If the identity, creditworthiness and genuineness of the transaction was placed before the AO then the onus shifts to AO to disprove the materials placed before him

0
290

If the identity, creditworthiness and genuineness of the transaction was placed before the AO then the onus shifts to AO to disprove the materials placed before him

Short Overview: Where assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee and as the AO failed to do so the addition of share application money was to be deleted under section 68.

Assessee, during the assessment proceedings, submitted name and address of the investing companies and notice under section 133(6) were issued by AO and confirmations were received, confirming the assessee’s claim. The assessee was asked to produce the director of the companies for explaining the issues, AO noted that the assessee and investing companies were not coming forward with the explanations, hence the financial statement and other relevant data submitted by them in the ROC were obtained by AO. AO, noted that the assessee company had failed to prove the identity, creditworthiness and genuineness of the share subscriber companies, therefore, he made an addition to the tune of Rs. 1,60,00,000. CIT(A) had deleted the addition. The main plank on which the AO made the addition was because the directors of the share subscribers did not turn up before him.

 it is held that In the facts of the present case, both the nature & source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO’s record. Accordingly all the three conditions as required under section 68, i.e., the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO was based on conjectures and surmises hence, could not be justified. Therefore, the order of CIT(A) in deleting the addition of Rs. 1,60,00,000 was to be confirmed.

Decision: In assessee’s favour.

Relied: DCIT v. Global Mercantiles (P) Ltd.  ITA No. 1669/Kol/2009, dt. 13-01-2016, R.B Horticulture & Animal Projects Co. Ltd. ITA No. 632/Kol/2011, dt. 13-1-2016, ITAT Kolkata in ITA No. 1061/Ko1/2012 in the case of ITO Wd.3(2) Kol, v.  Steel Emporium Ltd., dated 5-2-2016, ITO v. Cygnus Developers (I) (P) Ltd. ITA No. 282/Kol/2012 dt. 2-3-2016, CIT v. Gangeshwari Metal (P) Ltd. (ITA No. 597 of 2012), dt. 21-1-2012, CIT v. Novo Promoters & Finlease (P) Ltd. (2012) 342 ITR 169 (Del) : 2012 TaxPub(DT) 1558 (Del-HC), CIT v. Lovely Exports (P) Ltd. (2009) 319 ITR 5 (SC) : 2009 TaxPub(DT) 0261 (SC) and Finlease (P) Ltd. (2012) 342 ITR 169 (Del) : 2012 TaxPub(DT) 1558 (Del-HC) ITA 232/2012 judgment dt. 22-11-2012.

Applied: CIT, Kolkata-III v. Dataware Private Limited ITAT No. 263 of 2011, dt. 21-9-2011.

Referred: Gagandeep Infrastructure 80 Taxmann.Com 272 (Bom) : 2017 TaxPub(DT) 1238 (Bom-HC), S Hastimal v. CIT (1963) 49 ITR 273 (Mad), Northern Bengal Jute Trading Company v. CIT (1968) 70 ITR 407 (Cal) : 1968 TaxPub(DT) 0085 (Cal-HC), CIT v. Stellar Investments Ltd. (2000) 164 CTR (SC) 287 : (2001) 251 ITR 263 (SC), CIT v. Lovely Exports (P) Ltd. (2008) 216 CTR 195 (SC), CIT v. Data ware (P) Ltd. ITAT No 263 of 2011, GA No 2856 of 2011, dt. 21-9-2011, Lovely Exports by the CTR at 216 CTR 295, CIT v.  Nishan Indo Commerce Ltd. dt. 2-12-2013 in Income Tax Appeal No. 52 of 2001, CIT v. Roseberry Mercantile (P) Ltd. ITAT No. 241 of 2010, dt. 10-1-2011, CIT v. Ruby Traders and Exporters Limited  (2003) 263 ITR 300 (Cal) : 2003 TaxPub(DT) 1106 (Cal-HC), CIT v.  Leonard Commercial (P) Ltd. on 13-6-2011 ITAT No. 114 of 2011, CIT v. Smt. P. K. Noorjahan (1999) 237 ITR 570 (SC) : 1999 TaxPub(DT) 0080 (SC), Orissa Corpn. (P) Ltd. (supra) (1986) 159 ITR 78 (SC) : 1986 TaxPub(DT) 1425 (SC), Dy. CIT v. Rohini Builders (2002) 256 ITR 360 (Guj) : 2002 TaxPub(DT) 0305 (Guj-HC),  S.K. Bothra & Sons, HUF v. ITO, Ward- 46(3), Kolkata (2012) 347 ITR 347 (Cal.) : 2012 TaxPub(DT) 0815 (Cal-HC), Crystal Networks (P) Ltd. v. CIT (2013) 353 ITR 171 (Kol) : 2013 TaxPub(DT) 1470 (Cal-HC), CIT, Kolkata-IV v. Roseberry Mercantile (P) Ltd., ITAT No. 241 of 2010 dated 10- 1-2011, CIT. v.  Lovely Exports (P) Ltd. (2008) 216 CTR 195, CIT v.  Nishan Indo Commerce Ltd. dated 2-12-2013 in Income Tax Appeal No. 52 of 2001.

IN THE ITAT, KOLKATA BENCH

A.T. VARKEY, J.M. & A.L. SAINI, A.M.

ITO v. Megasun Merchants (P) Ltd.

ITA No. 1038/Kol/2015

29 March, 2019

Assessee by: Robin Choudhury, Addl. Commissioner Sr. Departmental Representative

Respondent by: Subash Agarwal, Advocate

ORDER

A.L. Saini, J.M.

The captioned appeal filed by the Revenue, pertaining to assessment year 2012-13, is directed against an order passed by the learned Commissioner (Appeals)-Siliguri, (in short the learned Commissioner (Appeals)), which in turn arises out of an assessment order passed by the assessing officer under section 143(3) of the Income Tax Act, 1961 (in short the ‘Act’) dated 30-3-2015.

2. At the outset, we note that the Revenue in the instant appeal has raised a multiple grounds of appeal, but at the time of hearing, the main grievance of the revenue has been confined to the issue that the learned Commissioner (Appeals) was erred in facts as well as in law, in deleting the addition of Rs. 1,60,00,000 made by the assessing officer under section 68 of the Income Tax Act Act,1961.

3. The brief facts qua the issue are that the assessee company filed its return of income for assessment year 2012-13 on 28-9-2012, declaring a total income to the tune of Rs. NIL. Later, the assessee’s case was selected for scrutiny under section 143(2) of the Act. The Assessee is a private limited company and incorporated on 20-10-2005. The assessee company is engaged in real estate business. The following are the directors and shareholders of the assessee company.

Authorised capital of the assessee company is Rs. 20,00,000 authorized no. of share of assessee is 2,00,000 face value of the shares is Rs. 10, issued and subscribed no. of share is at 1,82,000. Above companies mentioned in Sl. No. 5 to Sl. No. 11 (hereinafter refer as investing company) subscribed the shares of assessee company having face value of Rs. 10 at a premium of Rs. 490 and paid the amount.

4. The assessee, during the assessment proceedings, submitted name and address of the investing companies (as stated above) and notice under section 133(6) were issued by assessing officer and confirmations were received, confirming the assessee’s claim. In the confirmation, investing companies forwarded PAN, Acknowledgement copy of the Income Tax Return, relevant portion of the bank statement, copy of the audited account. The Source of the funds of the investor companies and their PAN number and addresses were also furnished before the assessing officer.

5. Audited accounts of the investing companies were analyzed by the assessing officer. Some of the company’s financial statement are reproduced below :–

The assessing officer on perusal of the above account statement noted that prima facie creditworthiness of the investing companies appeared to be not reasonable. Therefore, the assessee was asked to produce the director of the companies for explaining the issues. In the meantime an inspector was deputed to conduct enquiry.

6. On conducting the enquiry, the inspector reported that he could not find the investing companies in the given addresses. This issue was brought to the notice of the assessee company and they were requested to produce the directors of the above investing companies as a witness in support of their claim but neither they could provide any tenable explanation for the same nor could produce the directors of above investing companies. Thus, assessing officer noted that the assessee and investing companies were not coming forward with the explanations, hence the financial statement and other relevant data submitted by them in the ROC were obtained by assessing officer.

7. After going through the above mentioned documents and evidences, the assessing officer, noted that the assessee company has failed to prove the identity, creditworthiness and genuineness of the share subscriber companies therefore he made an addition to the tune of Rs. 1,60,00,000.

8. Aggrieved by the order of the assessing officer the assessee carried the matter in appeal before the learned Commissioner (Appeals) who has deleted the addition. Aggrieved, the Revenue is in appeal before us.

9. We have heard both the parties and perused the material available on record, we note that according to section 68 of the Income Tax Act, 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 satisfactory in the opinion of the assessing officer, the sum so credited may be charged to income tax as the income of the assessee of that assessment year. The assessing officer may consider such sum as cash credit due to lack of sufficient explanation. It is well known that provisions of section 68 have been introduced into the taxing enactments step by step in order to plug loopholes. Even long prior to the introduction of section 68 of the Act, in the statute book, courts had held that where any amounts were found credited in the books of the assessee in the previous year and the assessee offered no explanation about the nature and source thereof or the explanation offered was, in the opinion of the assessing officer, is not satisfactory, the sums so credited could be charged to income-tax as income of the assessee of the relevant assessment year. We note that with effect from assessment year 2013-14, section 68 of the Income Tax 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 assessing officer, the same shall be deemed to be the income of the company under section 68 of the Act. We note that the amended provisions of section 68, is not applicable to the assessee company under consideration, as the assessee`s, assessment year is 2012-13. The Hon`ble Bombay High Court, in the case of Gagandeep Infrastructure 80Taxmann.Com272 (Bom) : 2017 TaxPub(DT) 1238 (Bom-HC), held that amendment to section 68 is prospective and applicable only from assessment year 2013-14.

With this background, now we shall proceed to examine in the assessee`s case under consideration, whether assessee has discharged his onus to prove, prima facie, the identity, creditworthiness and genuineness of the share capital and share premium received by it from share subscribers companies.

10. We note that during the year, the assessee has received a total sum of Rs. 1,60,00,000 from the following companies on account of issue of shares to them @ Rs. 10 per share with share premium of Rs. 490 per share.

1. Fusion Dealtrade (P) Ltd, Rs. 48,00,000 (for 9,600 shares).

2. MahamaniVinimoy (P) Ltd. Rs. 15,00,000 (for 3,000 shares).

3. Natural Suppliers (P) Ltd. Rs. 19,00,000 (for 3,800 shares).

4.Shivaangan Merchandise (P) Ltd. Rs. 24,00,000 (for 4,800 shares).

5. Pragya Commodities (P) Ltd. Rs. 9,00,000 (for 1,800 shares).

6. Dew Drops Mercantile (P) Ltd. Rs. 25,00,000 (for 5,000 shares)

7. SiddheswariVayapar (P) Ltd. Rs. 20,00,000 (for 4,000 shares).

11. Before addressing the legal issue involved in this case, we would like to bring on record the various documents relating to the subscribers which are available in the paper book.

(a) Fusion Dealtrade (P) Ltd: In response to notices under section 133(6), this company had confirmed the transactions and provided the following documents to the assessing officer :–

(i) Return of income,

(ii) Audited balance sheets, profit and loss account and annexures to the financial statements.

(iii). Bank statements of share subscribing companies, evidencing the payment made to assessee company.

(iv). Amount has been paid by account payee cheques to the assessee company to purchase the share capital and share premium.

(v) ROC details

(vi) Pan Number

(vii) Confirmations: In response to notices under section 133(6) of the Act, this company has confirmed the transactions with assessee company.

(b). Mahamani Vinimoy (P) Ltd. In response to notices under section 133(6), this company had confirmed the transactions and provided the following documents to the assessing officer :–

(i) Return of income,

(ii) Audited balance sheets, profit and loss account and annexures to the financial statements.

(iii). Bank statements of share subscribing companies, evidencing the payment made to assessee company.

(iv). Amount has been paid by account payee cheques to the assessee company to purchase the share capital and share premium.

(v) ROC details

(vi) Pan Number

(vii) Confirmations: In response to notices under section 133(6) of the Act, this company has confirmed the transactions with assessee company.

(c). Natural Suppliers (P) Ltd. In response to notices under section 133(6), this company had confirmed the transactions and provided the following documents to the assessing officer :–

(i) Return of income,

(ii) Audited balance sheets, profit and loss account and annexures to the financial statements.

(iii) Bank statements of share subscribing companies, evidencing the payment made to assessee company.

(iv) Amount has been paid by account payee cheques to the assessee company to purchase the share capital and share premium.

(v) ROC details

(vi) Pan Number

(vii) Confirmations: In response to notices under section 133(6) of the Act, this company has confirmed the transactions with assessee company.

(d) Shivaangan Merchandise (P) Ltd. In response to notices under section 133(6), this company had confirmed the transactions and provided the following documents to the assessing officer :–

(i) Return of income,

(ii) Audited balance sheets, profit and loss account and annexures to the financial statements.

(iii) Bank statements of share subscribing companies, evidencing the payment made to assessee company.

(iv) Amount has been paid by account payee cheques to the assessee company to purchase the share capital and share premium.

(v) ROC details

(vi) Pan Number

(vii) Confirmations: In response to notices under section 133(6) of the Act, this company has confirmed the transactions with assessee company.

(e) Pragya Commodities (P) Ltd. In response to notices under section 133(6), this company had confirmed the transactions and provided the following documents to the assessing officer :–

(i) Return of income,

(ii) Audited balance sheets, profit and loss account and annexures to the financial statements.

(iii) Bank statements of share subscribing companies, evidencing the payment made to assessee company.

(iv) Amount has been paid by account payee cheques to the assessee company to purchase the share capital and share premium.

(v) ROC details

(vi) Pan Number

(vii) Confirmations: In response to notices under section 133(6) of the Act, this company has confirmed the transactions with assessee company.

(f) Dew Drops Mercantile (P) Ltd. In response to notices under section 133(6), this company had confirmed the transactions and provided the following documents to the assessing officer :–

(i) Return of income,

(ii) Audited balance sheets, profit and loss account and annexures to the financial statements.

(iii) Bank statements of share subscribing companies, evidencing the payment made to assessee company.

(iv) Amount has been paid by account payee cheques to the assessee company to purchase the share capital and share premium.

(v) ROC details

(vi) Pan Number

(vii) Confirmations: In response to notices under section 133(6) of the Act,this company has confirmed the transactions with assessee company.

(g) Siddheswari Vayapar (P) Ltd. In response to notices under section 133(6), this company had confirmed the transactions and provided the following documents to the assessing officer :–

(i) Return of income,

(ii) Audited balance sheets, profit and loss account and annexures to the financial statements.

(iii) Bank statements of share subscribing companies, evidencing the payment made to assessee company.

(iv) Amount has been paid by account payee cheques to the assessee company to purchase the share capital and share premium.

(v) ROC details

(vi) Pan Number

(vii) Confirmations: In response to notices under section 133(6) of the Act, this company has confirmed the transactions with assessee company.

12. With help of these plethora documents, evidences and personal appearance before the assessing officer in response to notice under section 131 of the Act, during the assessment proceedings, the learned Counsel claimed that the assessee company has proved the identity, genuineness and creditworthiness of all these three share applicant companies in the following manner.

Identity of all the share applicants have been proved by the assessee with help of PAN Number, ROC details and bank statements. We note that before issuing PAN, the Income Tax Department requires address proof. Similarly, R.O.C requires the address proof ofthe Registered office of the share applicant companies. Moreover, bank account requires the address proof before opening of Account. Therefore, identity of these share applicants have been proved by the assessee with help of PAN, ROC details and Bank Statements.

Creditworthiness of these share applicants have been proved by the assessee by submitting, Copy of Balance Sheet, Profit and loss account, Details of investments sold, Bank statement, Explanation along with evidence of source of source of the funds of the share applicant Companies.

Genuineness of these share applicants have been proved by the assessee by submitting, Audited Accounts of the share applicant companies, Income Tax Return of share applicant companies, Copy of the Bank Statement of Share applicant companies where from the amount was debited, Copies of Bank statement of the assessee company where the share application money and premium were credited.

13. We note that the assessing officer had issued notices under section 133(6) of the Act, for verification of these transactions. In response to notices under section 133(6), these above mentioned companies confirmed the transactions and furnished to the assessing officer their return of income, audited balance sheets and their bank statements. The assessing officer analysed the creditworthiness of these Companies and concluded that they do not have capacity to advance these credits or make such investments. Accordingly, the assessing officer added Rs. 1,60,00,000 under section 68 of the Act, treating sum so received by assessee company, as cash credit. We note that all the amounts were received from share subscribers, by account payee cheques and have been confirmed by these share subscribers hence he proved the genuineness and identity of the transactions. Therefore, the learned counsel cited before us, the following judgments Viz: S Hastimal v. CIT (1963) 49 ITR 273 (Mad), Northern Bengal Jute Trading Company v. CIT (1968) 70 ITR 407 (Cal) : 1968 TaxPub(DT) 0085 (Cal-HC), CIT v. Stellar Investments Ltd. (2000) 164 CTR (SC) 287 : (2001) 251 ITR 263 (SC), CIT v. Lovely Exports (P) Ltd. (2008) 216 CTR 195 (SC), CIT v. Data ware (P) Ltd, ITAT No 263 of 2011, GA No 2856 of 2011, dt. 21-9-2011. The sum and substance of all these judgments are that if the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants by submitting the PAN details, bank account statements, audited financial statements, balance sheet, profit and loss account and Income Tax acknowledgments and confirmations, the addition under section 68 is not warranted.

14. We note that the assessee has raised share capital of Rs. 1,60,00,000 during the year under consideration. This capital was raised by way of issue of 32000 shares of Rs. 10 each at a premium of Rs. 490 per share to shareholders mentioned in assessment order page 2 vide table S.No. 5 to 11. The shareholders mentioned in S.No. 1 to 4, in the said table have been issued shares at Rs. 10 each without premium. The assessing officer added back the entire share application money raised from the share applicants during the year under consideration primarily on the premise that directors of the shareholder companies failed to appear before him and assessee company failed to prove identity, creditworthiness and genuineness of the transaction. The learned Departmental Representative appearing on behalf of the Revenue assailed the order of the learned Commissioner (Appeals). The learned Departmental Representative argued that mere documentary evidences were not sufficient to discharge the genuineness of the transactions and that the personal appearance of Directors of share applicants was indeed a pre-requisite to ascertain whether the three ingredients prescribed in section 68 stood satisfied. The learned Departmental Representative thereafter took us through the relevant documents furnished by the assessee company in their Paper-book. With regard to the identity of the share subscribers, he submitted that all the share applicants were paper companies. The learned Departmental Representative further submitted that the assessee had not justified the reasons for issuing shares at a high premium and that this particular aspect was not dealt with by the learned Commissioner (Appeals). Therefore, according to the learned Departmental Representative , the genuineness of the transaction remained un-proved. He therefore vehemently argued that the order of the learned Commissioner (Appeals) be reversed and that the order of the assessing officer be restored.

15. On the other hand, the learned Counsel first drew our attention to the grounds raised by the Revenue in the appeal, each of which related to alleged deletion of addition made under section 68 on account of share capital and share premium. Thereafter on the merits of the case, our attention was drawn by the learned Counsel to relevant pages of the paper book from where we note that the seven shareholders had submitted the following relevant details as called for and had confirmed the transaction with the assessee company. The evidences which were filed before the assessing officer, included the following details.

(i) Return of income,

(ii) Audited balance sheets, profit and loss account and annexures to the financial statements.

(iii). Bank statements of share subscribing companies, evidencing the payment made to

assessee company.

(iv). Amount has been paid by account payee cheques to the assessee company to purchase the share capital and share premium.

(v) ROC details

(vi) Pan Number

(vii) Confirmations: In response to notices under section 133(6) of the Act, this company has confirmed the transactions with assessee company.

16. The learned Counsel submitted that the details of PAN, IT Acknowledgment, and the ROC details furnished by the share applicants with the ROC duly proved the identity of the share subscribers. He further pointed out that in all cases the notices issued by the assessing officer were duly served upon the share applicants through the postal authorities, and share applicants provided the confirmations, bank statements and audited accounts, which further fortified the existence of share applicants at their given addresses. The learned Counsel thereafter invited our attention to the respective balance sheets of the share applicants to show that each of them had sufficient funds available at their disposal to make investment in the assessee company. Referring to the respective bank statements, it was further pointed out that the transactions were conducted through proper banking channel. He also invited our attention to the explanation furnished by each of the share applicants regarding their source of funds. It was thus submitted that the fund flow position of the share applicant and not the profitability was the decisive criteria to examine the creditworthiness of the share applicants. Referring to the learned Commissioner (Appeals)’s order, it was submitted that these factual aspects were taken into consideration and thereafter the learned Commissioner (Appeals) was pleased to hold that the creditworthiness of the share applicants had been established. The learned Counsel also invited our attention to the assessment orders passed by the Income Tax Department in the respective tax assessments of the share applicants to further substantiate the genuineness of the transactions as well as the identity & creditworthiness of the share subscribers.

17. 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 CIT, Kolkata-III v. Dataware Private Limited ITAT No. 263 of 2011, dt. 21-9-2011wherein 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 (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.”

18. Our attention was also drawn to the decision of the Hon’ble Supreme Court while dismissing SLP in the case of Lovely Exports as has been reported as judgment delivered by the CTR at 216 CTR 295 :–

“Can the amount of share money be regarded as undisclosed income under section 68 of the Income tax Act, 1961? We find no merit in this special leave petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the assessing officer, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment.

19. Our attention was also drawn to the decision of the Hon’ble Calcutta High Court while relying on the case of Lovely Exports, in the appeal of CIT, Kolkata-IV v. Roseberry Mercantile (P) Ltd., ITAT No. 241 of 2010, dt. 10- 01-2011 has held :–

“On the facts and in the circumstances of the case, learned Commissioner (Appeals) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the learned Commissioner (Appeals) ought to have held that the assessee had not established the genuineness of the transaction. ”

It appears from the record that in the assessment proceedings it was noticed that the assessee company during the year under consideration had brought Rs. 4,00,000 and Rs. 20,00,000 towards share capital and share premium respectively amounting to Rs. 24,00,000 from four shareholders being private limited companies. The assessing officer on his part called for the details from the assessee and also from the share applicants and analyzed the facts and ultimately observed certain abnormal features, which were mentioned in the assessment order. The assessing officer, therefore, concluded that nature and source of such money was questionable and evidence produced was unsatisfactory. Consequently, the assessing officer invoked the provisions under section 68/69 of the Income Tax Act and made addition of Rs. 24,00,000.

On appeal the learned Commissioner (Appeals) by following the decision of the Supreme Court in the case of CIT v. M/s. Lovely Exports (P) Ltd., reported in (2008) 216 CTR 195 allowed the appeal by holding -that share capital/premium of Rs. 24,00,000 received from the investors was not liable to be treated under section 68 as unexplained credits and it should not be taxed in the hands of the appellant company.

As indicated earlier, the Tribunal below dismissed the appeal filed by the Revenue.

After hearing the learned counsel for the appellant and after going through the decision of the Supreme Court in the case of Commissioner. v. M/s. Lovely Exports (P) Ltd. (supra), we are at one with the Tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed.

20. Our attention was drawn to the decision of the Hon’ble High Court, Calcutta in the case of CIT v. M/s. Nishan Indo Commerce Ltd. dt. 2-12-2013 in Income Tax Appeal No. 52 of 2001 wherein the Court held as follows :–

“The assessing officer was of the view that the increase in share capital by Rs. 52,03,500 was nothing but the introduction of the assessee’s own undisclosed funds/income into the books of accounts of the assessee company. The assessing officer accordingly treated the investment as unexplained credit under section 68 of the Income Tax Act and added the same to the income of the assessee.

Being aggrieved, the assessee filed an appeal before the Commissioner (Appeals) being the First Appellate Authority and contended that the assessing officer had no material to show that the share capital was the income of the assessee company and as such the addition made by the assessing officer under section 68 of the Act was wrong.

The learned Commissioner (Appeals) after hearing the department and the assessee Company deleted the addition of Rs. 52,03,500 to the income of the assessee company during the assessment year in question. The learned Commissioner Appeals found that there were as many as 2155 allottees, whose names, addresses and respective shares allocation had been disclosed.

The Commissioner Appeals, further found that the assessee Company received the applications through bankers to the issue, who had been appointed under the guidelines of the Stock Exchange and the assessee Company had been allotted shares on the basis of allotment approved by the Stock Exchange. The Assessee Company had duly filed the return of allotment with the Registrar of Companies, giving complete particulars of the allottees.

The Commissioner (Appeals) found that inquires had confirmed the existence of most of the shareholders at the addresses intimated to the assessing officer, but the assessing officer took the view that their investment in the assessee Company was not genuine, on the basis of some extraneous reasons. The Commissioner (Appeals) took note of the observation of the assessing officer that enquiry conducted by the Income Tax Inspector had revealed that nine persons making applications for 900 shares were not available at the given address and rightly concluded that the total share capital issued by the assessee Company could not be added as unexplained cash credit under ‘Section 68 of the Income Tax Act. Moreover, if the nature and source of investment by any shareholder, in shares of the assessee Company remained unexplained, liability could not be foisted on the company. The concerned shareholders would have to explain the source of their fund.

The learned Commissioner on considering the submissions of the, respective parties and considering the materials, found that the assessing officer had applied the provisions of section 68 of the Income Tax Act arbitrarily and illegally and in any case without giving the assessee adequate opportunity of representation and/or hearing.

Learned Tribunal agreed with the factual findings of the learned Commissioner and accordingly the learned Tribunal dismissed the appeal of the Revenue and affirmed the decision of the learned Commissioner.

Mr. Dutta appearing on behalf of the petitioners cited judgment of the Division Bench of this Court in CIT v. Ruby Traders and Exporters Limited reported in (2003) 263 ITR 300 (Cal) : 2003 TaxPub(DT) 1106 (Cal-HC) where a Division Bench of this Court held that when Section 68 is resorted to, it is incumbent on the assessee company to prove and establish the identity of the subscribers, their credit worthiness and the genuineness of the transaction.

The aforesaid judgment was rendered in the context of the factual background of the aforesaid case where, despite several opportunities being given to the assessee, nothing was disclosed about the identity of the shareholders. In the instant case, the assessee disclosed the identity and address and particulars of share allocation of the shareholders. It was also found on the facts that all the shareholders were in existence. Only nine shareholders subscribing to about 900 shares out of 6, 12,000 shares were not found available at their addresses, and that too, in course of assessment proceedings in the year 1994, i.e., almost 3 years after the allotment.

By an Order, dt. 2-5-2001, this Court admitted the appeal on three questions which essentially centre around the question of whether the Appellate Commissioner erred in law in deleting the addition of Rs. 52,03,500 to the income of the assessee as made by the assessing officer. We are of the view that there is no question of law involved in this appeal far less any substantial question of law.

The learned Tribunal has concurred with the learned Commissioner on facts and found that there were materials to show that the assessee had disclosed the particulars of the shareholders. The factual findings cannot be interfered with, in appeal. We are of the view that once the identity and other relevant particulars of shareholders are disclosed, it is for those shareholders to explain the source of their funds and not for the assessee company to show wherefrom these shareholders obtained funds.”

21. Further, our attention was drawn to the decision of the Hon’ble High Court, Calcutta in the case of CIT v. M/s. Leonard Commercial (P) Ltd. on 13-6-2011 in ITAT No. 114 of 2011 wherein the Court held as follows :–

“The only question raised in this appeal is whether the Commissioner (Appeals) and the Tribunal below erred in law in deleting the addition of Rs. 8,52,000, Rs. 91,50,000 and Rs. 13,00,000 made by the assessing officer on account of share capital, share application money and investment in HTCCL respectively.

After hearing Md. Nizamuddin, learned Advocate appearing on behalf of the appellant and after going through the materials on record, we find that all such application money were received by the assessee by way of account payee cheques and the assessee also disclosed the complete list of shareholders with their complete addresses and GIR Numbers for the relevant assessment years in which share application was contributed. It further appears that all the payments were made by the applicants by account payee cheques.

It appears from the assessing officers order that his grievance was that the assessee was not willing to produce the parties who had allegedly advanced the fund.

In our opinion, both the Commissioner (Appeals) and the Tribunal below were justified in holding that after disclosure of the full particulars indicated above, the initial onus of the assessee was shifted and it was the duty of the assessing officer to enquire whether those particulars were correct or not and if the assessing officer was of the view that the particulars supplied were insufficient to detect the real share applicants, to ask for further particulars.

The assessing officer has not adopted either of the aforesaid courses but has simply blamed the assessee for not producing those share applicants.

In our view, in the case before us so long the assessing officer was unable to arrive at a finding that the particulars given by the assessee were false, there was no scope of adding those money under section 68 of the Income- tax Act and the Tribunal below rightly held that the onus was validly discharged.

We, thus, find that both the authorities below, on consideration of the materials on record, rightly applied the correct law which are required to be applied in the facts of the present case and, thus, we do not find any reason to interfere with the concurrent findings of fact based on materials on record.

The appeal is, thus, devoid of any substance and is dismissed summarily as it does not involve any substantial question of law.

22. In the light of the aforesaid decision of the Hon’ble Apex Court and jurisdictional High Court and other High Courts let us examine the present case in hand. We will examine each share subscribers. The learned Counsel took pains to bring out the relevant facts in respect of each share subscribers which will throw light as to the identity, creditworthiness and genuineness of the share subscribers. We note from pages 32 to 39 of the Paper Book where the details of M/s. Fusion Dealtrade (P) Ltd. is given. We note that this company invested a sum of Rs. 48 lacs in the assessee company. The share application was made by a/c payee cheque. This company was incorporated under the Companies Act having proper identification number. This company duly filed its return of income before ITO, Ward-1(4), Kolkata and was having PAN No. AABCF6365R. This company was having paid up capital with free reserve and surplus to the tune of Rs. 23,26,11,402 as on 31-3-2012. The copy of the bank statement of the company is duly available in the paper book. On examination of the bank statement it is taken note that there was no deposit of cash. The details of source of funds from which this company had made the share application are also available from a perusal of the bank statement and other details available in the paper book. This company has sufficient fund to invest in the assessee company, therefore, the creditworthiness, genuineness and identity of this company has been proved beyond any doubt.

23. In respect of Mahamani Vinimay (P) Ltd., the learned Counsel drew our attention from pages 41 to 47 of paper book, wherein the details of this company is given. We note that this company invested a sum of Rs. 15 lacs in the assessee company. The share application was made by account payee cheque. This company was incorporated under the Companies Act having proper identification number. This company duly filed its return of income before ITO, Ward-2(1), Kolkata and was having PAN No. AAHCM 7689M. This company was having paid up capital with free reserve and surplus to the tune of Rs. 5,20,86,232 as on 31-3-2012. The copy of the bank statement of the company is duly available in the paper book. On examination of the bank statement it is taken note that there was no deposit of cash. The details of source of funds from which this company had made the share application are also available from a perusal of the bank statement and other details available in the paper book. This company has sufficient fund to invest in the assessee company, therefore, the creditworthiness, genuineness and identity of this company has been proved beyond any doubt.

24. In respect of Natural Suppliers (P) Ltd., the learned Counsel drew our attention from pages 48 to 60 of paper book, wherein the details of this company is given. We note that this company invested a sum of Rs. 19 lacs in the assessee company. The share application was made by account payee cheque. This company was incorporated under the Companies Act having proper identification number. This company duly filed its return of income before ITO, Ward-9(4), Kolkata and was having PAN No. AADCN 4238M. This company was having paid up capital with free reserve and surplus to the tune of Rs. 39,10,36,507 as on 31-3-2012. The copy of the bank statement of the company is duly available in the paper book. On examination of the bank statement it is taken note that there was no deposit of cash. The details of source of funds from which this company had made the share application are also available from a perusal of the bank statement and other details available in the paper book. This company has sufficient fund to invest in the assessee company, therefore, the creditworthiness, genuineness and identity of this company has been proved beyond any doubt.

25. In respect of M/s. Shivaangan Merchandise (P) Ltd., the learned Counsel drew our attention from pages 61 to 71 of paper book, wherein the details of this company is given. We note that this company invested a sum of Rs. 24 lacs in the assessee company. The share application was made by account payee cheque. This company was incorporated under the Companies Act having proper identification number. This company duly filed its return of income before ITO, Ward-5(1), Kolkata and was having PAN No. AAOCS 8980M. This company was having paid up capital with free reserve and surplus to the tune of Rs. 50,30,61,092 as on 31-3-2012. The copy of the bank statement of the company is duly available in the paper book. On examination of the bank statement it is taken note that there was no deposit of cash. The details of source of funds from which this company had made the share application are also available from a perusal of the bank statement and other details available in the paper book. This company has sufficient fund to invest in the assessee company, therefore, the creditworthiness, genuineness and identity of this company has been proved beyond any doubt.

26. In respect of M/s. Pragya Commodities (P) Ltd., the learned Counsel drew our attention from pages 72 to 82 of paper book, wherein the details of this company is given. We note that this company invested a sum of Rs. 9 lacs in the assessee company. The share application was made by account payee cheque. This company was incorporated under the Companies Act having proper identification number. This company duly filed its return of income before ITO, Ward-Circle- ITW and was having PAN No. AABCP 5764 C. This company was having paid up capital with free reserve and surplus to the tune of Rs. 78,66,62,451 as on 31-3-2012. The copy of the bank statement of the company is duly available in the paper book. On examination of the bank statement it is taken note that there was no deposit of cash. The details of source of funds from which this company had made the share application are also available from a perusal of the bank statement and other details available in the paper book. This company has sufficient fund to invest in the assessee company, therefore, the creditworthiness, genuineness and identity of this company has been proved beyond any doubt.

27. In respect of Dewdrop Merchandise (P) Ltd., the learned Counsel drew our attention from pages 83 to 92 of paper book, wherein the details of this company is given. We note that this company invested a sum of Rs. 25 lacs in the assessee company. The share application was made by account payee cheque. This company was incorporated under the Companies Act having proper identification number. This company duly filed its return of income before ITO, Ward-9(1), Kolkata and was having PAN No. AAACD 8961G. This company was having paid up capital with free reserve and surplus to the tune of Rs. 80,54,51,076 as on 31-3-2012. The copy of the bank statement of the company is duly available in the paper book. On examination of the bank statement it is taken note that there was no deposit of cash. The details of source of funds from which this company had made the share application are also available from a perusal of the bank statement and other details available in the paper book. This company has sufficient fund to invest in the assessee company, therefore, the creditworthiness, genuineness and identity of this company has been proved beyond any doubt.

28. In respect of Siddheswari Vyapaar (P) Ltd., the learned Counsel drew our attention from pages 93 to 99 of paper book, wherein the details of this company is given. We note that this company invested a sum of Rs. 20 lacs in the assessee company. The share application was made by account payee cheque. This company was incorporated under the Companies Act having proper identification number. This company duly filed its return of income before ITO, Ward- 4(2)/WBG/WB/104/02, Kolkata and was having PAN No. AANCS 2337J. This company was having paid up capital with free reserve and surplus to the tune of Rs. 72,54,29,956 as on 31-3-2012. The copy of the bank statement of the company is duly available in the paper book. On examination of the bank statement it is taken note that there was no deposit of cash. The details of source of funds from which this company had made the share application are also available from a perusal of the bank statement and other details available in the paper book. This company has sufficient fund to invest in the assessee company, therefore, the creditworthiness, genuineness and identity of this company has been proved beyond any doubt.

29. Taking note of the aforesaid documents the learned Commissioner (Appeals) was of the opinion that assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share subscribers and deleted the addition made under section 68 of the act. Before we adjudicate as to whether the learned Commissioner (Appeals)’s action is right or erroneous, let us look at section 68 of the Act and the judicial precedents on the issue at hand.

Section 68 under which the addition has been made by the assessing officer reads as under :–

“68. 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 of the assessing officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. ”

The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this case the legislative mandate is not in terms of the words ‘shall’ be charged to income-tax as the income of the assessee of that previous year”. The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word “may” and not “shall”. Thus the un-satisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan (1999) 237 ITR 570 (SC) : 1999 TaxPub(DT) 0080 (SC). We note that against the said decision of Hon’ble Gujarat High Court the special leave petition filed by the Revenue has also been dismissed by the Hon’ble Apex Court.

30. The main plank on which the assessing officer made the addition was because the directors of the share subscribers did not turn up before him. In such a case the Hon’ble Apex Court in the case of Orissa Corpn. (P) Ltd. (supra) (1986) 159 ITR 78 (SC) : 1986 TaxPub(DT) 1425 (SC) and the Hon’ble Gujarat High Court, in the case of Dy. CIT v. Rohini Builders (2002) 256 ITR 360 (Guj) : 2002 TaxPub(DT) 0305 (Guj-HC), has held that onus of the assessee (in whose books of account credit appears) stands fully discharged if the identity of the creditor is established and actual receipt of money from such creditor is proved. In case, the assessing officer is dissatisfied about the source of cash deposited in the bank accounts of the creditors, the proper course would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor). In arriving at this conclusion, the Hon’ble Court has further stressed the presence of word “may” in section 68. Relevant observations at pages 369 and 370 of this report are reproduced hereunder :–

“Merely because summons issued to some of the creditors could not be served or they failed to attend before the assessing officer, cannot be a ground to treat the loans taken by the assessee from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation (1986) 159 ITR 78 (SC) : 1986 TaxPub(DT) 1425 (SC). In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue’s case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the assessing officer under section 131, by the alleged creditors will not be sufficient to draw and adverse inference against the assessee. in the case of six creditors who appeared before the assessing officer and whose statements were recorded by the assessing officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the assessing officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by’ treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69.

31. In the case of Nemi Chand Kothari 136 Taxman 213, (supra), the Hon’ble Guahati High Court has thrown light on another aspect touching the issue of onus on assessee under section 68, by holding that the same should be decided by taking into consideration the provision of section 106 of the Evidence Act which says that a person can be required to prove only such facts which are in his knowledge. The Hon’ble Court in the said case held that, once it is found that an assessee has actually taken money from depositor/lender who has been fully identified, the assessee/borrower cannot be called upon to explain, much less prove the affairs of such third party, which he is not even supposed to know or about which he cannot be held to be accredited with any knowledge. In this view, the Hon’ble Court has laid down that section 68 of Income Tax Act, should be read along with section 106 of Evidence Act. The relevant observations at page 260 to 262, 264 and 265 of the report are reproduced herein below :–

“While interpreting the meaning and scope of section 68, one has to bear in mind that normally, interpretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation of statutes, when we read carefully the provisions of section 68, we notice nothing in section 68 to show that the scope of the inquiry under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorize the Revenue Department to make inquiry into the source(s) of the credit and/or sub creditor. The language employed by section 68 cannot be read to impose such limitations on the powers of the assessing officer. The logical conclusion, therefore, has to be, and we hold that an inquiry under section 68 need not necessarily be kept confined by the assessing officer within the transactions, which took place between the assessee and his creditor, but that the same may be extended to the transactions, which have taken place between the creditor and his sub-creditor. Thus, while the assessing officer is under section 68, free to look into the source(s) of the creditor and/or of the sub-creditor, the burden on the assessee under section 68 is definitely limited. This limit has been imposed by section 106 of the Evidence Act which reads as follows :–

“Burden of proving fact especially within knowledge.-When any fact is especially within the knowledge of any person, the burden) of proving that fact is upon him. ”

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What, thus, transpires from the above discussion is that white section 106 of the Evidence Act limits the onus of the assessee to the extent of his proving the source from which he has received the cash credit, section 68 gives ample freedom to the assessing officer to make inquiry not only into the source(s)of the creditor but also of his (creditor’s) sub-creditors and prove, as a result, of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the assessing officer to enquire into the source/source from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and IT is not the burden of the assessee to prove the creditworthiness of the source(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then, the interpretation of section 68 are to stand together, which they must, then the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of section 106 of the Evidence Act and section 68 of the Income- tax Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been. eventually, received by the assessee. It, therefore, further logically follows that the creditor’s creditworthiness has to be Judged vis-a-vis the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub creditors, for, these aspects may not be within the special knowledge of the assessee. ”

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“… If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis-a-vis the transactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuineness of the transaction and the creditworthiness of the creditor vis-a-vis the transactions which had taken place between the assessee and the creditor and not between the creditor and the sub-creditors, for, it is not even required under the law for the assessee to try to find out as to what sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had’ with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub-creditor…

**********

“In other words, though under section 68 an assessing officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-creditor to the creditor was income of the assessee from undisclosed source unless there is evidence, direct or circumstantial, to show that the amount which has been advanced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee ….”

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“Keeping in view the above position of law, when we turn to the factual matrix of the present case, we find that so far as the appellant is concerned, he has established the identity of the creditors, namely, Nemichand Nahata and Sons (HUF) and Pawan Kumar Agarwalla. The appellant had also shown, in accordance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors aforementioned. In fact the fact that the assessee had received the said amounts by way of cheques was not in dispute. Once the assessee had established that he had received the said amounts from the creditors aforementioned by way of cheques, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter the burden had shifted to the assessing officer to prove the contrary. On mere failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee, such failure, as a corollary, could not have been and ought not to have been, under the law, treated as the income from the undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. Viewed from this angle, we have no hesitation in holding that in the case at hand, the assessing officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. In the absence of any such evidence on record, the assessing officer could not have treated the said amounts as income derived by the appellant from undisclosed sources. The learned Tribunal seriously fell into error in treating the said amounts as income derived by the appellant from. undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness.”

32. Further, in the case of CIT v. S. Kamaljeet Singh (2005) 147 Taxman 18 (All.) their lordships, on the issue of discharge of assessee’s onus in relation to a cash credit appearing in his books of account, has observed and held as under :–

“4. The Tribunal has recorded a finding that the assessee has discharged the onus which was on him to explain the nature and source of cash credit in question. The assessee discharged the onus by placing (i) confirmation letters of the cash creditors; (ii) their affidavits; (iii) their full addresses and GIR numbers and permanent account numbers. It has found that the assessee’s burden stood discharged and so, no addition to his total income on account of cash credit was called for. In view of this finding, we find that the Tribunal was right in reversing the order of the AA C, setting aside the assessment order.”

33. We also take note of the decision of the Hon’ble High Court, Calcutta in the case of S.K. Bothra & Sons, HUF v. ITO, Ward- 46(3), Kolkata (2012) 347 ITR 347 (Cal.) : 2012 TaxPub(DT) 0815 (Cal-HC) wherein the Court held as follows :–

“15. It is now a settled law that while considering the question whether the alleged loan taken by the assessee was a genuine transaction, the initial onus is always upon the assessee and if no explanation is given or the explanation given by the appellant is not satisfactory, the assessing officer can disbelieve the alleged transaction of loan. But the law is equally settled that if the initial burden is discharged by the assessee by producing sufficient materials in support of the loan transaction, the onus shifts upon the assessing officer and after verification, he can call for further explanation from the assessee and in the process, the onus may again shift from the assessing officer to assessee.

16. In the case before us, the appellant by producing the loan-confirmation-certificates signed by the creditors, disclosing their permanent account numbers and address and further indicating that the loan was taken by account payee cheques, no doubt, prima facie, discharged the initial burden and those materials disclosed by the assessee prompted the assessing officer to enquire through the Inspector to verify the statements.”

34. In a case where the issue was whether the assessee availed cash credit as against future sale of product, the assessing officer issued summons to the creditors who did not turn up before him, so assessing officer disbelieved the existence of creditors and saddled the addition, which was overturned by learned Commissioner (Appeals). However, the Tribunal reversed the decision of the learned Commissioner (Appeals) and upheld the assessing officer’s decision, which action of Tribunal was challenged by the Hon’ble High Court, Calcutta in the case of Crystal Networks (P) Ltd. v. CIT (2013) 353 ITR 171 (Kol) : 2013 TaxPub(DT) 1470 (Cal-HC) wherein the Tribunal’s decision was overturned and decision of learned Commissioner (Appeals) upheld and the Hon’ble High Court has held that when the basic evidences are on record the mere failure of the creditor to appear cannot be basis to make addition. The court held as follows :–

8. Assailing the said judgment of the learned Tribunal learned counsel for the appellant submits that Income Tax Officer did not consider the material evidence showing the creditworthiness and also other documents, viz., confirmatory statements of the persons, of having advanced cash amount as against the supply of bidis. These evidence were duly considered by the Commissioner (Appeals). Therefore, the failure of the person to turn up pursuant to the summons issued to any witness is immaterial when the material documents made available, should have been accepted and indeed in subsequent year the same explanation was accepted by the Income Tax Officer. He further contended that when the Tribunal has relied on the entire judgment of the Commissioner (Appeals), therefore, it was not proper to take up some portion of the judgment of the Commissioner (Appeals) and to ignore the other portion of the same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so the Tribunal committed grave error in law in upsetting the judgment in the order of the Commissioner (Appeals).

9. In this connection he has drawn our attention to a decision of the Supreme Court in the case of Udhavdas Kewalram v. CIT (1967) 66 ITR 462 (SC) : 1967 TaxPub(DT) 0350 (SC). In this judgment it is noticed that the Supreme Court as proposition of law held that the Tribunal must In deciding an appeal, consider with due care, all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner in the light of the evidence and the relevant law.

10. We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore, it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter the creditworthiness. As rightly pointed out by the learned counsel that the Commissioner (Appeals) has taken the trouble of examining of all other materials and documents, viz., confirmatory statements, invoices, challans and vouchers showing supply of bidis as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued, in our view, is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the product of the assessee or not. When it was found by the Commissioner (Appeals) on facts having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this -fact finding. Indeed the Tribunal did not really touch the aforesaid fact finding of the Commissioner (Appeals) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 464, the Supreme Court has observed as follows :–

“The Income Tax Appellate Tribunal performs a judicial function under the Indian Income Tax Act; it is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. ”

11. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity.

12. Taking inspiration from the Supreme Court observations we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Commissioner (Appeals). We also found no single word has been spared to up set the fact finding of the Commissioner (Appeals) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made.

13. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Commissioner (Appeals). The appeal is allowed.

35. Our attention was also drawn to the decision of the Hon’ble Supreme Court while dismissing SLP in the case of Lovely Exports as has been reported as judgment delivered by the CTR at 216 CTR 295 :–

“Can the amount of share money be regarded as undisclosed income under section 68 of the Income tax Act, 1961? We find no merit in this special leave petition for the simple reason that if the share application money is received by the assessee-company from alleged bogus shareholders, whose names are given to the assessing officer, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment.

36. Our attention was also drawn to the decision of the Hon’ble Calcutta High Court while relying on the case of Lovely Exports, in the appeal of CIT, Kolkata-IV v. Roseberry Mercantile (P) Ltd., ITAT No. 241 of 2010 dated 10- 1-2011 has held :–

“On the facts and in the circumstances of the case, learned Commissioner (Appeals) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the learned Commissioner (Appeals) ought to have held that the assessee had not established the genuineness of the transaction. ”

It appears from the record that in the assessment proceedings it was noticed that the assessee company during the year under consideration had brought Rs. 4, 00, 000 and Rs. 20,00,000 towards share capital and share premium respectively amounting to Rs. 24,00, 000 from four shareholders being private limited companies. The assessing officer on his part called for the details from the assessee and also from the share applicants and analyzed the facts and ultimately observed certain abnormal features, which were mentioned in the assessment order. The assessing officer, therefore, concluded that nature and source of such money was questionable and evidence produced was unsatisfactory. Consequently, the assessing officer invoked the provisions under section 68/69 of the Income Tax Act and made addition of Rs. 24,00,000.

On appeal the learned Commissioner (Appeals) by following the decision of the Supreme Court in the case of CIT. v. M/s. Lovely Exports (P) Ltd., reported in (2008) 216 CTR 195 allowed the appeal by holding -that share capital/premium of Rs. 24,00,000 received from the investors was not liable to be treated under section 68 as unexplained credits and it should not be taxed in the hands of the appellant company.

As indicated earlier, the Tribunal below dismissed the appeal filed by the Revenue.

After hearing the learned counsel for the appellant and after going through the decision of the Supreme Court in the case of CIT v. M/s. Lovely Exports (P) Ltd. (supra), we are at one with the Tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed.

37. Our attention was drawn to the decision of the Hon’ble High Court, Calcutta in the case of CIT v. M/s. Nishan Indo Commerce Ltd. dated 2-12-2013 in Income Tax Appeal No. 52 of 2001 wherein the Court held as follows :–

“The assessing officer was of the view that the increase in share capital by Rs. 52,03,500 was nothing but the introduction of the assessee’s own undisclosed funds/income into the books of accounts of the assessee company. The assessing officer accordingly treated the investment as unexplained credit under section 68 of the Income Tax Act and added the same to the income of the assessee.

Being aggrieved, the assessee filed an appeal before the Commissioner (Appeals) being the First Appellate Authority and contended that the assessing officer had no material to show that the share capital was the income of the assessee company and as such the addition made by the assessing officer under section 68 of the Act was wrong.

The learned Commissioner (Appeals) after hearing the department and the assessee Company deleted the addition of Rs. 52, 03,500 to the income of the assessee company during the assessment year in question. The learned Commissioner Appeals found that there were as many as 2155 allottees, whose names, addresses and respective shares allocation had been disclosed.

The Commissioner Appeals, further found that the assessee Company received the applications through bankers to the issue, who had been appointed under the guidelines of the Stock Exchange and the assessee Company had been allotted shares on the basis of allotment approved by the Stock Exchange. The Assessee Company had duly filed the return of allotment with the Registrar of Companies, giving complete particulars of the allottees.

The Commissioner (Appeals) found that inquires had confirmed the existence of most of the shareholders at the addresses intimated to the assessing officer, but the assessing officer took the view that their investment in the assessee Company was not genuine, on the basis of some extraneous reasons. The Commissioner (Appeals) took note of the observation of the assessing officer that enquiry conducted by the Income Tax Inspector had revealed that nine persons making applications for 900 shares were not available at the given address and rightly concluded that the total share capital issued by the assessee Company could not be added as unexplained cash credit under ‘Section 68 of the Income Tax Act. Moreover, if the nature and source of investment by any shareholder, in shares of the assessee Company remained unexplained, liability could not be foisted on the company. The concerned shareholders would have to explain the source of their fund.

The learned Commissioner on considering the submissions of the, respective parties and considering the materials, found that the assessing officer had applied the provisions of section 68 of the Income Tax Act arbitrarily and illegally and in any case without giving the assessee adequate opportunity of representation and/or hearing.

Learned Tribunal agreed with the factual findings of the learned Commissioner and accordingly the learned Tribunal dismissed the appeal of the Revenue and affirmed the decision of the learned Commissioner.

Mr. Dutta appearing on behalf of the petitioners cited judgment of the Division Bench of this Court in CIT v. Ruby Traders and Exporters Limited reported in (2003) 263 ITR 300 (Cal) : 2003 TaxPub(DT) 1106 (Cal-HC) where a Division Bench of this Court held that when Section 68 is resorted to, it is incumbent on the assessee company to prove and establish the identity of the subscribers, their credit worthiness and the genuineness of the transaction.

The aforesaid judgment was rendered in the context of the factual background of the aforesaid case where, despite several opportunities being given to the assessee, nothing was disclosed about the identity of the shareholders. In the instant case, the assessee disclosed the identity and address and particulars of share allocation of the shareholders. It was also found on the facts that all the shareholders were in existence. Only nine shareholders subscribing to about 900 shares out of 6,12,000 shares were not found available at their addresses, and that too, in course of assessment proceedings in the year 1994, i.e., almost 3 years after the allotment.

By an Order, dt. 2-5-2001, this Court admitted the appeal on three questions which essentially centre around the question of whether the Appellate Commissioner erred in law in deleting the addition of Rs. 52, 03, 500 to the income of the assessee as made by the assessing officer. We are of the view that there is no question of law involved in this appeal far less any substantial question of law.

The learned Tribunal has concurred with the learned Commissioner on facts and found that there were materials to show that the assessee had disclosed the particulars of the shareholders. The factual findings cannot be interfered with, in appeal. We are of the view that once the identity and other relevant particulars of shareholders are disclosed, it is for those shareholders to explain the source of their funds and not for the assessee company to show wherefrom these shareholders obtained funds.”

38. From the details as aforesaid which emerges from the paper book filed before us as well as before the lower authorities, it is vivid that all the share applicants are (i) income tax assessee’s, (ii) they are filing their return of income, (iii) the share application form and allotment letter is available on record, (iv) the share application money was made by account payee cheques, (v) the details of the bank accounts belonging to the share applicants and their bank statements, (vi) in none of the transactions the assessing officer found deposit in cash before issuing cheques to the assessee company, (vii) the applicants are having substantial creditworthiness which is represented by a capital and reserve as noted above.

39. As noted from the judicial precedents cited above, where any sum is found credited in the books of an assessee then there is a duty casted upon the assessee to explain the nature and source of credit found in his books. In the instant case, the credit is in the form of receipt of share capital with premium from share applicants. The nature of receipt towards share capital is seen from the entries passed in the respective balance sheets of the companies as share capital and investments. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e. identity of share applicants, genuineness of transactions and creditworthiness of share applicants. For proving the identity of share applicants, the assessee furnished the name, address, PAN of share applicants together with the copies of balance sheets and Income Tax Returns. These transactions are also duly reflected in the balance sheets of the share applicants, so creditworthiness is proved. Even if there was any doubt if any regarding the creditworthiness of the share applicants was still subsisting, then assessing officer should have made enquiries from the assessing officer of the share subscribers as held by Hon’ble jurisdictional High Court in CIT v. Dataware (supra) which has not been done, so no adverse view could have been drawn. Third ingredient is genuineness of the transactions, for which we note that the monies have been directly paid to the assessee company by account payee cheques out of sufficient bank balances available in their bank accounts on behalf of the share applicants. It will be evident from the paper book that the appellant has even demonstrated the source of money deposited into their bank accounts which in turn has been used by them to subscribe to the assessee company as share application. Hence the source of source is proved by the assessee in the instant case, though the same is not required to be done by the assessee as per law as it stood/applicable in this assessment year 2012-13. The share applicants have confirmed the share application in response to the notice under section 133(6) of the Act and have also confirmed the payments which are duly corroborated with their respective bank statements and all the payments are by account payee cheques.

40. We also note that recently the ITAT Kolkata in several cases has deleted the addition on account of share application in similar circumstances. The relevant portion of the decisions are as follows :–

(a) The learned ITAT Kolkata. in DCIT v. Global Mercantiles (P) Ltd. in ITA No. 1669/Kol/2009, dt. 13-01-2016. In this the decision the learned Tribunal held as follows :–

“3.4. We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee. The facts stated hereinabove remain undisputed are not reiterated herein for the sake of brevity. We find that the assessee had given the complete details about the share applicants clearly establishing their identity, creditworthiness and genuineness of transaction proved beyond doubt and had duly discharged its onus in full. Nothing prevented the learned assessing officer to make enquiries from the assessing officers of the concerned share applicants for which every details were very much made available to him by the assessee. We find that the reliance placed by the learned Commissioner (1) on the decision of the Hon’ble Apex Court in the case of CIT v. Lovely Exports (P) Ltd. reported in (2008) 216 CTR 195 (SC) is very well founded, wherein, it has been very clearly held that the only obligation of the company receiving the share application money is to prove the existence of the shareholders and for which the assessee had discharged the onus of proving their existence and also the source of share application money received.

3.4.1. We also find that the impugned issue is also covered by the decision of Hon’ble Calcutta High Court in the case of CIT v. Roseberry Mercantile (P) Ltd. in GA No. 3296 of 2010 ITAT No. 241 of 2010, dt. 10-1-2011, wherein the- questions raised before their lordships and decision rendered thereon is as under :-

“On the facts and in the circumstances of the case, learned Commissioner (Appeals) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the learned Commissioner (Appeals) ought to have held that the assessee had not established the genuineness of the transaction. ”

ITA No. 1669/Kol/2009-C-AM M/s. Global Mercantiles (P) Ltd. 11 Held After hearing the learned counsel for the appellant and after going through the decision of the Supreme Court in the cases of CIT v. M/s. Lovelv Exports (P) Ltd., we are at one with the tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed.

3.4.2. In view of the aforesaid findings and respectfully following the decision of the Apex Court (supra) and Jurisdictional High Court (supra), we find no infirmity in the order of the learned Commissioner (Appeals) and accordingly, the ground no.2 raised by the Revenue is dismissed.

4. The last ground to be decided in this appeal of the Revenue is as to whether the learned Commissioner (Appeals) is justified in deleting the addition under section 68 of the Act made in respect of allotment of shares to 20 individuals for an amount of Rs. 57,00,000 in the facts and circumstances of the case.

4.1. The brief fact of this issue is that the assessee had received share application monies from 20 individuals in the earlier year which were kept in share application money account. During the asst year under appeal, the assessee allotted shares to these 20 individuals out of transferring the monies from share application money account to share capital account. The details of 20 individuals are reflected in page 6 & 7 of the learned Commissioner (Appeals) order. The learned assessing officer asked the assessee to produce the shareholders before him. He found that the assessee did not do so but furnished copies of pay orders used for payments to the assessee company and also furnished income tax particulars and balance sheets of all the shareholders. The learned assessing officer on analyzing all the balance sheets observed that the shareholders have paltry income and small savings and none of them have any bank account and huge cash balances were shown in their hands out of which Pay orders were obtained. Based on this, the learned assessing officer concluded that these shareholders do not have creditworthiness to invest in the assessee company and brought the entire sum of Rs. 57,00,000 to tax as unexplained cash credit under section 68 of the Act.

4.2. On first appeal, the learned Commissioner (Appeals) observed that entire share application monies of Rs. 57,00,000 we received during the previous year 2004-05 relevant to  assessment year  2005-06 from 20 persons and the shares were allotted to them during the asst year under appeal. He observed that the assessee had furnished details of the share applicants giving the date wise receipts, mode of payment, amount, name, address, income tax returns, PA No. of share applicants along with their balance sheet. The learned Commissioner (Appeals) also observed that the assessee in its reply to show cause notice before the learned assessing officer had requested him to use his power and authority for the physical appearance of the shareholders which was not exercised by the learned assessing officer. Instead the learned assessing officer continued to insist on the assessee to produce the shareholders before him. He ultimately concluded that the assessee had duly discharged its onus of providing complete details of the shareholders and in any case, no addition could be made under section 68 of the Act in the asst year under appeal as no share application monies were received during the asst year under appeal. Aggrieved, the Revenue is in appeal before us by filing the following ground :–

“That in the facts and circumstances of the case, the learned Commissioner (Appeals) has erred in deleting the addition made under section 68 in respect of the allotment of shares to 20 numbers of individual investors for an amount of Rs. 57 lakhs, where genuineness of the transactions and creditworthiness of the investors were not established.”

4.3. The learned Departmental Representative prayed for admission of the additional ground raised before us and vehemently supported the order of the learned assessing officer. In response to this, the learned Authorised Representative fairly conceded to admission of this additional ground and vehemently supported the order of the learned Commissioner (Appeals).

4.4. We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee. We find that the additional ground raised by the assessee separately before us vide its covering letter dated 9-12-2011 is admitted as it appears to be a genuine and bona fide error of omission on the part of the Revenue from not raising this ground in the original grounds of appeal filed along with the memorandum of appeal. Moreover, it does not require any fresh examination of facts. Hence the same is admitted herein for the sake of adjudication.

4.4.1. We find from the details available on record that the share application monies from 20 individuals in the sum of Rs. 57,00,000 has been received by the assessee during the financial year 2004-05 relevant to  assessment year  2005-06 and only the shares were allotted to them during the asst year under appeal. Admittedly no monies were received during the asst year under appeal and hence there is no scope for invoking the provisions of section 68 of the Act. Hence we hold that the order passed by the learned Commissioner (Appeals) in this regard does not require any interference. Accordingly the ground no. 3 raised by the Revenue is dismissed.

(b) The ITAT Kolkata in R.B Horticulture & Animal Projects Co. Ltd, ITA No. 632/Kol/2011, dt. 13-1-2016. In this the decision the learned Tribunal held as follows:–

“6. We have heard the learned Departmental Representative and when the case was called on for hearing, none was present on behalf of the assessee. However, we find from the file that the assessee had filed a detailed paper book and written submissions. Hence the case is disposed off based on the arguments of the learned Departmental Representative and written submissions and paper book already available on record. The facts stated in the learned Commissioner (Appeals) were not controverted by the learned Departmental Representative before us. We find that the assessee had given the complete details about the share applicants clearly establishing their identity, creditworthiness and genuineness of transaction proved beyond doubt and had duly discharged its onus in full. Nothing prevented the learned assessing officer to make enquiries from the assessing officers of the concerned share applicants for which every details were very much made available to him by the assessee. We find that the reliance placed by the learned Commissioner (Appeals) on the decision of the Hon’ble Apex Court in the case of CIT v. Lovelv Exports (p) Ltd. reported in (2008) 216 CTR 195 (SC) is very well founded, wherein, it has been very clearly held that the only obligation of the company receiving the share application money is to prove the existence of the shareholders and for which the assessee had discharged the onus of proving their existence and also the source of share application money received.

6.1. We also find that the impugned issue is also covered by the decision of Hon’ble Calcutta High Court in the case of CIT v. Roseberrv Mercantile (P) Ltd. in GA No. 3296 of 2010 ITAT No. 241 of 2010, dt. 10-1-2011, wherein the questions raised before their lordships and decision rendered thereon is as under:–

“On the facts and in the circumstances of the case, learned Commissioner (Appeals) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the learned Commissioner (Appeals) ought to have held that the assessee had not established the genuineness of the transaction.” Held After hearing the learned counsel for the appellant and after going through the decision of the Supreme Court in the cases of CIT v. M/s. Lovely Exports (P) Ltd, we are at one with the tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed.”

6.2. We find that the issue is also covered by the decision of Hon’ble Delhi High Court in the case of CIT v. Value Capital Services (P) Ltd. reported in (2008) 307 ITR 334 (Delhi) : 2008 TaxPub(DT) 1946 (Del-HC), wherein it was held that :–

“In respect of amounts shown as received by the assessee towards share application money from 33 persons, the assessing officer required the assessee to produce all these persons. While accepting the explanation and ITA No. 632/KoI12011–C-AM M/s. R.B Horticulture 6 & Animal Proj. Co. Ltd. the statements given by three persons the assessing officer found that the response from the others was either not available or was inadequate and added an amount of Rs. 46 lakhs pertaining to 30 persons to the income of the assessee.

The Commissioner (Appeals) upheld the decision of the assessing officer. On appeal, the Tribunal set aside the order of the Commissioner (Appeals) and deleted the additions. On further appeal :–

Held, dismissing the appeal, that the additional burden was on the department to show that even if the share applicants did not have the means to make the investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. No substantial question of law arose. ”

6.3. We find that the argument of the learned Departmental Representative to set aside this issue to the file of the learned assessing officer for verification of share subscribers would not serve any purpose as the ratio decided in the above cases is that in any case, no addition could be made in the hands of the recipient assessee. In view of the aforesaid findings and respectfully following the decision of the Apex Court (supra), Jurisdictional High Court (supra) and Delhi High Court (supra), we find no infirmity in the order of the learned Commissioner (Appeals) and accordingly, the grounds raised by the Revenue are dismissed.”

(c) The learned ITAT Kolkata in ITA No. 1061/Ko1/2012 in the case of ITO Wd.3(2) Kol, v. M/s. Steel Emporium Ltd. dated 5-2-2016. In this the decision the learned Tribunal held as follows :–

“10. We have heard both the rival parties and perused the materials available on record. The learned Departmental Representative vehemently supported the order of the assessing officer. Before us the learned Authorised Representative submitted that the assessee raised share application money during the year from 25 applicants. The assessing officer was furnished with the copy of Form 2 of Allotment of Shares to the Applicants as filed with the Registrar of Companies, West Bengal. On the date of receipt of Share applications from the Applicants, they furnished their addresses, which were recorded in the Register of Members. The assessing officer observed that as per ROC records the addresses of the nine companies were different from the address as per Form filed with him. The assessing officer issued notices under section 133(6) to all the companies at the addresses furnished in Form 2 as filed with him, which were duly served at the given addresses. The assessing officer argued that the letters should not have been served at the given address by the assessee. He served a show a cause notice dated 9-12-2011 asking for the explanation from the assessee as to how the notices under section 133(6) could be served to these nine companies who had different address as per ROC records. The assessing officer was explained vide letter dated 20-12-2011 of the assessee that those companies had changed their addresses since filing of Form 2 with the Registrar. Further, it was none of the business of the assessee to question the addresses of the applicants as long as they affirm the address. The applicants were duly incorporated bodies under the Companies Act. 1956 since long. They have been regularly filing their returns of income under the Income Tax Act and are being assessed by the Revenue since long. Some of them are even registered as Non-Banking Financial Companies with Reserve bank of India. They have been filing returns regularly with Registrar of Companies and RBI since long. The letters might have been received at their old addresses because in case of change in the address, people instruct the incumbents at old addresses not to refuse the receipt of letters and receive the same. Just because, a letter was received at the old address instead of present address, it cannot be said that the identity of the applicant has not been verified. All of these companies had duly replied to notice under section 133(6) and confirmed the transaction with all the evidences. The assessing officer has not raised any objection on any of the information furnished before him. The assessing officer has not asked the respective Company applicants also to explain the alleged discrepancy in the address. The assessing officer has not brought any material on account of record to disbelief the evidences furnished with him and treat the transaction as not genuine. The assessee submitted the following material at the time of assessment.

(a) Copy of share applications from the share applicants (copies enclosed)

(b) Copy of Form 2 filed with Registrar of Companies, West Bengal (copy enclosed)

(c) Copy of Form 18 about the Registered Office of the applicants for change of address subsequent to the date of allotment, i.e. 31-3-2009 (copies enclosed)

(d) Members register

(e) Share application & Allotment Register

(f) Copy of board resolution.

(g) Replies from Share applicants to the notice under section 133(6) issued to them by the assessing officer seeking information and documents about the sources and to examine their identity, genuineness of the transaction and their creditworthiness. (copy enclosed).

(h) Copy of audited accounts.

(i) Copy of bank statements.

(j) Copy of Income tax acknowledgment of return filed for assessment year 2009–

(k) Copy of PAN Card.

(l) Details of sources of funds.

(m) Copy of covering letter for delivery of shares.

(n) Copy of master data as per ministry of Company Affairs records.

(o) Copy of Annual return.

(p) Copy of Memorandum and articles of Association.

(Finally the learned Authorised Representative relied on the order of the learned Commissioner (A 10. 1 From the aforesaid discussion we find that the assessing officer has made the addition of the share application money because all the nine companies were having the common address and the notice sent under section 133(6) was received by the single person. Accordingly the assessing officer opined that the assessee has used its unaccounted money in the share application transactions. However we find that all the money received in the form of share capital is duly supported with the requisite document as discussed above. To our mind the basis on which the addition was made by the assessing officer is not tenable. The learned Departmental Representative also could not brought anything on record to controvert the findings of the learned Commissioner (Appeals). In view of above we find no reason to interfere in the order of the learned Commissioner (Appeals). Accordingly the ground raised by Revenue is dismissed.”

(d) The learned ITAT Kolkata in ITO v. Cygnus Developers (I) (P) Ltd. in ITA No. 282/Kol/2012 dt. 2-3-2016. In this the decision the learned Tribunal held as follows :–

“6. On appeal by the assessee the Commissioner (Appeals) deleted the addition made by the assessing officer observing as follows

“(6) I have considered the submission of the appellant and perused the assessment order. I have also gone through the details and documents filed by the appellant company in the course of assessment: proceedings vide letter dt. 3-10-2007. On careful consideration of the facts and in law I am of the opinion that the assessing officer was not justified in making, the addition aggregating to Rs. 54,00,000 under section 68 of the Act being the amount of share application money by holding that the appellant company has failed to prove the identity, and creditworthiness of The creditors as well as the genuineness of transactions. It is observed that all the three share applicant companies i.e. M/s. Shree ShyamTrexim (P) Ltd., M/s. Navalco Commodities (P) Ltd. and M/s. Jewellock Trexim (P) Ltd. had filed their confirmations wherein each of them confirmed that they had applied for shares of the appellant -company. All the three companies provided- the cheque number, copy of bank statements and their PAN. It is observed that these companies also filed, copies of their return of income and financial statements for as well as copy of their assessment order under section 143(3) of the Income Tax Act for assessment year 2005-06. In the case of M/s. Jewellock Trexim (P) Ltd. the assessment for assessment year 2005-06 was completed by the ITO Ward 9(3), Kolkata and the assessments in the case of M/s. Navalco Commodities (P) Ltd. and M/s. Shree Shyam Trexim (P) Ltd. for assessment year 2005-06 and assessment year 2004-05 respectively were completed by the ITO, Ward 9(4), Kolkata. Under the circumstances, I am of the opinion that the assessing officer was not justified in holding that the share applicant companies were not in existence. The assessment orders were completed on the address as provided by the appellant company in the course of assessment proceedings. It is not known as to how the assessing officer’s inspector had reported that the aforesaid companies were not in existence at the given address. Since the appellant company had provided sufficient documentary evidences in support of its claim of receipt of share application money, I am of the opinion that the no addition under section 68 could be made in the hands of appellant company. On going through the various judicial pronouncements relied upon by the appellant, it is observed that the view taken as above is also supported by them. In view of above the assessing officer is directed to delete the addition of Rs. 54,00,000. The ground Nos. 2 and 3 are allowed, ”

7. Aggrieved by the order of Commissioner (A) the Revenue is in appeal before the Tribunal.

8. We have heard the submissions of the learned Departmental Representative , who relied on the order of assessing officer. The learned counsel for the assessee relied on the order of Commissioner (Appeals) and further drew our attention to the decision of Hon’ble Allahabad High Court in the case of CIT v. Raj Kumar Agarwal vide ITA No. 179/2008, dt. 17-11-2009 wherein the Hon’ble Allahabad High Court took a view that non production of the director of a Public Limited company which is regularly assessed to Income tax having PAN, on the ground that the identity of the investor is not proved cannot be sustained. Attention was also to the similar ruling of the ITAT Kolkata bench in the case of ITO v. Devinder Singh Shant in ITA No. 20BIKo112009 vide Order, dt. 17-4-2009.

9. We have considered the rival submissions., We are of the view that order of Commissioner (Appeals) does not call for any interference. It may be seen from the grounds of appeal raised by the Revenue that the Revenue disputed only the proof of identity of the shareholder. In this regard it is seen that for assessment year 2004-05 Shree ShyamTrexim (P) Ltd., was assessed by ITO, Ward- 9(4), Kolkata and the order of assessment u/s/143(3) dated 25-1-2006 is placed in the paper book. Similarly Navalco Commodities (P) Ltd., was assessed to tax under section 143(3) for  assessment year’s 2005-06 by I TO, Ward- 9(4), Kolkata by Order, dt. 20-3-2007. Similarly Jewellock Trexim (P) Ltd. was assessed to tax for  assessment year’s 2005-06 by the very same ITO- Ward- 9(3), Kolkata assessing the Assessee. In the light of the above factual position which is not disputed by the Revenue, it cannot be said that the identity of the share applicants remained not proved by the assessee. The decision of the Hon’ble Allahabad High Court as well as ITAT Kolkata Bench on which reliance was placed by the learned counsel for the assessee also supports the view that for non production of directors of the investor company for examination by the assessing officer it cannot be held that the identity of a limited company has not been established. For the reasons given above we uphold the order of Commissioner (Appeals) and dismiss the appeal of the Revenue.”

41. Reliance in this regard is also placed on the decision of the Delhi High Court in the case of CIT v. Gangeshwari Metal (P) Ltd. (ITA No. 597 of 2012), dt. 21-1-2012. In this case the assessee had received share application money of Rs. 55.50 lacs during the year in question. The assessee filed the complete names, addresses of the share applicants, confirmatory letters from them, copies of bank statements of both the company as well as the share applicants and copies of share application forms. In spite of the aforesaid documentary evidences the assessing officer held the explanation to be unacceptable and treated the share application as unexplained cash credit thereby making addition under section 68 of the Income Tax Act, 1961. On appeal the Commissioner (Appeals) deleted the aforesaid addition holding that the identity of the share applicants stood established beyond doubt, all the payments were through account payee cheques and the share applicants were regular income-tax assessees. The Commissioner (Appeals) further held that the Revenue did not bring any evidence on record to suggest that the share application had been received by the assessee from its own undisclosed sources nor any material was brought on record to show that the applicants were bogus. The Revenue was neither able to controvert the documentary evidences filed by the appellant nor prove that the share application were ingenuine or the applicants were non-creditworthy. The findings of the Commissioner (Appeals) were upheld by the Income Tax Appellate Tribunal. On appeal to the High Court, the Revenue placed strong reliance on the decision of another coordinate Bench of the same Court in the” case of CIT v. Novo Promoters & Finlease (P) Ltd. (2012) 342 ITR 169 (Del) : 2012 TaxPub(DT) 1558 (Del-HC). The High Court however held that the aforesaid judgment was distinguishable from the facts of the present case. The Court observed that in that judgment the assessing officer had brought on record enough corroborative evidence to show that the assessee had routed unaccounted monies into its books through medium of share subscription. The share applicants had confessed that they were “accommodation entry providers”. The assessing officer in the latter case was able to prove with enough material that the share subscription was a pre-meditated plan to route unaccounted monies. In the present case however, the Department was unable to bring any material whatsoever shows that share application was in the nature of accommodation entries. The Court observed that the appellant had filed sufficient documentary evidences to establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. The assessing officer however chose to sit back with folded hands till the assessee exhausted all the evidence in his possession and then merely reject the same without conducting any inquiry or verification whatsoever. The Court thus held that the decision of CIT v. Novo Promoters & Finlease (P) Ltd. (2012) 342 ITR 169 (Del) : 2012 TaxPub(DT) 1558 (Del-HC) was not applicable to the facts of the case. Instead it was held that the issue in hands was on the lines of the decision of the Supreme Court in the case of CIT v. Lovely Exports (P) Ltd. (2009) 319 ITR 5 (SC) : 2009 TaxPub(DT) 0261 (SC). Accordingly. the addition made under section 68 on account of share application was deleted.

42. We would like to reproduce the Hon’ble High Court order in CIT v. Gangeshwari Metal (P) Ltd. in ITA No. 597/2012 judgment dated 21-1-2013, the Hon’ble High Court after considering the decisions in the case of Nova Promoters and Finlease (P) Ltd. (2012) 342 ITR 169 (Del) : 2012 TaxPub(DT) 1558 (Del-HC) and judgment in the case of CIT v. Lovely Exports (2009) 319 ITR 5 (SC) : 2009 TaxPub(DT) 0261 (SC) held as follows :–

“As can be seen from the above extract, two types of cases have been indicated. One in which the assessing officer carries out the exercise which is required in law and the other in which the assessing officer ‘sits back with folded hands’ till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the assessing officer after noting the facts, merely rejected the same. This would be apparent from the observations of the assessing officer in the assessment order to the following effect :–

”Investigation made by the Investigation Wing of the department clearly showed that this was nothing but a sham transaction of accommodation entry. The assessee was asked to explain as to why the said amount of Rs. 1,11,50,000 may not be added to its income. In response, the assessee has submitted that there is no such credit in the books of the assessee. Rather, the assessee company has received the share application money for allotment of its share. It was stated that the actual amount received was Rs. 55,50,000 and not Rs. 1,11,50,000 as mentioned in the notice. The assessee has furnished details of such receipts and the contention of the assessee in respect of the amount is found correct. As such the unexplained amount is to be taken at Rs. 55,50,000. The assessee has further tries to explain the source of this amount of Rs. 55,50,000 by furnishing copies of share application money, balance4 sheet etc. of the parties mentioned above and asserted that the question of addition in the income of the assessee does not arise. This explanation of the assessee has been duly considered and found not acceptable. This entry remains unexplained in the hands of the assessee as has been arrived by the Investigation wing of the department. As such entries of Rs. 5~50/000 received by the assessee are treated as an unexplained cash credit in the hands of the assessee and added to its income. Since I am satisfied that the assessee has furnished inaccurate particulars of its income/penalty proceedings under section 271(1)(c) are being initiated separately.

The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in the former category and that is why this Court decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of inquiry on the part of the assessing officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no addition can be made under section 68 of the Income Tax Act 1961. Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law”

43. The case on hand clearly falls in the category where there is lack of enquiry on the part of the assessing officer as in the case of Ganjeshwari Metals (supra).

(b) In the case of Finlease (P) Ltd. (2012) 342 ITR 169 (Del) : 2012 TaxPub(DT) 1558 (Del-HC) (supra) in ITA 232/2012 judgment dt. 22-11-2012 at para 6 to 8/it was held as follows.

“6. This Court has considered the submissions of the parties. In this case the discussion by the Commissioner (Appeals) would reveal that the assessee has filed documents including certified copies issued by the ROC in relation to the share application affidavits of the directors, form 2 filed with the ROC by such applicants confirmations by the applicant for company’s shares, certificates by auditors etc. Unfortunately, the assessing officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahes Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the assessing officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the assessing officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description ofS.68 of the Income Tax Act 1961. Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra).

The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (supra). Where the assessee adduces evidence in support of the share application monies, it is open to the assessing officer to examine it and reject it on tenable grounds. In case he wishes to rely on the report of the investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between the assessee and the alleged hawala operators, such a link was shown to be present in the case of Nova Promoters & Finlease (P) Ltd. (supra) relied upon by the revenue. We are therefore not to be understood to convey that in all cases of share capital added under section the ratio of Lovely Exports (supra) is attracted, irrespective of the facts, evidence and material. ”

44. To conclude, in this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to assessing officer to disprove the documents furnished by assessee, cannot be brushed aside by the assessing officer to draw adverse view, cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the assessing officer, we hold that an addition cannot be sustained merely based on inferences drawn by circumstance. Applying the propositions laid down in these case laws to the facts of this case, we are inclined to uphold the order of the learned Commissioner (Appeals).Section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature & source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on assessing officer’s record. Accordingly all the three conditions as required under section 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the assessing officer and the onus shifted to assessing officer to disprove the materials placed before him. Without doing so, the addition made by the assessing officer is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under section 68 of the Act. Therefore, we confirm the order of learned Commissioner (Appeals) in deleting the addition of Rs. 1,60,00,000

45. In the result, the appeal of the Revenue is dismissed.

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