Satyam Smertex pvt. Ltd. DCIT (ITAT Kolkata)
In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee and the documents produced by the assessee cannot be brushed aside by the AO to draw adverse view, which action of AO cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, we are of the considered view that addition cannot be sustained merely based on inferences drawn by circumstance. Applying the law laid down in these case laws to the facts of this case, we are inclined to interfere with the order of the Ld. Commissioner of Income Tax (Appeals) and give relief to the assessee.
To sum up section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source, it shall be assessed as its undisclosed income. In the facts of the present case, both the nature & source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO’s record, including that of the directors and share holders of share subscribing entities as discussed supra. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO and confirmed by Ld CIT(A) are based on conjectures and surmises, so their impugned action cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act. Therefore, we do allow the appeal of assessee and direct deletion of addition of Rs 16 cr under section 68 of the Act.
FULL TEXT OF THE ITAT JUDGEMENT
This is an appeal filed by the assessee against the order of Ld. CIT(A)-5, Kolkata dated 23.09.2019 for AY 2012-13.
2. The only ground of appeal of the assessee is against the action of the Ld. CIT(A) in confirming the addition of Rs.16 cr. u/s. 68 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) being the share capital and share premium received during the year. Ground no. 1 of the assessee is as under:
“1. That the Ld. CIT(A) was wrong in confirming the addition of a sum of Rs.16,00,00,000/- u/s. 68 of the Act being the share capital and share premium money received during the year from the share applicants without appreciating the fact that the details and documents provided to him were fully examined and none of the share applicants were found to be bogus. Further, all the share applicants are assessed to income tax and the entire share application money was received through proper banking channels. Thus, addition made by Ld. AO and confirmed by Ld. CIT(A) is unjustified and needs to be deleted.”
3. Facts in brief is that the assessee vide its return of income for the AY 2012-13 on 07.09.2012 showing an income of Rs.2,18,95,330/-. Later the case was selected for scrutiny and after issue of statutory notice, the AO notes that the assessee had introduced Rs 16 crores as share application money into the company from two (2) Private Limited companies (i) M/s. Set Square Holding Pvt. Ltd. (M/s. SSHPL) total amount received Rs. 5 cr. and (ii) M/s. Highlight Goods Pvt. Ltd. (M/s. Highlight) Rs.11 cr.[Total Rs.16 cr] The AO was of the opinion that the assessee had introduced its undisclosed income in the guise of share application money into its own company. So, he issued notice to the assessee and conveyed to them that he wants to meet the directors of the share applicant companies and also wanted to examine/cross examine (in order to find out the genuineness of the transaction). However, the AO notes that in response the assessee company submitted some documents relating to the investment, however, did not produce any of the investors before him. So according to him, assessee failed to prove the authenticity, genuinity and creditworthiness of the investors. Therefore, he was of the opinion that the assessee company has entered into sham transaction with the investors and introduced unaccounted money in the form of share application/allotment. The AO also was of the opinion that the assessee was unable to prove with proper evidence that investor companies are their own group companies. Therefore, he was pleased to add the entire share application money received by the assessee u/s. 68 of the Act as undisclosed cash credit. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the action of the Ld. CIT(A) and dismissed the assessee’s appeal. Aggrieved, the assessee is before us.
4. The Ld. AR assailing the decision of the Ld. CIT(A) contended that the assessee company is a genuine company which has returned an income of more than Rs.2.18 cr. in its return of income. According to Ld. AR, turnover of the assessee company is more than Rs. 73 cr. and it is into the manufacturing and sale of iron and steel. According to Ld. AR, investments in the shares of assessee are made by group concerns only wherein the directors of the assessee company and relatives are the directors. According to Ld. AR, M/s. Highlight which had invested Rs. 11 cr. has undergone scrutiny assessment u/s 143(3) of the Act for AY 2012-13 and AY 2017-18 and drew our attention to the assessment orders passed for AY 2012-13 dated 15.12.2019 placed at pages 6 and 7 of the paper book and copy of the assessment order u/s. 143(3) for AY 2017-18 found placed at pages 8 and 9 of the paper book. According to ld. AR, M/s. SSHPL which had invested Rs.5 cr. in the assessee company has also undergone scrutiny assessment u/s. 143(3) of the Act for AY 2011-12 and drew our attention to pages 1 and 2 of the paper book and also for AY 2017-18 the assessment order u/s. 143(3) of the Act is found placed at pages 3 to 5 of the paper book. Thus, according to ld. AR, when the two investing companies assessments have undergone scrutiny proceedings under section 143(3) of the Act, then the question of identity of the investor companies cannot be doubted. According to the Ld. Counsel, both the investor group companies have enough creditworthiness to invest in the assessee company and drew our attention to the fact that M/s. SSHPL has capital with free reserve and surplus of Rs.48,89,59,014/- as on 31.03.2012 and M/s. Highlight has paid up capital with free reserve and surplus of Rs.16,69,60,353/- as on 31.03.2012. And according to Ld. AR, the entire payment has been made through banking channel and, therefore, the transactions are genuine. It was also brought to our notice that no cash was deposited before the transfer of the amounts to the assessee companies and drew our attention to the balance sheet to show that the free reserve and capital are coming from the earlier years onwards. According to the Ld. AR, M/s. SSHPL has been incorporated on 09.02.1987 [AY 1987-88] and M/s. Highlight on 21.07.2008 [AY 2009-10] and both of them have CIN and separate PAN and are regular income tax assessees and M/s. SSHPL is under the jurisdiction of ITO, Ward-5(4), Kolkata and M/s. Highlight is under the jurisdiction of ITO, Ward-1(1), Kolkata. Therefore, in the light of the aforesaid facts and since the investor company’s directors are also the assessee company’s directors and since these directors of M/s. SSHPL and M/s. Highlight were earlier directors of the assessee company goes on to show that they are group companies; and, according to Ld. AR, since the assessee company is doing good business and taking note of the growth of the company and consequent future prospect they in their wisdom have decided to invest/infuse share capital with the consent of the assessee company’s director should not be looked with suspicion as done in the case of jamakharchi companies. According to ld. AR, the whole problem in this case was that the AO from the inception itself looked at the assessee with suspicion, as if the assessee is a bogus company and unfortunately, the Ld. CIT(A) also towed the same line. According to Ld. AR, the Ld. CIT(A) has termed the assessee company to be not having any business without looking into the balance sheet and P&L Account of the assessee. According to the Ld. AR if the Ld. CIT(A) would have looked into the balance sheet and P&L Account of assessee, then it would have revealed that assessee company is a full-fledged company which had turnover of more than Rs. 73 cr. and profit of more than Rs. 2 cr. which enabled the assessee to return an income of Rs.2.18 cr. The share subscribers, according to Ld. AR., were investment companies and, therefore, investments are made with an intention to recap long term return and their profit and loss in the initial years cannot be the yardstick to cast negative aspersions on its credibility. Therefore, according to Ld. AR, since the assessee company is a genuine manufacturing company, the decision of the group companies to invest in the assessee company for boosting further growth of the assessee company should be allowed and addition made should be deleted.
5. Per contra, the Ld. CIT, DR contended that the AO had directed the assessee to produce the directors of the investor companies before him. However, the assessee did not do so and the assessee also failed to produce the documents to show that the investors were group concerns. According to Ld. DR, a perusal of the P&L Account of the investing companies would reveal that they were having very meager income and, therefore, the AO drew adverse inference against the introduction of share capital along with premium of Rs. 40/-. According to ld. DR, since the assessee company failed to produce the directors as well as the documents to prove their creditworthiness, the AO made the addition which has been rightly confirmed by the Ld. CIT(A) which decision should not be interfered with by this Tribunal.
6. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the AO has taken note that the assessee company had filed the return of income showing an income of Rs.2.18 cr. for the AY under consideration i.e. AY 2012-13. We note that the assessee company was incorporated on 19.08.2004 (AY 2005-06) for manufacture of iron and steel. The audited financials of the assessee company are found placed in the paper book from pages 72 to 94. On perusal of the balance sheet of the assessee company it reveals that as on 31.03.2011 (earlier AY 2011-12) the assessee had a share capital of Rs.6,72,20,000/- and reserve and surplus of Rs.30,45,14,918/- thus a total shareholders’ fund comes to Rs.37,17,34,918/-; and this year the share capital and reserve and surplus as on 31.03.2012 has raised to Rs.55,45,48,441/-. The assessee company’s receipt from operations less excise duty as on 31.03.2011 (earlier year) is Rs.81,17,45,076/- and revenue from operations net is Rs.74,42,85,645/- and it is noted that in the year under consideration as on 31.03.2012, the gross revenue from operations comes to Rs.80,05,04,567/- and net revenue from operations is Rs.73,05,69,628/-. In this year the other income comes to Rs.63,45,436/-and thus the total revenue in this assessment year is Rs.73,69,15,164/- and in the earlier year it was Rs.74,75,10,565/-. We also note from the expenses, the cost of material consumed, manufacturing and operating cost charges in inventory and finished goods and stock-in-trade, employees’ benefit expenses, finance cost, depreciation and amortization expenses and other expenses total comes to Rs.70,30,38,654/- this year as on 31.03.2012 and in last year it was Rs.71,96,83,183/- and the profit before taxation as on 31.03.2012 with the assessee company is Rs.33,38,76,510/- from earlier year it is Rs.2,78,27,382/-.
7. We note that the assessee company in this year under consideration has taken share capital of Rs.16 cr. from the following two companies:
