ACIT Vs S.P. Singla Construction P. Ltd. (ITAT Delhi)
Income Tax Act, 1961, Section 68
Conclusion: In present facts of the case, the Hon’ble Tribunal dismissed the Revenue appeal under Section 6 of the Income Tax Act and held that that assessee discharged its initial onus to prove the identity of the Investors, their creditworthiness and genuineness of the transaction in the matter and assesse cannot be asked to prove source of the source.
Facts: The assessee submitted return of income on 28.09.2010 declaring income of Rs.25,74,26,310/- which was processed under section 143(1) of the Income Tax Act, 1961. A search & seizure operation under section 132 of the Act was carried out on 10.12.2012 in the case of the assessee, wherein various premises of the assessee were covered. In response to notice under section 153A of the I.T. Act, the assessee submitted the return of income on 10.05.2014 declaring the same income. The A.O. observed that there is a substantial increase in the share capital and introduction of share premium amounting to Rs.15 crores during the year under consideration and accordingly, the assessee was asked to submit the details to substantiate the identity of the shareholders, genuineness of the transaction and creditworthiness of the investors so as to discharge the onus and substantiate the share capital and premium thereon, as shown to have been received from 35 persons / Group. During assessment proceedings, assessee provided various details of Investors such as copy of ITR, bank statements and confirmation etc., However, in some cases either confirmation has not been provided or ITR/bank statements not provided.
The A.O. invoked provisions of Section 68 of the Act stating that payments received by the assessee as share capital/premium thereon is mere document and correctness of the same is questionable.
Before CIT(A), it was submitted by the assessee that there is no onus upon assessee to prove source of the source in order to prove creditworthiness of the depositor. They were having sufficient funds in their bank accounts before making investment in assessee company and no cash transaction had taken place in any of the bank accounts of the Investors. Therefore, creditworthiness of the Investors have been proved because of transactions have also been confirmed by the Investors. There is no material available on record to prove or even remotely suggest that share application money received actually emanated from the assessee company. All the transactions are independent and were carried out through normal banking channel and have been confirmed by the Investors. No direct or indirect or substantial evidence have been brought on record to dispute the genuineness of the transaction in the matter. It was also submitted that since all the Investors are assessed to tax and have confirmed transaction with assessee and they have also confirmed nature of the transaction with assessee along with their source, therefore, assessee has proved genuineness of the transaction in the matter also. There is no evidence to prove that Investor is just a conduit to transfer funds. No incriminating material was found during the course of search so as to prove that assessee received any bogus investment on account of share capital/premium. Therefore, Doctrine of Human Probability would not be applicable in the case of the assessee. Accordingly Ld. CIT(A) allowed the appeals of the assessee.
The Revenue appealed before the Hon’ble Tribunal and Hon’ble Tribunal after taking into consideration both the sides, observed that the assessee in respect of these investors filed their confirmation, PAN, ITR and bank statements and wherever applicable filed the copies of the balance-sheet of the Investor companies. The A.O. did not doubt the documentary evidences filed by assessee. No Investor was asked to appear before A.O. for recording their statements regarding genuineness of the transaction in the matter. No cash was found to have been deposited in the accounts of the Investors before making investment in assessee company. The A.O. did not make any investigation or enquiry with regard to worth of the Investors, whether they are able to make investment in assessee-company. Merely because low income have been declared in the return of income by the Investor is no ground to reject the explanation of assessee and documentary evidences, particularly when no enquiry or investigation have been made with regard to worth of the Investor companies. Merely because credits were appearing in the bank accounts of the Investors through banking channel before making investment in assessee company is no ground to discard the explanation of assessee. No incriminating was found during the course of search related to receipt of share capital /premium so as to show if assessee received any bogus share capital or premium in the matter. There were sufficient funds available in the bank accounts of the Investors to make investment in assessee-company. The Investors who are assessed to tax and have filed their return of income and all the transactions are carried-out through banking channel. It is well settled Law that A.O. cannot ask the assessee to prove source of the source.
Further, it was observed that initial onus upon the assessee to prove identity of the Investors, their creditworthiness and genuineness of the transaction have been discharged by the assessee. The A.O. has, however, did not bring any evidence on record to discredit the documentary evidences filed by the assessee to invoke Section 68 of the I.T. Act, 1961 or to prove that the share capital/premium money came from the coffers of the assessee. The Ld. CIT(A) considered the issue in detail and found the explanation of assessee to be correct for the purpose of deleting the part addition. The Ld. CIT(A) was, therefore, justified in holding that assessee proved identity of the remaining Investors, their creditworthiness and genuineness of the transaction in the matter. Considering the facts of the case in the light of material evidence on record which is produced before the authorities below, it is clear that assessee produced sufficient documentary evidences before A.O. to prove the ingredients of Section 68 of the I.T. Act. The A.O. however, did not make any further enquiry on the documents filed by the assessee and also did not make any inquiry from the Investors directly or indirectly. The A.O. thus, failed to conduct scrutiny of the documents at assessment stage and merely suspected the transaction between the Investors and the assessee. The A.O. has also not brought any evidence on record that even if the share applicants did not have the means to make the investments, the investments made by them actually emanated from the coffers of the assessee so as to enable it to be treated as undisclosed income of the assessee. Considering the totality of the facts and circumstances of the case, it is clearly proved that assessee discharged its initial onus to prove the identity of the Investors, their creditworthiness and genuineness of the transaction in the matter. It was observed that the Ld. CIT(A), therefore, rightly deleted the part addition in respect of 26 creditors with reference to the present Departmental Appeal. The assessee has been able to prove creditworthiness of the Investors and genuineness of the transaction in the matter relevant to Department Appeal.
Accordingly, the Departmental Appeal fails was dismissed.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by Revenue has been directed against the Order of the Ld. CIT(A)-29, New Delhi, Dated 30.06.2016, for the A.Y. 2010-2011, challenging the Order of the Ld. CIT(A) in deleting the addition of Rs.11,30,50,000/- out of total addition of Rs.15 crores under section 68 of the I.T. Act, 1961.
2. We have heard the Learned Representatives of both the parties through video conferencing and perused the material on record.
3. Brief facts of the case are that assessee submitted return of income on 28.09.2010 declaring income of Rs.25,74,26,310/- which was processed under section 143(1) of the Income Tax Act, 1961. A search & seizure operation under section 132 of the Act was carried out on 10.12.2012 in the case of the assessee, wherein various premises of the assessee were covered. In response to notice under section 153A of the I.T. Act, the assessee submitted the return of income on 10.05.2014 declaring the same income. The assessee company is stated to have been engaged in the business of civil contractor.
3.1. It was observed by the A.O. that there is a substantial increase in the share capital and introduction of share premium amounting to Rs.15 crores during the year under consideration and accordingly, the assessee was asked to submit the details to substantiate the identity of the shareholders, genuineness of the transaction and creditworthiness of the investors so as to discharge the onus and substantiate the share capital and premium thereon, as shown to have been received from 35 persons / Group.
3.2. During assessment proceedings, assessee provided various details of Investors such as copy of ITR, bank statements and confirmation etc., However, in some cases either confirmation has not been provided or ITR/bank statements not provided. The said details have been mentioned in a tabulated form for each of the Investor as incorporated in the body of the assessment order. After examination, the A.O. recorded reasons for rejection of such evidences or material in each case and finding thereof. The main reason for addition as pointed-out in the Order is that the Investors have not disclosed adequate income to justify their credibility to make such investments, the funds were credited in the bank account of such investors immediately before payments to the assessee by cheque towards such share application, there has been consecutive credit and debit entries in the bank statements of the Investors and hence, it was treated by the A.O. as not genuine Investors and conduit to arrange funds. Therefore, the A.O. invoked provisions of Section 68 of the Act stating that payments received by the assessee as share capital/premium thereon is mere document and correctness of the same is questionable. The receipts of funds by the assessee are not normal and against human probabilities. It is also mentioned by the A.O. that “even if legally correct, the whole chain of circumstances is not logically justified”. The A.O. accordingly made addition of Rs.15 crores under section 68 of the I.T. Act, 1961.
3.3. The assessee challenged the addition before the Ld. CIT(A). The detailed written submissions of the assessee is incorporated in the impugned order. The assessee submitted before the Ld. CIT(A) that the reasons putforth by the A.O. for rejecting the evidence and material on record can be summarized as follows :
> The financials/income of the investors does not justify their credibility to make such huge investments;
> Explanation of bank account of investors shows that funds were credited in their accounts immediately before the chegue payment was made to assessee towards share application;
> The consecutive credit & debit entries appearing in the bank statements of the investors clearly indicate that it is not a genuine investor and is just a conduit to transfer funds from one source to other destination;
> The Assessee has failed to prove genuineness of transactions of receipt of funds as share capital/premium as mere documents were submitted of which correctness was questionable;
> The explanation furnished even with documents was not found satisfactory in view of all the reasons discussed at length which prove that receipt of funds by assessee from investors was not normal and against human probabilities;
> Even if legally correct, the whole chain of transactions is not logically justifiable.
> In the case of the Assessee there is enough evidence which shows that the explanation submitted about nature and source of credit is not correct.”
3.4. It was explained in the written submissions that assessee has received Rs.2.50 crores as share capital/ premium from individuals/HUFs who are either closely related to or friends/business associates of the promoters of the assessee company and a sum of Rs.12.50 crores has been received from various companies incorporated under the provisions of Companies Act. The assessee filed complete details before A.O. in response to the query of the A.O. to prove identity of the investors, their creditworthiness and genuineness of the transaction in the matter. Therefore, initial onus upon assessee to prove genuineness of the transaction have been discharged by the assessee. It was submitted that the parties from whom share capital/ premium has been received during the year are either limited companies incorporated under the provisions of Companies Act or Individuals/HUFs. In this regard, confirmations, bank statements, income tax returns and balance-sheets wherever applicable were duly filed before A.O, copies of the same were also filed before Ld. CIT(A). It was submitted that in so far as depositors/investor companies are concerned no doubt can exist or even arise with respect to their identity since they are incorporated under Companies Act. Thus, their existence and identity have been proved by furnishing their Certification of Incorporation issued by Registrar of Companies. In case of Individual/HUFs Investors complete details were filed along with their names, addresses and PAN, therefore, their identity have been established. As regards determination of the creditworthiness of the Investors, the A.O. laid stress on the fact that there were no credit balances in the accounts of the Investors and only cheques were credited before issue of the cheque to the assessee company. It was submitted that there is no onus upon assessee to prove source of the source in order to prove creditworthiness of the depositor. They were having sufficient funds in their bank accounts before making investment in assessee company and no cash transaction had taken place in any of the bank accounts of the Investors. Therefore, creditworthiness of the Investors have been proved because of transactions have also been confirmed by the Investors. There is no material available on record to prove or even remotely suggest that share application money received actually emanated from the assessee company. All the transactions are independent and were carried out through normal banking channel and have been confirmed by the Investors. No direct or indirect or substantial evidence have been brought on record to dispute the genuineness of the transaction in the matter. It was also submitted that since all the Investors are assessed to tax and have confirmed transaction with assessee and they have also confirmed nature of the transaction with assessee along with their source, therefore, assessee has proved genuineness of the transaction in the matter also. There is no evidence to prove that Investor is just a conduit to transfer funds. No incriminating material was found during the course of search so as to prove that assessee received any bogus investment on account of share capital/premium. Therefore, Doctrine of Human Probability would not be applicable in the case of the assessee. In support of his contention, assessee relied upon Judgment of the Hon’ble Delhi High Court in the case of Pr. CIT vs., Kurele Paper Mills Pvt. Ltd., 380 ITR 571 (Del.) in which it was held that when no incriminating material or evidence related to share capital issue was found during the course of search, A.O. was not justified in invoking Section 68 of the I.T. Act. The assessee also relied upon Judgment of the Hon’ble Supreme Court in the case of CIT vs., Orissa Corporation Pvt. Ltd., 159 ITR 78 (SC), Judgment of Hon’ble Gujarat High Court in the case of CIT vs., Rohini Builders 256 ITR 360 (Guj.), Judgment of Hon’ble Gauhati High Court in the case of Nemichand Kothari vs., CIT 264 ITR 254 (Gau.), Judgments of Hon’ble Delhi High Court in the case of CIT vs., Sivadhooti Pearls Investment Ltd., 237 Taxman 104 (Del.) and MOD Creations Pvt. Ltd., vs., ITO 354 ITR 282 (Del.). The assessee also relied upon several decisions including Judgment of Hon’ble Supreme Court in the case of CIT vs., Lovely Exports Pvt. Ltd., 216 CTR 195 (SC) in support of the contention that assessee received genuine share capital/ premium.
3.5. The Ld. CIT(A) considering the explanation of assessee and material on record confirmed the addition of Rs.3,69,50,000/- in respect of 09 Investors, however, balance of the addition in a sum of Rs.11,30,50,000/- was deleted for remaining 26 Investors. The findings of the Ld. CIT(A) in paras 8.1 to 8.8 of the impugned order is reproduced as under :
8.1 A perusal of the submissions reveals that_p_a_yments have beeniven by the investors through banking channels. It is also seen that no cash introduction in the accounts of such share holders has been made. Confirmation has been provided in various cases alongwith the copy of ITR for the relevant assessment years. It is also observed that sufficient funds were available in the accounts of such investors on the date of application for share capital in the appellant company.
8.2 It is also seen that no further investigation has been made by the AO to prove conclusively by gathering evidence that these investors are conduit and the money received in the form of share capital is nothing but the unexplained income of the appellant. In his order, the AO himself has accepted that the documents submitted by the appellant are in order in most of the cases and only the correctness of these documents are questionable. However, it was not brought out that how these documents are not correct or their existence is questionable, when the ITR, PAN, bank account etc. has been provided in most of the cases except few cases to show the genuineness of transaction. The total income shown in the return of income in the case of various investors, being less than the investments made does not prove conclusively that they do not have capacity to invest, especially when payment has been made through account payee cheque and sufficient funds were available in the bank account of such investors, on the date of investment and their source is not found dubious. Credit of funds in the bank account of investor, just before the payments does not prove transaction to be non genuine because the source of fund has been recorded in the bank account and no cash is found to have been deposited and nothing in this regard has been brought out by the AO. The AO has also mentioned that “even if legally correct, the whole chain of transactions is not logically justified”, while making such addition. This clearly implies that the receipt of share application in the hands of appellant is considered by the AO as legally correct. Though he has stated that these transactions are not logically M/s S.P. Singla Construction Pvt. Ltd. Appeal No. 164/15-16/CIT(A)-29 A.Y.2010-11 justifiable, however no such instance or fact brought on record to substantiate that how these receipts are not logically justifiable.
8.3 It is also seen that a search has taken place in the premises of appellant and no such evidence has been found during search to indicate any generation of unexplained income for the year under consideration.
8.4 It is a set law that the appellant has to prove the identity, creditworthiness of depositor and genuineness of transaction by providing details such as PAN, income tax returns, bank account to show the source of funds, confirmation from the depositors and reflection of same in the books of accounts etc. It is observed that in present case the appellant has provided such details, however in some of the cases either no details provided or only part details provided.
8.5 Out of total 35 number of investors/ group as reproduced earlier, in the following cases, income tax return, copy of bank account or confirmation/PAN of investor has not been submitted by the appellant before AO to prove the identity, creditworthiness and genuineness of transactions.
