{"id":21534,"date":"2020-02-05T14:25:38","date_gmt":"2020-02-05T08:55:38","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=21534"},"modified":"2020-02-05T14:25:38","modified_gmt":"2020-02-05T08:55:38","slug":"pcit-vs-ami-industries-india-p-ltd-bombay-high-court-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","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/pcit-vs-ami-industries-india-p-ltd-bombay-high-court-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\/","title":{"rendered":"PCIT vs. Ami Industries (India) P Ltd (Bombay High Court)"},"content":{"rendered":"

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
\nO.O.C.J.
\nINCOME TAX APPEAL NO. 1231 OF 2017
\nPr. Commissioner of Income Tax -1 .. Appellant
\nVersus
\nM\/s. Ami Industries (India) P Ltd .. Respondent
\n……………….
\n\uf0b7 Mr. Suresh Kumar a\/w Ms. Sumandevi Yadav & Ms. Priyanka
\nTiwari for the Appellant
\n\uf0b7 Mr. Riyaz Padvekar a\/w Mr. Tanzil Padvekar for the Respondent
\n……………….
\nCORAM : UJJAL BHUYAN &
\nMILIND N. JADHAV, JJ.
\nDATE : JANUARY 29, 2020.
\nP.C.:
\n1. Heard Mr. Suresh Kumar, learned standing
\ncounsel, revenue for the appellant and Mr. Padvekar, learned
\ncounsel for the respondent – assessee.
\n2. This appeal under Section 260A of the Income Tax
\nAct, 1961 (“the Act” for short) is preferred by the revenue
\nagainst the order dated 26.8.2016 passed by the Income Tax
\nAppellate Tribunal, Mumbai “A” Bench, Mumbai (“Tribunal”
\nfor short) in Income Tax Appeal No. 5181\/Mum\/2014 for the
\nassessment year 2010-11.
\n1 of 15
\n7. os itxa 1231-17.doc
\n3. The appeal has been preferred on the following
\nthree questions stated to be substantial questions of law:-
\n(i) Whether on the facts and circumstances of the case and in
\nlaw, the Tribunal was justified in directing the deletion of sum
\nbrought to tax by the Assessing Officer as unexplained income
\nunder Section 68 of the Act in respect of moneys credited in
\nthe books as share application money of Rs. 34,00,00,000\/-?
\n(ii) Whether on the facts and circumstances of the case and in
\nlaw, the Tribunal was justified in holding that the assessee
\nproved identity, credit worthiness and genuineness of moneys
\ncredited in the books as share application money of Rs.
\n34,00,00,000\/- just by submitting PAN, acknowledgment of
\nincome tax returns filed and bank statements?
\n(iii) Whether on the facts and circumstances of the case and in
\nlaw, the Tribunal was justified in deleting the addition of
\nRs.34,00,00,000\/- ignoring the facts brought out by the
\nAssessing Officer that return of the investing company shows
\nno credit worthiness and that investing company merely
\ntransferred share application money received from other
\nparties to assessee company?
\n4. From the above, it is evident that the issue
\ninvolved in this appeal is the addition of share application
\nmoney by the Assessing Officer to the income of the
\nassessee under Section 68 of the Act which additions have
\nbeen deleted by the first appellate authority and confirmed
\nby the Tribunal.
\n2 of 15
\n7. os itxa 1231-17.doc
\n5. In the assessment proceedings, Assessing Officer
\nnoted that assessee had disclosed funds from three Kolkata
\nbased companies as share application money. The details
\nwere as under:-
\nParasmani Merchandise Pvt Ltd Rs. 13.50 Crores
\nRatanmani Vanijya Pvt Ltd Rs. 2.00 Crores
\nRosberry Merchants Pvt Ltd Rs. 18.50 Crores
\n———————–
\nTotal Rs. 34.00 Crores
\n=============
\n5.1. Assessing Officer issued notice to the assessee on
\nthe ground that whereabouts of the above companies were
\ndoubtful and their identity could not be authenticated. Thus,
\ngenuineness of the companies’ became questionable.
\nAssessing Officer accordingly proposed to treat the share
\napplication money as unexplained cash credit in the hands of
\nthe assessee under Section 68 of the Act and issued notice
\nto the assessee.
\n6. After considering the reply submitted by the
\nassessee, Assessing Officer vide the assessment order dated
\n28.3.2013 passed under Section 143(3) of the Act treated
\nthe aforesaid amount of Rs. 34 crores as money from
\nunexplained sources and added the same to the income of
\n3 of 15
\n7. os itxa 1231-17.doc
\nthe assessee as unexplained cash credit under Section 68 of
\nthe Act.
\n7. Aggrieved by the aforesaid order, assessee
\npreferred appeal before the Commissioner of Income Tax
\n(Appeals)-1, Mumbai i.e the first appellate authority. In the
\nappeal proceedings, the assessee sought leave of the first
\nappellate authority to produce additional evidence which was
\ngranted by the first appellate authority. After hearing the
\nmatter, the first appellate authority vide the order dated
\n18.6.2014 held that assessee had discharged its burden
\nunder Section 68 of the Act by proving the identity of the
\ncreditors; genuineness of the transactions; and credit
\nworthiness of the creditors. Consequently, the first appellate
\nauthority set aside the addition made by the Assessing
\nOfficer.
\n8. In appeal before the Tribunal by the revenue,
\nTribunal vide the order dated 26.8.2016 confirmed the order
\npassed by the first appellate authority by holding that no
\naddition could be made under Section 68 of the Act and that
\n4 of 15
\n7. os itxa 1231-17.doc
\nfactual findings of the first appellate authority required no
\ninterference.
\n9. It is against this order of the Tribunal that revenue
\nis in appeal before us.
\n10. Mr. Suresh Kumar, learned standing counsel,
\nrevenue has taken us through the assessment order and
\nsubmits therefrom that it cannot be said that assessee had
\ndischarged the burden to prove credit worthiness of the
\ncreditors. His further contention is that the assessee is also
\nrequired to prove the source of the source. In this
\nconnection, he has placed reliance on a decision of the
\nSupreme Court in Pr. CIT Vs. NRA Iron & Steel Pvt Ltd<\/a>1.
\nHe, therefore, submits that the finding returned by the
\nTribunal is wholly erroneous and requires to be interfered
\nwith by this Court.
\n11. Per contra, Mr. Padvekar, learned counsel for the
\nrespondent submits that from the facts and circumstances of
\nthe case, it is quite evident that assessee had discharged its
\n1 (2019) 103 taxmann.com 48
\n5 of 15
\n7. os itxa 1231-17.doc
\nburden to prove identity of the creditors, genuineness of the
\ntransactions and credit worthiness of the creditors. He
\nsubmits that the legal position is very clear in as much as
\nassessee is only required to explain the source and not
\nsource of the source. Decision of the Supreme Court in NRA
\nIron & Steel P Ltd (supra) is not the case law for the aforesaid
\nproposition. In fact, the said decision nowhere states that
\nassessee is required to prove source of the source.
\n11.1. Referring to the orders passed by the authorities
\nbelow, Mr. Padvekar submits that in the present case, the
\ninvestigation wing of the department had carried out
\ndetailed investigation at Kolkata and found the source of the
\ncredit to be genuine. This report of the investigation wing
\nwas not taken into consideration by the Assessing Officer.
\nTherefore, lower appellate authorities were justified in
\ndeleting the additions made by the Assessing Officer. Being
\na finding of fact, no substantial question of law arises in the
\nappeal. Therefore, the appeal should be dismissed.
\n6 of 15
\n7. os itxa 1231-17.doc
\n12. Submissions made by learned counsel for the
\nparties have been considered. Also perused the materials on
\nrecord.
\n13. Section 68 of the Act deals with cash credits. As
\nper Section 68, where any sum is found credited in the books
\nof an assessee maintained for any previous year, and the
\nassessee offers no explanation about the nature and source
\nthereof or the explanation offered by him is not, in the
\nopinion of the Assessing Officer, satisfactory, the sum so
\ncredited may be charged to income tax as the income of the
\nassessee of that previous year. Simply put, the section
\nprovides that if there is any cash credit disclosed by the
\nassessee in his return of income for the previous year under
\nconsideration and the assessee offers no explanation for the
\nsame or if the assessee offers explanation which the
\nAssessing Officer finds to be not satisfactory, then the said
\namount is to be added to the income of the assessee to be
\ncharged to income tax for the corresponding assessment
\nyear.
\n7 of 15
\n7. os itxa 1231-17.doc
\n14. Section 68 of the Act has received considerable
\njudicial attention through various pronouncements of the
\nCourts. It is now well settled that under Section 68 of the
\nAct, the assessee is required to prove identity of the creditor;
\ngenuineness of the transaction; and credit worthiness of the
\ncreditor. In fact, in NRA Iron & Steel (P) Ltd (supra), Supreme
\nCourt surveyed the relevant judgments and culled out the
\nfollowing principles:-
\n“11. The principles which emerge where sums of money are
\ncredited as Share Capital\/Premium are :
\ni. The assessee is under a legal obligation to prove
\nthe genuineness of the transaction, the identity of
\nthe creditors, and credit-worthiness of the
\ninvestors who should have the financial capacity
\nto make the investment in question, to the
\nsatisfaction of the AO, so as to discharge the
\nprimary onus.
\nii. The Assessing Officer is duty bound to
\ninvestigate the credit-worthiness of the creditor \/
\nsubscriber, verify the identity of the subscribers,
\nand ascertain whether the transaction is genuine,
\nor these are bogus entries of name-lenders.
\niii. If the inquiries and investigations reveal that the
\nidentity of the creditors to be dubious or doubtful,
\nor lack credit-worthiness, then the genuineness
\nof the transaction would not be established.
\nIn such a case, the assessee would not have discharged the
\n8 of 15
\n7. os itxa 1231-17.doc
\nprimary onus contemplated by Section 68 of the Act.”
\n15. It is also a settled proposition that assessee is not
\nrequired to prove source of source. In fact, this position has
\nbeen clarified by us in the recent decision in Gaurav Triyugi
\nSingh Vs. Income Tax Officer-24(3)(1)2
\n16. Having noted the above, we may now advert to
\nthe orders passed by the authorities below.
\n17. In so far order passed by the Assessing Officer is
\nconcerned, he came to the conclusion that the three
\ncompanies who provided share application money to the
\nassessee were mere entities on paper without proper
\naddresses. The three companies had no funds of their own
\nand that the companies had not responded to the letters
\nwritten to them which could have established their credit
\nworthiness. In that view of the matter, Assessing Officer took
\nthe view that funds aggregating Rs. 34 Crores introduced in
\nthe return of income in the garb of share application money
\nwas money from unexplained source and added the same to
\nthe income of the assessee as unexplained cash credit under
\n2 Income Tax Appeal No. 1750 of 2017 decided on 22.1.2020
\n9 of 15
\n7. os itxa 1231-17.doc
\nSection 68 of the Act.
\n18. In the first appellate proceedings, it was held that
\nassessee had produced sufficient evidence in support of
\nproof of identity of the creditors and confirmation of
\ntransactions by many documents, such as, share application
\nform etc. First appellate authority also noted that there was
\nno requirement under Section 68 of the Act to explain source
\nof source. It was not necessary that share application money
\nshould be invested out of taxable income only. It may be
\nbrought out of borrowed funds. It was further held that nonresponding
\nto notice would not ipso facto mean that the
\ncreditors had no credit worthiness. In such circumstances,
\nthe first appellate authority held that where all material
\nevidence in support of explanation of credits in terms of
\nidentity, genuineness of the transaction and creditworthiness
\nof the creditors were available, without any
\ninfirmity in such evidence and the explanation required
\nunder Section 68 of the Act having been discharged,
\nAssessing Officer was not justified in making the additions.
\nTherefore, the additions were deleted.
\n10 of 15
\n7. os itxa 1231-17.doc
\n19. In appeal, Tribunal noted that before the Assessing
\nOfficer, assessee had submitted the following documents of
\nthe three creditors:-
\na) PAN number of the companies;
\nb) Copies of Income Tax return filed by these three companies
\nfor assessment year 2010-11;
\nc) Confirmation Letter in respect of share application money
\npaid by them; and
\nd) Copy of Bank Statement through which cheques were issued.
\n20. Tribunal noted that Assessing Officer had referred
\nthe matter to the investigation wing of the department at
\nKolkata for making inquiries into the three creditors from
\nwhom share application money was received. Though report
\nfrom the investigation wing was received, Tribunal noted that
\nthe same was not considered by the Assessing Officer
\ndespite mentioning of the same in the assessment order,
\nbesides not providing a copy of the same to the assessee. In
\nthe report by the investigation wing, it was mentioned that
\nthe companies were in existence and had filed income tax
\nreturns for the previous year under consideration but the
\nAssessing Officer recorded that these creditors had very
\nmeager income as disclosed in their returns of income and
\ntherefore, doubted credit worthiness of the three creditors.
\nFinally, Tribunal held as under:-
\n11 of 15
\n7. os itxa 1231-17.doc
\n“5.7 As per the provisions of Section 68 of the Act, for any cash
\ncredit appearing in the books of assessee, the assessee is required
\nto prove the following-
\n(a) Identity of the creditor
\n(b) Genuineness of the transaction
\n(c) Credit-worthiness of the party
\n(i) In this case, the assessee has already proved the identity of
\nthe share applicant by furnishing their PAN, copy of IT return filed for
\nasst. year 2010-11.
\n(ii) Regarding the genuineness of the transaction, assessee has
\nalready filed the copy of the bank account of these three share
\napplicants from which the share application money was paid and the
\ncopy of account of the assessee in which the said amount was
\ndeposited, which was received by RTGS.
\n(iii) Regarding credit-worthiness of the party, it has been proved
\nfrom the bank account of these three companies that they had the
\nfunds to make payment for share application money and copy of
\nresolution passed in the meeting of their Board of Directors.
\n(iv) Regarding source of the source, Assessing Officer has already
\nmade enquiries through the DDI (Investigation), Kolkata and
\ncollected all the materials required which proved the source of the
\nsource, though as per settled legal position on this issue, assessee
\nneed not to prove the source of the source.
\n(v) Assessing Officer has not brought any cogent material or
\nevidence on record to indicate that the shareholders were
\nbenamidars or fictitious persons or that any part of the share capital
\nrepresent company\u2019s own income from undisclosed sources.
\n12 of 15
\n7. os itxa 1231-17.doc
\nAccordingly, no addition can be made u\/s.68 of the Act. In view of
\nabove reasoned factual finding of CIT(A) needs no interference from
\nour side. We uphold the same.”
\n21. From the above, it is seen that identity of the
\ncreditors were not in doubt. Assessee had furnished PAN,
\ncopies of the income tax returns of the creditors as well as
\ncopy of bank accounts of the three creditors in which the
\nshare application money was deposited in order to prove
\ngenuineness of the transactions. In so far credit worthiness
\nof the creditors were concerned, Tribunal recorded that bank
\naccounts of the creditors showed that the creditors had
\nfunds to make payments for share application money and in
\nthis regard, resolutions were also passed by the Board of
\nDirectors of the three creditors. Though, assessee was not
\nrequired to prove source of the source, nonetheless, Tribunal
\ntook the view that Assessing Officer had made inquiries
\nthrough the investigation wing of the department at Kolkata
\nand collected all the materials which proved source of the
\nsource.
\n22. In NRA Iron & Steel (P) Ltd (supra), the Assessing
\nOfficer had made independent and detailed inquiry including
\n13 of 15
\n7. os itxa 1231-17.doc
\nsurvey of the investor companies. The field report revealed
\nthat the shareholders were either non-existent or lacked
\ncredit-worthiness. It is in these circumstances, Supreme
\nCourt held that the onus to establish identity of the investor
\ncompanies was not discharged by the assessee. The
\naforesaid decision is, therefore, clearly distinguishable on
\nfacts of the present case.
\n21. Therefore, on a thorough consideration of the
\nmatter, we are of the view that the first appellate authority
\nhad returned a clear finding of fact that assessee had
\ndischarged its onus of proving identity of the creditors,
\ngenuineness of the transactions and credit-worthiness of the
\ncreditors which finding of fact stood affirmed by the Tribunal.
\nThere is, thus, concurrent findings of fact by the two lower
\nappellate authorities. Appellant has not been able to show
\nany perversity in the aforesaid findings of fact by the
\nauthorities below.
\n22. Under these circumstances, we find no error or
\ninfirmity in the view taken by the Tribunal. No question of
\n14 of 15
\n7. os itxa 1231-17.doc
\nlaw, much less any substantial question of law, arises from
\nthe order of the Tribunal. Consequently, the appeal is
\ndismissed. However, there shall be no order as to cost.
\n[ MILIND N. JADHAV, J. ] [ UJJAL BHUYAN, J. ]
\n15 of 15<\/p>\n","protected":false},"excerpt":{"rendered":"

In NRA Iron & Steel (P) Ltd (supra), the Assessing Officer had made independent and detailed inquiry including 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<\/p>\n

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