Case Law Details
ITO Vs. Gay Loard Industries Ltd.
I.T.A. No. 2004/ Ahd/2008
(Assessment year- 1996- 97 )
Decided by- ITAT Ahemdabad
Decided on – 17th June 2011
O R D E R
PER SHRI D. K. TYAGI, JM:
This is the revenue’s appeal filed against the order dated 14.03.2008 of CIT(A) VIII, Ahmedabad for the assessment year 1996- 97. The revenue has raised the following grounds of appeal:
“1. The Ld.ClT(A) has erred in law and on the facts of the case in deleting the addition of Rs.95,22,3507-, in respect of increase in share capital.
5. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 6- It is, therefore, prayed that the order of the Ld. CIT(A) may be cancelled and that of the Assessing Officer may be restored to the above effect.
2. The brief facts of the case are that the original assessment was completed u/s 144 of the Act and thereafter the assessment order was set aside by the ITAT on the issue relating to addition on account of share capital, unsecured loan, dis allowance on depreciation, as well as claim u/s 80IA of the Act and were restored back to the file of the A.O. for fresh adjudication. Accordingly, fresh assessment proceedings were started by the A.O. The assessee was asked to furnish the complete details of addition in share capital along with name and full address of the person with confirmation, contra account, source of investment, their income tax assessment particulars, genuineness of investment by the promoters, shareholding portion of the assessee, copies of share application made by the person along with letter of allotment with ledger folio number, distinctive number of share certificate and copies of share certificates allotted etc. The assessee filed details before the A.O. and after taking into consideration of the details, the A.O. observed that the assessee had not furnished the details as required by him and, therefore, the genuineness of the claim could not be verified. The A.O. sent letters to the concerned parties u/s 133(6) of the Act for verifying the genuineness, in response to which only affidavits of the persons were filed by the assessee and the affidavits filed were only notarised but not sworn before any magistrate. These affidavits were drafted in a similar manner and the information given in the affidavit were gathered form the assessee itself and the representative investors did not have exact date and cheques numbers and the names of the bank. Therefore, A.O. did not accept the same and he concluded that the genuineness of investment made by the promoters of the company was not proved by the assessee by giving necessary evidence. Therefore, addition was made for increase in share capital under promoter quota of Rs. 95,22,350/-.
3. Before CIT(A) it was argued on behalf of the assessee that the assessee company was closed in 1999 and all the assets of the company were attached with the Bank of Baroda on the basis of whatever books of account and all documents were available with the Director, the Director tried to furnish the details before the A.O. The assessee tried to obtain financial statement from Bank of Baroda but the bank refused to furnish the same on account of change in system in maintaining the records. The assessee had furnished complete chart of deposits with names of applicants before the A.O. a copy of which was also submitted before him. It was also submitted that all the deposits were received by cheques and for proving the genuineness of the receipts the assessee filed affidavits and confirmation of payments before the A.O. The assessee furnished their PAN in the affidavits. Therefore, the identity of share applicants, genuineness of transaction and creditworthiness of the applicants have been proved as they are assessed to income tax. Thus, it was claimed that the assessee has discharged the onus of proving the credit/deposits. It was also submitted that the A.O. had issued summons to the applicants and some of them have directly replied to the A.O. that the above payments were made by them for acquiring shares in the company. Regarding application money received form NRI, certificates of Bank of Baroda mentioning amount received in US$ through proper channel and other evidences by certificate form Hong Kong Bank has been furnished to the A.O. Although the assessee has furnished the evidences in relation to share application money the A.O. had not made any inquiry and has made addition of Rs. 95,22,350/-. As regards the affidavits affirmed by the notary it was submitted that the evidentiary value of an affidavit filed before notary is not less than affidavit before the magistrate and that it is had equal evidentiary value on record before the Magistrate. Taking into consideration these submissions of the assessee, the Ld. CIT(A) deleted the additions by observing as under:
“7. I have considered the submissions of the Authorised Representative carefully and I have gone through the chart filed by the A.R. giving the dates of receipt of share application money, cheque Nos. and names of the issuing banks and addresses of the shareholders. The affidavits have been filed by all the shareholders giving their PANs and confirming the payments made by them and giving the cheque No., date, and details of issuing branch of banks. The assessment records of the appellant were called for and examined by me . It is found from the records that the following share applicants have confirmed before the A.O. by filing affidavits and confirmations
i) Kandarp Kinariwala
ii)KushKinariwala
iii) Ashish Kinariwala
iv) Pradip Kinariwala
v) Sujal Palkiwala
vi) Saurin Palkiwala
The appellant had also filed copies of IT returns of Himanshu Shah and Ami H Shah before the A.O.
7.1 In respect of deposits received from NRI accounts of six shareholders Shri Jagdish R.Shah and others, the A.R has filed copies of confirmation of Bank of Baroda for receipt of application money in US dollars. In view of the decision of Rajasthan High Court in Shree Barkha Synthetics as the PAN of share applicants, bank details for receipt of share application money have been filed and affidavits have been filed confirming the deposit of share application money of the subscribers and genuineness of transactions have been proved, the addition of unexplained share capital is held to be not justified. All of the shareholders are assessed to Income-tax and their PANs have been given in affidavits.
7.2 The various case laws in this regard are discussed hereunder;
(a) CIT vs. Down Town Hospital Pvt. Ltd. – 267 ITR 439 (Gauhati )
Held: No addition u/s 68 is permissible where the shareholders are identified and it is established that they had invested the monies in the purchase of the share following the ratio of the d’ccided cases as under:-
(i) CIT vs. Steller Investment Ltd. 1 92 ITR 287 (Delhi }
(ii) CIT vs. Steller Investment Ltd. 25 1 ITR 263 (Supreme Court)
(b) CIT vs. Divine Leasing & Finance Ltd.- 207 CTR (Del) 38:
Held: Burden of proof can seldom be discharged to the hilt by the assessee. If the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the AO fails to unearth any wrong or illegal dealing, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company.
(c) Shree Barkha Synthetics Ltd. vs. ACIT – 183 ITR 377 (Rajasthan )
Held: Where the share application money is received through banking channel, the assessee has only to prove the existence of the person in whose name share application is received. Once the existence of the investor is proved, there is no further burden on the assessee to prove whether that person itself has invested the said money or some other person has made investment in the name of that person.
(d) Hindustan Tea Trading Co.Ltd. vs. CIT – 263 ITR 289 (Calcutta )
Held: Once the nature and source of the fund is explained, it is incumbent on the AO to consider the same and form an opinion whether the explanation is satisfactory or not.
(e) Sumak Powercap Ltd. vs ACIT – 90 TTJ (Lucknow ) 420 Held: Assessee having proved the genuineness of the investors, burden lying on him stood discharged and it was not required to further prove the sources of investment made by the subscribers. Therefore, addition made by the A.O. and sustained by CIT(A) was to be deleted.
(f) Swagat Synthetics (P) Ltd. vs.ITO – 77 TTJ (Jodhpur ) 987
Held: Assessee company not only disclosed the identities of the share applicants but also proved that the money was invested by them – Therefore, the onus shifted to the Department -Department has not discharged the onus cast upon it after frtitial onus was discharged by the assessee by filing necessary particulars. – Addition was, therefore, liable to be deleted.
(g) CIT vs. Pragati Co-operative B_ank Ltd. – 278 ITR 170 (Gujarat)
Held: There was no obligation on the AO to treat Fixed Deposits as income of the assessee merely because he did not find the assessee’s explanation satisfactory. Admittedly, AO has not discharged the onus of proving that the apparent was not real. On the other hand the assessee has furnished the details which would discharge the onus that l.ay on the assessee.
(h) CIT V.Electro Polychem Ltd. (294 ITR 661 ) (Mad)
(i) S. Hastimal vs CIT reported in 49 ITR 273 (Madras )
Held: After the lapse of a decade, an assessee should not be placed upon the rack and called upon to explain not merely the origin and source of a capital contribution but the origin and source of source as well. The difficulty on the part of any assessee to explain a transaction which took place before a decade has to be borne in mind by the department and should, under no circumstances, be underestimated or taken advantage of by them.
7.3 In the instant case the appellant had furnished the affidavits of the applicants who had contributed to the share capital of the company. The A.O.did not appreciate the above evidence on record but decided the issue against the appellant although the Honourable ITAT had restored the matter to the A.O. so that he could appreciate the evidence .
7.4 As it is held by the Delhi High Court in the case of Dolphin Can pack Lid. 204 CTR 50 /283 ITR 190 (Del), if money has been received in cash or D.D. then the standard of proof required would be more vigorous but in the instant case the share application money has been received by cheques through proper banking channels. It has been held in this case as under ;
“In cases where the credit entry relates to the issue of share capital, the Income-tax Officer is also entitled to examine whether the alleged shareholders do in fact exist or not. Such an inquiry was conducted by the Assessing Officer in the present case. In the course of the said inquiry, the assessee had disclosed to the Assessing Officer not only the names and the particulars of the subscribers of the shares but also their bank accounts and the permanent account numbers issued by the Income-tax Department. Super added to all this was the fact that the amount received by the company was all by way of cheques. This material was, in the opinion of die Tribunal, sufficient to discharge the onus that lay upon the assessee. This is evident from the passage extracted from the order passed by the Tribunal earlier. In the absence of any perversity in the view taken by the Tribunal or anything to establish conclusively that the finding regarding the genuineness of the subscribers and the transaction suffers from any irrationality, we see no substantial question of law arising for our consideration in this appeal to warrant interference. This appeal accordingly fails and is hereby dismissed.”
7.5 I do not accept the conclusion of the ACX that the affidavits filed before the Notary have no evidentiary value. The affidavits are affirmations confirming the deposits before Notary. The appellant has discharged its onus of proving the genuineness of share application money. The A.O. has not come out with any evidence to show that the affidavits given are not correct. The facts stated in the affidavits can not be rejected in the absence of any evidence to the contrary. The on of proving the genuineness of the share capital received by it has been discharged. Therefore, the addition made by the A.O. is held to be not justified.
7.6 As held in the case of Shree Barkha Synthetics Ltd. vs. AC1T – 283 ITR 377 (Rajasthan) ,where the share application money is received through banking channel, the assessee has only to prove the existence of the person in whose name share application is received. Once the existence of the investor is proved, there is no further burden on the assessee to prove whether that person itself has invested the said money or some other person has made investment in the name of that person. Thus majority of the courts are of the View that once the shareholders are identified, no addition can be made for unexplained share capital. The appellant has discharged the onus of proving the identity of the shareholders by furnishing confirmations and affidavits and also proved creditworthiness of the shareholders by giving the PAN of the applicants. After that it was the duty of the A.O. to disprove the same by making inquiries, but the A.O. has not made further inquiries. In view of the above facts , after examining the affidavits filed by the share holders , 1 come to the conclusion that all the share holders have been identified and they have also confirmed having invested in share capital . Thus their identity is clearly established and genuineness of the transactions and their creditworthiness has been established by giving their PAN. In view of the above facts and the case laws discussed as above, the addition made by the A.O. towards unexplained share capital is deleted.”
“2. The Ld. CIT(A) has erred in law and on the facts of the case in deleting the addition of Rs.5,01,200/- made u/s 68 of the Act, being unsecured loan from M/s Sarthak Securities Ltd and M/s Ama Finvest Pvt. Ltd.
3. The Ld. CIT(A) has erred in law and on the facts of the case in holding that the Assessing Officer had accepted share application money from M/s Sarthak Securities Ltd, and M/s Ama Finvest Pvt. Ltd. as genuine, where no such examination had been carried out by the Assessing Officer in respect of share application money.”
7. The A.O. during the assessment proceedings observed that the assessee had not furnished any detail in respect of unsecured loans and not furnished confirmation of the concerned parties, therefore, he made addition of Rs. 5,01,200/- as unexplained cash credit. Before CIT(A), it was argued that unsecured loans of Rs. 5 lacs has been received from Sarthak Securities Ltd. and Rs.25,000/- from Ama Finvest Pvt. Ltd. These amounts were received by cheques and the shares were required by the above two parties at the bought deal of Rs. 7 were charged as premium by the said investor. The assessee furnished copies of accounts of the said parties and submitted that at present the assessee did not have any idea about the whereabouts of these two parties. When asked to furnish the copies of ledger account, the same were produced before the Ld. CIT(A) and the assessee also filed copies of accounts of Sarthak Securities and Ama Finvest Pvt. Ltd. Taking into consideration these submissions, the Ld. CIT(A) deleted the addition by observing as under:
“ I have considered the submissions of the A.R carefully. The A.R. has pointed out that an amount of Rs.3 crores has been received from Sharthak Securities Ltd as share application money and an amount of Rs.62,80,0007- from Ama Finvest Pvt. Ltd as share application money through cheques. The said share application money have been accepted by the A.O as genuine, whereas the credits of Rs. 5 lakhs and Rs. 25,000/- received from these two parties respectively by cheques have not been accepted as genuine. As the A.O. has accepted the share application money received from these two parties as genuine, I agree with the contention of the A.R. that the credits from these two parties are genuine. Accordingly the addition of unexplained cash credits of Rs. 5,10,2007- is held to he not justified and the same is deleted.”
“4. The Ld. CIT(A) has erred in law and on the facts of the case in admitting the additional claim in respect of depreciation of Rs. 15,17,4937- and in directing the A.O to allow the claim of depreciation of the assessee.”
10. The brief facts of the case relating to this ground are that the assessee filed an additional ground of appeal before Ld. CIT(A) stating that the claim of depreciation of Rs. 15,17,493/- has been rejected by the A.O. without giving any reason. A chart showing depreciation was furnished along with the return of income and all the details were filed in the audit report and in the computation of total income on the basis of which the assessee company had claimed depreciation in the return of income. As this ground was arising out of the assessment order and did not required fresh investigation of facts, the same was admitted by the Ld. CIT(A). He further found that during the year under consideration, the assessee had shown sales of Rs. 1.76 crores and had consumed raw material of Rs. 75.81 lacs. The, Ld. CIT(A) was of the view that manufacturing activity was carried on during the year under considerations and the plant & machinery was also used and therefore, the assessee was eligible for depreciation and hence he directed the A.O. to consider and allow the claim of depreciation to the assessee. We find no infirmity in these directions of Ld. CIT(A) as the facts which were considered by Ld. CIT(A) while giving this decision, were not disputed by the revenue at the time of hearing before us and, therefore, the order passed by Ld. CIT(A) on this issue is also upheld. This ground of the revenue is also dismissed.
