ITO Vs Shri Ganesh Cement Pvt. Ltd. (ITAT Kolkata)
In this case assessee company has shown receipt of fresh subscription to its share capital of Rs. 50.30 crores during the relevant assessment year (AY 2012-13). According to AO for the purpose of proper verification and examination into the existence, and creditworthiness of the share subscribers and genuineness of the share subscription transaction claimed by the assessee company, he issued summons u/s 131 of the Act (no dates given) to the Directors of the assessee company directing them to appear personally along with complete sets of books of account and all the relevant details / documents for the purpose of examination and verification. Thereafter the AO notes that he issued further summons to the Directors of the share subscribing companies from whom the assessee company had claimed to have received share subscription and they were also directed to appear personally along with complete sets of books of accounts and all the relevant details / documents to substantiate (i) their identity, (ii) creditworthiness and source of funds (iii) genuineness. According to AO further he sent the final reminder letter to the Principal Officer of the assessee company requesting him to appear before him [date not disclosed]. According to AO even though repeated summons, notices and final reminder letters were issued, neither the directors of the assessee company nor the directors of the share subscribing company appeared before him to substantiate their identity, creditworthiness and genuineness of the transaction. Therefore AO was of the opinion that the assessee failed to satisfy the identity, creditworthiness and source of funds of share subscriber company and also the genuineness of the share subscription of transaction, so he are made an addition of Rs. 50.30 crores.
Held by ITAT
We find that there was no sum of money/cash was involved in the transaction of allotment of shares to M/s SKJ Coke Industries Ltd. Therefore provisions of section 68 of the Act [unexplained cash credit] is not attracted as held by Hon’ble Madras High Court in M/s V R Global Energy Pvt. Ltd. vs. ITO (supra) and Hon’ble Calcutta High Court in M/s Jatia Investment Co vs. CIT (supra). So, looking from any angle as discussed supra, the addition u/s 68 of Rs. 50.30 crores was not factually or legally sustainable and so in the facts and circumstances as discussed above the addition was not warranted.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of Ld. CIT(A)-5, Kolkata dated 31.08.2018 for Assessment year 2012-13.
2. The grounds of appeal raised by the revenue reads as under:
i) That in the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 50,30,00,000/- under section 68 of the Act on account of unexplained share application money received during the FY.-2011-12 related to AY.2012-13.
ii) That in the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 50,30,00,000/- under section 68 of the Act on account of unexplained share application money received during the FY.-2011-12 related to AY.2012-13 without considering the fact that the explanations regarding nature and source of share application money was not found to be satisfactory by the assessing officer.
iii) That in the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that section 68 would not apply on these transactions as they come within the definition of barter/exchange by misinterpreting the provisions of the said section.
iv) That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal.
3. From a perusal of the aforesaid three grounds of appeal it is discerned that the sole issue raised by the Revenue, is against the deletion of addition of Rs. 50.30 crores made by the AO u/s 68 of the Income Tax Act, 1961 (hereinafter referred to as the Act) on account of unexplained share application money.
4. Brief facts as noted by the AO on this issue is that in response to the notices issued to the assessee company, the Ld. A.R Shri Bisweswar Ghosh appeared before him and produced books of accounts, copy of audited accounts and other related details and documents. According to AO, the same was test checked. Further he observed that the assessee company has shown receipt of fresh subscription to its share capital of Rs. 50.30 crores during the relevant assessment year (AY 2012-13). According to AO for the purpose of proper verification and examination into the existence, and creditworthiness of the share subscribers and genuineness of the share subscription transaction claimed by the assessee company, he issued summons u/s 131 of the Act (no dates given) to the Directors of the assessee company directing them to appear personally along with complete sets of books of account and all the relevant details / documents for the purpose of examination and verification. Thereafter the AO notes that he issued further summons to the Directors of the share subscribing companies from whom the assessee company had claimed to have received share subscription and they were also directed to appear personally along with complete sets of books of accounts and all the relevant details / documents to substantiate (i) their identity, (ii) creditworthiness and source of funds (iii) genuineness. According to AO further he sent the final reminder letter to the Principal Officer of the assessee company requesting him to appear before him [date not disclosed]. According to AO even though repeated summons, notices and final reminder letters were issued, neither the directors of the assessee company nor the directors of the share subscribing company appeared before him to substantiate their identity, creditworthiness and genuineness of the transaction. Therefore AO was of the opinion that the assessee failed to satisfy the identity, creditworthiness and source of funds of share subscriber company and also the genuineness of the share subscription of transaction, so he are made an addition of Rs. 50.30 crores.
5. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) who deleted the addition [after re-producing the remand report from AO] by holding as under:
“During the course of appellate proceedings, a remand report was sought from the AO vide letter dated 30.08.2016 in which the AO was directed to verify the authenticity of the documents filed with written submission filed by the appellant. In the forwarding letter the AO was directed to submit his comments on the claim made by the appellant that all the directors had appeared several time in response to notice u/s 131 of the I T Act but the deposition was not taken. The directors therefore had no alternative but to file written submission on 23.02.2015 along with papers as per direction of the AO. The remand report was filed by the AO on 27.09.2016 in which he had submitted that the appellant was never prevented from producing any evidence before the AO. The AO had also requested that no fresh evidence be admitted under Rule 46A in the course of appellate proceedings. The remand report was submitted through Addl. CIT, Range-1, Kolkata vide letter dated 04.10.2016. Subsequently a second remand report was sought from the AO vide letter dated 21.09.2017 for verification of the submissions made by the appellant. The AO was directed to submit a para-wise report on the following points:
i) To verify the genuineness of the sources of addition to the share capital/premium amounting to Rs.50,30,00,000/- during the A.Y. 201213 after issue of summons u/s 131 to verify the genuineness of the impugned cash creditors in respect of payments made by the Directors/subscribers to share capital, their identity, capacity/sources and mode of payments for impugned amounts added u/s 68 to the total income of the assessee company.
ii) To make independent enquiries as to verify the authenticity of the documents filed by the appellant company in respect of proof of subscription to share capital/share premium of Rs. 50.30 crores raised by the appellant company during the relevant F.Y. ending 31.03.2012 from all the subscribers so as to ascertain the genuineness of the transactions.
The AO had submitted remand report vide letter dated 13.10.2017 forwarded by Addl. CIT, Range-1, Kolkata vide letter dated 06.11.2017. The salient point of the said remand report are as follows:
“The written submission dated 09.10.2017 made by the appellant assessee company along with the enclosed documents in support of its claim were gone through and the results of such verification and probe are enumerated below for your kind perusal.
In the present case, the solitary impugned issue is the action of the A.O. in making addition of the share capital/ premium amounting to Rs. 50,30,00,000/- as unexplained cash credit u/s 68 of the Act. During the assessment stage, the A.O. made the aforesaid addition on the ground of non- compliance on the part of its own directors as well as the ‘share subscriber parties’ and directors of the ‘share subscriber companies’ to the summons u/s 131 of the Act to discharge its burden of proof to substantiate its claim of introduction of fresh share capital, even after several opportunities provided to it and forcing the A.O. to conclude that ‘its purported fresh share capital, amounting to Rs. 50,30,00,000/-is nothing but assessee’s own money conducted under the grab of fresh share capital into its Books of account.’
On perusal of relevant records, it is observed that during the remand stage while seeking remand report from the then A.O., the A.R. of the appellant assessee company, Sri R. Dubey appeared and filed details and document in support of the claim which is duly recorded in the order sheet noting dated 19.09.2016. Further, as per the order sheet noting dated 19.01.2017, the promoter directors of the appellant assessee company, namely Sri Hansraj Jain, Sri Sanjay Jain, Sri Ajay Kr. Jain and Sri Navin Kr. Jain appeared before the then A.O. in support of its claim and had furnished copy of respective Aadhar cards to substantiate their identities which were kept on record.
During the present remand stage, the appellate assessee company filed one written submission along with relevant annexure vide its letter received by this office on 09.10.2017 wherein it had been enclosed copies of relevant PAN cards, copy of ITR for the relevant assessment year 2012-13, copy of relevant Balance Sheet, computation of total income, copy of relevant ledger showing investment in shares of M/s Ganesh Cement Pvt Ltd and also copy of letter disclosing source of funds for payment of relevant shares application in respect of all the four directors of the appellant assessee company. In respect of other share subscribing company viz. M/s SKJ Coke Industries Ltd., the appellant assessee company vide its aforesaid written submission made certain statement, the relevant portion of which is reproduced as under:
a. that earlier SKJ Coke Industries Limited was proprietor of Jupiter Cement Industries thereafter converted the said proprietorship into partnership business by taking Sri Ganesh Cement Private Limited as Partner. Thereafter, by mutual discussion the said partnership firm has been dissolved and Sri Ganesh Cement Pvt Ltd has become the Proprietor of Jupiter Cement Industries by taken over all assets and liabilities of Partnership.
b. That SKJ Coke Industries Limited was made the Investment in said proprietorship business since financial year 2006-07 on ward and said investment was converted into equity shares of Sri Ganesh Cement Private Limited which are as under:
