Case Law Details

Case Name : DCIT Vs M/s Ansh Intermediate Services Pvt. Ltd. (ITAT Lucknow)
Appeal Number : ITA No.243/LKW/2015
Date of Judgement/Order : 22/09/2015
Related Assessment Year : 2010-2011
Courts : All ITAT (5511) ITAT Lucknow (80)

Brief about the case

The assessee is a private Company and has issued new shares of Rs.23,50,000 along with share premium of Rs.2,11,50,000.The assessee was asked to furnish the details of all shareholders along with name, address PAN and amount of capital introduced. From the details provided by the assessee, AO observed that the registered office and place of assessee’s business was in Lucknow, whereas all the 15 companies who have invested their money are from Kolkata. Out of which 12 companies are operating from four same addresses. AO issued letter u/s 133(6) of the Act to all alleged shareholders on 14-03-2015.But there was no compliance from any party on the appointed date. After intimating about the matter to the assessee, shareholders submitted the required documents. But AO did not find them genuine. Then the Income Tax Inspector personally visited the given addresses and none of the companies were found operating from the given addresses. Hence these companies were held bogus and mere briefcase companies and accordingly AO made addition of Rs.1,60,00,000 as unexplained credit u/s 68 of the Act.

Aggrieved, the Assessee filed an appeal before the CIT(A). The CIT(A) called the remand report from AO directing him to conduct proper enquiry on basis of written submission by the assessee. During the remand report, AO again issued commission u/s 131(1)(d) of the Act for further enquires in the matter. In the report it was noted that proper documents were submitted by the assessee. In view of CIT(A) complete details were filed with regard to the identity and creditworthiness of shareholders and also the genuineness of transaction, hence no disallowance u/s 68 of the Act was called for. Aggreived, the revenue appealed for reversal of decision to the Lucknow ITAT. However, the ITAT upheld the order of CIT(A).


Facts of the case:

  • The assessee, a private Company, having registered office and place of business in Lucknow, has issued new shares of Rs.23,50,000/-with share premium of Rs.2,11,50,000/-during F.Y.2009-10.Thus new funds invested in the assessee company are Rs.2,35,00,000/-.
  • The assessee was asked to furnish the details of shareholders along with their address, PAN and capital introduced.
  • The assessee filed the same to AO. From that AO noticed that the assessee has shown Rs.75,00,000/-as opening balance on 01-04-2009, whereas rest of amount i.e.Rs.1,60,00,000/- has been received from 15 companies of Kolkata.
  • The AO observed that, out of total 15 companies, 12 companies are operating from the same four addresses. The AO doubted that the assessee company has routed its own money through the shell shareholders.
  • Accordingly the assessee was asked to furnish the copy of ITR, PAN, copy of ledger and bank accounts of shareholding companies as the onus squarely lies on the assessee company to substantiate that these companies have actually invested funds. The assessee submitted the same to AO.
  • For further verification AO issued letters u/s133(6) of the act to shareholders to furnish complete details of share purchase mode of payment, copy of bank account and PAN/assessment particulars. But the letters from three companies were returned as address not known and from rest neither replies were received nor were letters returned back.
  • After confrontation of these facts to the assessee, replies started coming from the same places from where letters were returned unserved. From examination of bank statements, AO found that entries are vague and it was modus operandi of shareholders companies to act as conduit for persons to channelize the illegal money into a legal capital.
  • AO issued a commission u/s 131(d) of the Act to Addl. DIT (Inv.) Kolkata for making inquiry. Then notice u/s 131 of the act to all the parties, but were not responded and consequently ITI was deputed to carry out the spot verification and none of the company was found to be operating from the given addresses.
  • After viewing all facts, AO held that Assesee Company has failed to establish the identity, genuineness and creditworthiness of the shareholders and in fact they are non-existent paper companies.
  • Therefore, the entire credits appearing in the accounts of the assessee during the year under consideration in the shape of alleged investment from above ten shareholding companies at Rs.1,60,00,000/-were treated as unexplained credit u/s 68 of the I.T. Act and accordingly added towards the income of the assessee.
  • Aggrieved, the assessee knocked the doors of CIT(A) with a plea that proper opportunity was not afforded.
  • Before the CIT(A), it was contended that the summon issued u/s 131 of the Act while executing the commission by the DIT (Inv.) were received subsequent to the date fixed for the compliance. In support of these facts, the copy of postal envelope were produced before the CIT(A) vide letter dated 11.09.2014.
  • Then CIT(A) called the remand report from the AO, meanwhile the AO had again issued commission u/s 131(1)(d) of the Act to the Addl. DIT(Inv.) for making further enquiries in the matter. The DIT (Inv.) accordingly submitted his report vide letter dated 21.11.2014 to the AO
  • It was noted that shareholders have submitted all the required documents proving the existence and credit worthiness to purchase the share of the assessee company.
  • It was held by ITAT that appellant company has fully discharged the onus in respect of genuineness of the transaction. Hence, the addition u/s 68 of the Act cannot be sustained.

Contention of the Revenue

The shareholders are not genuine and he accordingly made the addition of Rs.1,60,00,000/- as unexplained credit u/s 68 of the Act.

  • The revenue alleged that the assessee company has routed its money through such companies by making accommodation entries at Kolkata and then subscribed its own shares so as to give it a look of genuine transaction.

Contention of the Assessee

The assessee asserted:

  • That the he has placed all relevant evidence to prove the genuineness of transaction, identity and creditworthiness of the shareholders.
  • That he has placed reliance in support of his contention of the Judgment of the Hon’ble Apex Court in the case of CIT Vs.Jaydeep Securities and Finance Ltd. reported in 350 ITR 220 (All.), CIT Vs. Misra Preservers (P.) Ltd. reported in 350 ITR 222 (All.).

 Held by ITAT (Lucknow)

  • The ITAT considered we find that during the course of assessment proceeding, complete details were not available with the Assessing Officer and that is why he has treated share application money as bogus and made the addition of the same. But before the CIT(A) in response to remand report when fresh commission was issued to ADIT(Inv.) Kolkata who in turn issued notice u/s 131 to all shareholders companies and in response thereto replies were filed by all the companies. All these details were available before the CIT(A) while adjudicating the issue and with all these evidence the genuineness of transaction identity and creditworthiness of creditor have been proved.
  • The addition cannot be sustained only for the simple reason that these shareholder companies have not responded in first round of commission.
  • Since the assessee has discharged its primary onus of proving the genuineness of transaction, identity and creditworthiness of shareholders, the addition u/s 68 of the Act is not called for.
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Category : Income Tax (28360)
Type : Judiciary (12665)
Tags : CA Geeti Grover (24) ITAT Judgments (5690) Section 68 (241)

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