ITO, Ward-8(1), Kolkata V. M/s Merrit Fintrade Pvt Ltd, Kolkata

ITA 80/KOL/2021

AI Insights

The case involves the Income Tax Officer (ITO), Ward-8(1), Kolkata as the appellant and M/s Merrit Fintrade Pvt. Ltd. as the respondent. The dispute centered on the addition of Rs. 9,09,50,000 to the income of the assessee under section 68 of the Income Tax Act, which was initially treated as unexplained cash credit by the Assessing Officer (AO) due to large share premium received by the assessee company without any business activity. The Ld. CIT(A) later deleted this addition, leading to the revenue's appeal. The Tribunal's decision affirmed the Ld. CIT(A)'s order, noting that the shares were issued on credit and no cash was actually received during the relevant financial year.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127334 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 25-07-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 07-03-2021
• Other Referred Cases: CIT vs. P. Mohanakala, Sumati Dayal Vs CIT, Maindranath Das vs. CIT Bihar & Orissa, Govindraju Mudallar Vs. CIT, Hyderabad, Smt. Srilelkha Banerjee and Others Vs. CIT, Jatia Investment Co vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Source of fund
• Section: 68; 133(6)

Judgement Text

आयकर अपील य अ धकरण, कोलकाता पीठ ‘‘सी’’, कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA ी राजेश क ु मार, लेखा सद य एवं ी संजय शमा या यक सद य के सम [Before Shri Rajesh Kumar, Accountant Member & Shri Sonjoy Sarma, Judicial Member] I.T.A. No. 80/Kol/2021 Assessment Year: 2012-13 ITO, Ward-8(1), Kolkata Vs. M/s Merrit Fintrade Pvt. Ltd. (PAN: AADCM 5090 L) Appellant / (अपीलाथ ) Respondent / ( !यथ ) Date of Hearing / स ु नवाई क$ त&थ 26.07.2023 Date of Pronouncement/ आदेश उ)घोषणा क$ त&थ 31 .07.2023 For the Appellant/ नधा /रती क$ ओर से Shri Vinod Jain, FCA For the Respondent/ राज व क$ ओर से Shri Sunil Kr. Agarwala, CIT(D.R) ORDER / आदेश Per Rajesh Kumar, AM: This is the appeal preferred by the revenue against the order of the Ld. Commissioner of Income Tax –4, Kolkata (hereinafter referred to as the Ld. CIT(A)”] dated 05.10.2018 for the AY 2012-13. 2. Issue raised in ground no. 1 to 5 is against the deletion of addition by Ld. CIT(A) of Rs. 9,09,50,000/- as made by the AO in respect of share capital / share premium being unexplained cash credit u/s 68 of the Act. 3. Facts in brief are that the assessee filed return of income on 29.03.2014 declaring total loss of Rs. (-)2,60,825/-. The case was selected for scrutiny because of 2 I.T.A. No. 80/Kol/2021 Assessment Year: 2012-13 M/s Merrit Fintrade Pvt. Ltd. large share premium received by the assessee company. Thereafter the statutory notices were duly issued and served on the assessee. The AO noted that during the year the assessee has not done any business activity and despite that the assessee has issued 26,75,000 equity shares face value of Rs. 10/- at a premium of Rs. 24/- per share thereby raising an amount of Rs. 9,09,50,000/-. During the course of assessment proceedings, though the assessee furnished the details of the share subscriber companies such as names, addresses, PANs etc however notices u/s 133(6) of the Act could not be served since the addresses were not supplied despite repeated request. Finally the AO treated the assessee’s share capital / share premium as unexplained cash credit u/s 68 of the Act and added the same to the income of the assessee 4. In the appellate proceedings, the Ld. CIT(A) deleted the addition after calling for the remand report from the AO and after taking into account the contentions of the assessee by observing and holding as under: Decision: Grounds of appeal, assessment order, remand report and submissions of the AR were duly considered. First ground revolved around addition of share capital/ share premium u/s 68 of the IncomeTax Act amounting to Rs.9,09,50,000 u/s 68 of the Act It is seen from the Balance Sheet of the assessee company that the assessee had under head shareholder's fund an opening balance of Rs.5,90,72,359 while the closing balance was Rs. 15,01,50,984. After deducting profit for the year of Rs. 1,28,625 the rest of the amount of Rs. 9,09,50,000 was added as addition to share capital during the year. The AO has added this difference u/s 68. This additional share capital has been credited in the books in the name of following share subscribers- MANCHEST FINPRO PVT LTD 3,78,04,600 ROLEX TRAFIN PVT LTD 3,02,43,680 SHAKTI VANIJYA PVT LTD 2,81,203 TORRID FINTRA PVT LTD 2,26,20,517 Since money has been allegedly received during the year from these four parties therefore the issue of identity, capacity and genuineness would be looked into only for these 4 parties. The first issue to be examined is whether money has actually been received during the year and whether in absence of that the mere entry in share capital account will attract provisions of section 68. This issue was also raised in the remand, where the AO has submitted the following comments in his remand- 3 I.T.A. No. 80/Kol/2021 Assessment Year: 2012-13 M/s Merrit Fintrade Pvt. Ltd. The assessee's plea is that no money has been received during the FY 2011-12 for the raising of share capital. Then the question arises what was the motive of increasing share capital by paper work only/ only book entry. Moreover, if the assessee did not receive any amount then why the assessee company has disclosed its value under the head Loans & Advances. Here the Company did not make any investment off its share capital money rather it has issued its shares and hence if any amount remains due then it should come under the head "Amount Receivable", etc. In this context it may be pointed out that the share capital and premium amount which was not received by the assessee till 31.03.2012 but the same has been accounted for in the assessee's books of accounts by crediting the entire amount of Rs. 9,09,50,000 Therefore, this amount was indeed credited as meant by the language fund in the text of Section 68 of the I.T. Act, 196l, 6.3 From the comments it is obvious that the AO is not directly disputing the fact that actual fund has not been received during A. Y. 2012-13. However the AO is emphasizing the fact that since there is accounting credit in the accounts of the assessee during the year therefore it would become taxable during the year. The AO failed to appreciate the fact that there was no sum credited in the books of account of the appellate and no money was received. The AO failed to verify the facts of the case. The copies of these documents were also filed during the appellate proceedings. I find that there is no real cash entry on the credit side of the cash book. The question of inclusion of the amount of the entry unexplained cash credit cannot arise. Therefore, the question of cash credit does not come in, there being no actual passing or receipt of cash. In other words, the transactions are mere book entries. The transactions showing the amount as received in cash or in kind and discharged were not actual cash but only notional by journal entries. As far as the question of section 68 in concerned, the nature of the transactions and the entries clearly show that no cash, in fact, flowed. It is seen that there is no receipt of any sum of money; hence the credit of sum of money had not arisen in his case. I agree with AR that money payable against the allotment of shares were payable and not received during the impugned year. There was no exchange of money, neither the appellant received any cash or sum of money nor the other party has shown such payment. In case on non- receipt of any money, the addition u/s 68 for money earned from undisclosed source is not good in law. In such case, logically there is no undisclosed income. The jurisdiction of provisions of section 68 is based on premise that the assessee had entered its own undisclosed earned income as cash credit, which had earned by evasion of Income tax. The very premise of section 68 in his case has failed, as in such case, it cannot be implied that he has earned income, even otherwise taxable or not. In these share transaction, the addition u/s. 68 of the Act as unexplained Cash Credit will not come, as the tran saction is not under the preview of cash credit, as there is no cash receipt pr receipt of any money or credit of any money. The assessee allotted its shares through journal entries only. The amount due on allotment of shares remained outstanding. 6.4 Hon. Supreme Court Judgment in CIT vs. P. Mohanakala (1995) Supp SCC 453 and in Sumati Dayal Vs CIT (SC). During the course of deciding about the applicability of Section 68, the Apex court elaborated on the provision of Section 68, and in both cases, stated that the primary evidence is the receipt of money. Whereas, in the case of appellant, the assessing officer, failed to establish that the assessee has received any sum of money during the year. In the cases, Maindranath Das vs. CIT Bihar & Orissa (Patna HC) and Govindraju Mudallar Vs. CIT, Hyderabad (SC). It was clear that if there is receipt of an amount in the accounting year, it is incumbent in the first instance upon the assessee to show that it does not bear the character of income, if he fails to do so; the Assessing Officer may hold the same as income from disclosed source or undisclosed source. In case of Smt. Srilelkha Banerjee and Others Vs. CIT (SC) it was held that if there is an entry in the accounts books of the assessee which shows the receipt of sum or conversions of high denomination notes tendered for Conversion by assessee himself (last instance was peculiar to that case), it is necessary for the assessee to establish, if asked what is the source of money is and prove that it does not bear the nature of income. In all above referred cases, the prime evidence is any sum credited in books on receipts of money. Unless there is any receipt of money, no income can be stated to have been earned Judgment 4 I.T.A. No. 80/Kol/2021 Assessment Year: 2012-13 M/s Merrit Fintrade Pvt. Ltd. of Jatia either form disclosed source or undisclosed source. Investment given by Jurisdictional High Court also supports the case of the assessee. I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the assessing officer during the proceedings. The issue under consideration is that whether the issue of shares against the shares disclosed by the appellant invite the mischief of the provisions of s. 68 of the Act or not and as to whether the AO is justified in making the addition towards share capital raised in the facts and circumstances of the case. Considering the totality of the facts and circumstances of the case, I find substance in the argument of the AR that there is no cash involved in the issue of share capital in the appellate case. In view of the aforesaid findings and respectfully following the decisions of Hon'ble Jurisdictional High Court decision in the case of Jatia investment Co (supra). I have come to the conclusion that the issue is squarely covered" by the decision of Jurisdictional High Court as mentioned and discussed above. I have no option-but to accept the arguments tendered by the AR of the appellant in this respect that no sum was credited in the book of account as per the provision of u/s 68 of the act. Accordingly, the case of appellate does not come under the preview of the section 68 of the Act. 7. Without prejudice to above, if we look at the identity, capacity and genuineness of transaction w.r.t. share subscribers, (even though received in subsequent year), following can be observed- i. Manchest Finpro (P) Ltd:3,78,04,600. It is seen that most of the share capital has come from this company. Identity- The company is an NBFC, registered with RBI. The directors of the company Mr. Suresh kumar Kedia, Devi Dayal, Amarjeet singh Dalal and Saurabh Das Sharma. Out of which Mr. Suresh kumar Kedia and Saurabh Das Sharma are senior employees of BMW Group of companies. This company belongs to BMW group. The company had filed relevant documents with Assessing Officer and also in remand proceeding. The share holders are main promoters of BMW group and other body corporate, the shareholders companies, namely Feesia Vinimay (P) Page No. 18 Page No. 19 9. On similar facts, I have gave the relief in Case Of another group company, namely Maninya Comfin Pvt Ltd in appeal no 1170/CIT(A) 4/15-16 of same BMW Industries Ltd recently. In View of the above it is clear that the assessee has not received, any share capital during the year and therefore addition during AY 2012-13 is not justified on this count. Further it is seen that all the share subscribers in whose name credits have come during the year are associate companies of the assessee (BMW group, a listed entity). The assessee has been able to show the source of share capital in the hands of the share allottees. First of all the AO has not been able to prove that the share subscribers are doubtful. Further even if the share subscribers had any doubtful source of funding the additions should have been made in the hands of the share applicants and not the assessee concern. In view of the above discussion, invoking the provisions of section 68 by the AO is not justified in the circumstances. Accordingly, the AO is directed to delete the addition made on this account. This ground of appeal is allowed. 5. The Ld. D.R submitted before the Bench that before the assessment stage the assessee has not filed addresses of the subscribers and therefore the necessary verification could not be done in the assessment proceedings though admitting that remand report was called for in the appellate proceedings and AO has examined the documents submitted by the assessee. The Ld. D.R submitted that in the remand report the AO has doubted the justification for issuing shares on credit which was stated to 5 I.T.A. No. 80/Kol/2021 Assessment Year: 2012-13 M/s Merrit Fintrade Pvt. Ltd. be received in the next year as only book entries were made during the year. The Ld. D.R submitted that only if there is no receipt of cash , provisions of section 68 of the Act would be attracted as the amount has been credited in the books of account during the year only. The Ld. D.R therefore prayed that the order of Ld. CIT(A) needs to be reversed and that of the AO may kindly be restored. 6. The Ld. A.R submitted before the Bench that the order passed by the Ld. CIT(A) is very reasoned and speaking one and the Ld. CIT(A) has correctly recorded the finding that the assessee has not received any money against issue of shares from four parties namely Manchest Finpro Pvt. Ltd. Rs. 3,78,04,600/-, Rolex Trafin Pvt. Ltd. Rs. 3,02,43,680/- , Shakti Vanijya Pvt. Ltd. Rs. 2,81,203/- and Torrid Fintra Pvt. Ltd. Rs. 2,26,20,517/-. The Ld. A.R submitted that there was a correct balance of Rs. 2,15,000/- in the account of Torrid Fintra Pvt. Ltd. and only because of that the net amount of Rs. 9,07,35,000/- was shown as receivable under the head loan and advances. The Ld. A.R submitted that since the assessee has not received any money against the allotment and issue of shares and therefore addition as made by AO u/s 68 in respect of this share capital / share premium being unexplained is bad in law and was rightly deleted by the Ld. CIT(A) by relying on the decision of Jatia Investment vs. CIT in 206 ITR 718 (Cal). The Ld. A.R also referred to the comments of the AO in the remand report wherein the AO did not dispute the fact that money has not been received during the year. The AO has only stated that Rs. 9,09,50,000/- was in the credited in the books of accounts of the assessee. The Ld. A.R therefore submitted that the necessary evidences comprising books of accounts, money received in subsequent years and the copyies of which were also placed before the authorities below and it is only after taking into account the said evidences and contentions of the assessee, the Ld. CIT(A) recorded a finding of fact that there was no receipt of money or nor the assessee received any cash or sum of money neither the other parties have shown such payments and therefore in case of non-receipt of money, addition u/s 68 of the Act cannot be made. The Ld. A.R submitted that Section 68 applies only when cash credits were found in the books of account but in the present case there is no cash 6 I.T.A. No. 80/Kol/2021 Assessment Year: 2012-13 M/s Merrit Fintrade Pvt. Ltd. credit in the books of the assessee as the assessee has been received in the next year against the allotment of shares. In other words, the money for which the allotment of shares were made remained outstanding and was shown under the head loan and advances into annual accounts. The Ld. A.R also without prejudice the above contentions of the assessee submitted that the Ld. CIT(A) has also analyzed the identity and creditworthiness of the subscribers and genuineness of the transactions in para 7 to 17 of the appellate order which continued till page 19 and after discussing in detail, has come to the conclusion that all these companies were identified, have creditworthiness and transactions were genuine. The Ld. A.R therefore submitted that the order passed by the Ld. CIT(A) may kindly be affirmed by dismissing the appeal of the revenue on merit. 7. We have heard the rival contentions and perused the material on record. The undisputed facts as coming out from the records as placed before us are that during the year the assessee allotted 26,75,000 equity shares face value of 10/- and premium of 24/- per share for consideration of Rs. 9,09,50,000/-. The amount was shown to be recoverable in the books of account of the assessee and the corresponding credit entries were duly made in the share capital/ share premium. Nonetheless before the AO in the assessment proceedings, the assessee did not produce any records or evidences but in the remand proceedings the assessee has filed necessary evidences of allotting of share on credit to 4 parties as stated hereinabove which have been stated to be received in the next financial year. We also note that the AO has also nowhere denied that the shares were issued by making book entries and no money was received during the year. The Ld. CIT(A) has made a clear-cut finding in the appellate order as extracted above that the shares were allotted to four parties on credit, money was received in the next financial year. The Ld. CIT(A) after following the decision of Jatia Investment Ltd. (supra) allowed the appeal of the assessee on the ground that the there was no cash movement during the year and in absence of cash received in lieu of allotment of shares, the provisions of Section 68 of the Act cannot be invoked. The case of the assessee also find support from the decision of Hon’ble Madras High Court 7 I.T.A. No. 80/Kol/2021 Assessment Year: 2012-13 M/s Merrit Fintrade Pvt. Ltd. in the case of V. R. Global Energy Pvt. Ltd. vs. ITO in 407 ITR 145 (Mad). Similar ratio has been laid down by the Hon’ble High Court and SLP filed by the revenue was also dismissed by the decision of Hon’ble Supreme Court in ITO vs. V.R. Global Energy Pvt. Ltd. in[2020] 268 taxmann 392 (SC). Considering these facts and judicial pronouncement by various judicial forums, we do not find any infirmity in the order of Ld. CIT(A) and are inclined to uphold the same by dismissing the grounds raised by the revenue on this issue. 8. Issue raised in ground no. 6 is against the deletion of addition of Rs. 16,47,94,540/- by Ld. CIT(A) as made by the AO u/s 68 of the Act on account of unexplained unsecured loans. 9. The facts in brief are that AO observed from the Balance sheet that the assessee has received unsecured loans of Rs. 16,47,94,540/- from five parties. According to the AO the assessee has not given addresses of these lenders except Gourav Commerce Pvt Ltd. which duly responded to the notice issued u/s 13396) of the Act by furnishing ITR, ledger copy in respect of transaction with the assessee company. Besides the summons were also issued to the directors of assessee company but no compliance was made. Finally the AO treated these unsecured loans as unexplained cash credit and added to the income of the assessee. 10. In the appellate proceedings, the Ld. CIT(A) recorded a finding that only the unsecured loan has been raised from Gaurav Commerce Pvt. Ltd. of Rs. 7.50 crores and Rs. 2,89,646/- from Bleweet Finvest Pvt. Ltd. . The ld. CIT(A) recorded a finding that except the above two unsecured loans there was no real transactions of movement of funds in the books of account of the assessee qua the remaining loans and therefore there cannot be a question of unexplained cash credit. The Ld. CIT(A) also discussed the remand report received from the AO on this issue. The Ld. CIT(A) noted that the Gaurav Commerce Pvt. Ltd. is a listed company from BMW Industries Ltd. which is a registered company to which the assessee also belongs to and has a turnover of Rs. 750.00 crores and during the year the profit on 27.13 crores was 8 I.T.A. No. 80/Kol/2021 Assessment Year: 2012-13 M/s Merrit Fintrade Pvt. Ltd. earned and the second loan of Rs. 1,89,646/- was given by Bleweet Finvest Pvt. Ltd. out of fixed deposit received. The Ld. CIT(A) thus noted that the identity, creditworthiness and genuineness of the transactions of loans received were duly established by the assessee and thus allowed the appeal of the assessee by directing the AO to delete the addition. 11. The Ld. D.R. contended that the assessee could not explain this unsecured loans from different parties before the AO even in the remand proceedings. The assessee has filed evidences on the basis of which the AO has given a finding that there were two loans received during the year one from Gaurav Commerce Pvt. Ltd., a group company of assessee belonging to BMW Industries Ltd. and other one is Bleweet Finvest Pvt. Ltd. from whom loan was received money during the year. The Ld. D.R stated that other loan were journal entries which could not be explained by the assessee and therefore it falls under ambit of Section 68 of the Act. The Ld. D.R also referred to the Ld. CIT(A)’s order where the Ld. CIT(A) has passed a cryptic and non-speaking order and therefore the issue may be restored back to the file of the AO and needs to be examined and could be decided de novo. 12. The Ld. A.R on the other hand contended that the issue has been examined by the AO during the remand proceeding and the AO has given a finding of fact that the loan taken by the assessee from Gaurav Commerce Pvt. Ltd. and Bleweet Finvest Pvt. Ltd. The Ld. CIT(A) after considering remand report and taking into account the contentions of the assessee during the appellate proceedings so far as loan raised during the year, the assessee has proved identity, creditworthiness of lenders and genuineness of the transactions. The Ld. A.R stated that the loan raised from Gaurav Commerce Pvt. Ltd. , a group company of the assessee belonging to BMW Industries Ltd. which has turnover of Rs. 750.00 crores and has shown profit 27.13 crores on the said turnover. The Ld. CIT(A) has recorded a finding that identity, creditworthiness and genuineness were duly proved so far as the second loan is concerned of Rs. 2,89,646/- same was out of Bleweet Finvest Pvt. Ltd. and the ingredients of section 68 was also proved and in respect of that as regards the other credit which were added by 9 I.T.A. No. 80/Kol/2021 Assessment Year: 2012-13 M/s Merrit Fintrade Pvt. Ltd. the AO. The Ld. CIT(A) has given clear cut finding that the opening balance decided the ambit of Section 68 of the Act. The Ld. A.R therefore prayed that the order passed by the Ld. CIT(A) is very reasoned and cogent one and does not require any inference at this stage. The Ld. A.R finally prayed that order of Ld. CIT(A) may be affirmed on this issue by dismissing the appeal of the revenue. 13. On the basis of rival contention and evidenced placed before us, we find that during the year the assessee has received only Rs. 7,51,89,646/- from two parties Gaurav Commerce Pvt. Ltd. and Bleweet Finvest Pvt. Ltd. and the other amount either opening balance or represented journal entries. So far as Gaurav Commerce Pvt. Ltd. and Bleweet Finvest Pvt. Ltd. are concerned ,we find that the Ld. CIT(A) has given a detailed finding that the identity, creditworthiness of the lenders and genuineness of the transactions were proved. In case of Gaurav Commerce Pvt. Ltd., is a group company which belonging to BMW Industries Ltd. which has turnover of Rs. 750.00 crore during the year and profit of Rs. 27.13 crores and so far as Bleweet Finvest Pvt. Ltd. concerned, the loan and advanced were received out of encashment of fixed deposit. Considering these facts and circumstances we do not find any infirmity in the order passed by the Ld. CIT(A) and are inclined to uphold the same by dismissing the ground raised by the revenue. 14. In the result, the appeal of the revenue is dismissed. Order is pronounced in the open court on 31 st July, 2023 Sd/- Sd/- (Sonjoy Sarma /संजय शमा ) (Rajesh Kumar/राजेश क ु मार) Judicial Member/ या यक सद य Accountant Member/लेखा सद य Dated: 31 st July, 2023 SB, Sr. PS 10 I.T.A. No. 80/Kol/2021 Assessment Year: 2012-13 M/s Merrit Fintrade Pvt. Ltd. Copy of the order forwarded to: 1. Appellant- ITO, Ward-8(1), Kolkata 2. Respondent – M/s Merrit Fintrade Pvt. Ltd., 9, Lal Bazar, Kolkata-700001 3. Ld. CIT(A)- 4, Kolkata (Sent through e-mail) 4. Ld. PCIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail) True Copy By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata