Diwali Capital & Finance Private Ltd. Vs DCIT (ITAT Mumbai)
Addition under section 68 on basis of information received from investigation wing as to assessee having received share application money from alleged entry operator was not justified as assessee had filed sufficient evidences and details to prove identity and creditworthiness of share application and genuineness of transaction of receipt of share application money
Held: AO made addition under section 68 on basis of information received from investigation wing as to assessee having received share application money from alleged entry operator. It was held assessee had duly discharged the primary onus casted upon it under the law to prove the identity of the share applicants and genuineness of the transactions. All the share applicants were registered with ROC (Registrar of companies) and they were assessed to income tax as the case of assessee, which was main investment company of the Group. AO was excessively influenced by the information received from DDIT, Investigation Wing, Mumbai regarding search action conducted and had not independently proved that the share application money was bogus and not travelled through bank account. Assessee had also filed the following details such as the details of share applicants; copy of bank statement; details of investment made by share applicants inter alia, cheque No. and date of cheque, and the bank on which the said cheques were drawn; basis on which shares were applied at premium; the copies of income tax return acknowledgements of share applicants; the copies of audited balance sheet and profit and loss account of the share applicants to prove their creditworthiness; and the copies of share allotment and share certificate issued to prove that the shares have been allotted and issued. These details proved that the share applicant money received was genuine and explained in the absence of any contrary material brought in by Revenue.
FULL TEXT OF THE ITAT JUDGEMENT
In these appeals, one appeal filed by Revenue and one by assessee, are arising out of the orders of Commissioner of Income Tax (Appeals)-48 &4, Mumbai [in short CIT(A)], in appeals No. CIT(A)-48/I.T-52/DCCC-2(3)/2016-17, CIT(A)-4/IT-13/ITO-2(1)(2)/2015-16 vide orders dated 15.01.2018, 15.03.2017. The Assessments were framed by the Dy. Commissioner of Income Tax, Central Circle 2(3), Income Tax Officer-2(1)(2), Mumbai (in short ‘DCIT’ ‘ITO’/ AO’) for the A.Ys. 2008-09 & 200708 vide order dated 23.03.2016, 05.03.2015 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. The first issue in ITA No. 3986/Mum/2017 of Revenue’s appeal is against the order of CIT(A) quashing the reassessment by quashing notice under section 148 of the Act. For this Revenue has raised the following ground No. 1: –
“1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in quashing the proceedings u/s 148 of the Income-tax Act, 1961 without appreciating that the information that (1) M/s Alka Diamond Industries P. Ltd. (2) M/s Artillegence Rio-Innovations Ltd. (3) M/s Microsoft Technology Put. Ltd. (4) M/s Nicco Securities Put. Ltd. and (5) M/s Navlakha Agrex Put. Ltd. were providing accommodation entries: was revealed during the course of search in the case of Praveen Kumar Jain and this particular information was not disclosed by the assessee either in the return of income or during the course of assessment proceedings under section 143(3) of the Income-tax Act, 1961 and the CIT(A) did not appreciate the ratio of the decision of Hon’ble Supreme Court in the case of Yogendra Kumar Gupta 57 taxmann.com 383 (SC).”
3. The Revenue has also raised the ground on merits challenging the deletion by CIT(A) raising ground No. 2 as under:-
“2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of ₹ 4 Cr. Being unexplained share application money without appreciating that the assessee as well as (1) M/s Alka Diamond Industries P. Ltd (2) M/s Artillegence Bio-Innovations Ltd. (3) M/s Microsoft Technology Pvt. Ltd. (4) M/s Nicco Securities Pvt. Ltd and (5) M/s Navlakha Agrex Pvt. Ltd. failed to establish the genuineness of the transaction and the Ld. CIT(A) further failed to appreciate that the circumstantial facts revealed in the search conducted at the various premises of Praveen Kumar Jain wherein this systematic racket of converting unaccounted income into purported share capital was deleted which caused loss to the Nation by depriving the revenue on its unaccounted income.
4. Briefly stated facts are that the assessee is a Private Limited Company engaged in the business of Investments, Loans & Advances. Assessee-company invested in shares and securities for a long term perspective and gives loans and advances. It is the main investment company of the Vardhman Group engaged in the business of Builders and Developers for more than 35 years and has substantial stake in the flagship company of the Group. The valuation of the company is derived from the underlying assets being equity of its flagship company. It was claimed by the assessee that it is neither a shell company nor a beneficiary of the accommodation entries. The Original return of income was filed by the assessee on 22.10.2007 for the AY 2007-08. This return was processed under section 143(1) of the Act. Subsequently, the AO issued notice under section 148 of the Act, dated 26.03.2014. The AO for issuing notice under section 148 of the Act recorded the following reasons: –
“it is seen from the records that M/s Alka Diamond Industries Ltd has made investment of ₹ 1,10,00,000/- in the assessee company on various dates. A search has been conducted in the case of Praveen Jain Group. Shri Praveen Jain has given statement under the oath that he is indulged in providing accommodation entries. M/s Alka Diamond Industries Ltd is one of group company of Shri Praveen Jain which has investment in the assessee company to the tune of the company of Shri Praveen Jain which has investment in the assessee company to the tune of ₹ 1,10,00,000/-. Therefore, I have a reason to believe that the income chargeable to tax has escaped assessment for AY 2007-08 by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.”
The assessee received total share application money of ₹ 4 crores during the FY 2006-07 relevant to AY 2007-08 from various parties, details of which are as under: –
