M/s. Pragati Foods, Pipariya V. ACIT (Central)-II, Bhopal

ITSSA 47/Ind/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 3285 (ITAT-INDORE)
• Duration Of Justice: 3 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 04-08-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-06-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 17-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Unexplained investment; Accommodation entries
• Section: 131; 68; 132; 234B; 264; 13; 153; 22; 153C

Judgement Text

M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 1 of 22 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER (Conducted through Virtual Court) IT(SS)A No. 47/IND/2019 Assessment Year: 2014-15 M/s Pragati Foods, Pipariya-461775 Vs. ACIT(Central)-II, Bhopal (Appellant / Assessee) (Respondent/ Revenue) PAN: AAOFP9072F Assessee by Ms. Nisha Lahoti, CA and Shri Vijay Bansal, ARs Revenue by Shri P.K. Mitra, CIT-DR Date of Hearing 09.06.2022 Date of Pronouncement 05.08.2022 O R D E R Per B.M. Biyani, A.M.: 1. This appeal by assessee is directed against the order dated 18.01.2019 of learned Commissioner of Income-Tax (Appeals)-3, Bhopal [“Ld. CIT(A)”] in Appeal No. CIT(A)-3/BPL/IT-11653/2017-18/1064, which in turn arises out of the order of assessment dated 27.12.2017 passed by the learned ACIT , Central-II, Bhopal [“Ld. AO”] u/s 153C read with section 143(3) of the Income-tax Act, 1961 [“the Act”] for the Assessment-Year 2014-15. 2. The assessee is a partnership-firm engaged in the business of manufacturing / processing of rice. A search u/s 132 of the act was conducted at the business premise of M/s Mahesh Traders on 05.10.2015 where in the books of account of the assessee were found. No search was, M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 2 of 22 however, conducted on the assessee and therefore the assessee is not a “searched person”, although the assessee falls within the framework of “other person” for the provisions of the act. Accordingly, treating the assessee as “other person”, the Ld. AO issued notice u/s 153C dated 15.11.2016 for making assessment u/s 153A, in response to which the assessee filed Income-tax Return [“ITR”] of the assessment-year 2014-15, declaring a total income of Rs. 4,550/-. The assessment-year 2014-15 is one of the preceding six-years and an unabated year. The Ld. AO completed assessment after making an addition of Rs. 3,30,75,000/- u/s 68 treating the capital-contribution by assessee’s partner M/s Amritdhara Vincom Pvt. Ltd. [“M/s Amritdhara” in short] as unexplained cash-credit u/s 68. Aggrieved by order of assessment, the assesse filed appeal to Ld. CIT(A). Ld. CIT(A), however, dismissed the appeal filed by assessee and did not grant any relief. Now the assessee has come in appeal before us assailing the order of Ld. CIT(A). 3. The assessee has raised following grounds: “(1) That on the facts & in the circumstances of the case & in law, it be kindly held that that the initiation of proceedings u/s 153C & the issue of notice u/s 153C are bad in law and without jurisdiction and, therefore, the assessment made pursuant to such notice is unsustainable in law and, therefore, the same be kindly cancelled. (2) That on the facts and in the circumstances of the case and in law, in this case, no incriminating material was found which suggested that the capital contributed by the partner Amritdhara Vincom Pvt Ltd Rs. 3,30,75,000 is the undisclosed or the assessee, hence the addition is bad in law and unjustified and, therefore, the said unlawful & unjustified addition of Rs. 3,30,75,000 be kindly deleted. (3) That on the facts and in the circumstances of the case and in law, it be held that the addition of Rs. 3,30,75,000 u/s 68 is wholly unjustified and unlawful and, therefore, be deleted. (4) That on the facts and in the circumstances of the case and in law, the addition of Rs. 3,30,75,000, having regard to the explanation furnished, is wholly unjustified and unlawful and, therefore, be deleted. M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 3 of 22 (5) That on the facts & in the circumstances of the case & in law, it be held that the assessee placed every possible material to prove the genuineness of the capital contributed by the partner Amritdhara Vincom Pvt Ltd and, therefore, the addition u/s.68 of the capital contributed by the partner in the hands of the firm is not justified and, therefore the addition be kindly deleted. (6) That on the facts and in the circumstances of the case and in law, that the levy of interest u/s.234A, 2348 and 234C are contrary to the provisions of law as prescribed in the said section and hence the same is unlawful and without jurisdiction, therefore, be cancelled.” Ground No. 1: 4. In this Ground, the assessee has challenged the legality of the proceeding conducted by Ld. AO u/s 153C. During the course of hearing, neither side has pleaded this issue. In absence of any pleading by parties, it is deemed that the parties do not require us to adjudicate upon the same. Hence Ground No. 1 is treated as non-pressed and not being adjudicated. Ground No. 2 to 5: 5. In these Grounds, the assessee has challenged the addition of Rs. 3,30,75,000/- made by Ld. AO u/s 68 by treating the capital-contribution by assessee’s partner M/s Amritdhara as unexplained cash-credit. 6. The short facts qua the issue are such that the assessee is a firm which was established on 28.07.2012 with two partners, viz. (i) Shri Rasmeet Singh Malhotra, and (ii) Shri Manohar Lal Dudani. Subsequently w.e.f. 01.04.2013, M/s Amritdhara, a company having its registered office at 5F, Everest, 46C, Chowrighee Road, Kolkata-700 071 was admitted as Third Partner. Accordingly, a new partnership-deed dated 01.04.2013 was executed, a copy of which is placed in the Paper-Book. Para No. 2.2 of the Partnership-Deed at Page No. 79 of the Paper-Book reads as under: “2.2 The Third Partner shall infuse capital in the business of the Firm in such instalments as the business exigency of the Firm shall require and the capital, so infused by the Third M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 4 of 22 Partner, shall be credited to the Capital Account of the Third Partner in the books of the Firm.” In pursuance of the aforesaid Para No. 202 agreed upon in the Partnership- Deed, M/s Amritdhara introduced a total capital of Rs. 3,30,75,000/- in the assessee-firm during the previous year 2013-14 relevant to the assessment- year 2014-15 under consideration. It is on record that M/s Amritdhara arranged funds from different sources for the purpose of making this investment. Subsequently thereafter, a search was conducted on 05.10.2015 on one M/s Mahesh Traders wherein the books of account of assessee were found and, therefore, action was taken against assessee u/s 153C. While completing assessment u/s 153C, the Ld. AO made an addition of Rs. 3,30,75,000/-. 7. Ld. AO has made the addition of Rs. 3,30,75,000/- by observing as under: “8.2 During the course of post search proceedings, it was observed that company M/s Amritdhara Vincom Pvt. Ltd. based at Kolkata was also acquired by the promoters of the Group mainly by Malhotra Family and Dudani family. 8.3 Subsequently, share application money was received in the company from the Kolkata based paper concerns on huge premium and thereafter the funds were introduced as capital in the firm M/s Pragati Foods. 8.4 During the course of post search enquiries, it was observed that following transactions were made with M/s Amrit Dhara Vincon Pvt. Ltd. Name & Address of the shareholder company Amount of investment Sources of Investment stated by the company KNS EXPORT PVT. LTD. 16, GANESH CHANDRA AVENUE, 5 TH FLOOR, KOLKATA 22,00,000/- 1.BCCD Realtors Pvt. Ltd. RTGS 26.09.13 Rs. 300000/- Refund of Loan 2. UV Board Ltd. ECS 03.10.13 Rs. 667333.20 M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 5 of 22 Dividend 3. Deeksha Marketing Pvt. Ltd. Cheque No. 007156 03.10.13 Rs. 300000/- advance against share 4. Deeksha Marketing Pvt. Ltd. Cheque No. 007159 03.10.13 Rs. 700000/- advance against share FULFORD SALES PVT. LTD 16, GANESH CHANDRA AVENUE, 5 TH FLOOR, KOLKATA 30,00,000/- 1. Amount received from M/s Compare Dealers Pvt. Ltd. through RTGS dated 12.06.13 for Rs. 2000000/- towards sale of shares 2. Amount received from M/s Compare Dealers Pvt. Ltd. Through RTGS dated.17.06.13 for Rs.22,75,000/- DEEKSHA MARKETING PRIVATE LIMITED 133, CANNING STREET, 3 RD FLOOR, ROOM NO.15, KOLKATA 29,50,000/- 1.Being amount received from M/s Pushpanjali Credit Resources Ltd. Vide cheque No. 509739 dt. 10.06.13 for Rs. 6500000/- towards refund of share application money given. 2. Being amount received from M/s UV Board Ltd. Vide cheque No. 643556 dt.12.11.13 for Rs. 388800/- towards refund of Loan with interest. M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 6 of 22 3. Being amount received from M/s Bengal Shrachi Housing Development Ltd. Vide cheque No.636990 dt. 13.11.13 for Rs.225616/- towards refund of Loan with interest. 4. Being amount received from M/s Prakash Kumar Sethia (HUF) Vide cheque No. 220485 dt.13.11.13 for Rs. 500000/- towards refund of Loan. S.M. MERCANTILES PVT LTD 133, CANNING STREET, 3 RD FLOOR, ROOM NO.15, KOLKATA 3,50,000/- 1.Being amount received from M/s UV Board Ltd. vide Cheque No.643557 dated 13.11.13 for Rs. 259200/- towards interest on loan 2. Amount received towards cash deposited into bank for Rs. 250000/- S.P. ADVISORS PVT LATED 133, CANNING STREET,3 RD FLOOR ROOM NO.15 KOLKATA 17,00,000/- 1. Being amount received from M/s Portrait Vyanpaar Pvt. Ltd. Through RTGS dated 14.06.13 for Rs. 1600000/- towards sale of shares. 2. Being amount received from M/s Kirti Dealers Pvt. Ltd. Through RTGS dated 23.09.13 for Rs. 5000000/- towards sale of shares M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 7 of 22 REMEX INVESTMENT PVT. LTD 16, GANESH CHANDRA AVENUE, 5 TH FLOOR, KOLKATA 1,50,000 1. Amount received from Hari Prasad Agarwal & others vide Cheque No. 049015 dt. 29.03.14 for Rs. 225000/- towards refund of loan with interest. NAVSARI COMMODITIES PRIVATE LIMITED 16,GANESH CHANDRA Avenue, 5 th Floor, Kolkata 44,00,000/- 1. Johari Mal Sethia HUF, Cheque No. 201835, dated. 30.09.13, Rs. 500000/- sales of share 2. UV Board Ltd. By ECS dated 03.10.13, Rs. 600000/- Dividend. 3. Deeksha marketing Pvt. Ltd. Cheque No. 007158, dated.03.10.13 Rs. 600000/- advance against share. 4. Ashiana Homes Pvt. Ltd. RTGS, dated. 26.10.13 Rs. 5000000/- refund of loan 5. Ashiana Homes Pvt. Ltd. RTGS dated 29.10.13 Rs. 5000000/- refund of loan. CUREWEL MERCHANTS PRIVATE LIMITED 50, WESTON STREET, KOLKATA 5,00,000/- RTGS of Rs.6,00,000/- on the same date i.e. 21.03.2014 from Bubna Financial Services Pvt. Ltd. TEXO COMPUTERS PVT. LTD. BF-236, SALF LAKES, 15,00,000/- Transfer of Rs. 15,00,000/- on the same dated i.e. 05.02.2014 from M/s. Such Vincom M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 8 of 22 KOLKATA Pvt. Ltd. PARIDHI FINVEST PRIVATE LIMITED 8,LAKES TOWN, BLOCK- B, KOLKATA, 38,00,000/- 1. Ramson Commercial Pvt. Ltd., E-NET, dated. 28.08.2013, Rs. 3100000/- 2. Destiny Securities Ltd. E-NET, dated.16.12.2013, Rs. 13,69,628.58/- sale of Investment 3. Destiny Security Ltd., E-NET, dated. 28.01.2014, Rs. 2500000/- Loan refund. 8.5 The concern M/s Amritdhara Vincom Pvt. Ltd. had introduced capital of Rs. 3,30,75,000/- in AY 14-15 in the firm M/s Pragati Foods. 8.6 The director of the company M/s Amritdhara Vincom Pvt. Ltd., Shri Mayank Dudani was issued Summons u/s 131 of the Income Tax Act 1961 to explain the source of investments made by the company. 8.7 From the audit report of the company it is observed that the company, it is observed that the company has not taken any business activity. It is a typical paper concern where in guise of finance company in which on the liabilities side, the company possesses reserves and surplus and on the asset side, there are non-current investments in other such paper concerns. 8.8 Therefore, from the balance sheet of the company, it is observed that the company does not have any business and is in the nature of a typical paper-concern. 8.9 The AR of the assessee vide order sheet entry dated 20.12.2017 was asked to explain the source of funds received from Amritdhara Vincom Pvt. Ltd. as per the audit report of Amritdhara Vincom Pvt. Ltd., the company does not have any significant source of income to bring capital into M/s Pragati Foods, The Balance Sheet of Amritdhara Vincom Private Limited as submitted by you shows that the company does not possesses any assets to generate income. It has made significant non- M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 9 of 22 current investments, which are being sold to generate money which as infused as capital in M/s Pragati Foods. The partners in M/s Pragati Foods are also partners in M/s Amritdhara Vincom Pvt. Ltd. Therefore, it appears as a colorable device to bring unaccounted money of M/s P'ragati Foods; the Source of which has not been explained properly as the company Amritdhara Vincom Pvt. Ltd. is a paper concern with no known sources of income. In view of the above, why addition of Rs. 3,30,75,OOO/- be not made in the hands of M/s Pragati Foods in AY 14-15 on account of unexplained credit, the nature and source of which has not been explained satisfactorily. 8.10 The AR in his reply dated 21.12.2017 submitted that Arnritdhara Vincom Pvt. Ltd. is not a loan creditor of the assessee. The said company is one of the partners of the assessee firm and in the firm, the said company has invested its capital. The assessee in the earlier course of submission and also in the case of Mayan Dudani has submitted before you the certificate of the incorporation of the company, Articles & Memorandum of Association of the company, the copy of tax returns of the company, for all the years, the copy of audited balance sheet of the company along with the audit report as per the provisions of the Act. The particulars of the shareholders of the company are also appearing in these documents. The assessee has also furnished, the copy of bank account of the company from which bank account the company has provided the capital to this partnership firm. The PAN of the company is AAKCA4154E. The assessee submits that the company is a person duly incorporated under the provisions of the Companies Act and is also regularly assessed to income tax and therefore, your observation that is a paper concern is neither justified nor lawful. Rs. 3,30,75,000/- is the investment of the company in this partnership firm it is its initial capital investment and therefore, in such circumstances, it is neither justified nor lawful to hold that the capital investment of the company in this firm is unexplained investment. 8.11 The reply of the AR has been considered but not found acceptable. It is pertinent to note here that paper companies do not have any business of its own. All the monies appearing in its bank account originate from some other accounts down the line in which cash is deposited. The entities in which cash is deposited are obviously only paper entities and there could be no justification of deposit cash in the said account. These entities are not into any activity or M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 10 of 22 business in which cash is deposited but are engaged in the activity of being accomplice in providing accommodation entries. 8.12 In the case of M/s Amrtidhara Vincom Pvt. Ltd., it is observed that a number of companies had invested in M/s Amritdhara Vincom Pvt. Ltd., who in turn received the amount from other companies. Therefore, from the pattern of funds received by M/s Amrtidhara Vincom Pvt. Ltd. it is clear that it is a paper concern with no sources of income, which receives funds from other concerns who in turn received the same from other concerns. Therefore, from the' fund flow chart in earlier part of the order, it is established that the company is a paper concern and is a colorable device to bring in unaccounted money in the garb of investment of capital in the partnership firm. 8.13 Therefore, in view of the above discussion and looking into the nature of fund flow in M/s Amritdhara Vincom Pvt. Ltd., it is dear that it is a paper concern and acting as a conduit to bring in unexplained cash credits in the books of M/s Pragati Foods in the guise of investment in capital and becoming partner in M/s Pragati Foods. 8.14 Hence Rs. 3,30,75,000/. received by M/s Pragati foods from M/s Amritdhara Vincom Pvr. Ltd. is treated as unexplained cash credit u/s 68 of the Income Tax Act, 1961 as the Source of such cash credit has not been explained satisfactorily and added to total income of the assessee for A Y 14-15. ” 8. During appellate proceeding, the assessee made a detailed submission to Ld. CIT(A). However, the Ld. CIT(A) confirmed the action of Ld. AO by observing as under: “4.2.1 I have considered the facts and circumstances of the case, submission of the appellant and perused the assessment order. From the perusal of the details/document filed by the appellant, it is clear that the lender was not having any business activity. It was having meager income from which it is clear that it was paper/shell companies of meager means and engaged in giving accommodation entries to the beneficiaries in the garb of share capital including share premium. 4.2.2 Onus was on the appellant to prove genuineness of the transactions shown by them but they failed to do so. The above mentioned company was not doing any business activities M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 11 of 22 and these were engaged in giving accommodation entries. In this regard, judgements of Hon'ble Delhi High Court in the cases of CIT V s. Nova Promoters and Finlease (P) Ltd. (2012) 342 ITR 169 (Del) and CIT Vs. N.R. portfolio Pvt. Ltd. (2014) 264 CTR 258 (Del) are relied upon. Further, the judgment of Hon'ble Kolkata High Court in the case of Rajmandir Estate Pvt. Ltd. (2016) reported in 70 Taxmann.com 124 (Cal) and the judgment of ITAT, 'D' Bench, Mumbai in ITA no.1835/Mum/2014 dated 24.8.2016 in the case of Royal Rich Developers Pvt. Ltd. are also relied upon. In view of above facts, I am of the considered view that this is not sufficient to discharge the onus cast on the Appellant as contemplated uls 68 of the Act just giving addresses and PAN of the companies concerned when the AO has doubted the credit worthiness/capacity of the company having meager means and known sources of income to have invested huge amount in lending. The genuineness of the transaction were also doubted by the AO wherein the lenders did not have any business/project in hand and is merely a persons of meager means, as it is brought on record that this lender is person of meager means declaring nominal income and his Balance Sheet/statement of affairs revealed that he have otherwise insignificant assets other than investment in the appellant firm. Section 68 of the Act cast onus on the appellant to satisfy the ingredients of Section 68 to establish the identity and creditworthiness of the creditors and to establish the genuineness of the transactions. Once appellant filed the basic details such as name and address of creditor, PAN, income tax return, confirmation and bank statement, the initial onus gets discharged but since, the AO has doubted the creditworthiness of the lender and genuineness of the transaction as per the reasons cited and set out above, the onus shifts back to the appellant company to offer an explanation to the satisfaction of the AO as contemplated u/s 68 of the Act which could have been discharged by producing the lenders before the AO so that truth behind the smokescreen could have. been unraveled by the AO by interrogating them. The burden/onus is cast on the appellant and the appellant is required to explain to the satisfaction of the AO cumulatively about the identity and capacity/creditworthiness of the creditors along with the genuineness of the transaction. All the constituents are required to be cumulatively satisfied. If one or more of them is absent, then the AO can make the additions u/s 68 of the Act as an income. The fact remains that the appellant is private limited company, for which the onus as required u/s 68 of the Act is very heavy to prove identity and capacity of the lenders and genuineness of the transaction. In view of the above discussion, I am of the considered view that merely submission of the name and address of the lenders, income tax returns, M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 12 of 22 Balance Sheet/statement of affairs of the lenders and bank statement is not sufficient as the AO is to be satisfied as to their identity and creditworthiness as well as to the genuineness of the transaction entered into. The alleged lenders were not found to be in existence and thus, the onus shifts back to the appellant to produce the lenders before the AO and if the appellant falters. the additions can be made u/s 68 of the Act. Section 68 of the Act has been amended by Finance Act, 2012 w.e.f. 01- 04-2013 whereby the onus is cast upon the appellant to justify the source of capital, to explain the source of the source of raising the capital which has been held to be clarificatory in nature. In the present case, the appellant could not prove the identity and credit worthiness of the alleged capital introduction. Being firm, it was therefore, viable and proper and duty on the part of the appellant to prove genuineness of the transaction but the fact remains that the appellant could not prove the same. The partner was having nominal income. This company is having very insignificant amount of income for the period under consideration and hence their creditworthiness is also not established. The M.P. High Court held in the case of CIT v. Rathi Finlease Ltd wherein considering the judgment of Hon'ble Supreme Court in the case of CIT v Steller Investment and the judgment of Hon'ble Supreme Court in the case of Lovely Export Ltd., Hon'ble High Court has held that each and every transaction of share application money involving application of provisions of section 68 in matter of contribution of share application/share capital and whether this onus on the assessee has been discharged or not has to be appreciated on totality of evidences available on record and surrounding facts and circumstances of the case. The creditworthiness or genuineness of transactions depends on whether the parties are related or known to each manner or mode by which parties approached each other, whether transaction was entered into through written documentation to protect investment whether investor professes and was an angel investor, quantum of money, creditworthiness of recipient, object and purpose for which payment/investment was made, etc. Certificate of incorporation of company payment by banking channel. etc. cannot in all cases tantamount to satisfactory discharge of onus. The lender is not having creditworthiness to invest to the tune of Rs.3,30,75,OOO/-. The company is hardly earning any income to invest such an amount as capital in the appellant. Therefore, it is held that transaction is not genuine. This company had no creditworthiness, financial worth or regular resources to justify, short term borrowings. The appellant has not discharged the genuineness of the transaction. M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 13 of 22 The appellant has not established the ingredients of section 68 of the LT. Act. Therefore, the credit is not acceptable. Creditworthiness is not proved by showing issue and receipt of a cheque or by furnishing a copy of statement of bank account, when circumstances requires that there should be some more evidence of positive nature to ensure that the subscriber had made genuine investment. In the following cases ITAT, Indore bench and other Judicial Authority held as under:- 1. Assessee has to establish identity of subscribers to share capital and prove their creditworthiness and genuineness of transaction; furnishing of income-tax file numbers may not be sufficiency to discharge the burden - CIT v. Nivedan Vanijya Niyojan Ltd. [2003] 130 Taxman 153 (Cal.). 2. Share Application Money - Addition is called for - Assessee obtained loan and also received share application money - AO doubted the identity, genuineness and creditworthiness of these credits - AO made addition for same u/s. 68 - CIT(A) held that the ingredients of section 68 are not satisfied . However, in one of the cases, CIT(A) held that addition, shall be made substantively in the hands of assessee and protectively in the hands of alleged investors in terms of ITAT Judgement in Asst. CIT v. Narmada Extrusion Ltd. (2012) 19 ITJ 202 (Trib.-Indore) - HELD - Assessee has not established the ingredients of section 68; credits cannot be accepted - Also, in Asst. CIT v. Narmada Extrusion Ltd. (2012) 19 ITJ 202 (Trib.-Indore) it was found that Additions has already been made in the hands of investor- In the present case, assessee is unable to establish the ingredients of section 68 Addition is called for. Pramila Investment and Finance Ltd v. ITO (2013) 22ITJ 149 (Trib.-Indore). 3. Share Application Money - Assessee has not discharged the genuine of the transaction - Additions justified - Share Application money - The AO noticed that bank statement furnished during the original assessment proceedings was fabricated and misled the AO. The AO found that the Assessee had adopted unfair practice by adducing false evidence to get undue advantage of giving colour of genuineness to bogus entries through fabricated bank accounts - The AO held that the said companies had no creditworthiness, financial worth or regular resources to justify their subscription of share capital money - The assessee has not discharged the genuine of the transaction and therefore, the AO made additions - The Delhi High Court held that the Assessee has not discharged the onus satisfactorily and therefore, the additions made by AO was justified - Against the decision of Delhi High Court, SLP has been dismissed by the Supreme COUl1. N. Tarika Property Invest. (P.) Ltd. v. CIT (2016) M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 14 of 22 27 ITJ 149 (SC) : (2015) 12 STD 17 : (2014) 227 Taxman 373. 3. Share Application Money - Identity and creditworthiness not proved - Share application - Assessee received share application money from "MPFPL" - Identity of said company was not proved - HELD Addition u/s. 68 shall be made. Saaj Plastic Industries Pvt. Ltd. v. ITO (2012) 20 ITJ 103 (Trib. -Indore). 4. Share Application Money - In case of Pvt. Ltd. Company, even transaction through cheque some more evidence required to prove genuine investment - Share Application Money - It was held by the Delhi High Court that 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 money, dividends, warrants, etc. have to be sent and the relationship remains a continuing one. Therefore, an assessee cannot simply furnish some details and remain quiet when summons issued to shareholders remain un- served and uncomplies. As a general proposition, it would be improper to universally hold that the assessee cannot plead that they had received money, but could do nothing more and it was for the AO to enforce shareholders' attendance in spite of the fact that the shareholders were missing and not available. Creditworthiness is not proved by showing issue and receipt of a cheque or by furnishing a copy of statement of bank account, when circumstances requires that there should be some more evidence of positive nature to show that the subscribers had made genuine investment - SLP against this decision of Delhi High Court has been dismissed. Navodaya Castle (p) Ltd v. CIT (2015) 25 IT} 552 (SC) (2015) 12 STD 463 : (2015) 230 Taxman 268. 6. Share Application Money - There is evidence and material to show that subscriber was paper company and not a genuine investor Share application money - It was held by the Delhi High Court that Certificate of incorporation, PAN etc. are relevant for purchase of identification, but have their limitation when there is evidence and material to show that the subscriber was paper company and not a genuine investor –SLP against this decision of Delhi High Court has Been dismissed. Navodaya Castle (P) Ltd. v. CIT (2015) 25ITJ 552 (SC) :,J5) 12 STD 463: (2015) 230 Taxman 268. 7. Share Capital and Loan - Assessee not able to establish identity of investor - Merely filing PAN, IT returns, Certificate of incorporation, Balance Sheet etc. do not establish the identity - Share Capital and Loan - "HCL" and "OTIL" had subscribed in M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 15 of 22 shares of assessee company - In some cases, "HCL" and "OTIL" had given loans to assessee company – AO required assessee to prove transaction -Assessee furnished various documents to prove the transaction - On inquiry, the companies were found to be non-existent - Noticed issued to them were returned unserved - HELD - Assessee is not able to establish identity of investors - Merely filing PAN, IT returns, Certification of incorporation, Balance Sheet etc. do not establish the identity of subscribers or produce them - Addition u/s. 68 shall be made. Agrawal Coal Corporation P. Ltd. v. Addl. CIT (2011) 18ITJ 717 (Trib. - Indore): (2012) 135 lTD 270 : (2011) 142 TTJ 409 : (2012) 13 ITR(T) 531. 8. High Share Premium - Rs. 10 share subscribed at a premium of Rs.90 per share - In first year it is doubtful - Established that transaction is not genuine - Credits in form of share premium are not acceptable - Share Premium - First year of business - Assessee issued shares having face value of Rs.10 per share at a premium of Rs.90 per share - Assessee contended that the premium was received based on the vast experience of promoter of 30 years; and also that the investors were known to him - Letter sent by AO to these parties were returned unserved - AO himself visited Kolkotta, from where the money was received but the parties were not traceable at the address - AO also visited bank and verified that the amounts had been deposited immediately before issue of cheques for investment in shares- Shares were brought back at a low price in next year - HELD - It is pertinent to note that in the first year, how could the assessee manage such share application on a premium of Rs.90 without doing any business or without creating goodwill - AO has conducted detailed inquiry, which establish that the transaction is not genuine "- Credits in form of share premium are not acceptable. Vaibhav Cotton Pvt. Ltd v. ITO (2012) 20 ITJ 422 (Trib.-Indore). 4.2.3 Following the decision of above judicial Authorities, it is held that the company is paper-company without any means. The appellant firm was obliged to prove:- (a) The identity of the capital introducer. (b) The credit worthiness of the capital introducer. (c) The genuineness of the transactions. But it is clear from the facts as discussed above that the appellant could not prove the same, therefore, in the light of above facts and case laws as discussed above, I am of the considered view that the AO was justified to make addition uls 68 of the IT Act. Therefore, the addition made by the AO amounting to Rs. 3,30,75,000/_ is Confirmed. Therefore, appeal M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 16 of 22 on these grounds is Dismissed.” 9. Before us, the Ld. AR made a detailed submission. The contentions advanced by Ld. AR are summarized below: (i) Ld. AR submitted that the assessment-year 2014-15 under consideration is one of the six preceding years and an unabated year as well, but the impugned addition of Rs. 3,30,75,000/- made by Ld. AO is not based on any incriminating material found during the search. Ld. AR carried us through all pages of the assessment-order from first-page till last-page and demonstrated that nowhere the Ld. AO has made any reporting of the incriminating material having been found which could be the basis of addition. Ld. AR, thereafter, referred to the following paragraphs of the assessment-order to demonstrate that the Ld. AO has simply proceeded on the points which came to his notice during the course of assessment- proceeding because he did not have any kind of incriminating material in his possession: “6. During the course of assessment proceedings, following issues emerged: XXX” “8.2 During the course of post-search proceedings, it was observed that company M/s Amritdhara Vincom Pvt. Ltd. basd at Kolkata was also acquired by the promoters of the Group mainly by Malhotra family and Dudani family.” “8.4 During the course of post search enquiries, it was observed that following transactions were made with M/s Amrit Dhara Vincom Pvt. Ltd. XXX” Ld. AR argued that it is a settled law by numerous judgements that no addition can be made in the proceeding of section 153C in an unabated year in absence of incriminating material. In support of this proposition, the Ld. AR relied upon the following decisions: M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 17 of 22 (a) Hon’ble Delhi High Court in CIT Vs. Kabul Chawla 380 ITR 573 (b) CIT Vs. Sinhgad Technical Education Society (2017) 84 taxmann.com 290 (SC) (c) Machmen (2015) taxmann.com 484 (MP High Court) dated 10.07.2015 (d) ITAT Indore in Satish Neema, IT(SS)A No. 149/Ind/2016, order dated 07.02.2020 (e) ITAT Indore in Kamal Kishore Kotwani, IT(SS)A No. 186 to 190/Ind/2016, order dated 04.07.2018 (ii) Ld. AR submitted that M/s Amritdhara is a partner of assessee-firm and not a loan-creditor. It is further on record that M/s Amritdhara joined the assessee-firm as partner on 01.04.2013 under the Partnership-Deed. Therefore, M/s Amridhara invested moneys in the assessee under an obligation under Partnership-Deed. According to Ld. AR, the assessee-firm is neither authorized or nor concerned to see the sources available to M/s Amritdhara for making investment. (iii) That the assessee has submitted the Name, Address, PAN, Certificate of incorporation, Articles of Association, Memorandum of Association, Income-tax Returns of M/s Amritdhara to the lower authorities and same are also placed in the Paper-Book. Hence identity is proved. M/s Amritdhara has received funds from different sources through banking channels and thereafter invested moneys in the assessee-firm. A copy of the bank- statement of M/s Amritdhara through which the funds were received and passed-on to the assessee was filed to the lower authorities and the same is also placed in the Paper-Book, which proves that M/s Amritdhara was having sufficient funds, may be its own or received from others, for making investment in assessee. This establishes creditworthiness of M/s Amritdhara. M/s Amritdhara has invested capital contribution in the M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 18 of 22 assessee through banking channel and not in cash. Moreover the capital contributions have been made in terms of the Partnership-Deed. These facts establish the genuineness of transactions. Thus, according to Ld. AR, all three ingredients of section 68 stand fully satisfied. (iv) That M/s Amritdhara is the “source” of funds qua the assessee. Now wherefrom M/s Amridhara got funds, is a “source of source”. According to Ld. AR, the Ld. AO has not found any shortcoming in the receipts of funds by assessee from M/s Amirdhara, the Ld. AO is questioning the receipt of funds by M/s Amritdhara from others. This shows that the Ld. AO is asking the asssessee to prove the “source of source”. Ld. AR submitted that under the scheme of Income-tax, the assessee is not obligated to prove the source of source. Even the reliance placed by Ld. CIT(A) on the amendment made in section 68 through Finance Act, 2012 w.e.f. 01.04.2013 is also mis-placed. The said amendment reads as under: “Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless – (a) The person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) Such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:” According to Ld. AR, this amendment which is taken as a basis by Ld. CIT(A), is applicable only if the assessee is a company and the receipt is also in the nature of share application money/share capital/share premium. But in the present case, the assessee is a firm and it has received capital contribution by partner. Therefore, this amendment is apparently not applicable. M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 19 of 22 As a matter of fact, the Ld. AR further submitted that despite the legal position that “source of source” need not be explained, the assessee has been much co-operative and supplied the details of the sources available to M/s Amritdhara which is clearly evident from the Table noted by Ld. AO in Para No. 8.4 of the assessment-order. (v) The lower authorities have analysed the financial statements of M/s Amritdhara and made superficial observations/conclusions that the said M/s Amritdhara is a paper-company engaged in giving accommodation entries to the beneficiaries. Ld. AR submitted that the assessee has clearly pointed out that M/s Amirthdhara had joined the asssessee as partner and therefore it was obligated to make capital-contribution. Hence even if M/s Amirthdhara did not have funds of its own, it had to borrow the funds and make investment in the assessee-firm. Ld. AR submitted that the Ld. AO has ignored these factual aspects and just made baseless conclusions, without any evidence, to the effect that M/s Amritdhara is a paper-concern engaged in giving accommodation entries. (vi) Ld. AR submitted that the assessment of M/s Amirdhara of the AY 2014-15, has also been completed by ITO, Ward-8(1), Kolkata by way of scrutiny u/s 143(3). A copy of the assessment-order dated 25.10.2016 is placed at Page No. 98 of the Paper-Book. On perusal of assessment-order, it can be observed that the Ld. AO has accepted the returned income of M/s Amritdhara and did not have occasion to make any addition whatsoever. 10. Placing above submission for the consideration of Bench, the Ld. AR concluded with two-fold prayers, viz. (i) the addition made by Ld. AO in the proceeding of section 153C without having any incriminating material is illegal, and (ii) the addition is also wrong in terms of section 68 because the assessee has satisfied the ingredients of section 68. Therefore, the Ld. AR requested for deletion of addition. M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 20 of 22 11. Per contra, the Ld. DR placed a heavy reliance upon the orders of lower authorities. According to Ld. DR, the lower authorities have observed the financial statements of M/s Amritdhara and thereafter taken a conscious decision that M/s Amritdhara must be a paper-company and the inflow of funds is not genuine. Therefore the addition made / confirmed by lower authorities is well within the framework of law and deserves to be upheld. 12. We have considered rival submission of both sides and perused the material held on record. We present below our analysis on both aspects, i.e. legality as well as merits of the addition made by Ld. AO: (i) On perusal of the assessment-order, we observe that the assessment year assessment-year 2014-15 under consideration is one of the six preceding years and an unabated year. We further observe that the addition of Rs. 3,30,75,000/- has been made without having any incriminating material. We find merit in the submission of Ld. AR that no addition can be made in the proceeding of section 153C in an unabated year in absence of incriminating material. We have seen the legal precedents cited by Ld. AR, mentioned in the foregoing paragraph, and find this proposition in favour of assessee. Being so, the addition made by Ld. AO is illegal and deserves to be deleted straight-away. (ii) On merits of the addition, we observe that the assessee is a partnership firm and the impugned funds were introduced by its partner, M/s Amritdhara, as capital contribution. We observe that in terms of partnership-deed placed on record, there was an obligation shouldered by the said partner to invest moneys by way of capital contribution. We further observe that in pursuance of the said obligation, M/s Amritdhara raised fund from different sources available to it and invested moneys in the assessee. We also observe that both limbs of transactions, i.e. taking loans from different sources and investing moneys in the assessee, were transacted through banking-channel and there is no cash transaction. We M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 21 of 22 also observe that the assessee has given sufficient documents to prove the identity, creditworthiness and genuineness of transactions qua M/s Amritdhara. In fact, the assessee has also given the details of sources available to M/s Amritdhara, without having legal requirement to explain the “source of source”. We also observe that the Ld. CIT(A) has mistakenly relied upon the amendment in section 68 which is not applicable to the assessee as analysed earlier. We also observe that the lower authorities have held that M/s Amritdhara as a paper-concern without having any cogent basis or material. Lastly we also observe that the assessment of M/s Amirdhara of the same assessment-year 2014-15 has also been completed by ITO, Ward-8(1), Kolkata u/s 143(3), which is an authority of the income- tax department. We observe that the assessment is a scrutiny-assessment and the Ld. AO accepted returned income. This clearly established that the Ld. AO has accepted the transactions done by M/s Amritdhara including the funds raised and investment made in assessee. Had there been any adverse feature, it would have certainly invited addition in the hands of M/s Amritdhara. But since there is no such addition, it leads to a conclusive conclusion, without saying anything more, that there is no adverse finding in so far as the funds raised as well as investment by M/s Amritdhara in the assessee. Therefore, the stand taken by the revenue authorities is that M/s Amritdhara is a paper concern and the investment in assessee is not genuine is full dispelled. 13. In view of foregoing discussion, we can safely conclude that the addition of Rs. 3,30,75,000/- made by Ld. AO is neither sustainable legality nor on merits. Hence we are persuaded to delete the addition made by Ld. AO. The assessee gets relief on this count. Thus, the Ground No. 2 to 5 are allowed. Ground No. 6: 14. This Ground relates to the levy of interest u/s 234A, 234B and 234C. The levy of interest is statutory and automatic. Further, during the course of M/s Pragati Foods IT(SS)A No. 47/IND/2019 A.Y. 2014-15 Page 22 of 22 hearing, neither side has made any submission on this Ground. Hence this Ground does not call for adjudication by us. 15. In the result, this appeal of assessee is allowed. Order pronounced as per Rule 34 of I.T.A.T. Rules, 1963 on 05/08/2022. Sd/- Sd/- (Mahaveer Prasad) (B.M. Biyani) Judicial Member Accountant Member Indore दनांक /Dated : 05.08.2022 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore 1. Date of taking dictation 2. Date of typing & draft order placed before the Dictating Member 3. Date on which the approved draft comes to the Sr. P.S./P.S. 4. Date on which the fair order is placed before the Dictating Member for pronouncement 5. Date on which the file goes to the Bench Clerk 6. Date on which the file goes to the Head Clerk 7. Date on which the file goes to the Assistant Registrar for signature on the order 8. Date of dispatch of the Order