that we are dealing with a case where the assessee is a private limited company of real estate developers and the two investor creditors are relatives of its directors. In case of such a type more heavy burden lies upon the assessee to prove the creditworthiness and genuineness of the transaction which in our humble opinion the assessee failed to discharge. ITA No. 753/Del/2017 16 12. In para 3.6.4 of his appellate order, the Ld. CIT(A) has observed that necessary evidence of allotment of shares and even the ledger account of the shareholders have not been brought on record. The contention of the assessee that the two creditors invested in purchase of shares due to their faith in the company has been found to be fallacious on the basis of facts culled from the records of the assessee company itself. 13. We have gone through the order of the Mumbai bench of the Tribunal in the case of Royal Rich Developers P Ltd. rendered on 24.08.2016 in ITA No. 1835 & 1836/Mum/2014, extracted by the Ld. CIT(A) in para 3.6.5 of his appellate order. The decision (supra) of Mumbai Tribunal provides complete answer to the contention of the assessee regarding non applicability of the proviso inserted by the Finance Act, 2012 w.e.f 01.04.2013 to cases pertaining to AY 2012-13 and earlier years. We are inclined to agree that the legislative intent has always been that in the case of closely held companies like that of the assessee before us heavier obligation is cast upon it to prove the receipt of share application money/premium etc. to the satisfaction of the Ld. AO. 14. It may be stated that law has to be applied to the facts of the given case. In our humble opinion, the legal propositions and case laws in support of them canvassed by the Ld. AR before us are inapplicable to the facts of the assessee’s case available on the records. 15. Let us notice the facts in the case of Principal CIT vs. NRA Iron & Steel (P) Ltd. (2019) 103 taxmann.com 387 (Delhi). The Ld. AO added money aggregating to Rs. 17.60 crores received by the company through share capital/premium to the income of the assessee on the ground that the assessee had failed to discharge onus by cogent evidence either of creditworthiness of so called investor companies or genuineness of transaction. On appeal, the Ld. CIT(A) deleted the said addition on the ground that the assessee had filed confirmation from investor companies to show that the entire amount had been paid through normal banking ITA No. 753/Del/2017 17 channels and hence discharged initial onus under section 68 for establishing creditability and identity of share holders. The Tribunal as well as the Hon’ble Delhi High Court confirmed the order passed by the Ld. CIT(A). 15.1 On Revenue’s petition before the Hon’ble Supreme Court in their decision in Principal CIT vs. NRA Iron & Steel (P) Ltd. (2019) 412 ITR 161 (SC) their Lordships held that the assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors and creditworthiness of the investors who should have financial capacity to make the investment in question to the satisfaction of the AO, so as to discharge the primary onus. The AO is duty bound to investigate into the creditworthiness of the creditor/subscriber, verify the identity of the subscribers and ascertain whether the transaction is genuine or those are bogus entries of name-lenders. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack creditworthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by section 68. 15.2 With the following observations and findings the Hon’ble Apex Court set aside the decision (supra) of the Hon’ble Delhi High Court: “The practice of conversion of unaccounted money through the cloak of share capital/premium must be subjected to careful scrutiny. That would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the assesee since the information is within the personal knowledge of the assesee. The assessee is under a legal obligation to prove the receipt of share capital premium to the satisfaction of the AO, failure of which would justify addition of the said amount to the income of the assessee.” 16. It may be reiterated that in the case before us, despite the availability of banking facilities to the two investors, they invested cash of Rs. 22 lakh ITA No. 753/Del/2017 18 and Rs. 14 lakh towards purchase of share capital /premium of the closely held company directors of which were their relatives. On the facts and in the circumstances of the case and following the decision in NRA Iron & Steel (P) Ltd. (supra) of the Hon’ble Supreme Court we uphold the impugned order of the Ld. CIT(A) and reject ground No. 2 of the assessee. 17. In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 13 th September, 2023. sd/- sd/- (SHAMIM YAHYA) (ASTHA CHANDRA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 13/09/2023 Veena Copy forwarded to - 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT 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