ACIT Vs M/s. Swiftsol (I) Pvt. Ltd. (ITAT Nagpur)
Conclusion: Addition under section 68 of share application money received by assessee on the reason that summons issued under section 131 to the directors of the investment company for verification returned unserved was unjustified as assessee had substantiated share capital received by it by furnishing relevant details and no onus was cast on the assessee during relevant assessment year to produce the persons or the books from investment companies.
Held: Assessee-company had received share application money with share premium from several corporate entities. AO made addition under section 68 of share application money received by assessee as unexplained credit on the ground that summons issued under section 131 to the directors of the investment company for verification returned unserved. It was held assessee had duly submitted all the necessary details in respect of the share application received which included name, address, company incorporation details, share application details, balance sheets, PAN, bank statements, acknowledgement of income-tax return filed and confirmation from the parties. AO had not found any fault in these submissions, except that he wanted to verify details by asking the assessee to produce the promoter/director of those companies. Assessee had duly discharged its onus and no onus was cast on the assessee to produce the persons or the books from investment companies. The requirements of enquiry and obtaining explanation from the person making the investment had brought into the statute books by amendment to section 68 which was prospective in nature from 01.04.2013. Admittedly, in the present assessment year 2010-11, addition under section 68 was not justified.
FULL TEXT OF THE ITAT JUDGEMENT
These are appeals by the Revenue against the respective orders of the ld. Commissioner of Income Tax (Appeals) for different assessee companies. Since the issues are common and connected and the appeals were heard together these are being consolidated and disposed of together by this order.
2. One common issue raised in ITA No. 32/Nag/2017 and ITA No. 34/Nag/2017 is that the ld. Commissioner of Income Tax (Appeals) erred in deleting the addition of share application money without appreciating that the assessee failed to establish the identity, creditworthiness and genuineness of the transaction.
3. Since the facts are identical, we are referring to facts and figures of ITA No. 32/Nag/2016.
4. In this case, the Assessing Officer noted that on perusal of the balance sheet, it is found that the assessee has received share application money of Rs.1,24,75,000/-. Hence, the Assessing Officer noted that in the assessment proceedings, the assessee was asked to explain about the share premium receipt considering the fact that the assessee company has not done any significant business. The assessee company gave details showing name of the companies who had given the share application money, their address, their PAN number, share application receipt number, number of shares allotted to them and amount appropriated towards share capital and amount appropriated towards share premium. Thereafter, the Assessing Officer referred to some enquires. He mentioned that the assessee has reiterated that the assessee has filed requisite details such as PAN number, income tax acknowledgement, balance sheet of the companies and the assessee claims that it has discharged the onus. The Assessing Officer noted that the summons u/s. 131 to the directors of the investment company for verification were issued but the letter returned unserved. The Assessing Officer observed that the assessee has obtained confirmation from these companies and it appeared that the assessee is deliberately not producing the directors of the company. Thereafter the Assessing Officer referred to the Hon’ble Delhi High Court decision in the case of CIT vs. Globus Securities & Finance Pvt. Ltd. [2014] 41 taxmann.com 465 (Delhi) and concluded that in view of the assessee’s failure to produce the director/principal officer of the investing company, the share application money was added back as unexplained cash credit. The Assessing Officer concluded as under:
In view of considering all the facts described above and in order to establish Identity, Creditworthiness and genuineness of transaction done with the investor companies as well as to verify the details submitted by the assessee, it is necessary to examine the director / principal officer of all seven investor companies. The observation of Hon’ble Delhi High Court in the case of Globus Securities & Finance (P.) Ltd. (Supra) is touchstone test of the analogy to prove the creditworthiness/ genuineness of transactions. The assessee has not discharged the same and the onus is still with the assessee to prove his bonafide. Hence assessee was asked to produce person competent to explain these important share transactions. Assessee was not able to discharge the onus casted on him under the law. In view of the above, the share application money for Rs. 1,24,75,0007-received by assessee is added back to the income of the^assessee treating the same as cash credit appearing in the books of the assessee
5. Upon assessee’s appeal in this regard, the ld. Commissioner of Income Tax (Appeals) noted that the assessee company had submitted that the assessee company did not have any control over the directors of the investment company. He noted that the assessee had submitted the necessary documents in respect of each corporate entity as under:
a) Request for issue of shares.
b) Bank statement
c) PAN card
d) Certificate of incorporation
e) General Board Resoulution for purchase of shares and securities.
f) Acknowledgement of Return of Income Tax Act, 1961
g) Balance sheet & Profit and loss account.
6. The ld. Commissioner of Income Tax (Appeals) also obtained remand report from the Assessing Officer. The ld. Commissioner of Income Tax (Appeals) thereafter noted that in a similar case, the same issue was considered and the decision was allowed in favour of the assessee. He concluded as under:
4.5. I find that in case of Sterlight Fincom Pvt. Ltd the appellant has provided the AO with adequate details establishing identity, creditworthiness and genuineness of transaction of documents pertaining to transfer of share, bank statements, PAN Card details, acknowledgment of return of income etc. has been provided by the appellant to the AO before finalizing of assessment order. The AO neither during the course of original assessment proceedings nor during the course of appellate proceedings has rebutted the assertion made by the appellant in any manner. I also find that the reliance placed by the AO on the decision of Hon’ble Delhi High Court in the case of CIT Vs. Globus Securities and Finance Ltd. is totally misplaced. In the above mentioned case it was two persons who were controlling three companies and who had given their share application money and had admitted to this fact before the Director of Income Tax Act, 1961 tax (Investigation). Thus in case of M/s.Globus Services and Finance Ltd., the concern was engaged in providing accommodation entries through various company controlled by them. However in the case of the appellant, the AO has not been able to provide any evidence as the investigating companies were engaged in providing accommodation entries to various other concern and that the money that has been invested in the appellant company belongs to the appellant himself. The appellant in his submission has also given justification for charging share premium of Rs.90/- per share based on the fact that share application money was to be invested in the shares of other companies. The appellant has also relied on various judicial pronouncements. Accordingly, considering the facts of the case, the judicial pronouncements relied upon by the appellant in the submissions made and the ratio of judgment based on similar facts in case of Gondwana Engineering Pvt.Ltd decided by CIT(A)-2, Nagpur, I am of the opinion that the addition made by the AO is not proper. Considering the totality of facts, I am of considered opinion that the appellant has furnished clear evidence to establish the identity and creditworthiness of creditors and genuineness of transactions. Based on the facts of the case, the addition made by the AO to the tune of Rs.1,24,75,000/- is hereby deleted.
7. Against the above order, the assessee is in appeal before us.
8. We have heard both the ld. Counsel of the assessee and perused the records. Upon careful consideration we note that assessee company in this case has received share application money with share premium from several corporate entities. The assessee has submitted the documentary evidences in connection with the share application money received. These included various details like name, address, company incorporation details, share application details, balance sheets, PAN, bank statements, acknowledgement of income tax return filed and confirmation from the parties. The assessing officer wanted to verify the details submitted by examining the Director/Principal Officer of the investing companies. The Assessing Officer has drawn adverse inference because he noted that assessee has neither produced the concerned parties nor their directors, though he accepted that confirmation from them were duly produced. The ld. Commissioner of Income Tax (Appeals) has given a finding that the assessee has given all the necessary details required to discharge its onus. He has observed that the Assessing Officer neither during the course of original assessment proceedings nor during the course of appellate proceedings has rebutted the submissions of the assessee in any manner. He observed that the Assessing Officer has not been able to provide any evidence that the investing companies were engaged in providing accommodation entries or that the money that has been invested in the assessee company belongs to the assessee itself. Thereafter, referring to the several case laws, the ld. Commissioner of Income Tax (Appeals) deleted the addition.
9. Upon careful consideration, we find that we may gainfully refer to the provisions of section 68 of the Act in this regard under which the addition has been made. The same reads as under:
Cash credits.
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 :
Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless—
(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:
Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.
In this regard it is to be noted that the first proviso was introduced by the Finance Act, 2012, with effect from the assessment year 2013-14.
10. The Hon’ble jurisdictional High Court had occasion to consider the addition of similar share applications u/s. 68 in several case laws.
11. We may gainfully refer to the Hon’ble jurisdictional High Court expositions in this case as under:
1) CIT vs. Gagandeep Infrastructure (P.) Ltd. [2017] 394 ITR 680 had held as under:
(e) We find that the proviso to section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced “for removal of doubts” or that it is “declaratory”. Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation ofSection 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P.) Ltd.(supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee’s income as unexplained cash credit.
f) In the above circumstances and particularly in view of the concurrent finding of fact arrived at by the CIT(A) and the Tribunal, the proposed question of law does not give rise to any substantial question of law. Thus not entertained.
2) CIT vs. Orchid Industries (P.) Ltd. [2017] 397 ITR 136 (Bom) had held as under: “5] ‘ The Assessing Officer added Rs.95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account.
6] The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P.) Ltd. (supra) would be applicable in the facts and circumstances of the present case”
12. In IT Appeal No. 26/2017 and others in the case of Pr. CIT, Nagpur vs. M/s. Apeak Info Tech, Nagpur and others the Hon’ble Bombay High Court Nagpur Bench vide order dated 08.06.2017 has inter alia observed as under:
8(c) In any case, we may point out that the amendment to Section 68 of the Act by the addition of proviso thereto took place with effect from 1st April, 2013. Therefore, it is not applicable for the subject Assessment year 2012-13. So for as the pre-amended Section 68 of the Act is concerned, the same cannot be invoked in this case, as evidence was led by the Respondents- Asessee before the Assessing Officer with regard to identity, capacity of the investor as well as the genuineness of the investment. Therefore, admittedly, the Assessing Officer did not invoke Section 68 of the Act to bring the share premium to tax. Similarly, the CIT(A) an consideration of facts, found that Section 68 of the Act cannot be invoked. In view of the above, it is likely that the Revenue may have taken an informed decision not urge the issue of Section 68 of the Act before the Tribunal.
9(b) It is further pertinent to note that the definition of income as provided under Section 2(24) of the Act at the relevant time did not define as income any consideration received for issue of share in excess of its fair market value. This came into the statute only with effect from 1st April, 2013 and thus, would have, no application to the share premium received by the Respondent – Assessee in the previous year relevant to the assessment year 2012 – 2013. Similarly, the amendment to Section 68 of the Act by addition of proviso was made subsequent to previous year relevant to the subject Assessment year 2012-13 and cannot be invoked. It may be pointed out that this Court in Commissioner of Income Tax vs. M/s. Gangadeep Infrastructure (P) ltd (Income Tax Appeal No.1613 of 2014 decided in 20 March 2017) has while refusing to entertain a question with regard to Section 68 of the Act has held that the proviso to Section 68 of the Act introduced with effect from 1 April 2013 will not have retrospective effect and would be effective only from Assessment year 2013-14.
13. From the above expositions, it is clear that the assessee’s case clearly falls under the realm of the above case laws. The proviso to section 68 has clearly and unambiguously been held to be prospective and not retrospective. Admittedly the same is not applicable in the assessment year which is being considered here, i.e., assessment year 2010 – 11. Hence, adverse inference taken by the assessing officer that assessee could not produce the share applicants and their directors, is not sustainable.
14. We find that the assessee in this case has duly submitted all the necessary details in respect of the share application received which included name, address, company incorporation details, share application details, balance sheets, PAN, bank statements, acknowledgement of income tax return filed and confirmation from the parties. The Assessing Officer has not found any fault in these submissions except that he wanted to verify the details by asking the assessee to produce the promoter/director of these companies. As clearly emanating from the aforesaid case laws, the assessee has duly discharged its onus and no onus was cast on the assessee in the impugned assessment year to produce the persons or the books from the investment companies. The requirements of enquiry and obtaining explanation from the person making the investment in these circumstances have been brought into the statute books by amendment to section 68 of the Act. These have been clearly held in the above case laws to be prospective as they were effective only from 01.04.2013. Admittedly, the present assessment year being assessment year 2010-11, the Assessing Officer was not justified to take up the issue of obtaining explanation from the Directors/promoters of the investing companies.
15. Thus, we find that deletion of addition by the ld. Commissioner of Income Tax (Appeals) in this case is in confirmity with the expositions of the Hon’ble Jurisdiction High Courts as above. Accordingly, we do not find any infirmity in the order of the ld. Commissioner of Income Tax (Appeals) and hence we uphold the same.
16. One common issue raised in all the appeals reads as under:
Grounds of appeal
