THE ITO, WARD-1(1)(1), VADODARA V. .GUJARAT COASTAL CONSTRUCTION LTD., VADODARA

ITA 590/AHD/2020

AI Insights

The case involves three appeals by the Revenue against M/s. Gujarat Coastal Construction Ltd. concerning the addition of share application money to the company's income under section 68 of the Income Tax Act, 1961, for the assessment years 2009-10, 2010-11, and 2013-14. The primary issue was the creditworthiness of the share applicant, Shri Mandhatasinh M. Jadeja, a director of the company, who had contributed significant amounts as share application money. The Assessing Officer (AO) initially added these amounts to the company's income, questioning the source and creditworthiness of the applicant. However, the CIT(A) deleted these additions, finding that the company had discharged its burden of proving the genuineness of the transactions. The Tribunal upheld the CIT(A)'s decision, noting that the AO had not conducted further inquiries after the company's explanations and that the financials of the company did not alone justify doubting the transactions.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 298713 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Other Referred Cases: Pr.CIT Vs. NRA Iron & Steel P.Ltd., Pr.CIT Vs. Chain House International P.Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RIGNESH DAS
• Assessee Lawyers: MEHUL K. PATEL
• Keywords: Set aside; Difference of opinion; Change of opinion; Reassessment proceedings; Corroborative evidences; Reopening of assessment; Tangible material
• Section: 147; 148; 143(3); 48; 68

Judgement Text

"आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ ‘C’ अहमदाबाद। अहमदाबाद। अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER ITA No.479, 480 and 590/Ahd/2020 Assessment Year : 2009-10, 2010-11 and 2013-14 The ITO, Ward-1(1)(1) Vadodara. Vs. M/s.Gujarat Coastal Construction Ltd. C/o. Shri Viral H. Ajmera (Director) 7, Matruchhaya Society Nizapura Vadodara 390 002. PAN : AABCG 3891 M Assessee by : Shri Mehul K. Patel, AR Revenue by : Shri Rignesh Das, Sr.DR सुनवाई क\t तारीख/Date of Hearing : 04/12/2024 घोषणा क\t तारीख /Date of Pronouncement: 17/12/2024 आदेश आदेश आदेश आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER The impugned three appeals relating to the same assessee, are filed by the Revenue against separate orders passed by the ld.Commissioner of Income Tax (Appeals)-1(hereinafter referred to as CIT(A)), Vadodara under section 250(6) of the Income Tax Act, 1961 (\"the Act\" for short) pertaining Assessment Years 2009-10, 2010-11 & 2013-14. 2. The grounds raised by the Revenue are as under: ITA No.479/Ahd/2020 – Asst.Year 2009-10 ITA No.479, 480 and 590/Ahd/2020 2 1. \"On the facts and in the circumstances of the case and in law, whether the Ld. CIT(Appeals) erred in deleting the addition on account of share application money of Rs.2,02,83,000/- without considering the facts that creditworthiness of the share applicant has not been proved, thus primary onus on the assessee company to prove the creditworthiness of the share applicant. Ld. CIT(A) also ignored the facts that the share applicant has meager income of Rs.10,650/- during the year whereas the share applicant has advanced the share application money of Rs.2,02,83,000/-.\" ITA No.480/Ahd/2020 – Asst.Year 2010-11 1. \"On the facts and in the circumstances of the case and in law, whether the Ld. CIT(Appeals) erred in deleting the addition on account of share application money of Rs.1,88,33,760/- without considering the facts that creditworthiness of the share applicant has not been proved, thus primary onus on the assessee company to prove the creditworthiness of the share applicant. Ld. CIT(A) also ignored the facts that the share applicant has meager income of Rs.78,710/- during the year whereas the share applicant has advanced the share application money of Rs.1,88,33,760/-“ ITA No.590/Ahd/2020 – Asst.Year 2013-14 1. \"On the facts and in the circumstances of the case and in law, whether the CIT(A) has erred in quashing the notice u/s 148 of the Act issued by the Assessing Officer stating that it is merely on change of opinion subsequent to original assessment framed u/s 143(3) of the Act?\" 2. \"On the facts and in the circumstances of the case and in law, whether the CITA) has erred in quashing the notice u/s 148 of the Act issued by the Assessing Officer without going into the merits of the case and also without appreciating the fact that the Assessing Officer was in possession of tangible material while recording reasons for reopening of assessment, which cannot be construed to be change of opinion? 3. At the outset itself, it was stated that all three appeals have come up before us in identical background of facts; that in all three cases reassessment proceedings were resorted to in the case of the assessee and orders passed under section 147 of the Act. The addition being ITA No.479, 480 and 590/Ahd/2020 3 made on account of share capital introduced in the assessee- company, during each of the impugned years, source of which was alleged to have not been satisfactorily explained. The addition was made in terms of section 68 of the Act on account of unexplained credits, and quantum of addition in each of the assessment years was as under: Asst.Year 2009-10 Rs.2,02,83,000/- Asst.Year 2010-11 Rs.1,88,69,240/- Asst.Year 2013-14 Rs.2,17,66,800/- 4. The basis for making the addition by the Assessing Officer (AO), it was contended, was the same, noting that an apparently unreasonably huge amount of share premium was taken on the shares issued, despite the fact that the assessee’s financials were weak and did not support such a huge premium. 5. The assessee’s explanation, it was pointed out, in all three years was the same, that the share application money had been given by one Shri Mandhatasinh M. Jadeja (“MMJ” for short), who was the director of the company, and the assessee substantiated this claim with relevant documentary evidences, but the AO found that the credit-worthiness of the share applicant/shareholder was not proved by the assessee, and in the light of the same therefore, finding that the assessee had failed to discharge its onus of proving the genuineness of the transaction of the share capital, all the share capital introduced in the assessee-company in each of the years was added to the income of the assessee. The ld.counsel for the assessee pointed out that in the first-two years i.e. Asst.Year 2009-10 and 2010-11, initially no regular ITA No.479, 480 and 590/Ahd/2020 4 assessment/ scrutiny assessment was made in the case of the assessee; that accordingly, there was no challenge to the validity of the re-assessment proceedings in these two years. In the third year, before us i.e. Asst.Year 2013-14, the assessee had been subjected to scrutiny assessment initially and order passed under section 143(3) of the Act; that subsequently, the impugned re-assessment proceedings were resorted to, the legality of which was challenged before the ld.CIT(A). The ld.counsel for the assessee contended that the ld.CIT(A) in first two years deleted the addition on merits, finding the assessee to have discharged its primary onus of proving the genuineness of the transaction; that in the third year i.e. Asst.Year 2013-14, he held the proceedings under section 147 itself to be invalid, and accordingly, set aside the order passed by the AO. It is, in this background, it was contended that the Revenue has filed the present appeal before us. 7. The ld.counsel for the assessee stated that since the share applicant in all three years is the same, the explanation of the assessee regarding the share application is also the same, and the addition made to the income of the assessee is also for the identical reason, therefore, in the first-two years, where the addition has been deleted by the ld.CIT(A) on merits, his arguments would be identical. that in Asst.Year 2013-14, since only legal issue was involved, separate arguments needed to be made. 8. The ld.DR fairly agreed with the above. Accordingly, the appeals were proceeded to be heard with; The appeals of the Revenue for Asst.Year 2009-10 and 2010-11 were first taken up together for hearing. Since admittedly, the issue involved in both years are ITA No.479, 480 and 590/Ahd/2020 5 identical, we shall be dealing with the Department’s appeal for Asst.Year 2009-10 and our decision rendered therein will apply pari passu to Asst.Year 2010-11 also. 9. ITA No.479/Ahd/2020 (Revenue’s appeal)–Asst.Yr 2009-10. 10. As stated above, since the solitary issue involved in the appeal relates to the deletion of addition made of share application money under section 68 of the Act, the ground accordingly raised by the Revenue reads as under: 1. \"On the facts and in the circumstances of the case and in law, whether the Ld. CIT(Appeals) erred in deleting the addition on account of share application money of Rs.2,02,83,000/- without considering the facts that creditworthiness of the share applicant has not been proved, thus primary onus on the assessee company to prove the creditworthiness of the share applicant. Ld. CIT(A) also ignored the facts that the share applicant has meager income of Rs.10,650/- during the year whereas the share applicant has advanced the share application money of Rs.2,02,83,000/-.\" 11. Before proceeding further, certain facts relating to the issue need to be brought on record. 12. During the impugned year, the assessee had received Rs.2,02,83,000/- as share application money. The entire amount was stated to be received from one Shri Mandhatasinh M. Jadeja (“MMJ” for short), who was a director of the assessee-company. The assessee submitted confirmation letter of Shri “MMJ”, copy of acknowledgment of return of income for the impugned year of “MMJ” i.e. Asst.Year 2009-10, copies of his bank account entries to substantiate the genuineness of the transaction. The AO noted from the return of income of “MMJ” for the impugned year that he reported a total income of only Rs.10,650/-. Accordingly, the assessee was asked to ITA No.479, 480 and 590/Ahd/2020 6 establish credit-worthiness of the share applicant. The assessee stated that entire money was paid by the share applicant through banking channel. The AO, however, noted from the bank account of “MMJ” that immediately before the issuance of cheques for investment in the assessee-company there were credits of the same or higher amounts in the bank account of “MMJ”. The data in this regard is tabulated at page no.4 and 5 of his order. He noted that some of the amounts were deposited in cash. Accordingly, show cause notice was issued to the assesse as to why the entire share application money be not added to the income of the assessee under section 68 of the Act, in the absence of satisfactory explanation for the source of the same. The assessee submitted response, which contained the details of the share application money received from “MMJ”, the person from whom the amounts were received by “MMJ” along with copies of bank entries of “MMJ”. The AO however held that since the assessee had not explained the nature or purpose of the amounts given by various persons to “MMJ”, credit-worthiness of “MMJ” had not been established. He also noted from the financial statement of the assessee-company that it had no turnover since inception i.e. FY 2000-01 and noting that no prudent person would invest such a huge amount in a company, which had not yet started earning income, he found the premium of Rs.1,000/- for which the shares were issued by the assessee-company to be unbelievable. He accordingly held that no proper, reasonable and acceptable explanation had been given by the assessee-company of the source of share application money introduced in the assessee-company, and accordingly added the same to the income of the assessee under section 68 of the Act. ITA No.479, 480 and 590/Ahd/2020 7 13. The ld.CIT(A), however, found the assessee-company to have discharged its primary onus of proving the identity, genuineness as also credit-worthiness of the transaction, noting that the assessee had filed the income-tax return of the share applicant, bank statement of the share applicant; that all payments were made through banking channels, and also noting the fact that the assessee had also furnished the details of all persons from whom “MMJ” had received the amount, which were further invested in the assessee-company. Accordingly, noting so, the ld.CIT(A), found the assessee to have discharged its primary onus of proving the genuineness of the transaction, and deleted the addition made by the AO. 14. Before us, the ld.DR heavily relied on the finding of the AO, pointing out particularly the finding of the AO to the effect that – i) Financials of the assessee-company did not justify the huge premium at which shares were issued, since the assessee-company was noted to have no turnover, and yet issued shares at a premium of Rs.1,000/- with the face value of shares being Rs.10/- only; ii) The credit-worthiness of “MMJ” was not established, since, he was noted to have invested a huge amount of Rs.2.02 crores while his return of income showed a meagre income of only Rs.10,000/-; iii) The bank account details of “MMJ” reflected credits in the said account immediately before the amounts were withdrawn for investment in the assessee-company, as share application money. ITA No.479, 480 and 590/Ahd/2020 8 Reliance was placed on the decision of the Hon’ble Apex Court in the case of Pr.CIT Vs. NRA Iron & Steel P.Ltd., (2019) 103 taxmann.com 48 (SC) for the proposition that merely because the assessee-company had filed all the primary evidences, it could not be said that onus on the assessee to establish the credit-worthiness of investor company stood discharged. 15. The ld.counsel for the assessee, on the other hand, pointed out that the assessee had duly demonstrated credit-worthiness of the depositor, Shri “MMJ”, by demonstrating that all investments by him were made through banking channels, and all details of the credit entries in his bank account were also furnished to the AO. He pointed out that this fact was also noted by the AO in his order wherein the details of all credits in the bank account of “MMJ” were noted to be furnished by the assessee. He contended, therefore, that the assessee had proved the credit-worthiness of Shri “MMJ” and had also gone extra length of proving the source of source also; that, therefore, the order of the ld.CIT(A) holding that the assessee has discharged its primary onus of proving the genuineness of the transaction needs to be confirmed. 16. Having heard contentions of both the parties, we do not find any merit in the contentions of the ld.DR that the assessee had failed to discharge its primary onus of proving the genuineness of share application money received during the impugned year. The finding of fact, recorded by the ld.CIT(A) are pertinent in this regard. The same find mention at page no.18 of his order as under: ITA No.479, 480 and 590/Ahd/2020 9 17. As is evident from the above,the ld.CIT(A) records that the assessee had explained the source of investment by filing confirmation letter of the investor. The assessee had also filed PAN of the investor, his IT returns and bank transactions details. He further goes on to note that the assessee had also filed details of the amounts taken by the investor for making the investment which were reflected as credits ITA No.479, 480 and 590/Ahd/2020 10 in his bank account immediately before making the investment. All these evidences are noted by the Ld.CIT(A) to be filed by the assessee to the AO. There is no dispute with respect to the said facts. 18. Considering the same, we agree with the ld.CIT(A) that the assessee had established all the ingredients, which were necessary to prove the genuineness of the share application money received in terms of section 68 of the Act. We agree with the ld.CIT(A) that the assessee had provided the identity of the investors(PAN ,ITR filed), genuineness of the transaction(transaction shown to be done through banking channels, confirmation of the share applicant filed), as also credit-worthiness of the same by filing even details of persons who had advanced money to the investor for making the investment in the assessee-company. We completely agree with the ld.CIT(A) that the assessee had discharged the primary onus cast on it, by filing the required document and explanation before the AO. 19. The ld.CIT(A), we find, thereafter, notes that the assessee having so discharged its onus, it was thereafter for the AO to have conducted further inquiries before holding the assessee’s explanation as unsatisfactory, and finding no such inquiry had been done by the AO, accordingly, he went on to delete the addition made under section 68 of the Act. His finding in this regard are at page 19 of the order as under: ITA No.479, 480 and 590/Ahd/2020 11 ITA No.479, 480 and 590/Ahd/2020 12 20. We are in complete agreement with the ld.CIT(A) in this regard also. The assessee having discharged primary onus by filing all necessary documents, the onus thereafter shifted to the Department, who needed to carry out further inquiry before arriving at any conclusion or finding with regard to the explanation furnished by the assessee being unsatisfactory, and having failed to do so, therefore, the ld.CIT(A), we hold, has rightly held that the explanation of the assessee cannot be said to be unsatisfactory for the purpose of invoking section 68 of the Act. 21. The case of the Revenue of the credit worthiness of the share applicant not being established is we find, incorrect. The assessee having demonstrated the fact of the share applicant having made investment through banking channels and having even provided details of the source from where the share applicant made the advance by giving details of all credits appearing in his bank account, the creditworthiness of the share applicant was we hold sufficiently demonstrated. ITA No.479, 480 and 590/Ahd/2020 13 22. The case of the Revenue, if any, we find, merely rests on the financials of the assessee-company not supporting the huge premium collected by it, but that, we agree with the ld.CIT(A), cannot be the ground for doubting the explanation of the assessee, particularly, when all documentary evidences to prove the genuineness of the transactions have been filed by the assessee, and there is no infirmity found by the Department in the same. Reliance placed by the ld.CIT(A) on the decision of the Apex Court in the case of Pr.CIT Vs. Chain House International P.Ltd., (2019) 103 taxmann.com 435 (SC) in this regard, is apt, wherein the Hon’ble Apex court has categorically held that once the genuineness, credit-worthiness and identity of the investors are established, no addition can be made of cash credit on the ground that shares were issued at excess premium. 23. Having stated so, we find that reliance placed by the ld.DR on the decision of the Hon’ble Apex Court in the case of NRA Iron & Steel P.Ltd. (supra) for the proposition that mere filing of the documentary evidences would not sufficient for discharge of onus under section 68 of the Act,is not applicable to the present case. The said decision was rendered in the particular facts of case before the Hon’ble Apex Court, where the Hon’ble Court noted that though the assesse had furnished all documentary evidences, field inquiry by the department revealed that in several cases the investor companies were found to be non- existent. It is, in this background that the Hon’ble Apex Court held that mere submissions of documentary evidences would not suffice to discharge the onus cast on the assessee under section 68 of the Act. 24. The facts in the present case before us are clearly distinguishable, where the ld.CIT(A) has categorically noted that after ITA No.479, 480 and 590/Ahd/2020 14 the filing of the documentary evidences by the assessee no field inquiry was done by the AO. In the light of the same, this argument of the ld.DR is found to be without any merits, and is therefore, rejected. 25. In view of the above, we, therefore, find no reason to interfere in the order of the ld.CIT(A), which we find is well-reasoned order, passed after correctly appreciating the facts of the case, and applying correctly the proposition of law to it. The grounds raised by the Revenue are accordingly dismissed. 26. The appeal of the Revenue is dismissed. 27. ITA No.480/Ahd/2020 – Asst.Year 2010-11 28. The issue raised in the above appeal is reflected in the following solitary ground: 1. \"On the facts and in the circumstances of the case and in law, whether the Ld. CIT(Appeals) erred in deleting the addition on account of share application money of Rs.1,88,33,760/- without considering the facts that creditworthiness of the share applicant has not been proved, thus primary onus on the assessee company to prove the creditworthiness of the share applicant. Ld. CIT(A) also ignored the facts that the share applicant has meager income of Rs.78,710/- during the year whereas the share applicant has advanced the share application money of Rs.1,88,33,760/-“ 29. As stated hereinabove, the above ground is identical to the sole ground raised by the Revenue for Asst.Year 2009-10, with the only difference being the quantum involved. Accordingly, following our decision in the Revenue’s case for Asst.Year 2009-10, we reject this ground of appeal and dismiss the Revenue’s appeal. ITA No.479, 480 and 590/Ahd/2020 15 30. We now take up the appeal of the Revenue for the Asst.Year 2013-14 in ITA No.590/Ahd/2020. 31. In the impugned appeal, challenge to the order of the ld.CIT(A) is against allowing the assesee’s appeal on the legal ground, holding the proceedings conducted under section 147 of the Act to be invalid. The grounds raised by the Revenue are as under: 1. \"On the facts and in the circumstances of the case and in law, whether the CIT(A) has erred in quashing the notice u/s 148 of the Act issued by the Assessing Officer stating that it is merely on change of opinion subsequent to original assessment framed u/s 143(3) of the Act?\" 2. \"On the facts and in the circumstances of the case and in law, whether the CITA) has erred in quashing the notice u/s 148 of the Act issued by the Assessing Officer without going into the merits of the case and also without appreciating the fact that the Assessing Officer was in possession of tangible material while recording reasons for reopening of assessment, which cannot be construed to be change of opinion? 32. In the facts of the present case, during the original assessment proceedings under section 143(3) of the Act, the issue of share application money introduced in the assessee-company was duly examined and thereafter, reopening under section 147 of the Act was resorted to for the same issue. The assessee challenged reopening before the ld.CIT(A) on the ground that it was resorted to on the basis of mere change of opinion with no new material in the possession of the AO. The ld.CIT(A) examined all the facts and documents before him relating to the original assessment proceedings, as also basis for reopening the case in the impugned year, and found the contention of the assessee to be correct. He accordingly held that reopening resorted to by the AO was invalid, since it was not based on any new ITA No.479, 480 and 590/Ahd/2020 16 material or information coming into the hands of the AO, but was merely based on change of opinion. The assessment order passed accordingly was quashed. 33. The ld.CIT(A), at para 6.1 of his order has recorded all facts relating to the examination on the issue of share application received by the assessee in the original assessment proceedings. The same are reproduced herewith: ITA No.479, 480 and 590/Ahd/2020 17 34. At para 6.2 of his order, he mentions reasons for reopening of the case of the assessee as under: 35. And after considering both of them, at para 6.4 of his order, he notes that the basis for reopening of the cases, which were based on information with the AO that the investment made by “MMJ” from his bank account showed immediate credit in the bank account, before making investment, was an information which was there before the AO during the original assessment proceedings also; that this information was examined by the AO and query raised with regard to the same, to which the assessee had furnished explanation with supporting evidence at para 6.4 as under: ITA No.479, 480 and 590/Ahd/2020 18 36. Based on the above finding, he therefore held at para 6.5 of his order that reopening was merely on account of change of opinion and not on account of new information coming in the possession of the AO. His finding in this regard are at para 6.5 of his order as under: ITA No.479, 480 and 590/Ahd/2020 19 37. The ld.DR was unable to controvert the factual findings of the ld.CIT(A) that the information or basis, on which the reopening was resorted to by the AO was also in the possession of the AO during the original assessment proceedings, who had duly examined it, questioned the assessee regarding it, and to which the assessee had furnished explanation duly substantiated with evidences. The findings of the ld.CIT(A) therefore that there was no new information in the possession of the AO for reopening the case of the assessee, and that reopening was resorted to only on a change of opinion is therefore factually correct. Ld.DR had no quarrel with the proposition ITA No.479, 480 and 590/Ahd/2020 20 of law applied by the Ld.CIT(A) for holding the reassessment proceedings to be invalid since it was based on mere change of opinion of the AO and there was no new information in the possession of the AO. 38. In the light of the same, we do not find any infirmity in the order of the ld.CIT(A) quashing the assessment order passed. The grounds raised by the Revenue are therefore dismissed. The appeal of the Revenue is dismissed. 39. In the combined result, all the appeals of the Revenue are dismissed. Order pronounced in the Court on 17th December, 2024 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad, dated 17/12/2024 vk* "