Deputy Commissioner of Income Tax, Circle -1(1)(2), Surat V. M/s. Karmeshwar Exim Pvt. ltd., Surat

ITA 90/SRT/2017

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2486 (ITAT-SURAT)
• Duration Of Justice: 4 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 26-12-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 05-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SURESH K. KABRA
• Keywords: Unexplained cash credit; Bogus Share capital; Gift; Source of fund; Third party statement; Onus to prove
• Section: 68; 143(3); 142(1); 133(6); 195; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRIPAWAN SINGH, JM &DR. A.L.SAINI, AM आयकरअपीलसं./ITA No.90/SRT/2017 (िनधाŊरणवषŊ / Assessment Year: (2012-13) (VirtualCourt Hearing) Dy. Commissioner of Income Tax Circle-1(1)(2) Room No. 114, 1 st Floor, Aayakar Bhavan, Majura Gate, Surat- 395001 Vs. M/s Karmeshwar Exim Pvt. Ltd., A/3/2, Hojiwala Estate, Sachin- Palsana Road, Sachin-394 230 ̾थायीलेखासं./जीआइआरसं./PAN/GIR No.: AADCK 9523 E (Assessee) (Respondent) Assessee by :Shri Suresh K. Kabra, C.A Respondent by: Shri H.P. Meena,– CIT-DR सुनवाईकीतारीख/ Date of Hearing : 27/12/2021 घोषणाकीतारीख/Date of Pronouncement : 09/02/2022 आदेश / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: Captioned appeal filed by the Revenue, pertaining to the assessment year 2012-13, is directed against the order passed by theLearned Commissioner of Income Tax(Appeals)-3, Surat dated 30.06.2017, which in turn arises out of an assessment order passed by the Assessing Officer (‘assessing officer’ for short) under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), vide order dated 31.03.2015. 2. Grounds of appeal raised by the Revenue are as follows:- “1. Whether on the fact and the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition made on account of unexplained share capital and share premium amounting to Rs.9,49,88,000/- without appreciating the fact that during the assessment proceedings, the assessee company could not establish the genuineness of transaction? 2.Whether on the fact and the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition made on account of unexplained share capital and share premium without appreciating the fact that during the course of assessment proceedings, the assessee company failed to establish the identity of investors by not producing investors for cross examination?” Page | 2 ITA No.90/SRT/2017 A.Y. 2012-13 M/s Karmeshwar Exim Pvt. Ltd., 3. The relevant material facts, as culled out from the material on record, are as follows. The assessee before us is a Private Limited Company and is engaged in the business of embroidery work and manufacturing of fabric doubling and twisting of yearn. The turnover of assessee company for the year is Rs.174.48 crores as against turnover of Rs.116.08 crores for the preceding year. The gross profit for the year is Rs.8.86 crores as against Rs.1.33 crores for the preceding year. The net profit for the year is Rs.2.28 crores as against Rs.30 lacs for the preceding year. The gross profit ratio for the year is 5.08% as against 1.15% for preceding year. The net profit ratio for the year is 1.31% as against 0.26% for the preceding year. During the course of scrutiny assessment proceedings, it was observed by assessing officer that assessee-company had received substantial amount of share application money during the year under consideration towards share capital and share premium,. The following table depicts a bird’s eye view of the receipts by the assessee towards share capital and share premium. Name of investor Address of investor(s) No. of shares Face value per share Premium per share Total face value Total share premium Total amount paid Alpesh R Borda 37, Diamond Nagar, Opp. Mira Nagar, Surat 34000 10 90 340000 3060000 3400000 Ramesh K Borda 37,Diamond Nagar, Opp. Mira Nagar, Surat 246280 10 90 2462800 22165200 24628000 Sunil Borda 88, Kalidas Nagar, Lambe Hanuman Road, Surat 246600 10 90 2466000 22194000 24660000 Guriben K Borda 37, Diamond Nagar, Opp.Mira Nagar, Surat 388000 10 90 3880000 34920000 38800000 Sumit Borda 37, Diamond Nagar, Opp. Mira Nagar, Surat 35000 10 90 350000 350000 3500000 Total 949880 9498800 85489200 94988000 In questionnaire vide notice dated 07.11.2014 u/s 142(1) of the Act the assessee was required to furnish details and supporting material to establish the identity, genuineness of source and creditworthiness in respect of addition to share capital and receipt of share premium during the year. The assessing officer also issued notices u/s 133(6) of the Act, to the investors who had paid share application money to the assessee-company towards share capital and share premium. Details relating to service of notices u/s 133(6) and gist of responses from the said investors is depicted in the following table: Page | 3 ITA No.90/SRT/2017 A.Y. 2012-13 M/s Karmeshwar Exim Pvt. Ltd., Name of investor Whether notice u/s 133(6) served or not Whether reply to notice u/s 133(6)received or not Alpesh R Borda Served Yes Ramesh K Borda Served Yes Sunil Bodra Unserved NA Gauriben K Bodra Served No SumitBodra Served Yes After verification and analysis of various facts available on record and various facts gathered during the course of enquiry proceedings, a show cause letter dated 19.03.2015 was issued to the assessee requiring it to explain various relevant facts why amounts of share capital and share premium should not be treated as unexplained cash credits and why the same should not be added back to the total income of assessee-company for the AY 2012-13. 4.In response to the notice of the Assessing Officer, assessee submitted his written submission to prove the identify genuineness and creditworthiness of share subscribers which is reproduced by assessing officer in the assessment order, Vide page no.11 to 22. However, the assessing officer rejected the contention of the assessee and held that assessee had failed to offer any satisfactory explanation and evidence for the creditworthiness of the so-called share subscribers. In view of the same and after taking into consideration all the above facts and evidences brought on record that go on to conclusively prove that the explanation of the assessee with regards to the sources of the funds credited in the guise of share capital and premium is nothing but a colorable device, the explanation of the assessee over the nature and source of the funds is held to be grossly unsatisfactory and untenable in the eyes of law. The assessee has deliberately avoided the examination of these parties to ascertain the genuineness of the transaction and its creditworthiness. Accordingly, the amount of Rs.9,49,88,000/- claimed to have been received by the assessee as share capital and premium from above mentioned parties were treated as unexplained cash credits and added back to the total income of the assessee u/s 68 of the I.T.Act. Page | 4 ITA No.90/SRT/2017 A.Y. 2012-13 M/s Karmeshwar Exim Pvt. Ltd., 5.Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has deleted the addition made by the Assessing Officer. Aggrieved, the Revenue is in appeal before us. 6.Shri H.P. Meena,– CIT-DR for the Revenue argued a lot stating that assessee has failed to prove three ingredient of section 68 of the Act, namely, Identity, Creditworthiness of the Investors and genuineness of the transactions. Learned DR also submitted written submissions, in nine pages, before the Bench. The sum and substance of the written submissions of ld DR are that during the assessment proceedings, numbers of opportunities were given to the assessee to establish the Identity, Creditworthiness of the Investors and genuineness of the transactions. The assessee could not establish the same by providing cogent evidences. During the assessment proceedings, notice u/s 133(6) of the I.T. Act were issued by speed post to all investors and reply of investors i.e. Alpesh Borda, Ramesh Borda and Sumit Borda were received. In case of Gauriben K Bodra and Sunil Bodra, no replies were received. In case of Sunil Bodra, bank statement was obtained from Axis bank, Surat from which it was found that huge sums of money have been channelized through this account to various accounts of the other contributors to share application money. In the said bank account of Shri Sunil Bodra, money were received from outside in US$ and this money had gone to bank accounts of others parties and part of this money appeared to have gone towards payments by these other persons to the assessee company as share application money. In other investors, the assessing officer has observed that when compared with the amount of share application money given, their returned income were not commensurate with huge contributions as their returned income cannot be considered as adequate for advancing such huge amount. Mere filing of copy of ITR, computation and copy of bank accounts does not prove the identity, genuineness and creditworthiness of the transactions.The Ld. CIT(A) has failed to appreciate the fact that onus has been cast on the assessee to prove the genuineness of the credit entry in its books of accounts. In the instant case, the assessee was provided opportunity to produce the all investors before him on 25.03.2015 however; the Page | 5 ITA No.90/SRT/2017 A.Y. 2012-13 M/s Karmeshwar Exim Pvt. Ltd., assessee has failed to produce the alleged investors before the assessing officer. Therefore, the assessee has failed to discharge its onus in proving the credits as genuine to the satisfaction of the Assessing Officer by not producing the so-called investors of the assessee company, especially in a scenario when the very existence of the investor was in doubt. The Ld. CIT(A) has failed to appreciate the fact that bank statement of Shri Sunil Borda was obtained from Axis bank, Surat from which it was found that huge sums of money have been channelized through this account to various accounts of the other contributors to share application money. The Ld. CIT(A) has failed to appreciate the fact that payments received through banking channel are not sacrosanct. Finally, ld DR prays the Bench that order passed by the assessing officer may be upheld. 7.Shri Suresh K. Kabra, Learned Counsel submitted that assessing officer has made unwarranted and serious allegations on the assessee without pointing any fundamental fallacy in the documents and evidences submitted by the assessee, to prove three ingredient of section 68 of the Act, namely, Identity, Creditworthiness of the Investors and genuineness of the transactions. He pleads that share applicants belong to Bodra Family. Three out of five are resident Indians and other two are non - resident Indians. The three resident Indian share applicants are also existing share holders, in the assessee– company, so identity of share subscribers should not be doubted. One of the share applicantsi.e. Shri Alpesh Bodara is the director of the assessee - company. Shri Ramesh Bodra is father of Shri Alpesh Bodra and Shri Sunil and Sumit are siblings of Shri Alpesh Bodara. Smt.Gouriben is grandmother of Shri Alpesh Bodra. The entire share application amount is thus, received from Director of assessee - company and his family members, therefore, identity and genuineness of the transactions should not be doubted. During the assessment stage, the assessee submitted the following documents and evidences: (1) Copies ITR, computation of income (2) Copy of passport (3) Copies of assessment order u/s 143(3) for assessment year 2010-11 (4). Audited accounts statement (P&L a/c and balance sheet) Page | 6 ITA No.90/SRT/2017 A.Y. 2012-13 M/s Karmeshwar Exim Pvt. Ltd., (5). Audited accounts statement (P&L a/c and balance sheet) (6). Bank a/c statements (7). Bank book (8). Contra confirmation (9). Leger account in books of individual (10). Allotment return FormNo.2 filed with ROC (11). Bank statement of NRE a/c (12). Net wroth certificate issued by Dubai based chartered accountants (13) Trade lincence issued by Govt. Of Ras ALKHAMAH Free Trade Zoen at UAWE case of Shri Sunil Bodra (14). confirmation letters (15).PAN card and address of share applicants. By submitting these plethora documents and evidences, the ld Counsel claimed that assessee has discharged his onus to prove Identity, Creditworthiness of the Investors and genuineness of the transactions. Therefore, he prays the Bench that order passed by the ld CIT(A) may be upheld. 8.We have given our thoughtful consideration to rival contention. We have perused case file as well as paper books furnished by assessee. Before us, the assessee has submitted for each shareholder, the following documents and evidences: Alpesh Bodra - Shareholder Sr.No. Nature of document Paper book page No. (i) ITR of the shareholder AY 2014-15 15 (ii) ITR of the year (AY 12-13) alongwith computation of total income and personal statement of affair 16-20 (iii) Assessment order u/s 143(3) of the Act for the AY 10-11 21-23 (iv) Copy of bank statement and bankbook (Allahabad Bank) of the shareholder 24-30 (v) Ledger a/c from the books of the shareholder 31 (vi) Allotment return (from no.2) filed with theROC 32-35 (vii) Personal and audited accounts of the shareholder for the AY 12-13 36-44 (viii) Ledger a/c copy of shareholder from the books of the source of funds (Deeprekha Impex P Ltd.) 45 (ix) Bank statement and bank book and ITR V of 46-48 Page | 7 ITA No.90/SRT/2017 A.Y. 2012-13 M/s Karmeshwar Exim Pvt. Ltd., Deeprekha Impex Pvt.Ltd. for the AY 12-13 Ramesh Bodra - Shareholder Sr.No. Nature of document page No (i) ITR and CTI of the year 49-53 (ii) ITR V of the shareholder for the AY 14-15 54-59 (iii) Ledger a/c from the books of the Soham Impex (Prop concern of shareholder) 60-61 (iv) Copy of bank statement and bankbook (Allahabad Bank) of Ramesh Bodra recorded in the books of Soham Impex (Prop concern of shareholder) 62-70 (v) The audited accounts of Soham Impex (prop. concern of shareholder) for the year 71-88 (vi) Bank statement and bank book of Soham Impex (prop concern of the shareholder) 89-90 (vii) Allotment return (Form No.2) filed with the ROC 91-96 (viii) Bank book and bank statement of Narshi Textiles (prop Maulik Desai) being source of source of shareholder) 97-98 (ix) ITR V of Maulik Desai (source of source) 99 Sumit Bodra - Shareholder Sr.No. Nature of document page No (i) ITR and CTI of the AY 2012-13 100-102 (ii) Assessment order u/s 143(3) of the Act for the AY 12-13 103-106 (iii) ITR V for the AY 14-15 107 (iv) Ledger a/c from the books of the shareholder 108 (v) Copy of bank book of the shareholder 111-115 (vi) Allotment return (Form No.2) filed with the ROC 116-119 (vii) Balance sheet of shareholder 120-121 (viii) The audited accounts of the Sawariya Fashion (prop concern of shareholder) for the year 122-129 (ix) Bank bookandbank statement of Mahi Enterprises(prop Mansukh Rupapara) being source 130-132 Sunil Bodra - Shareholder Sr.No. Nature of document page No (i) Passport issued by Indian Govt. 134-153 (ii) Trade licence issued by Government of Ras Al Khiamahk, Rak Investment Authority, Free Zone at UAE 154 (iii) Copy of bank statement (NRE a/c) of the shareholder with Axis Bank 155 (iv) Allotment return (Form No.2) filed with the ROC 156-159 (v) The net worth certificate issued by a CA at Dubai – UAE is enclosed herewith 160-162 Gauriben Bodra - Sr.No. Nature of document page No (i) Ledger a/c copy of Gauriben in the books of assessee-company. 163 (ii) Copy of bank statement (NRE a/c) of the shareholder with Axis Bank 164 (iii) The net worth certificate issued by a CA at Dubai- UAE is enclosed herewith 167-168 Page | 8 ITA No.90/SRT/2017 A.Y. 2012-13 M/s Karmeshwar Exim Pvt. Ltd., 9. We note that by submitting these above noted documents and evidences in respect of each share applicant, the assessee has proved the identity, creditworthiness and genuineness of the transactions.When a question as to the creditworthiness of a creditor is to be adjudicated and if the creditor is an Income Tax assessee, it is now well settled by the decision of the Calcutta High Court that the creditworthiness of the creditor cannot be disputed by the assessing officer of the assessee but the assessing officer of the creditor. In this regards our attention was drawn to the decision of the Hon'ble High Court, Calcutta in the COMMISSIONER OF INCOME TAX, KOLKA TA-Ill Versus DATAWARE PRIVATE LIMITED ITAT No. 263 of 2011 Date: 21st September, 2011 wherein the Court held as follows: “In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness" of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness" of transaction through account payee cheque has been established. We find that both the Commissioner of Income Tax (Appeal) and the Tribunal below followed the well-accepted principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities.” Page | 9 ITA No.90/SRT/2017 A.Y. 2012-13 M/s Karmeshwar Exim Pvt. Ltd., 10. Before us, Ld. Counsel of the assessee submits a chart showing the source and nature of source of money in the hands of share applicants, which is reproduced below:- (AY 2012-13) Details of source and nature of source to the share applicants Name of shareholders Share capital + premium Date of receipt Amount (Rs) Immediate source to the applicants Amount PAN of the immediate source ALPESH R BODRA AJAPB9991L 34,00,000 O balance (cheque received in earlier year but cleared in current year) 34,00,000 Loan from Janvi Threads 34,00,000 AASPD5638H ITR V Enclosed Pg#----- of PB 34,00,000 34,00,000 RAMESH KARAMSINH BODRA ACHPB9356P 2,46,28,000 07/11/2011 2,46,28,000 Withdrawal from prop. Firm Soham Fabrics. The firm had taken loan from Narshi Textiles 2,46,27,900 ALNPD4095N ITR V enclosed Pg #----- of PB 2,46,28,000 2,46,27,900 SUMIT R BODRA assessing officerAPB3085J 35,00,000 O balance (cheque received in earlier year but cleared in current year) 35,00,000 Loan from Mahi Enterprise AFNPR4554K ITR V enclosed Pg #---- of PB 35,00,000 SUNIL BODRA 2,46,60,000 21/10/2011 24/10/2011 24/10/2011 04/11/2011 1,00,00,000 20,00,000 1,02,00,000 24,60,000 USD received in the NRE a/c No. 910010001320236 with Axis Bank 1,00,10,127 20,00,000 1,19,80,274 24,56,935 21/10.2011 22/10/2011 24/10/2011 04/11/2011 2,46,60,000 2,64,47,337 GAURIBEN BODRA 3,88,000 05/12/2011 3,88,00,000 USD received in the NRE a/c No. 910010001359975 with Axis Bank 3,88,05,844 5/12/2011 3,88,00,000 3,88,05,844 9,49,88,000 11. From the above chart it is clear that during the year, the assessee company has received share application money of Rs. 9,49,88,000/-,from five individuals as stated by the assessing officer (on page no. 5 of his order). The assessing officer had added the said amount u/s 68 of the Act as ' unexplained cash credits’. In his order, the assessing officer has not given factual findings in respect of these share applicants; but has discussed (from page 22 to 45) the ‘modus operandi' adopted by entities /Shell companies engaged in providing bogus entries of share capital and share premium, to large number of Companies by money laundering. This discussion covers in elaborate the activities of shell - companiesand various decisions of the Courts where in this modus operandi is discussed. The assessing Page | 10 ITA No.90/SRT/2017 A.Y. 2012-13 M/s Karmeshwar Exim Pvt. Ltd., officer forgot the point that in assessee`s case the share application money is received from individuals and that too from the Director and his family members. Thus, ld CIT(A) noted that in the assessment order, there is no discussion at all as to whether the assessing officer examined the details filed before him, by the assessee. As already stated, the assessing officer talks of shell companies, which provide accommodation entries by money laundering, whereas the share application money is received by the assessee-company from individuals i.e Promoter (Alpesh Badra) and family members of the promoters (Bodra family). Hence, there is not any relevance or any applicability of the discussion made by the assessing officer to the facts of the assessee’s case. The details filed before the assessing officer is mentioned in page 11 to 22 of the order. From examination of the details, it is seen that share applicants belong to Bodra Family. Three out of five are resident Indians and other two are non-resident Indians. The three resident Indian share applicants are also existing share holders, in the assessee-company. One of the share applicant i.e. Shri Alpesh Bodara is the director of the assessee - company. Shri Ramesh Bodra is father of Shri Alpesh Bodra and Shri Sunil and Sumit are siblings of Shri Alpesh Bodara. Smt Gouriben is grandmother of Shri Alpesh Bodra. The entire share application amount is thus, received from Director of assessee - company and his family members, therefore identity of the share applicants should not be doubted. 12.During the appellate proceeding, the assessee submitted the following documents and details in respect of shareholders, which is reproduced below: Sr. No. In case of resident Indian (i.e. S/shri Alpesh Bodra, Ramesh Bodra and Sumit Bodra In case of Non-resident (Dubai) i.e. Shri Sunil Bodra and Smt. Gauriben Bodra 1 Copies ITR, computation of income 1 Copy of passport 2 Copies of assessment order u/s 143(3) for assessment year 2010- 11 2 Bank statement of NRE a/c 3 Audited accounts statement (P&L a/c and balance sheet) 3 Net wroth certificate issued by Dubai based chartered accountants 4 Bank a/c statements 4 Trade lincence issued by Govt. of Ras ALKHAMAH Free Trade Zoen at UAWE case of Shri Sunil Bodra 5 Bank book 5 confirmation 6 Contra confirmation 6 Form No.2 (allotment return file with ROC Page | 11 ITA No.90/SRT/2017 A.Y. 2012-13 M/s Karmeshwar Exim Pvt. Ltd., (Registrar of companies) 7 Leger account in books of individual 8 Allotment return FormNo.2 filed with ROC 13. From the above chart, it can be seen that assessee has submitted enough evidences to prove three ingredients of section 68 of the Act, namelyidentity, creditworthiness and genuineness of the transactions. We also note that Assessing Officer has issued statutory notices u/s 133(6) of the Act, in the case of share- applicants out of which four notices were served. The three resident Indian share applicants have complied with to the statutory notices u/s 133(6) of the Act. 14. In respect of Non - Resident Share applicants, the ld CIT(A) observed that assessing officer has obtained the bank account of one of the NRI share - applicant namely Shri Sunil K Bodra (brother of Shri Alpesh Bodra) from AXIS Bank. The assessing officer has observed that in this account, there are huge credits received in US dollars which have been transferred / remitted to family members and concerns such as, the assessee - company, M/s Ugam Impex Ltd etc. However, the assessing officer has not been able to specify any irregularity or violation of any law and accounting principles in this and also not able to clearly spell out the adverse inference he wishes to draw from the observation. It is explained before the assessing officer that Shri Sunil Bodra is having a trade licence at Ras Al, Khaimah Free Trade Zone at UAE, where he is doing business in the name and style of Al Maya general trading. The net worth certificate issued by DUBAI based audit firm namely M. Al. Ali Auditing firm shows that income Al Maya General Trading Co FZE is 69,15,560 AED. It is also seen from the net worth statement that Shri Sunil Bodra has made investment totaling to Rs.35.28 crores in various companies other than the assessee- company. Similarly, the net worth statement of Smt.Gauriben Bodra shows that she has investment of Rs.13.41 crores in companies other than assessee-company. There is no finding by assessing officer regarding bank account of Smt. Gauriben Bodra. The assessee relied on the decisions of the Hon'ble High Courts of Gujarat and Punjab & Page | 12 ITA No.90/SRT/2017 A.Y. 2012-13 M/s Karmeshwar Exim Pvt. Ltd., Haryana to impress the point that once an NRI lender / donor/investors identity is proved (passport) and it is shown that amounts have been received from NRE/ NRO account through banking channels, the requirement u/s 68 is fulfilled by assessee. The decisions referred during the appellate proceedings are reproduced below: 1. CIT v/s Kulwant Industries (214 CTR 223 (P &H ) “Section 68 of the IT Act, 1961 - Cash credits -Assessment Year 1989-90 - In respect of credit appearing in Capital account of partner of assessee - firm, partner claimed same as gift from NRI - Not satisfied with explanation. Assessing Officer made addition - Donor was real maternal uncle of donee and gift had been made from NRE account maintained by donor and remittances in such account could only be made from foreign exchange - Gift had been made through cheue by banking channel -Whether addition made by the assessing officer could be sustained Held ' NO.” 2. CIT v/s Harishbhai Raojibhai Patel ( HUF) (219 Taxman.. 125 (Mag. Guj) "Section 68 of the I T Act, 1961 - Cash Credit (Deposits) - Assessing Officer made certain addition u/s 68 on ground that assessee was unable to establish identity and creditworthiness of depositor and genuineness of transaction. ON appeal, Commissioner (Appeals) as well as Tribunal deleted addition by recording findings of fact that said amount was given by one "J” staying in UK by cheque from his NRE account and said fact had been confirmed by 'J' - Whether order passed by Tribunal could be interfered with - Held NO. (in favour of assessee ). It is also seen that Shri Sunil Bodra had invested a sum of Rs 5.15 crores in other Surat based company M/s S.V.S. Tex Fab Ltd. This amount was added u/s 68 in the hands of M/s S.V.S. Tex. O Fab P Ltd for the assessment year 2011-12. In the appeal before the Id CIT (Appeals)-2, Surat the matter was examined and the Id CIT (Appeals)-2, Surat in his order in appeal no. CAS/2/ 96/2015-16 dated 20.12.2016 has held that the investment satisfies all the three elements of Sec.68 and hence, he deleted the said addition.Copy of passport, bank account statements, net worth certificate and copies of trade license filed establish the identity, creditworthiness and genuineness. The above two judicial pronouncements squarely apply in the two NRI share applicants cases. Page | 13 ITA No.90/SRT/2017 A.Y. 2012-13 M/s Karmeshwar Exim Pvt. Ltd., 15. In respect of Resident Indian share applicants, ld CIT(A) noticed that in the case of three Resident share applicants, the assessing officer has not given any finding regarding the details filed before him including the bank statements, audited financial statements, copies of ITR etc. prima facie perusal of the bank accounts of the share applicants shows that there is no cash deposit in any of the bank accounts. It is also seen that three Indian residents are regularly assessed to tax and assessment u/s 143(3) has been done in their cases, in earlier year. Even for the assessment year 2012-13, the assessment u/s 143(3) has been made in the case of Shri Alpesh Bodra and Shri Sunil Bodra and there is no adverse finding regarding “source" of the investments, it is also seen that the all the three Indian resident share applicants are involved in businesses of their own. The name of the business enterprises, turnover, operating expense and net profit /loss are as under: Proprietor Alpesh Bodra Ramesh Bodra Sumit Bodra Name of the concern Karmeshwar Enterprise Soham Fabrics Sanwariya Fashion Turnover 1,82,04,32,460 36,98,01,569 2,23,46,84,481 Purchases 1,81,73,82,592 28,79,39,827 2,23,18,72,958 Operating expenses 20,52,362 2,04,28,409 19,51,555 Net profit 11,11,702 4,30,168 9,71,078 From the above, it is can be said that prima facie the businesses are not paper concerns. The assessing officer has not given any reasoned finding based on examination of the financial statements. The identity, creditworthiness and genuineness of these three resident share applicants are established by above details filed. The assessing officer in the last two lines of page no. 45 concludes that : “it is clear from the above presentation that the companies are not carrying out any proper activity. There is almost no revenue generation, no income and even the expenses debited do not include any rent expenses, electricity expenses, salary expenses, telephone expenses which are the basic requirements of running an establishment." From the above, the ld CIT(A) observed that assessing officer has arrived at conclusion based on wrong facts. The conclusion is regarding shell companies/ accommodation entry providers, which are not involved in assessee’s case. The share - applicants in this case are individuals and as evident from details filed are involved in business activities generating operating Revenue and incurring operating expenses. Page | 14 ITA No.90/SRT/2017 A.Y. 2012-13 M/s Karmeshwar Exim Pvt. Ltd., 16. We note that law regarding addition u/s 68 on account of the share application money has been laid out by the Hon'ble Supreme Court in the case of CIT v/s Lovely Exports ( 2008) 216 ITR 195 ( SC) wherein it has held that: “if share application money is received by assessee - company from alleged bogus shareholders, whose names are given to Assessing Officer, then Department is free to proceed to reopen their individual assessments in accordance with law, but this amount of share money cannot be regarded as 'undisclosed income' under section 68 of assessee -company." 17.The Hon'ble jurisdictional ITAT in the case of Pankaj Enka v/s DCIT in ITA No.816/Ahd/2013 has held that: “the assessee has discharged the primary onus to prove as genuine share application money. On perusal of bank statement, no cash has been deposited by them before issue of cheque to the assessee towards share application money. If the assessing officer doubts the source of source, he was free to conduct inquiry in the case of person from whom assessee has received funds" . The Hon'ble’ jurisdictional High Court has concurred with this view of Hon'ble ITAT in ITA No. 967/2015 dated 05.01.2016 . 18. On the identical facts, in Tax appeal no.442 of 2011 of Hon'ble’ Gujarat High Court in the case ofCIT v/s Belgium Glass & Ceramics P Ltd (date of pronouncement 13.06.2012), held as follows: "4. On consideration of facts and the order of the Tribunal, it is seen that while reversing the order of the Commissioner (Appeals) the Tribunal took view that once the applicants admit to have made the payment of share application money, no further inquiry was necessary into the creditworthiness and genuineness of the transactions in the case of assessee - company. It took such view on the basis of various judicial pronouncements of the High Courts in which, the issue of share application money was considered and mainly relied on the decision of the Apex Court in CIT v/s Lovely Exports P Ltd (2010 ) 14 SSC 761) 4.1 In the facts of the case, it is not disputed that the assessee had furnished the assessing officer the names of 15 persons from whom the share application money was receive. The assessee had also produced in respect of each of them the copies of revenue records in form no. 7/12 extracts showing that they were holders of agricultural land. In Lovely Exports (supra), the Supreme Court considered the issue of share application money regarded as undisclosed income u/s 68 of the Act and observed that if share application money was received by assessee - company, from the alleged bogus share holders, whose names were given to assessing officer then the Department was free to proceed to reopen the individual assessments in accordance with Law." Page | 15 ITA No.90/SRT/2017 A.Y. 2012-13 M/s Karmeshwar Exim Pvt. Ltd., 19. Our view is fortified by the judgment of the Coordinate Bench in the case of Rohini Builders V. Deputy Commissioner of Income-Tax [2001] 117 TAXMAN 25 (AHD.) wherein it was held as follows: “. . the assessee had discharged the initial onus which lay on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR Numbers/Permanent Account Numbers and the copies of assessment orders wherever readily available. It had also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee was not expected to prove the genuineness of the cash deposited in the bank of those creditors because under law the assessee can be asked to prove the sourceof the credits in its books of account but not the source of the source as held by the Bombay High Court in the case of Orient Trading Co. Ltd. v. CIT [1963] 49 ITR 723” This decision of ITAT is also confirmed by Hon'ble High Court of Gujarat in the same case (CIT v/s Rohini Builders td reported in 256 ITR 360.) 20.Conclusion: We note that with effect from assessment year 2013-14 section 68 of the Act has been amended to provide that if a closely held company fails to explain the source of share capital, share premium or share application money received by it to the satisfaction of the A.O., the same shall be deemed to be the income of the company u/s 68 of the Act. The said amendment has been held to be prospective and not retrospective by Hon`ble Bombay High Court in Gagandeep Infrastructure Private Limited TS-132-HC-2017(Bom).In a recent decision of Hindusthan Tea Trading Co. Ltd. v. CIT [2003] 263 ITR 289 (Cal) it was held that the power of the assessing officer u/s 68 is not an absolute one. It is subject to his satisfaction where an explanation is offered. The power is absolute where the assessee offers no explanation. The satisfaction with regard to the explanation is in effect an in-built safeguard in section 68 protecting the interest of the assessee. It provides for an opportunity to the assessee to explain the nature and source of the fund. Once it is explained, it is incumbent on the assessing officer to consider the same and form an opinion whether the explanation is satisfactory or not. We are of Page | 16 ITA No.90/SRT/2017 A.Y. 2012-13 M/s Karmeshwar Exim Pvt. Ltd., the view that in assessee`s case the three ingredients of the Section 68 are satisfied to a reasonable extent, by the assessee. That being so, we decline to interfere in the order of ld CIT(A), his order on this issue is hereby upheld and grounds of appeal raised by the Revenue is dismissed. 21.In the result, appeal of the Revenue is dismissed. Order pronounced on 09/02/2022 by placing the result on the notice board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat/िदनांक/ Date: 09/02/2022 Dkp Outsourcing Sr.P.S. Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr.CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // True Copy // Assistant Registrar/Sr. PS/PS ITAT, Surat rue copy/