Arceli Realty Limited vs. ITO (ITAT Mumbai)

(a) The Full Bench of Hon’ble Delhi High Court in case of Sophia Finance Ltd. (1993) 113 CTR (Del)(FB) 472 : (1994) 205 ITR 98 (Del)(FB) made an elaborate discussion which still holds good and the provisions of s. 68 are applicable to the credits in respect of share application money/share capital. All that is required to be done is that the assessee is required to prove the existence of the shareholders because as held by the Hon’ble Delhi High Court, if the shareholders exists then, possibly no further enquiry needs to be made. In the present appeal, existence of the shareholders, of course not in doubt. However, the assessee is required to place the primary evidence and discharge the primary burden, for which reliance can be placed upon the decision in CIT vs. Divine Leasing & Financing Ltd. (2007) 207 CTR (Del) 38 : (2007) 158 Taxman 440 (Del) wherein their Lordships have held that a distillation of the precedents yields following propositions of law in the context of s. 68. The assessee has to prima facie prove –

(i) the identity of the creditor/subscriber

(ii) the genuineness of the transaction, viz, whether it has been transmitted through banking or other indisputable channels

(iii) the creditworthiness or financial strength of the creditor/ subscriber

(iv) if relevant details of address or PAN Identity are furnished to the Department along with the copies of shareholder register, share application form, share transfer register etc, it would constitute acceptable proof or acceptable explanation by assessee.

(b) Further,

(i) the Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglect to respond the notices

(ii) the onus would not stand discharge if the creditor/subscriber denies or repudiate the transaction set up by assessee nor should the AO take such repudiation on face value and construe it , without more evidence against the assessee

(iii) the AO is duty bound to investigate the creditworthiness of the creditor/subscriber, the genuineness of the transaction and veracity of the repudiation.

(c) In that case, their Lordships upheld the order of Tribunal holding that the AO had not brought any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company’s own income from undisclosed sources.

(d) In CIT vs. Dwarkadhish Investment (P) Ltd. (2008) 2 DTR (Del) 7 : 167 Taxman 321 (Del) CIT vs. Dwarkadhish Financial Services (2005) 197 CTR (Del) 202 : (2005) 148 Taxman 54 (Del) wherein, it was held that in view of the evidence to establish that identity of shareholders such as affidavits, copies of the share application forms, confirmation from applicant companies copies of board resolution, details of cheque numbers, branch and address of the branch through which the investments are made along with the fact that shareholders are tax payers, it was held that it could not be presumed that the shareholders, who are assessed to tax, are not in existence.

(e) In CIT vs. Gangour Investment Ltd. (2009) 18 DTR (Del) 242 : (2009) 179 Taxman 1 (Del) wherein the High Court held that the assessee had filed subscription form for each of investors. The said subscription Form contained details, which set out not only the identity of subscriber, but also gave information with respect to their addresses as well as PANs. During scrutiny Assessing Officer had also asked for and was supplied with a copy of statement of bank account of the subscriber. The payments were made by cheques. In view of this the Hon’ble Court held that no addition could be made under s. 68 because assessee has discharged the onus in respect of veracity of the transactions.

(f) CIT vs. K.C. Fibers Ltd. (2010) 187 Taxman 53 (Del) wherein it is held that no material is brought by AO to hold that shareholders companies are umbrella company or have any relation with each other and the amount cannot be regarded as undisclosed income of the recipient assessee company. It also held that it is not for the assessee company to probe as to the source. It was for Assessing Officer to enquire into the affairs of the investor company. Their Lordships have applied the ratio of the decision in case of Lovely Exports (P) Ltd. (supra). CIT vs. Dolphine Canpack Ltd. (2006) 204 CTR (Del) 50 : (2006) 283 ITR 190 (Del)—share application money – Tribunal while observing details including confirmation details of bank account, PAN of subscriber and that payments made by cheque – justified in deleting addition under s. 68.

(g) Although the Lordships applied decision in Sophia Finance Ltd. (supra) they came to the conclusion that the scope is limited to examining the existence of shareholders and since the assessee has furnished sufficient material to discharge the onus, deletion of addition was correct. CIT vs Down Town Hospitals (P) Ltd. (2004) 267 ITR 439 (Gau) held that the assessee filed details regarding source of funds of the party and their Income-tax File Numbers etc – no addition under s. 68 is permissible where shareholders are identified and it is established that they had invested the money in purchase of shares. (pp. 127 to 131 of judgment compilation). CIT vs. ILLAC Investment (P) Ltd (2007) 207 CTR (Del) 687 : (2006) 287 ITR 135 (Del) held that assessee satisfactorily established identity of shareholders, the addition under s. 68 rightly deleted – no substantial question of law arises (pp. 146 and 147 of judgment compilation). Dy. CIT vs. Rohini Builders (2003) 182 CTR (Guj) 373 : (2002) 256 ITR 360 (Guj)—assessee furnished addresses of all creditors along with GIR No/PAN as well as confirmations along with copies of assessment orders in case of individual creditors wherever available and copies of returns filed by creditors in other cases. All loans received and repaid by account payee cheques rightly deleted. (pp. No. 116 and 117 of judgment compilation)

(h) CIT vs. Shri Barkha Synthetics Ltd. (2003) 182 CTR (Raj) 175 : (2004) 270 ITR 477 (Raj)— assessee discharged its initial burden in respect of six out of seven companies but revenue failed to discharge its burden as it did not hold any enquiry into genuineness, addition rightly deleted. (pp. No. 107 to 115 of judgment compilation) Barkha Synthetic Ltd. vs Asstt. CIT (2005) 197 CTR (Raj) 432 : (2006) 283 ITR 377 (Raj) the principle relating to burden of proof concerning the assessee is that where the matter concerns the money receipts by way of share application from investors through banking channels, the assessee has to prove the existence of the person in whose name share application is received. Once the existence of the investor is proved, it is no further burden of the assessee to prove whether that person himself invested the money or some other person made investment in the name of that person. The burden then shifts to the Revenue to establish that such investment has come from assessee company itself. [decision in case of CIT vs. shri Barkha Synthetics Ltd. (supra) followed].

(i) Without prejudice to above contention based on Lovely Export’s case (supra), an analysis of all the above judgments thus goes to show that even if the principle laid down by the Hon’ble Delhi High Court in Sophia’s case (supra) is held as applicable even then the assessee’s burden is restricted to establishing the existence of shareholders and once that is established. Since the assessee has submitted various documents, clearly indicates that the primary burden which lay upon the assessee, has been discharged. Even otherwise, we are expected to follow the decision of the higher Forums for which reliance can be placed upon the following decisions: i. Kamalakshi Finance Corporation Ltd. 55 ELT 433 ii. Agrawal Warehousing & Leasing Ltd. vs. CIT (2002) 177 CTR (MP) 15 : (2002) 257 ITR 235 (MP) iii. Asstt. CCE vs. Dunlop India Ltd. & Ors. (1985) 154 ITR 172 (SC)

(j) It is also noted that Hon’ble jurisdictional High Court in the case of CIT vs M/s Gangandeep Infrastructure Pvt. Ltd. (ITA No.1613 of 2014) (Bom.) on identical fact decided the issue in favour of the assessee.

(k) In another case, Hon’ble jurisdictional High Court in CIT vs Creative World Telefilms Ltd. (2011) 333 ITR 100 (Bom.) duly considered the decision in the case of Lovely Export Pvt. Ltd. (Supra) and it was found that the assessee had given the details like name and addresses of share holders, their PAN/GIR No., Cheque No., Name of the Bank, and thus the order of the Tribunal was upheld. Identically, in Vitrag Metals pvt. Ltd. vs Income Tax Officer (2016) 46 ITR (Trib.) 201 (Mum.) decided the issue in favour of the assessee.

(l) It is well established principle of law that once the transaction has taken place through banking channels, the genuineness of transaction cannot be disputed, as the assessee is not required to prove source of a source. We are adding here that it is always not sacrosanct because the assessee has to satisfy the ingredients of section 68 of the Act. However, the facts clearly indicates that the assessee has discharged its primary burden because the identity of the share subscribers, their capacity and genuineness of the transaction is not in doubt. Reliance can be placed upon the ratio laid down in following decisions:-

i. Sarogi Credit Corporation vs CIT 1975 CTR (Pat) 1 : (1976) 103 ITR 344 (Pat).
ii. Addl. CIT vs. Bahari Brothers (P) Ltd. (1984) 42 CTR (Pat) 66 : (1985) 154 ITR 244 (Pat).
iii. Ashok Lal Daga vs CIT (1996) 136 CTR (MP) 235 : (1996) 220 ITR 452 (MP).
iv. CIT vs Real Time Marketing (P) Ltd. (2008) 10 DTR (Del) 191 : (2009) 221 CTR (Del) 716 : (2008) 306 ITR 35 (Del).
v. CIT vs. Metachem Industries (2000) 161 CTR (MP) 444 : (2000) 245 ITR 160 (MP).
vi. Nemichand Kothari vs. CIT & Anr. (2003) 185 CTR (Gau) 635 : (2003) 264 ITR 254 (Gau).
vii. P.K. Sethi vs. CIT (2006) 206 CTR (Gau) 445 : (2006) 286 ITR 318 (Gau).
viii. CIT vs. Barjatiya Children Trust (1997) 225 ITR 640 (MP). ix. CIT vs Laul Transport Corporation (2009) 180 Taxman 185 (P&H). x. Aravalii Trading Co. vs. ITO (2008) 8 DTR (Raj) 199 : (2010) 187 Taxman 338 (Raj).

(m) The ld. counsel for the assessee, before us, claimed that the Assessing Officer has made no efforts and no independent enquiry was made by him and merely made the addition on the basis of alleged information received from the investigation wing. As claimed by the assessee, returns were filed in the office of registrar of companies under the Companies Act, 1956 and the registrar of companies is a statutory authority possessing details of companies.

(n) We are also expected to analyze the arguments advanced by learned CIT Departmental Representative wherein, reliance was placed upon the decision in Kale Khan Mohd. Hanif vs. CIT (1963) 50 ITR 1 (SC). He contended that the source of money remained unexplained. Reliance was placed upon the decision of Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124 : (1995) 214 ITR 801 (SC). A plea was also raised that the onus/burden still remained fastened to the assessee. We find that there are following decisions, which are in favour of the Revenue but based upon the facts of each case. i. CIT vs. Nivendan Vanijya Niyojay Ltd. (2003) 182 CTR (Cal) 605 ii. Hindustan Tea Trading Co. vs. CIT (2003) 182 CTR (Cal) 585. iii. CIT vs. Rathi Finlease Ltd. (2008) 215 CTR (MP) 429 : (2008) 2 DTR (MP) 31 iv. CIT vs. Precision Finance (P) Ltd. (1994) 121 CTR (Cal) 20 : (1994) 208 ITR 465 (Cal) v. Stellar Investment Ltd. (2000) 164 CTR (SC) 287 : (2001) 251 ITR 263 (SC).

(o) We are aware that many High Courts have distinguished/analyzed/considered the decision in Lovely Exports (P) Ltd. because it was merely dismissal of SLP.

(p) The ratio laid down in following cases can be placed reliance:-

i. CIT vs. Oasis Hospitalities (P) Ltd. (2011) 238 CTR (Del) 402 : (2011) 51 DTR (Del) 74 : (2011) 333 ITR 119 (Del).

ii. CIT vs. STL Extrusion (P) Ltd. (2011) 53 DTR (MP) 97 : (2011) 333 ITR 269 (MP).

iii. Geoffrey Manners & Co. Ltd. (1996) 136 CTR (Bom) 169 : (1996) 221 ITR 695 (Bom);

iv. Taylor Instrument Co. Ltd. vs. CIT (1999) 153 CTR (Del) 295 : (1998) 232 ITR 771 (Del);

v. CIT vs. Mohanlal Kansal (1978) 114 ITR 583 (P&H);

vi. Jorhant Group Ltd. vs. Asstt. CIT (2007) 289 ITR 422 (Gau)

vii. CIT vs. Vrajlal Manilal & Co. (1980) 19 CTR (MP) 182 : (1981) 127 ITR 512 (MP).

(q) If the totality of facts and the judicial pronouncements, discussed hereinabove, are analyzed, we are of the considered opinion that the onus caste upon the assessee, as provided u/s 68 of the Act, has been duly discharged by the assessee as the identity of the share subscribers, creditworthiness and genuineness of the transaction is not in doubt or it can be said that the same has been proved/explained by the assessee. Now, The onus has reverted back upon the Revenue to prove otherwise. The Ld. Assessing Officer merely relied upon the information received from the investigation wing and did not made any independent enquiry. The Assessing Officer was expected to disprove the claim of the assessee with the help of evidence, if any, received from the investigation wing, as has been claimed by the Revenue. The Revenue has nowhere proved that any malafide is done by the assessee. Failure to do so, vitiate the addition made under the set of facts. Reference can be made to the decision in CIT vs Orissa Corporation Pvt. Ltd. 158 ITR 78 (SC) and the ratio laid down in Khandelwal Construction vs CIT 227 ITR 900(Guw.). The satisfaction has to be derived from the relevant facts and that to on the basis of proper enquiry by the Assessing Officer and such enquiry must be reasonable and just. In the present case, the Assessing Officer has not brought any evidence on record that the amounts received from M/s Alka Diamond Industries Ltd. and M/s Yash-V-Jewels Ltd. are merely accommodation entries. As mentioned earlier, the Ld. Assessing Officer has acted merely on the basis of information received from the Investigation wing. The ratio laid down by Hon’ble Delhi High Court in CIT vs Vrindaban Farms Pvt. Ltd. squarely gives shelter to the assessee, wherein, it was held that if the identity and other details of share applicant are available, the share application money cannot be treated as undisclosed income in the hands of the company. In the present case, the assessee even has proved the source of source, therefore, the creditworthiness was also proved, consequently, no addition made u/s 68 of the Act can be said to be justified. The ratio laid down in Creative World Telefilms Ltd. (supra) by Hon’ble jurisdictional High Court squarely comes to the rescue of the assessee. The assessee duly furnished the proof of identity like PAN, bank account details from the bank, other relevant material, genuineness of the transaction, payment through banking channel and even the source of source, therefore, the assessee has proved the conditions laid down u/s 68 of the Act. It is also noted that in spite of repeated request, the Ld. Assessing Officer did not provide opportunity to cross examine the concerned persons and even the relevant information and allegation, if any, made therein, which has been used against the assessee, was not provided to the assessee. At this stage, we add here that mere information is not enough rather it has to be substantiated with facts. The information may and may not be correct. For fastening the liability upon anybody, the Department has to provide the authenticity of the information to the person against whom such information is used. The principle of natural justice, demands that without confronting the assessee of such evidence, if any, or the information, no addition can be made. Even otherwise, as per Article-265 of the Constitution of India, only legitimate taxes has to be levied and collected. In our humble opinion, the assessee has duly discharged the onus caste upon it, therefore, respectfully following the decisions from Hon’ble Apex Court, Hon’ble High Courts and Hon’ble jurisdictional High Court, we reverse the order of the Ld. Commissioner of Income Tax (Appeal), resultantly, this ground of the assessee is allowed.

(r) The law on non-providing opportunity to cross examine, in spite of repeated request made by the assessee, is concerned is covered by the Hon’ble Apex Court in Andaman Timber Industries vs CCE 281 CTR 241 (SC) and Hon’ble jurisdictional High Court in HR Mehta vs ACIT 387 ITR 561 (Bom.)