M/s. Mahodara Estates Private Limited, Bangalore V. The Income Tax Officer, Ward - 4(1)(3), Bangalore

ITA 916/BANG/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5433 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Appeal Filed On: 30-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Source of fund; Set aside; Bogus
• Section: 68; 201; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER I TA NO. 916/BANG/2019 ASSESSMENT YEAR : 2016 - 17 M/S. MAHODARA ESTATES PVT. LTD., NO.37/12-1, AREHANA COMPLEX, 4 TH CROSS, LAL BAGH ROAD, BANGALORE 560 027. PAN: AAICM 32 94P VS. THE INCOME TAX OFFICER, WARD 4(1)(3), BANGALORE. APP EL L ANT RESPONDENT APP ELL ANT BY : SHRI R.K. GANERIWALA, CA R E SPONDENT BY : DR. P.V. PRADEEP KUMAR, ADDL.CIT(DR) (ITAT), BENGALURU. DATE OF HEARING : 13. 0 8 . 201 9 DATE OF PRONOUNCEMENT : 28 . 0 8 . 201 9 O R D E R PER N V VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 06.03.2019 OF CIT(APPEALS)-4, BENGALURU RELATING TO ASSESSMENT YEAR 2016-17. 2. THE ONLY DISPUTED ADDITION IN THIS APPEAL IS AN ADDITION OF RS.3,10,00,000/- ON ACCOUNT OF UNEXPLAINED SHARE CA PITAL U/S.68 OF THE INCOME TAX ACT, 1961 (THE ACT). 3. THE ASSESSEE IS A COMPANY. DURING THE PREVIOUS YEAR RELEVANT TO AY 2016-17, THE ASSESSEE RECEIVED SHARE CAPITAL OF RS.15,96,00,000/- ITA NO. 916/BANG/2019 PAGE 2 OF 7 FROM 20 INVESTORS. IN RESPECT OF ONE OF THE SHAREH OLDER BY NAME M/S. VIKSUN GOODS PRIVATE LIMITED, A-504, 13, MALL ENCLA VE, KB SARANI, DUMDUM, KOLKATA, WHO HAD INVESTED A SUM OF RS.3.10 CRORES IN THE SHARE CAPITAL OF THE ASSESSEE, THE AO SENT NOTICE U/S.133 (6) OF THE ACT, AT THE ADDRESS GIVEN ABOVE. THE SAME WAS RETURNED BY THE POSTAL AUTHORITIES WITH THE POST ENDORSEMENT ASSESSEE CANNOT BE LOCAT ED. AFTER A FEW DAYS AFTER THE NOTICE U/S.133(6) OF THE ACT ISSUED BY TH E AO WAS RETURNED, THERE WAS A REPLY RECEIVED BY SPEED POST BY THE AO QUOTIN G THE SAME ADDRESS. THE AO ON TRACKING THE SOURCE OF ORIGIN OF THE LETT ER THROUGH THE SPEED POST NUMBER NOTICED THAT THE SAID REPLY WAS SENT FROM AN ADDRESS FROM CHENNAI. THE AO THEREAFTER ISSUED A SHOW CAUSE NOTICE DATED 20.12.2018 TO THE ASSESSEE CALLING UPON HIM TO EXPLAIN AS TO WHY THE SHARE CAPITAL OF RS.3.10 CRORES SHOULD NOT BE TREATED AS UNEXPLAINED BECAUSE OF THE CIRCUMSTANCES OF NON-SERVICE OF NOTICE AT KOLKATA ADDRESS AND REC EIPT OF A REPLY FROM A CHENNAI ADDRESS WITH THE KOLKATA ADDRESS STILL BEIN G GIVEN BY THE ASSESSEE IN THE SAID REPLY TO THE AOS SHOW CAUSE N OTICE DATED 20.12.2018. THE ASSESSEE IN RESPONSE TO THE SAME S UBMITTED REPLY DATED 21.12.2018 WHEREIN THE ASSESSEE CLAIMED THAT THE RE GISTERED OFFICE OF THE COMPANY WAS CHANGED FROM TO ANOTHER ADDRESS IN KOLK ATA VIZ., NO.4, BUROTOLLA STREET, 2ND FLOOR, KOLKATA AND ALSO FURNI SHED COPY OF FORM NO. INC-22 AS EVIDENCE OF CHANGE OF REGISTERED OFFICE O F THE COMPANY M/S.VIKSUN GOODS PRIVATE LIMITED. THE AO HOWEVER T REATED THE RECEIPT OF SHARE CAPITAL AS UNEXPLAINED AND ADDED THE SUM OF R S.3.10 CRORES U/S.68 OF THE ACT, FOR THE FOLLOWING REASONS:- 3.5 EVEN AFTER CONSIDERING THE RESPONSE OF THE AS SESSEE AGAINST THE SHOW-CAUSE NOTICE, THE FACT REMAINS THAT THE LE TTER SENT TO M/S. VIKSUNS GOODS PRIVATE LIMITED AT KOLKATA FETCHED RE SPONSE FROM CHENNAI. THE GENUINENESS OF THE INVESTMENT OF RS.3 10 CRORES IS NOT PROVED SATISFACTORILY AND THEREFORE I PROCEED T O BRING TO TAX THE ENTIRE SUM OF RS.3,10,00,000/- AS UNEXPLAINED C REDITS U/S 68 OF THE IT ACT IN THE BOOKS OF THE ASSESSEE. ITA NO. 916/BANG/2019 PAGE 3 OF 7 4. BEFORE CIT(APPEALS), THE ASSESSEE SUBMITTED THAT THE ONLY REASON FOR MAKING THE IMPUGNED ADDITION WAS THAT THE RESPO NSE FROM M/S.VIKSUN GOODS PRIVATE LIMITED HAD COME CHENNAI AND NOT FROM KOLKATA AND THIS CANNOT BE THE BASIS TO MAKE THE IMPUGNED ADDITION. IT WAS ALSO CONTENDED THAT THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO MAKE THE IMPUGNED ADDITION U/S.68 OF THE ACT. 5. THE CIT(A) HOWEVER CONFIRMED THE ORDER OF THE AO , BY OBSERVING THAT THE AO HAS GIVEN COGENT REASONS FOR MAKING THE IMPUGNED ADDITION. THE CIT(A) ALSO REFERRED TO THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF PCIT (CENTRAL)-1 VS. NRA IRON & STEEL PVT.LTD. (SLP NO.29855 OF 2018) AND HELD THAT THE ONUS OF PROVING RECEIPT OF SHARE CAPITAL CANNOT BE DISCHARGED BY MERELY FILING PRIMARY EVIDENCE BUT THE EXPLANATION HAS TO BE TO THE SATISFACTION OF THE AO. 6. AGGRIEVED BY THE AFORESAID ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE AMOUNT IN QUESTION WAS RECEIVED BY RTGS ON 23.04.2015 FROM HD FC BANK ACCOUNT NO. 02192560020741 OF M/S VIKSUN GOODS PVT. LTD. THE AMOUNT WAS CREDITED TO THE BANK ACCOUNT OF THE ASSESSEE ON 23. 04.2015 IN TAMILNADU MERCANTILE BANK. FOR THE SOURCE OF FUNDS IN THE HAN DS OF INVESTOR M/S. VIKSUN GOODS (P) LTD. THEIR BANK STATEMENT REFLECTS THAT ON 7.4.2015 A FIXED DEPOSIT MATURED FOR RS. 3,10,37,454/- AND CLO SING BALANCE WAS RS. 3,11,15,930.39 AND OUT OF SUCH BALANCE A RTGS WAS M ADE TO KARAN RAMSISARIA, DIRECTOR OF THE ASSESSEE ON 7.4.2015. THE AMOUNT WAS RETURNED ON 23.04.15 BY KARAN RAMSISARIA. HE SUBMI TTED THAT THE NOTICE WAS NOT SERVED UPON THE M/S. VIKSUN GOODS P. LTD. W AS AS THEY HAD CHANGED THEIR PLACE OF REGISTERED OFFICE ON 28.02.2 018. WHEN THE REPLY ITA NO. 916/BANG/2019 PAGE 4 OF 7 WAS SENT BY VIKSUN GOODS P. LTD. THE DIRECTOR OF TH E SAID COMPANY WAS TRAVELLING TO CHENNAI AND TO UP THE REPLY HE HAD PO STED IT FROM CHENNAI. 8. IT WAS SUBMITTED THAT THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE OF NRA IRON & STEEL PVT.LTD. (SUPRA) IS CLEARLY DISTINGUISHABLE IN AS MUCH AS THE AO IN THAT CASE MADE ELABORATE ENQUIRIE S WHEREAS IN THE PRESENT CASE, THE AO MADE NO ENQUIRIES AND RELIED O NLY ON THE CIRCUMSTANCE OF NON-SERVICE OF NOTICE AT THE REGIST ERED OFFICE OF THE COMPANY AND RECEIPT OF REPLY FROM AN ADDRESS FROM C HENNAI. ACCORDING TO HIM, THESE WERE NOT GOOD GROUNDS TO UPHOLD THE ADDI TION IN QUESTION. HE ALSO RELIED ON THE CIRCUMSTANCE THAT THERE WAS NO S HARE PREMIUM IN THE PRESENT CASE, WHEREAS IN THE CASE DECIDED BY THE HO NBLE SUPREME COURT, THERE WAS RECEIPT OF SHARE PREMIUM. THE LEARNED DR RELIED ON THE ORDER OF THE CIT(A). 9. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO TH E RIVAL SUBMISSIONS. SEC.68 OF THE ACT READS THUS:- SECTION 68: CASH CREDITS. WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION O F THE ASSESSING OFFICER, SATISFACTORY, THE SUM SO CREDITED MAY BE C HARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PR EVIOUS YEAR: PROVIDED THAT WHERE THE ASSESSEE IS A COMPANY (NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTER ESTED), AND THE SUM SO CREDITED CONSISTS OF SHARE APPLICATION MONEY , SHARE CAPITAL, SHARE PREMIUM OR ANY SUCH AMOUNT BY WHATEV ER NAME CALLED, ANY EXPLANATION OFFERED BY SUCH ASSESSEE-CO MPANY SHALL BE DEEMED TO BE NOT SATISFACTORY, UNLESS ITA NO. 916/BANG/2019 PAGE 5 OF 7 (A) THE PERSON, BEING A RESIDENT IN WHOSE NAME SUCH CREDIT IS RECORDED IN THE BOOKS OF SUCH COMPANY ALSO OFFERS A N EXPLANATION ABOUT THE NATURE AND SOURCE OF SUCH SUM SO CREDITED ; AND (B) SUCH EXPLANATION IN THE OPINION OF THE ASSESSIN G OFFICER AFORESAID HAS BEEN FOUND TO BE SATISFACTORY: 10. IN THE CASE OF NRA IRON & STEEL PVT.LTD. (SUPRA) AFTER REFERRING TO THE CATENA OF THE CASE LAWS AND THEIR RATIOS ON THE SUB JECT, HONBLE SUPREME COURT SUMMARIZED THE PRINCIPLES TO BE APPLIED IN TH E FACTS OF THE CASES WHERE SUMS OF MONEY ARE CREDITED AS SHARE CAPITAL/P REMIUM:- I. THE ASSESSEE IS UNDER A LEGAL OBLIGATION TO PROVE THE GENUINENESS OF THE TRANSACTION, THE IDENTITY OF THE CREDITORS, AND CREDIT-WORTHINESS OF THE INVESTORS WHO SHOULD HAVE THE FINANCIAL CAPACITY TO MAKE THE INVESTMENT IN QUESTI ON, TO THE SATISFACTION OF THE AO, SO AS TO DISCHARGE THE PRIM ARY ONUS. II. THEREAFTER, THE ASSESSING OFFICER IS DUTY BOUND TO INVESTIGATE THE CREDIT-WORTHINESS OF THE CREDITOR/ SUBSCRIBER, VERIFY THE IDENTITY OF THE SUBSCRIBERS, AND ASCERTAIN WHETHER THE TRANSACTION IS GENUINE , OR THESE 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 CREDIT-WORTHINESS , THEN THE GENUINENESS OF THE TRANSACTION WOULD NOT BE ESTABLISHED . 11. IN THE PRESENT CASE, THE AO HAS NOT MADE ANY IN VESTIGATION REGARDING THE THREE INGREDIENTS REQUIRED TO BE ESTA BLISHED BEFORE CASH CREDIT CAN BE SAID TO BE EXPLAINED VIZ., IDENTITY O F THE CREDITOR, CAPACITY OF THE CREDITOR AND GENUINENESS OF THE TRANSACTION. T HE ASSESSEE HAD FILED BALANCE SHEET, PROFIT AND LOSS ACCOUNT AND DETAILS OF SOURCE OF FUNDS OF ITA NO. 916/BANG/2019 PAGE 6 OF 7 THE CREDITOR. THE AO DID NOT MAKE ANY INVESTIGATIO N ON THESE ASPECTS. HE PROCEEDED ONLY ON THE CIRCUMSTANCE THAT THE NOTICE U/S.133(6) OF THE ACT WAS RETURNED UNSERVED HOWEVER A REPLY TO THE NOTICE U/S.133(6) OF THE ACT, WAS RECEIVED FROM CHENNAI WHEN THE SHAREHOLDER WAS A COMPANY HAVING ITS REGISTERED OFFICE IN KOLKATA. FROM A PERUSAL O F THE PROFIT AND LOSS ACCOUNT AND THE BALANCE SHEET OF THE SHAREHOLDER, W E FIND THAT THERE APPEARS TO BE NO BUSINESS CARRIED ON BY THE ASSESSE E. THE SOURCE OF FUNDS AND APPLICATION OF FUNDS IN THE BALANCE SHEET ALSO REQUIRES EXAMINATION TO FIND OUT IF THE TRANSACTION IN QUEST ION CAN BE REGARDED AS GENUINE. THE FACT THAT THE RECEIPT OF MONEY IS THR OUGH BANKING CHANNELS IS NO BASIS TO CONCLUDE THAT THE TRANSACTIONS IN QUEST ION OF GENUINE. SINCE, THESE ASPECTS HAVE NOT BEEN LOOKED OUT IN THE PROPE R PERSPECTIVE AS LAID DOWN BY THE HONBLE SUPREME COURT IN ITS VERY RECEN T JUDGMENT IN THE CASE OF NRA IRON & STEELS PVT.LTD. (SUPRA) , WE DEEM IT FIT AND PROPER TO SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE ISSUE TO TH E AO TO MAKE PROPER ENQUIRES IN THE LIGHT OF THE LAW AS EXPLAINED BY TH E HONBLE SUPREME COURT. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TR EATED AS ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF AUGUST, 2019. SD/- SD/- ( JASON P. BOAZ ) ( N.V . VASU DEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 28 TH AUGUST, 2019. / D ESAI S MURTHY / ITA NO. 916/BANG/2019 PAGE 7 OF 7 COPY TO: 1. THE APP ELLANT 2. THE R ESPONDENT 3. THE CIT 4. THE CIT(A) 5. T HE DR, ITAT, BANGALORE. 6. GUA R D F ILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.