PCIT vs. Ami Industries (India) P Ltd (Bombay High Court)

COURT:
CORAM: ,
SECTION(S):
GENRE:
CATCH WORDS: ,
COUNSEL: ,
DATE: January 29, 2020 (Date of pronouncement)
DATE: February 5, 2020 (Date of publication)
AY: 2010-11
FILE: Click here to download the file in pdf format
CITATION:
S. 68 Bogus share capital: The identity of the investors were not in doubt. The assessee had furnished PAN, copies of the income tax returns of the investors as well as copy of the bank accounts in which the share application money was deposited in order to prove genuineness of the transactions. In so far credit worthiness of the creditors were concerned, the bank accounts of the investors showed that they had funds to make payments for share application money. The assessee was not required to prove source of the source. Nonetheless, the inquiries through the investigation wing of the department at Kolkata proved source of the source (PCIT vs. NRA Iron & Steel 412 ITR 161 (SC) distinguished)

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O.O.C.J.
INCOME TAX APPEAL NO. 1231 OF 2017
Pr. Commissioner of Income Tax -1 .. Appellant
Versus
M/s. Ami Industries (India) P Ltd .. Respondent
……………….
 Mr. Suresh Kumar a/w Ms. Sumandevi Yadav & Ms. Priyanka
Tiwari for the Appellant
 Mr. Riyaz Padvekar a/w Mr. Tanzil Padvekar for the Respondent
……………….
CORAM : UJJAL BHUYAN &
MILIND N. JADHAV, JJ.
DATE : JANUARY 29, 2020.
P.C.:
1. Heard Mr. Suresh Kumar, learned standing
counsel, revenue for the appellant and Mr. Padvekar, learned
counsel for the respondent – assessee.
2. This appeal under Section 260A of the Income Tax
Act, 1961 (“the Act” for short) is preferred by the revenue
against the order dated 26.8.2016 passed by the Income Tax
Appellate Tribunal, Mumbai “A” Bench, Mumbai (“Tribunal”
for short) in Income Tax Appeal No. 5181/Mum/2014 for the
assessment year 2010-11.
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3. The appeal has been preferred on the following
three questions stated to be substantial questions of law:-
(i) Whether on the facts and circumstances of the case and in
law, the Tribunal was justified in directing the deletion of sum
brought to tax by the Assessing Officer as unexplained income
under Section 68 of the Act in respect of moneys credited in
the books as share application money of Rs. 34,00,00,000/-?
(ii) Whether on the facts and circumstances of the case and in
law, the Tribunal was justified in holding that the assessee
proved identity, credit worthiness and genuineness of moneys
credited in the books as share application money of Rs.
34,00,00,000/- just by submitting PAN, acknowledgment of
income tax returns filed and bank statements?
(iii) Whether on the facts and circumstances of the case and in
law, the Tribunal was justified in deleting the addition of
Rs.34,00,00,000/- ignoring the facts brought out by the
Assessing Officer that return of the investing company shows
no credit worthiness and that investing company merely
transferred share application money received from other
parties to assessee company?
4. From the above, it is evident that the issue
involved in this appeal is the addition of share application
money by the Assessing Officer to the income of the
assessee under Section 68 of the Act which additions have
been deleted by the first appellate authority and confirmed
by the Tribunal.
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5. In the assessment proceedings, Assessing Officer
noted that assessee had disclosed funds from three Kolkata
based companies as share application money. The details
were as under:-
Parasmani Merchandise Pvt Ltd Rs. 13.50 Crores
Ratanmani Vanijya Pvt Ltd Rs. 2.00 Crores
Rosberry Merchants Pvt Ltd Rs. 18.50 Crores
———————–
Total Rs. 34.00 Crores
=============
5.1. Assessing Officer issued notice to the assessee on
the ground that whereabouts of the above companies were
doubtful and their identity could not be authenticated. Thus,
genuineness of the companies’ became questionable.
Assessing Officer accordingly proposed to treat the share
application money as unexplained cash credit in the hands of
the assessee under Section 68 of the Act and issued notice
to the assessee.
6. After considering the reply submitted by the
assessee, Assessing Officer vide the assessment order dated
28.3.2013 passed under Section 143(3) of the Act treated
the aforesaid amount of Rs. 34 crores as money from
unexplained sources and added the same to the income of
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the assessee as unexplained cash credit under Section 68 of
the Act.
7. Aggrieved by the aforesaid order, assessee
preferred appeal before the Commissioner of Income Tax
(Appeals)-1, Mumbai i.e the first appellate authority. In the
appeal proceedings, the assessee sought leave of the first
appellate authority to produce additional evidence which was
granted by the first appellate authority. After hearing the
matter, the first appellate authority vide the order dated
18.6.2014 held that assessee had discharged its burden
under Section 68 of the Act by proving the identity of the
creditors; genuineness of the transactions; and credit
worthiness of the creditors. Consequently, the first appellate
authority set aside the addition made by the Assessing
Officer.
8. In appeal before the Tribunal by the revenue,
Tribunal vide the order dated 26.8.2016 confirmed the order
passed by the first appellate authority by holding that no
addition could be made under Section 68 of the Act and that
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factual findings of the first appellate authority required no
interference.
9. It is against this order of the Tribunal that revenue
is in appeal before us.
10. Mr. Suresh Kumar, learned standing counsel,
revenue has taken us through the assessment order and
submits therefrom that it cannot be said that assessee had
discharged the burden to prove credit worthiness of the
creditors. His further contention is that the assessee is also
required to prove the source of the source. In this
connection, he has placed reliance on a decision of the
Supreme Court in Pr. CIT Vs. NRA Iron & Steel Pvt Ltd1.
He, therefore, submits that the finding returned by the
Tribunal is wholly erroneous and requires to be interfered
with by this Court.
11. Per contra, Mr. Padvekar, learned counsel for the
respondent submits that from the facts and circumstances of
the case, it is quite evident that assessee had discharged its
1 (2019) 103 taxmann.com 48
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burden to prove identity of the creditors, genuineness of the
transactions and credit worthiness of the creditors. He
submits that the legal position is very clear in as much as
assessee is only required to explain the source and not
source of the source. Decision of the Supreme Court in NRA
Iron & Steel P Ltd (supra) is not the case law for the aforesaid
proposition. In fact, the said decision nowhere states that
assessee is required to prove source of the source.
11.1. Referring to the orders passed by the authorities
below, Mr. Padvekar submits that in the present case, the
investigation wing of the department had carried out
detailed investigation at Kolkata and found the source of the
credit to be genuine. This report of the investigation wing
was not taken into consideration by the Assessing Officer.
Therefore, lower appellate authorities were justified in
deleting the additions made by the Assessing Officer. Being
a finding of fact, no substantial question of law arises in the
appeal. Therefore, the appeal should be dismissed.
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12. Submissions made by learned counsel for the
parties have been considered. Also perused the materials on
record.
13. Section 68 of the Act deals with cash credits. As
per Section 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. Simply put, the section
provides that if there is any cash credit disclosed by the
assessee in his return of income for the previous year under
consideration and the assessee offers no explanation for the
same or if the assessee offers explanation which the
Assessing Officer finds to be not satisfactory, then the said
amount is to be added to the income of the assessee to be
charged to income tax for the corresponding assessment
year.
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14. Section 68 of the Act has received considerable
judicial attention through various pronouncements of the
Courts. It is now well settled that under Section 68 of the
Act, the assessee is required to prove identity of the creditor;
genuineness of the transaction; and credit worthiness of the
creditor. In fact, in NRA Iron & Steel (P) Ltd (supra), Supreme
Court surveyed the relevant judgments and culled out the
following principles:-
“11. The principles which emerge where sums of money are
credited as Share Capital/Premium are :
i. The assessee is under a legal obligation to prove
the genuineness of the transaction, the identity of
the creditors, and credit-worthiness of the
investors who should have the financial capacity
to make the investment in question, to the
satisfaction of the AO, so as to discharge the
primary onus.
ii. The Assessing Officer is duty bound to
investigate the credit-worthiness of the creditor /
subscriber, verify the identity of the subscribers,
and ascertain whether the transaction is genuine,
or these are bogus entries of name-lenders.
iii. If the inquiries and investigations reveal that the
identity of the creditors to be dubious or doubtful,
or lack credit-worthiness, then the genuineness
of the transaction would not be established.
In such a case, the assessee would not have discharged the
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primary onus contemplated by Section 68 of the Act.”
15. It is also a settled proposition that assessee is not
required to prove source of source. In fact, this position has
been clarified by us in the recent decision in Gaurav Triyugi
Singh Vs. Income Tax Officer-24(3)(1)2
16. Having noted the above, we may now advert to
the orders passed by the authorities below.
17. In so far order passed by the Assessing Officer is
concerned, he came to the conclusion that the three
companies who provided share application money to the
assessee were mere entities on paper without proper
addresses. The three companies had no funds of their own
and that the companies had not responded to the letters
written to them which could have established their credit
worthiness. In that view of the matter, Assessing Officer took
the view that funds aggregating Rs. 34 Crores introduced in
the return of income in the garb of share application money
was money from unexplained source and added the same to
the income of the assessee as unexplained cash credit under
2 Income Tax Appeal No. 1750 of 2017 decided on 22.1.2020
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Section 68 of the Act.
18. In the first appellate proceedings, it was held that
assessee had produced sufficient evidence in support of
proof of identity of the creditors and confirmation of
transactions by many documents, such as, share application
form etc. First appellate authority also noted that there was
no requirement under Section 68 of the Act to explain source
of source. It was not necessary that share application money
should be invested out of taxable income only. It may be
brought out of borrowed funds. It was further held that nonresponding
to notice would not ipso facto mean that the
creditors had no credit worthiness. In such circumstances,
the first appellate authority held that where all material
evidence in support of explanation of credits in terms of
identity, genuineness of the transaction and creditworthiness
of the creditors were available, without any
infirmity in such evidence and the explanation required
under Section 68 of the Act having been discharged,
Assessing Officer was not justified in making the additions.
Therefore, the additions were deleted.
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19. In appeal, Tribunal noted that before the Assessing
Officer, assessee had submitted the following documents of
the three creditors:-
a) PAN number of the companies;
b) Copies of Income Tax return filed by these three companies
for assessment year 2010-11;
c) Confirmation Letter in respect of share application money
paid by them; and
d) Copy of Bank Statement through which cheques were issued.
20. Tribunal noted that Assessing Officer had referred
the matter to the investigation wing of the department at
Kolkata for making inquiries into the three creditors from
whom share application money was received. Though report
from the investigation wing was received, Tribunal noted that
the same was not considered by the Assessing Officer
despite mentioning of the same in the assessment order,
besides not providing a copy of the same to the assessee. In
the report by the investigation wing, it was mentioned that
the companies were in existence and had filed income tax
returns for the previous year under consideration but the
Assessing Officer recorded that these creditors had very
meager income as disclosed in their returns of income and
therefore, doubted credit worthiness of the three creditors.
Finally, Tribunal held as under:-
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“5.7 As per the provisions of Section 68 of the Act, for any cash
credit appearing in the books of assessee, the assessee is required
to prove the following-
(a) Identity of the creditor
(b) Genuineness of the transaction
(c) Credit-worthiness of the party
(i) In this case, the assessee has already proved the identity of
the share applicant by furnishing their PAN, copy of IT return filed for
asst. year 2010-11.
(ii) Regarding the genuineness of the transaction, assessee has
already filed the copy of the bank account of these three share
applicants from which the share application money was paid and the
copy of account of the assessee in which the said amount was
deposited, which was received by RTGS.
(iii) Regarding credit-worthiness of the party, it has been proved
from the bank account of these three companies that they had the
funds to make payment for share application money and copy of
resolution passed in the meeting of their Board of Directors.
(iv) Regarding source of the source, Assessing Officer has already
made enquiries through the DDI (Investigation), Kolkata and
collected all the materials required which proved the source of the
source, though as per settled legal position on this issue, assessee
need not to prove the source of the source.
(v) Assessing Officer has not brought any cogent material or
evidence on record to indicate that the shareholders were
benamidars or fictitious persons or that any part of the share capital
represent company’s own income from undisclosed sources.
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Accordingly, no addition can be made u/s.68 of the Act. In view of
above reasoned factual finding of CIT(A) needs no interference from
our side. We uphold the same.”
21. From the above, it is seen that identity of the
creditors were not in doubt. Assessee had furnished PAN,
copies of the income tax returns of the creditors as well as
copy of bank accounts of the three creditors in which the
share application money was deposited in order to prove
genuineness of the transactions. In so far credit worthiness
of the creditors were concerned, Tribunal recorded that bank
accounts of the creditors showed that the creditors had
funds to make payments for share application money and in
this regard, resolutions were also passed by the Board of
Directors of the three creditors. Though, assessee was not
required to prove source of the source, nonetheless, Tribunal
took the view that Assessing Officer had made inquiries
through the investigation wing of the department at Kolkata
and collected all the materials which proved source of the
source.
22. In NRA Iron & Steel (P) Ltd (supra), the Assessing
Officer had made independent and detailed inquiry including
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survey of the investor companies. The field report revealed
that the shareholders were either non-existent or lacked
credit-worthiness. It is in these circumstances, Supreme
Court held that the onus to establish identity of the investor
companies was not discharged by the assessee. The
aforesaid decision is, therefore, clearly distinguishable on
facts of the present case.
21. Therefore, on a thorough consideration of the
matter, we are of the view that the first appellate authority
had returned a clear finding of fact that assessee had
discharged its onus of proving identity of the creditors,
genuineness of the transactions and credit-worthiness of the
creditors which finding of fact stood affirmed by the Tribunal.
There is, thus, concurrent findings of fact by the two lower
appellate authorities. Appellant has not been able to show
any perversity in the aforesaid findings of fact by the
authorities below.
22. Under these circumstances, we find no error or
infirmity in the view taken by the Tribunal. No question of
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law, much less any substantial question of law, arises from
the order of the Tribunal. Consequently, the appeal is
dismissed. However, there shall be no order as to cost.
[ MILIND N. JADHAV, J. ] [ UJJAL BHUYAN, J. ]
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