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Where assessee duly discharged the initial onus of proving the identity of the investors, creditworthiness of the investors and genuineness of the transactions and where notices issued under section 133(6) were also responded to by investors, the AO was not justified in adding amount of such transactions as unexplained cash credit under section 68.

AO transpired that assessee received share application money and premium on account of shares issued to four entities. Accordingly, the assessee was directed to file requisite documentary evidences in support of identity of the investors, creditworthiness of the investors and genuineness of the transactions. In response, he furnished acknowledgement of return of income, audited financial statements and bank statements of all the four entities. Further, notices were issued under section 133(6) to confirm the transactions, which were duly responded to by three entities, whereas one notice was returned back unserved. AO observed that all the said entities were Hawala operator entities and the transactions with such entities were termed as paper transaction and therefore, the amount of such transactions was added as unexplained cash credit under section 68.

it is held that Assessee filed plethora of documents to prove the identity of the investors, creditworthiness of the investors and genuineness of the transactions. Further, the investments were duly reflected in the financial statements of the investor companies. The factum of investment was confirmed by all the four entities. The three parties responded to notice under section 133(6) and confirmed the transactions, whereas new address was provided with respect to the fourth entity. However, no further inquiry was made by the AO so as to confirm the transaction. Therefore, as addition under section 68 was made merely on the basis of doubts, conjectures or surmises, such addition was liable to be deleted.

Decision: In assessee’s favour.

Distinguished: PCIT v. NRA Iron & Steel (P) Ltd. (2019) 412 ITR 161 (SC): 2019 TaxPub (DT) 1628 (SC)

Referred: Kale Khan Mohammad Hanif v. CIT (1963) 50 ITR 1 (SC): 1963 TaxPub (DT) 420 (SC), Roshan Di Hatti v. CIT (1977) 107 ITR 938 (SC): 1977 TaxPub (DT) 842 (SC), and CIT v. Orissa Corporation (1986) 159 ITR 78 (SC): 1986 TaxPub (DT) 1425 (SC)

IN THE ITAT, MUMBAI BENCH

C.N. PRASAD, J.M. & MANOJ KUMAR AGGARWAL, A.M.

ITO v. Ambika Metalchem Impex (P) Ltd.

I.T.A. No. 1676/Mum/2017

31 May, 2019

Assessee by: Neelkanth Khandelwal & Suresh Patni–Learned Authorised Representatives

Revenue by: Rajesh Kumar Yadav–Learned Departmental Representative

ORDER

Manoj Kumar Aggarwal, A.M.

Aforesaid appeal by revenue for assessment year (in short referred to as ‘AY’) 2009-10 contest the order of learned Commissioner of Income–Tax (Appeals)-10, Mumbai, (in short referred to as ‘Commissioner (Appeals)’), Appeal No. Commissioner (Appeals)-10/ITO-5(1)(1)/482/2015-16, dated 18-11-2016 on following grounds of appeal :–

1. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) has erred in deleting the addition of Rs. 84 lacs under section 68 of the Income Tax Act on account of bogus share capital and share premium.

2. On the facts and in the circumstances of the case and in law the learned Commissioner (Appeals) failed to appreciate the fact about non-production of any single party for examination by the assessing officer.

3. On the facts and in the circumstances of the case and in law the learned Commissioner (Appeals) failed to appreciate the fact that Shri Pravin Kumar Jain was indulged in issuing bogus accommodation entries in different forms including share capital and share premium.”

2.1 Facts in brief that the assessee being a resident corporate assessee stated to be engaged in Share Market Activities, was assessed for impugned assessment year under section 143(3) read with section 147 on 5-2-2016 wherein the income was determined at Rs. 76.37 Lacs after sole addition of unexplained cash credit under section 68 on account of Share Capital/Share Premium for Rs. 84 Lacs as against returned loss of Rs. 7.62 Lacs e-filed by the assessee on 18-9-2009 which was processed under section 143(1).

2.2 The reassessment proceedings got triggered pursuant to receipt of certain information from DIT(Investigation)-II, Mumbai that the assessee indulged in certain bogus transactions with hawala entities. Accordingly, the case was reopened by issuance of notice under section 148 on 13-2-2015 which was followed by statutory notices under section 143(2) & 142(1). The reason recorded for reopening the assessment were duly supplied in due course.

2.3 During reassessment proceedings, it transpired that the assessee received Share Application Money on 2.80 Lacs Shares of face value of Rs. 10 each at a premium of Rs. 20 per shares. Theses shares were issued to four entities. Accordingly, the gross amount received on this account aggregated to Rs. 84 Lacs. Accordingly, the assessee was directed to file requisite documentary evidences in support of identity of the investor, creditworthiness of the investors & genuineness of the transactions and also justify the financial worth of the investors.

2.4 In response, the assessee furnished acknowledgement of return of income, audited financial statements & bank statements of all the four entities. Notices were issued under section 133(6) to confirm the transactions which were duly responded to by three entities whereas one notice was returned back unserved. The assessee was directed to produce the said parties for confirmation of the transactions.

2.5 The assessee submitted that all the companies were regular Income Tax assessee and reflected the aforesaid investment in their respective Balance Sheet. Form No. 2 filed with Registrar of Companies with respect to Allotment of Shares was also filed to support the same. In the above background, the assessee claimed to have fulfilled aforesaid primary ingredients as desired by learned assessing officer.

2.6 However, the same could not find favor with learned assessing officer who observed that all the above entities were hawala operator entities operated and managed by Pravin Kumar Jain Group which came to light during search & proceedings on the said group. The totality of factual matrix led the learned assessing officer to believe that the assessee failed to prove the identity of the investors, their capacity to invest and the genuineness of the transactions. Finally, citing various judicial pronouncements, the aforesaid transactions were termed as paper transaction and therefore, added to the income of the assessee as unexplained cash credit under section 68.

3.1 Aggrieved, the assessee agitated the same with success before learned first appellate authority vide impugned Order, dated 18-11-2016 wherein, relying upon the decision of Hon’ble Bombay High Court rendered in Vodafone India Services (P) Ltd. (2014) 368 ITR 1 (Bom) : 2014 TaxPub(DT) 3959 (Bom-HC), it was held that share premium was capital in nature and could not be brought to tax unless expressly provided. It was also noted that the amendment made by Finance Act, 2012 to section 56(2)(viib) to treat the excess share premium as income from other sources was applicable only with effect from assessment year 2013-14. Reliance was also placed on the decision of this Tribunal rendered in Green Infra Ltd. (2013) 145 ITD 240 (Mum) : 2014 TaxPub(DT) 0101 (Mum-Trib) for the argument that it was the prerogative of the Board of Directors of a company to decide the premium amount and it was the wisdom of shareholders whether they wanted to subscribe to such a heavy premium or not and revenue authorities could not question the charging of high premium without any bar from any legislated law of the land.

3.2 In the above background, it was noted that the assessee had produced the following documentary evidences during assessment proceedings as well as during appellate proceedings in support of the impugned transactions:–

1. Share Application forms duly signed by each of the four companies

2. Resolution of the Board Authorizing the company to invest in share capital of the appellant company

3. Covering letter of investment in share capital

4. Confirmation of investment by each of the four companies

5. Financial Statements of the investing companies

6. The copies of ITR acknowledgements of the four companies

7. The copies of the bank statement of the four companies

8. The copy of the bank statement of the appellant company

9. The copy of Form No. 2 filed with ROC about allotment of shares and increase in capital

After considering the same, learned Commissioner (Appeals) reached a conclusion that there could be no doubt with regard to identity, genuineness and creditworthiness of the investors since the investors were regularly filing Income Tax Returns, the transactions were through banking channels and the assessee had filed requisite details with Registrar of companies as to allotment of Shares.

3.3 Regarding non-service of notice on one of the entities, it was noted that there was change of address which was provided to learned assessing officer.

However, learned assessing officer did not send any notice at the new address to confirm the transactions. Nevertheless, the assessee had filed similar documents/details with respect to this entity also and therefore, the transactions could not be disbelieved.

3.4 Finally, it was concluded that learned assessing officer heavily proceeded on the basis of statements given by Pravin Kumar Jain without proving that the documents submitted before him were engineered documents and it was the assessee’s own unexplained money which was pumped back in the shape of Share Application Money. Therefore, the stated addition, in the opinion of learned Commissioner (Appeals), could not be sustained.

Aggrieved, the revenue is in further appeal before us.

4. The learned Departmental Representative (DR) relying upon the stand of learned assessing officer, submitted that the assessee could not produce any of the investor to confirm the transactions. Reliance has been placed on the recent decision of Hon’ble Apex Court rendered in PCIT v. NRA Iron & Steel (P) Ltd. (2019) 412 ITR 161 (SC) : 2019 TaxPub(DT) 1628 (SC).

The learned Authorised Representative for assessee (AR), supporting the impugned order, submitted that fulfilment of primary ingredients of section 68 was demonstrated by the assessee with documentary evidences which remain unrebutted by the revenue. The attention was drawn to the fact that learned assessing officer had sufficient power under section 131 to summon any of the investor company and inquire about the same particularly when the assessee has duly discharged the primary onus casted upon him. It was submitted that additions could not be made merely on the basis of conjectures, surmises or doubts relying upon third party statements.

5.1 We have carefully considered the rival submissions and perused relevant material on record. The perusal of basic facts as enumerated by us in the preceding paragraphs would reveal that the assessee had filed plethora of documents as mentioned in para 3.2 to prove the identity of the investor, creditworthiness of the investor and genuineness of the transactions. All the four entities were corporate entities and filing their respective return of income under unique Permanent Account Number.

The financial statements, Annual Reports as well as bank statements of the all the investors was made available to learned assessing officer. Nothing on record suggest that any cash was exchanged/transacted between the assessee and the investor entities. The perusal of bank statements of all the four entities, as placed on record, reveal that there is no immediate cash deposit in the respective bank accounts which has later been transmitted to the assessee in the shape of Share Application Money.

The investments were duly reflected in the financial statements of the investor companies. The factum of investment was confirmed by all the four entities. The three parties responded to notice under section 133(6) and confirmed the transactions whereas new address was provided with respect to the fourth entity. However, no further inquiry has been made by learned assessing officer so as to confirm the transactions.

5.2 The learned Departmental Representative has relied upon the judgment of Hon’ble Apex Court rendered in PCIT v. NRA Iron & Steel (P) Ltd. (2019) 412 ITR 161 (SC) : 2019 TaxPub(DT) 1628 (SC) which we have carefully studied. Upon perusal, we note certain distinguishing features vis-à-vis factual matrix of the present case. Upon perusal of para 3.7 & 3.8 of the said judgment, it is noted that learned assessing officer had issued summons to as many as 19 investor entities but nobody appeared on behalf of the investor companies. The submissions were received through DAK only which created a doubt about the identity of the investor company. Further, learned assessing officer independently got field inquiries conducted at the location of investor companies, the result of which has been tabulated in the said para. Notice was served on few entities but the same were not replied to. In few cases, the notices were returned back. Submissions were received in few cases though DAK wherein the company only provided the mode of investment but no reasons were supplied for paying a huge premium of Rs. 190 per share. Another striking feature was that most of the investors had reflected meagre income during assessment year under dispute. The two companies in Mumbai as well as Guwahati were found to be non-existent. With respect to Kolkata Companies, the response came through DAK only and nobody appeared. Further, the bank statements were not produced in most of the cases to establish the source of funds for making huge investments.

5.3 However, the factual matrix, before us, in the present case is quite different. In the present case, we find that the assessee has duly discharged the initial onus of proving the identity of the investors, creditworthiness of the transactions and genuineness of the transactions.

Notices issued under section 133(6) have been responded to. In such a scenario, the onus to dislodge the assessee’s claim, in our opinion, was shifted back to learned assessing officer and he was duty bound to investigate the case further.

However, the facts on record nowhere establishes that such further inquiries/investigations have subsequently been conducted by learned assessing officer in the present case. For the said proposition, we draw strength from the land mark case of Kale Khan Mohammad Hanif v. CIT (1963) 50 ITR 1 (SC) : 1963 TaxPub(DT) 420 (SC) and Roshan Di Hatti v. CIT (1977) 107 ITR 938 (SC) : 1977 TaxPub(DT) 842 (SC) as already cited in the above decision of Hon’ble Apex Court. Similar is the ratio of Hon’ble Apex Court rendered in CIT v. Orissa Corporation (1986) 159 ITR 78 (SC) : 1986 TaxPub(DT) 1425 (SC). It is trite law that additions could not be made merely on the basis of doubts, conjectures or surmises.

5.4 Upon due consideration of the factual matrix, we find that no infirmity could be found in the impugned order. Therefore, by confirming the same, we dismiss the appeal.

6. In nutshell, the appeal stands dismissed.