admin November 16, 2019

EVERGREEN RESIDENCY PVT. LTD. vs. INCOME TAX OFFICER

KOLKATA TRIBUNAL

A.T. VARKEY, JM. & DR. A.L. SAINI, AM.

ITA No. 416/Kol/2018

Aug 9, 2019

(2019) 56 CCH 0386 KolTrib

Legislation Referred to

Section 68, 69, 106, 131, 133(6), 143(2), 143(3), 260A, 263, 271(1)(c) of Income-tax Act, 1961 and Section 4 of Bankers Book Evidence Act, 1891

Case pertains to

Asst. Year 2012-13

Held

According to section 68 of the Income Tax Act, where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not satisfactory in the opinion of the assessing officer, the sum so credited may be charged to income tax as the income of the assessee of that assessment year. The assessing officer may consider such sum as cash credit due to lack of sufficient explanation. Provisions of section 68 have been introduced into the taxing enactments step by step in order to plug loopholes. Even long prior to the introduction of section 68 of the Act, in the statute book, courts had held that where any amounts were found credited in the books of the assessee in the previous year and the assessee offered no explanation about the nature and source thereof or the explanation offered was, in the opinion of the assessing officer, is not satisfactory, the sums so credited could be charged to income-tax as income of the assessee of the relevant assessment year. With effect from assessment year 2013-14, section 68 of the Income Tax Act has been amended to provide that if a closely held company fails to explain the source of share capital, share premium or share application money received by it to the satisfaction of the assessing officer, the same shall be deemed to be the income of the company under section 68 of the Act. The amended provisions of section 68, is not applicable to the assessee company under consideration, as the assessee’s, assessment year is 2012-13.  (Para 6)

The Share Applicants in this case are the bank account holder in their respective banks in their own name and are sole owner of the credits appearing in their bank account from where they issued cheques to the assessee company. For the proposition that a Bank Account holder himself is the ‘owner’ of ‘credits’ appearing in his account (with the result that he himself is accountable to explain the source of such credits in whatever way and form, the same have emerged) support can be derived from section 4 of Bankers Book Evidence Act 1891. (Para 12)

Where any sum is found credited in the books of an assessee then there is a duty casted upon the assessee to explain the nature and source of credit found in his books. In the instant case, the credit is in the form of receipt of share capital with premium from share applicants. The nature of receipt towards share capital is seen from the entries passed in the respective balance sheets of the companies as share capital and investments. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e., identity of share applicants, genuineness of transactions and creditworthiness of share applicants. For proving the identity of share applicants, the assessee furnished the name, address, PAN of share applicants together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of share applicants, these Companies are having capital in several crores of rupees and the investment made in the assessee company is only a small part of their capital. These transactions are also duly reflected in the balance sheets of the share applicants, so creditworthiness is proved. Even if there was any doubt if any regarding the creditworthiness of the share applicants was still subsisting, then AO should have made enquiries from the AO of the share subscribers, which has not been done, so no adverse view could have been drawn. The third ingredient is genuineness of the transactions, for which the monies have been directly paid to the assessee company by account payee cheques out of sufficient bank balances available in the bank accounts of the share applicants. The assessee has even demonstrated the source of money deposited into their bank accounts, which in turn has been used by them to subscribe to the assessee company as share application. Hence, the source of source is proved by the assessee in the instant case though the same is not required to be done by the assessee as per law as it stood/applicable in this assessment year. The share applicants have confirmed the share application as well as the payments made to the assessee company, which are duly corroborated with their respective bank statements and all the payments are by account payee cheques.(Para 26)

From the assessment orders, it is noted that the share subscribing companies are duly assessed to income tax and their income tax particulars together with the copies of respective income tax returns with their balance sheets are already on record. CIT(A) had categorically stated that the scrutiny assessments were framed on the share subscribing companies for the AY 2012-13 which shows their existence is genuine and transactions carried out by them were the subject matter of examination by the income tax department in scrutiny proceedings.(Para 28)

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 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. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case, no addition was warranted under Section 68 of the Act. The amount of Rs. 31,75,000/-, as it pertains to the previous assessment year is deleted and for balance sum of Rs.2,66,00,000/- received during the year, the assessee has proved identity, genuineness and creditworthiness of the share subscribers, hence, same is deleted. (Para 38)

Cases Referred to

CIT vs. Durga Prasad More 82 ITR 540 

CIT vs. Gagandeep Infrastructure (P.) Ltd. 247 Taxman 245/394 ITR 680

CIT vs. Gangeshwari Metal (P) Ltd (ITA No. 597 of 2012) dated 21.01.2012

CIT vs. Kamdhenu Steel & Alloys Ltd. 206 Taxman 254/[2014] 361 ITR 220

CIT vs. Lovely Exports (P) Ltd reported in (2008) 216 CTR 195 (SC)

CIT vs. Lovely Exports Pvt Ltd (319 ITR 5)

CIT vs. Novo Promoters & Finlease (P) Ltd (342 ITR 169)

CIT vs. Orchid Industries (P.) Ltd. 397 ITR 136

CIT vs. Roseberry Mercantile (P) Ltd in GA No. 3296 of 2010 ITAT No. 241 of 2010 dated 10.1.2011

CIT vs. S. Kamaljeet Singh [2005] 147 Taxman 18(All.)

CIT vs. Smt. P. K. Noorjahan [1999] 237 ITR 570

CIT vs. Value Capital Services P Ltd reported in (2008) 307 ITR 334 (Del)

Commissioner of Income Tax vs. M/s. Leonard Commercial (P) Ltd in ITAT No. 114 of 2011 dated 13th June, 2011

Commissioner Of Income Tax vs. M/s. Nishan Indo Commerce Ltd in ITA No. 52 of 2011 dated 2 December, 2013

Commissioner of Income Tax vs. Prarmeshwar Bohra, [(2008) 301 ITR 404 (Raj)]

Commissioner of Income Tax vs. Ruby Traders and Exporters Limited reported in 236 (2003) ITR 3000

Commissioner of Income Tax vs. Usha Stud Agricultural Farms Ltd., [(2008) 301 ITR 384 (Delhi)]

Crystal Networks (P.) Ltd. vs. Commissioner of Income-tax (353 ITR 171)

DCIT vs. Global Mercantiles Pvt. Ltd in ITA No. 1669/Kol/2009 dated 13-01-2016

DCIT vs. R.B Horticulture & Animal Projects Co. Ltd in ITA No. 632/Kol/2011 dated 13-01-2016

Dy. CIT vs. Rohini Builders [2002] 256 ITR 360/[2003] 127 Taxman 523

ITO vs. Cygnus Developers (I) P Ltd in ITA No. 282/Kol/2012 dated 2.3.2016

ITO vs. Devinder Singh Shant in IT A No. 20BIKo112009 vide order dated 17.04.2009

M/s Earth Metal Electricals P Ltd vs. CIT & Anr. reported in 2010 (7) TMI 1137 in Civil Appeal No. 21073/2009 dated 30.7.2010

Radheshyam vs. Safiyabai Ibrahim AIR 1988 Bom.361 : 1987Mah. 725: 1987 Bank J 552

S.K. Bothra & Sons, HUF vs. Income-tax Officer, Ward- 46(3), Kolkata (347 ITR 347)

Sumati Dayal vs. CIT 414 ITR 801

Udhavdas Kewalram vs. CIT [1967] 66 ITR 462

CIT vs. Raj Kumar Agarwal vide ITA No. 179/2008, dated 17. 11.2009

CIT vs. Dataware Pvt Ltd (ITAT No. 263 of 2011) dated 21.09.2011

ITO Wd.3(2) Kol, vs. M/s. Steel Emporium Ltd in ITA No.1061/Ko1/2012 dated 05-02-2016

Counsel appeared:

Ravi Tulsiyan, FCA, ld.AR for the Assessee.: Robin Choudhury, Addl.CIT, ld. Sr.DR for the Department.

1. A.L.SAINI, AM.:

The captioned appeal filed by the Assessee, pertaining to assessment year 2012-13, is directed against the order passed by the ld. Commissioner of Income Tax (Appeals), 3, Kolkata, in Appeal No. 432/CIT(A)-3/W-8(2)/15-16/Kol dated 12-02-2018, which in turn arises out of an assessment order passed by the Assessing Officer [I.T.O., W-8(2), Kolkata] under section 143(3) of the Income-Tax Act, 1961 (in short, the ‘Act’) dated 17-03-2015.

2. However, in this appeal the assessee has raised multiple grounds of appeal, but at the time of hearing the solitary grievance of the assessee has been confined to the issue of addition u/s. 68 to the tune of Rs.2,97,75,000/- made by the Assessing Officer on account of share capital/share premium as the assessee has failed to prove the identity, creditworthiness and genuineness of the transaction.

3. Brief facts qua the issue are that the assessee company filed its return of income for the A.Y 2012-13, on 25-09-2012, declaring total income at Rs. Nil. The assessee’s return of income was selected for scrutiny u/s. 143(2) of the Act. During the scrutiny proceedings, the Assessing Officer noticed that the assessee company had raised a fresh share capital including security premium of Rs.2,97,75,000/- by issuing 11,91,000 number of shares at a face value of Rs. 10/- each with a premium of Rs. 15/-, per share. In order to look into the three limbs of basic parameters i.e., identity and creditworthiness of the share applicants as well as genuineness of the transactions, summon u/s 131 of the Act was issued to the Director of the assessee company on 16/02/2015, requesting for personal appearance on 23/02/2015. At the same time, it was also requested to produce all the Directors of the subscribers companies. But there was no response on the part of the assessee company. Neither the Director of the assessee company appeared nor any Director of any share subscriber company was produced. Instead of appearing in person and producing the Directors of the subscriber companies, the assessee company submitted details at the office of the Assessing Officer. The Assessing Officer noted that whenever a sum is credited in the books of the assessee company, the onus lies on the assessee company to prove three criteria; namely, (i) Identity of the investors, (ii) Creditworthiness of the investors and (iii) Genuineness of the transactions. In this instant case, the assessee company failed to discharge its onus, therefore the identity, creditworthiness and genuineness of the subscriber companies remain unexplained. The Assessing Officer also noticed that the share capital, reserve and surplus, net worth, turnover of the assessee company, remained unexplained which are necessary for an investor to consider before an investment is made. It leads to conclusion that if there was investment, it was done without minimum business prudence and therefore is not usual, as it lacks the motive of profit or gain. Here, since the Directors failed to appear before the undersigned and at the same time failed to produce the Directors of the share subscriber companies, hence, Assessing Officer was of the opinion that they have lacked regarding the normal business prudence. From the statements of accounts of the assessee company for the AY 2012-13 including the e-filed returns, it was noted by the Assessing Officer that the company is a zero asset base company which has raised share capital by issuing its shares to primarily different private limited companies against a high premium of Rs.190/-. Almost entire portion of the share holders fund have been shown as again invested by the assessee company in the shares of different private limited companies. Hon’ble Apex Court in the case of CIT Vs. Durga Prasad More 82 ITR 540 and in the case of Sumati Dayal Vs. CIT 414 ITR 801 has expounded that revenue authorities are also supposed to consider the surrounding circumstances and apply the test of human probability. In these cases, the transactions though apparent were held to be not real ones. Therefore considering the above facts and judicial pronouncement, the Assessing Officer made addition to the tune of Rs. 2,97,75,000/- u/s 68 of the Act.

4. Aggrieved by the order of the AO, the assessee carried the matter in appeal before the ld. CIT(A), who has confirmed the impugned addition made by the Assessing Officer. Aggrieved by the order of the ld CIT(A), the Assessee is in appeal before us.

5. The ld. Counsel for the assessee has reiterated the submissions made before the authorities below. On the other hand, Ld. DR for the Revenue submitted before us that assessee company, is a zero asset base company which has raised share capital by issuing its shares to primarily different private limited companies against a high premium of Rs.190/-, which is nothing but to introduce the unaccounted money without paying taxes. In this instant case, the assessee company failed to discharge its onus, about the identity, creditworthiness and genuineness of the subscriber companies. Apart from this, ld DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity.

6. We have heard both the parties and perused the material available on record, we note that according to section 68 of the Income Tax Act, where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not satisfactory in the opinion of the assessing officer, the sum so credited may be charged to income tax as the income of the assessee of that assessment year. The assessing officer may consider such sum as cash credit due to lack of sufficient explanation. It is well known that provisions of section 68 have been introduced into the taxing enactments step by step in order to plug loopholes. Even long prior to the introduction of section 68 of the Act, in the statute book, courts had held that where any amounts were found credited in the books of the assessee in the previous year and the assessee offered no explanation about the nature and source thereof or the explanation offered was, in the opinion of the assessing officer, is not satisfactory, the sums so credited could be charged to income-tax as income of the assessee of the relevant assessment year. We note that with effect from assessment year 2013-14, section 68 of the Income Tax Act has been amended to provide that if a closely held company fails to explain the source of share capital, share premium or share application money received by it to the satisfaction of the assessing officer, the same shall be deemed to be the income of the company under section 68 of the Act. We note that the amended provisions of section 68, is not applicable to the assessee company under consideration, as the assessee’s, assessment year is 2012-13. The Hon’ble Bombay High Court, in the case of Gagandeep Infrastructure 80 Taxmann.Com 272 (Bom), held that amendment to section 68 is prospective and applicable only from assessment year 2013-14.

With this background, now we shall proceed to examine in the assessee’s case under consideration, whether assessee has discharged his onus to prove, prima facie, the identity, creditworthiness and genuineness of the share capital and share premium received by it from share subscribers companies.

7. We note that the assessee company during the year under appeal, allotted 11,91,000 Equity Shares of a Face Value of Rs. 10/- per share at a premium of Rs.15/- per share. As such, the assessee raised Share Capital of Rs.1,19,10,000/- and securities premium of Rs.1,78,65,000/- totaling to Rs.2,97,75,000/-. The said increase in share capital was duly approved by the Board of Directors vide Board Resolution dated 24.03.2012 and accordingly Form No. 2 and Form No. 5 were filed with the ROC. (Copy of Form 2 and Form 5 is enclosed at page 15-23 of Paper book). The list of allottees to whom 11,91,000 Equity Shares of a Face Value of Rs.10/- per share at a premium of Rs.15/- per share were allotted are as under:

Sl. No.

Name of Allottee

No. of Shares Allotted

Share Capital @ Rs.10 per Share

Share Premium @ Rs.15 per Share

Total

1.

Startrade Vyapaar Ltd

55000

5,50,000/-

8,25,000/-

13,75,000

2.

Kamayani Commotrade Pvt. Ltd.

376000

37,60,000/-

56,40,000/-

94,00,000

3.

Baba Basuki Distributors Pvt. Ltd

560000

56,00,000/-

84,00,000/-

1,40,00,000/-

4.

Regard Fin Cap Pvt. Ltd

200000

20,00,000/-

30,00,000/-

50,00,000/-

 

Total

1191000

1,19,10,000/-

1,78,65,000/-

2,97,75,000/-

The above sum of Rs. 2,97,75,000/- was added to the total income of the assessee considering it as unexplained cash credit u/s 68 of the Act by the Ld. AO and the same was sustained by the Ld. CIT (A).

We note that in the instant case the details of amount received during the assessment year under consideration and earlier assessment years are as follows:

Sl.No.

Name of Allotee

Amount Received in earlier years, hence not subject to tax in current year.

Amount received during the year under appeal (AY 2012-13)

Total

1.

Startrade Vyappar Ltd.

13,75,000/-

–

13,75,000/-

2.

Kamayani Commercial Pvt. Ltd.

18,00,000/-

76,00,000/-

94,00,000/-

3

Baba Basuki Distributors Pvt. Ltd

–

1,40,00,000/-

1,40,00, 000/-

4.

Regard Fin Cap Pvt. Ltd

–

50,00,000/-

50,00,000/-

 

Total

31,75,000/-

2,66,00,000/-

2,97,75,000/-

We note that the amount of Rs.2,66,00,000/- was received during the assessment year under appeal and the balance of Rs.31,75,000/- was received in earlier years and was part of the brought forward balances. It is abundantly clear that the Ld. AO could not have added and the Ld. CIT(A) erred in confirming the amount of Rs.31,75,000/- under the provisions of section 68 of the Income Tax Act, 1961 in the present year since the said amount of Rs.31,75,000/-was received in earlier years. Since the said amount does not pertain to assessment year under consideration therefore provisions of section 68 do not apply. Hence, it is clear that any cash credit can be brought to tax as the income of the year in which the credits are received and not in any other year. For that we rely on the Judgment of Rajasthan High Court in the case of Commissioner of Income Tax vs. Prarmeshwar Bohra, [(2008) 301 ITR 404 (Raj)], where in it was held that:

” 4. On the merit of the additions made in the income of the assessee, there is a clear finding and about which there is no dispute that the amount added in the income of the assessee as unexplained investment or cash credit in the assessment year 1993-94 was the same amount which was credited in the books of account of the assessee for the previous year ending on March 31, 1992. The Tribunal has categorically come to a finding, and that finding is not under challenge, that this is not a case of cash credit entered in the books of account of the assessee during the year but it is a case in which the assessee has invested the capital in the business and this amount was shown as a closing capital as on March 31, 1992, and on April 1, 1992, it was an opening balance. Considering this aspect, the Tribunal has come to the conclusion that what was already credited in the books of account ending on March 31, 1992, for the financial year 1991-92 relevant to the assessment year 1992-93 cannot be an unexplained cash credit or investment in the books of account maintained for the financial year 1992-93, the accounting period of which ends on March 31, 1993, so as to warrant its consideration as unexplained investment or cash credit for its relevant assessment year 1993-94.

5. It does not require any elaborate argument that a carried forward amount of the previous year does not become an investment or cash credit generated during the relevant year 1993-94. This alone is sufficient to sustain the order of the Tribunal in deleting the amount of Rs. 1,55,316 from the assessment for the assessment year 1993-94. Since the appeal succeeds on the merits of the assessee’s case in respect of the additions made in the income computed on reassessment the validity of notice dated June 17, 1997, need not be gone into. “

Further the Hon’ble Delhi High Court in the case of Commissioner of Income Tax vs. Usha Stud Agricultural Farms Ltd., [(2008) 301 ITR 384 (Delhi)] held as under:

” 8. Here, the CIT(A) has deleted the addition of Rs. 15 lacs mainly on the ground that this credit balance of Rs. 15 lacs is being reflected in the accounts of the assessed over the past four to five years or so and hence this was not a fresh credit entry of the previous year under consideration and these credit entries were already made and accounted for in the assessment years 1995-96 and 1997-98 which were introduced in the form of advance against breeding stallions owned by the assessed and thus these credit entries did not relate to the year under consideration for being considered under Section 68 of the Act.

9. Since it is a finding of fact recorded by the CIT(A) that this credit balance appearing in the accounts of the assessee, does not pertain to the year under consideration, under these circumstances, the Assessing Officer was not justified in making the impugned addition under section 68 of the Act and as such no fault can be found with the order of the Tribunal which has endorsed the decision of the CIT(A).”

Therefore, we note that only the sum of Rs.2,66,00,000/- received during the year could have been a subject matter of examination for the purpose of section 68 of the Act in the current year. The ld DR for the Revenue does not controvert the aforesaid findings, therefore, we delete the amount of Rs. 31,75,000/-.

8. Now, the balance amount of Rs. 2,66,00,000/- (i.e. Rs. 2,97,75,000 – Rs. 31,75,000) is to be examined in terms of identity, creditworthiness and the genuineness of the share applicant companies and the transactions entered into with them. Before addressing the legal issue involved in this case, we would like to bring on record the various documents relating to the share subscribers, which are available in the paper book.

(i). Startrade Vyapaar Ltd: During the year 55,000 equity shares were allotted to M/s Startrade Vyapaar Ltd. Entire Share Application money amounting to Rs.13,75,000/- was received in the immediately preceding year. M/s Startrade Vyapaar Ltd is an associate company of the assessee. Both the directors of the assessee company namely Lalit Kr Kothari and Giriraj Ratan Bagri were also the Directors in this company. The assessee company was also holding shares of this company. M/s.Startrade Vyapaar Ltd is engaged in the business of hiring machinery and equipments. Further, as would be evident from ITR Acknowledgment for AY 2011-12, the company reported gross income of Rs.2,03,92,591/-. M/s Startrade Vvapaar Ltd is also an associate concern of M/s. Simplex Infrastructure Ltd, a listed company with BSE. The same is also mentioned in the ‘Related Party Disclosure’ of the company. Almost the entire source of funds for investment in the assessee company was from revenue generated from Simplex Infrastructure Limited as would be clearly evident from the detailed chart showing the date wise inflow of funds and the subsequent investment in the assessee company enclosed at page 25 of the paper book.

A copy of the chart of source of funds, ITR acknowledgment, Annual Accounts for the FY 2010-11 and the relevant Bank Statement are attached at Page 25-79 of the Paper Book. On a perusal of the Balance Sheet, it can be seen that the own funds of the company is Rs.5,24,41,578/-. This very clearly shows the high creditworthiness of the company to make investment in the assessee company.

Further, the entire inflow and outflow of funds was made through regular banking channels as supported by Bank Statements of both the companies. In addition to above, it is submitted that the company had fixed assets of Rs.3,30,62,162/- which comprises of land and buildings, plant and machinery, air conditioner, computer and furniture & fixtures. The Company had earned total revenue of Rs.14,67,30,576/- and profit of Rs.2,34,56,203/- during the F.Y.2010-11. The company also paid tax of Rs.68,00,000/- during the A.Y. 2011-12. The Company also had cash and cash equivalent of Rs.32,55,002/-. Copy of Financial Statement for F.Y.2010-11 is enclosed at page 27-41 of Paper Book.

Further, the Company had total Turnover of Rs.17,01,53,552/- and profit before taxes of Rs. l,65,55,479/- during the F.Y. 2011-12. The Company also paid taxes of Rs.50,36,000/- during the year. The Company also had cash and cash equivalent of Rs.42,81,403/-. Copy of the Financial Statement enclosed at page 43-59 of Paper book. Hence, the company had strong financial position to make investment in the other companies. In spite of the fact that the share application money was received in earlier year, the assessee submitted the source of funds, ITR acknowledgment, Annual Accounts for the FY 2010-11 and the relevant Bank Statement to prove the identity of the shareholder and genuineness and creditworthiness of the company to make investment. The same are enclosed at pages 25-79 of the Paper book.

(ii). Kamayani Commotrade Pvt Ltd: During the year 3,76,000 equity shares were allotted to M/s Kamayani Commotrade Private Ltd. M/s Kamayani Commotrade Private Ltd is a NBFC Company and is primarily engaged in the business of granting loans and advances and investment in shares. It is an associate concern of the assessee having common shareholders. The said fact is also mentioned in the Schedule ‘Related Party Disclosure’ in the Audited Accounts of Kamayani Commotrade Pvt Ltd, refer page 93 of the paper Book. The entire source of funds for investment in the assessee company was from refund of loan from different parties as would be clearly evident from the detailed chart showing the date-wise inflow of funds and the subsequent investment in the assessee company enclosed at Page 80 of the Paper Book. A copy of the chart of source of funds, ITR acknowledgment, Annual Accounts for the FY 2011-12 and the relevant Bank Statement are attached at Page 80-108 of the Paper Book. On a perusal of the Balance Sheet, it can be seen that the own funds of the company is Rs. 9,83,20,364/-. This very clearly shows the high creditworthiness of the company to make investment in the assessee company. Further, the entire inflow and outflow of funds was made through regular banking channels as supported by Bank Statements of both the companies.

In addition to above, it is also submitted that the company had total revenue of Rs.47,11,528/-. During the F.Y. 2011-12, it earned profit before taxes of Rs.9,54,007/-. The revenue comprises of interest income, dividend income and sale of shares which are the main source of income. The company had paid tax of Rs. 1,83,203/- during the year. Further, as already discussed the company being engaged in the business of lending and investing activities, the company made investment in the assessee accompany as well as several other companies out of the refund of loan amount given in earlier years. The Loan given by the company in earlier years was not questioned and therefore the source of fund i.e. refund of loan could not be doubted. Refund of loan implies that the existing funds of the assessee were utilized for investment and no new or outside funds has come in to make such investment. Further, it is also obvious that the company had own fund of Rs. 9,83,20,364/- which has been utilized by the company in lending and investing activities.

The copies of source of funds, ITR acknowledgment, Annual Accounts and the relevant Bank Statement to prove the identity of the shareholder and genuineness and creditworthiness of the company to make investment are enclosed at page 80-108 of the Paper book.

(iii) Baba Basuki Distributors Pvt Ltd: During the year 5,60,000 equity shares were allotted to M/s Baba Basuki Distributors Pvt Ltd. M/s Baba Basuki Distributors Pvt Ltd is an associate company of the assessee. Lalit Kr Kothari is a common Director in both these companies. M/s Baba Basuki Distributors Pvt Ltd is a NBFC Company and is primarily engaged in the business of granting loans and advances and investment in shares. M/s Baba Basuki Distributors Pvt Ltd is also an associate concern of Simplex Infrastructure Limited, a listed company with BSE. The source of funds for investment in the assessee company was refund of Share Application Money from M/s Startrade Vyapaar Limited as would be clearly evident from the detailed chart showing the datewise inflow of funds and the subsequent investment in the assessee company enclosed at Page 109-142 of the Paper Book. A copy of the chart of source of funds, ITR acknowledgment, Annual Accounts for the FY 2011-12 and the relevant Bank Statement are attached at Page 109-142 of the Paper Book. On a perusal of the Balance Sheet, it can be seen that the own funds of the company is Rs.14,39,85,793/-. This very clearly shows the high creditworthiness of the company to make investment in the assessee company. Further, the entire inflow and outflow of funds was made through regular banking channels as supported by Bank Statements of both the companies. In addition to above, it is also submitted that the company being NBFC company engaged in lending and investing activities, had total revenue from operation of Rs.45,58,266/- which mainly comprised of interest income and dividend income. The company also earned profit before taxes of Rs.39,65,867/- during F.Y. 2011-12. Further, the company had also earned profit before taxes of Rs.33,91 369/- in the F.Y. 2010-11. This very clearly shows that the company had maintained net profit ratio ranging between 70%-90%. This show that the capacity of the company is financially strong. Copy of the Financial Statement enclosed at page 119-142 of Paper book. Further, it is obvious that the company being investment company will make investment in one company and will either earn income from such investment or if the investment are refunded then the same will be utilised in investing in any other company. Hence, this cannot be said to be mere rotation of money as the main business of such company is lending and investing activities. The copies of source of funds, ITR acknowledgment, Annual Accounts and the relevant Bank Statement to prove the identity of the shareholder and genuineness and creditworthiness of the company to make investment are enclosed at page 109-142 of the paper book.

(iv) Regard Fin-Cap Pvt Ltd: During the year 2,00,000 equity shares were allotted to M/s Regard Fin-Cap Pvt Ltd. M/s Regard Fin-Cap Pvt Ltd is an associate company of the assessee having common shareholders. Lalit Kr Kothari is a common Director in both these companies. M/s Regard Fin-Cap Pvt Ltd is also an associate concern or Simplex Infrastructure Limited, a listed company with BSE. The source of funds for investment in the assessee company was refund of Share Application Money as would be clearly evident from the detailed chart showing the date-wise inflow of funds and the subsequent investment in the assessee company enclosed at Page 143 of the Paper Book. A copy of the chart of source of funds, ITR acknowledgment, Annual Accounts for the FY 2010-11 and the relevant Bank Statement are attached at Page 143-164 of the Paper Book. On a perusal of the Balance Sheet, it can be seen that the own funds of the company is Rs.l,41,18,848/-. This very clearly shows creditworthiness. Further, the entire inflow and outflow of funds was made through regular banking channels as supported by Bank Statements of both the companies. The copies of source of funds, ITR acknowledgment, Annual Accounts and the relevant Bank Statement to prove the identity of the shareholder and genuineness and creditworthiness of the company to make investment are enclosed at page 143-164 of the Paper book.

Therefore, ld. Counsel for the assessee, in light of the aforesaid submissions argued that the assessee had duly established the identity of the shareholders by furnishing the ITR Acknowledgement, PAN card, ROC details.

The ld. Counsel submitted that all the companies are Associate Concerns of the assessee as well as of M/s Simplex Infrastructures Ltd. and the entire source of investment is within the group and no outside funds arc involved. It is also evident from the balance sheet of the investors that they had made investment in the assessee company. Further the share capital and reserves of the aforesaid investors are in several crores of rupees whereas the investment is only a small part of their capital. This very clearly shows the high creditworthiness of the company to make investment in the assessee company.

The bank statement submitted clearly substantiates that the transaction was made through banking channels and no cash element is involved in the share application money received. Further the source of the fund from where the investment was made by the investors was also duly furnished. This very clearly shows that the transaction incurred was through genuine sources. Thus, the Source of Fund, Bank Statements, Balance Sheet, ITR of all the investors and the assessee company clearly substantiate the identity and creditworthiness of the share applicant and genuineness of the transactions. The source of source has also been established, which is not required for AY 2012-13. Therefore, the assessee company had duly discharged its onus to prove the identity, creditworthiness and genuineness of the investor company and the transaction made during the year.

9. The Ld. DR submitted that the assessee had not justified the reasons for issuing shares at a high premium. Therefore, according to the Ld. DR, the genuineness of the transaction remained un-proved. He therefore, vehemently argued that the order of the Ld. CIT(A) should be upheld. On the other hand, the Ld Counsel first drew our attention to the several grounds raised by the assessee in respect of addition made u/s 68 of the Act. Thereafter on the merits of the case, our attention was drawn by the Ld Counsel to relevant page of paper book where we note that shareholders had submitted the following relevant details as called for and had confirmed the transaction with the assessee company. The evidences which were filed before the AO, included the following details.

(a) Income Tax Return of the share holders

(b) Copy of the bank account of the share holders

(c) Transaction with the assessee was duly highlighted in the bank statement

(d) Explanation along with evidence of source of source of the funds of the applicant

(e) Audited Accounts of the share holders

(f) Board Resolution passed by the Board of Directors of investee company

(g) Relevant address proofs by way of Professional Tax Enrolment Certificates/Form 18 filed by the applicants with ROC

10. The Ld Counsel submitted that the details of PAN, IT Acknowledgment, professional tax enrolment certificates etc. and the Form 18 furnished by the share applicants with the ROC duly proved the identity of the share subscribers. The Ld Counsel thereafter invited our attention to the respective balance sheets of the share applicants to show that each of them had sufficient funds available at their disposal to make investment in the assessee company. Referring to the respective bank statements, it was further pointed out that the transactions were conducted through proper banking channel and that there were no cash deposits in any of the bank account of the share applicants. He also invited our attention to the explanation furnished by each of the share applicants regarding their source of funds. It was thus submitted that the fund flow position of the share applicant and not the profitability was the decisive criteria to examine the creditworthiness of the share applicants. Before we adjudicate as to whether the Ld. CIT(A)’s action is right or erroneous, let us look at section 68 of the Act and the judicial precedents on the issue at hand. Section 68 under which, the addition has been made by the AO reads as under:

“68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.”

The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this case the legislative mandate is not in terms of the words ‘shall’ be charged to income-tax as the income of the assessee of that previous year. The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word “may” and not “shall”. Thus the un-satisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as also held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan [1999] 237 ITR 570.

11. The main plank on which the AO made the addition was because the directors of the share subscribers did not turn up before him. From the notices issued u/s 131, it is noted that each of the share subscribing company was required to furnish the following details for examination:

– Details of shares of assessee applied for including number of shares, nominal price, premium and amount

– Correspondence made for application of shares

– Copy of Balance Sheet, Profit & Loss A/c, ITAck for FY 2011-12

– Copy of Bank Statements evidencing transaction with assessee

– Source of Funds for making investments in the assessee company

– ROC details and relevant statement.

– Copy of Resolution passed by the Board authorizing investment in shares of assessee

– Reasons for making payment of premium.

It is noted that all the above requisitioned documents were furnished before the AO which substantiated the transaction between the assessee company and the share applicants. It is therefore not a case where the documents sought from the applicants to examine the transaction were not available before the AO. As the regards the issue of non-appearance of the share applicants, we note that in such a case the Hon’ble Apex Court in the case of Orissa Corpn. (P) Ltd. (supra) 159 ITR 78 and the Hon’ble Gujarat High Court, in the case of Dy. CIT v. Rohini Builders [2002] 256 ITR 360/[2003] 127 Taxman 523, has held that onus of the assessee (in whose books of account credit appears) stands fully discharged if the identity of the creditor is established and actual receipt of money from such creditor is proved. In case, the Assessing Officer is dissatisfied about the source of cash deposited in the bank accounts of the creditors, the proper course would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor). In arriving at this conclusion, the Hon’ble Court has further stressed the presence of word “may” in section 68. Relevant observations at pages 369 and 370 of this report are reproduced hereunder:-

“Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation [1986] 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue’s case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw and adverse inference against the assessee in the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69.

12. Undisputedly the Share Applicants in this case are the bank account holder in their respective banks in their own name and are sole owner of the credits appearing in their bank account from where they issued cheques to the assessee company. For the proposition that a Bank Account holder himself is the ‘owner’ of ‘credits’ appearing in his account (with the result that he himself is accountable to explain the source of such credits in whatever way and form, the same have emerged) support can be derived from section 4 of Bankers Book Evidence Act 1891 which reads as under:-

“4. Mode of proof of entries in bankers’ books Subject to the provisions of this Act, a certified copy of any entry in a bankers’ book shall in all legal proceedings be received as prima facie evidence of the existence of such entry, and shall be admitted as evidence of the matters, transactions and accounts therein recorded in every cases where, and to the same extent as, the original entry itself is now by law admissible, but not further or otherwise.”

13. Following the said provisions, the co-ordinate bench of Allahabad Tribunal in the case of Anand Prakash Agarwal reported in 6 DTR (All-Trib) 191 held as under:-

“The question that remains to be decided now is whether the subject matter of transfer was the asset belonging to the transferor/donors themselves. There is enough material on record which goes to show that there were various credits in the bank accounts of the donors, prior to the transaction of gifts, which undisputedly belonging to the respective donors themselves, in their own rights. No part of the credits in the said bank accounts was generated from the assessee and/or from its associates, in any manner. The certificates issued by the banks are construable as evidence about the ownership of the transferors or their respective bank accounts, as per section 4 of the Bankers Books evidence Act 1891, which read as under:

“4. Where an extract of account was duly signed by the agent of the bank and implicit in its was a certificate that it was a true copy of an entry contained in one of the ordinary books of the bank and was made in the usual and ordinary course of business and that such book was in the custody of the bank, it was held admissible in evidence. Radheshyam v. Safiyabai Ibrahim AIR 1988 Bom.361 : 1987Mah. 725: 1987 Bank J 552.”

In view of the position of law as discussed above, it is always open for a borrower to contend, that even the “creditworthiness” of the lender stands proved to the extent of credits appearing in his Bank Account and he should be held to be successful in this contention.”

14. In the case of Nemi Chand Kothari 136 Taxman 213, (supra), the Hon’ble Gauhati High Court has thrown light on another aspect touching the issue of onus on assessee under section 68, by holding that the same should be decided by taking into consideration the provision of section 106 of the Evidence Act which says that a person can be required to prove only such facts which are in his knowledge. The Hon’ble Court in the said case held that, once it is found that an assessee has actually taken money from depositor/lender who has been fully identified, the assessee/borrower cannot be called upon to explain, much less prove the affairs of such third party, which he is not even supposed to know or about which he cannot be held to be accredited with any knowledge. In this view, the Hon’ble Court has laid down that section 68 of Income-tax Act, should be read along with section 106 of Evidence Act. The relevant observations at page 260 to 262, 264 and 265 of the report are reproduced herein below:-

“While interpreting the meaning and scope of section 68, one has to bear in mind that normally, interpretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation of statutes, when we read carefully the provisions of section 68, we notice nothing in section 68 to show that the scope of the inquiry under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorize the Revenue Department to make inquiry into the source(s) of the credit and/or sub-creditor. The language employed by section 68 cannot be read to impose such limitations on the powers of the Assessing Officer. The logical conclusion, therefore, has to be, and we hold that an inquiry under section 68 need not necessarily be kept confined by the Assessing Officer within the transactions, which took place between the assessee and his creditor, but that the same may be extended to the transactions, which have taken place between the creditor and his sub-creditor. Thus, while the Assessing Officer is under section 68, free to look into the source(s) of the creditor and/or of the sub-creditor, the burden on the assessee under section 68 is definitely limited. This limit has been imposed by section 106 of the Evidence Act which reads as follows:

“Burden of proving fact especially within knowledge.-When any fact is especially within the knowledge of any person, the burden) of proving that fact is upon him. “

What, thus, transpires from the above discussion is that white section 106 of the Evidence Act limits the onus of the assessee to the extent of his proving the source from which he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s)of the creditor but also of his (creditor’s) sub-creditors and prove, as a result, of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/source from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and IT is not the burden of the assessee to prove the creditworthiness of thesource(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then, the interpretation of section 68 are to stand together, which they must, then the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of section 106 of the Evidence Act and section 68 of the Income- tax Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the assessee to prove that the sub- creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been. eventually, received by the assessee. It, therefore, further logically follows that the creditor’s creditworthiness has to be Judged vis-a-vis the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub- creditors, for, these aspects may not be within the special knowledge of the assessee. “

“… If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis-a-vis the transactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuineness of the transaction and the creditworthiness of the creditor vis-a-vis the transactions which had taken place between the assessee and the creditor and not between the creditor and the sub-creditors, for, it is not even required under the law for the assessee to try to find out as to what sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had’ with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub-creditor… “

“In other words, though under section 68 an Assessing Officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-creditor to the creditor was income of the assessee from undisclosed source unless there is evidence, direct or circumstantial, to show that the amount which has been advanced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee ….. “

“Keeping in view the above position of law, when we turn to the factual matrix of the present case, we find that so far as the assessee is concerned, he has established the identity of the creditors, namely, NemichandNahata and Sons (HUF) and Pawan Kumar Agarwalla. The assessee had also shown, in accordance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors aforementioned. In fact the fact that the assessee had received the said amounts by way of cheques was not in dispute. Once the assessee had established that he had received the said amounts from the creditors aforementioned by way of cheques, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter the burden had shifted to the Assessing Officer to prove the contrary. On mere failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee, such failure, as a corollary, could not have been and ought not to have been, under the law, treated as the income from the undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. Viewed from this angle, we have no hesitation in holding that in the case at hand, the Assessing Officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. In the absence of any such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the assessee from undisclosed sources. The learned Tribunal seriously fell into error in treating the said amounts as income derived by the assessee from. undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness. “

15. In the case of CIT Vs Jalan Hard Coke Ltd (95 taxmann.com 330), the Hon’ble Rajasthan High Court noted that the assessee had furnished the details of the share applicants but expressed its inability to produce the share applicants before the AO for examination. The Hon’ble High Court held that mere non-appearance of share applicants could not be reason enough to assess the share application monies received by way of unexplained cash credit. The SLP filed by the Revenue against this judgment has been dismissed by the Hon’ble Supreme Court. The relevant extracts of the judgment are as follows:

“6.2 Taking into consideration the aforesaid decision we are of the considered opinion that company cannot be assessed for the income tax to find out the person who has applied as share holder. The view of taken by the Tribunal is just and proper, therefore, the issue is answered in favour of the assessee and against the department.”

16. Further, in the case of CIT v. Orchid Industries (P.) Ltd. [2017] 88 taxmann.com 502/397 ITR 136, the Hon’ble Bombay High Court on the issue of non-appearance of share applicants had held as under:

“[5] The Assessing Officer added Rs.95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account.

[6] The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P.) Ltd. (supra) would be applicable in the facts and circumstances of the present case”

17. Further, in the case of CIT v. S. Kamaljeet Singh [2005] 147 Taxman 18(All.) their lordships, on the issue of discharge of assessee’s onus in relation to a cash credit appearing in his books of account, has observed and held as under:-

“4. The Tribunal has recorded a finding that the assessee has discharged the onus which was on him to explain the nature and source of cash credit in question. The assessee discharged the onus by placing (i) confirmation letters of the cash creditors; (ii) their affidavits; (iii) their full addresses and GIR numbers and permanent account numbers. It has found that the assessee’s burden stood discharged and so, no addition to his total income on account of cash credit was called for. In view of this finding, we find that the Tribunal was right in reversing the order of the AA C, setting aside the assessment order.”

18. Further the jurisdictional Calcutta High Court in the case of S.K. Bothra & Sons, HUF v. Income-tax Officer, Ward- 46(3), Kolkata (347 ITR 347) also held as follows:

“15. It is now a settled law that while considering the question whether the alleged loan taken by the assessee was a genuine transaction, the initial onus is always upon the assessee and if no explanation is given or the explanation given by the assessee is not satisfactory, the Assessing Officer can disbelieve the alleged transaction of loan. But the law is equally settled that if the initial burden is discharged by the assessee by producing sufficient materials in support of the loan transaction, the onus shifts upon the Assessing Officer and after verification, he can call for further explanation from the assessee and in the process, the onus may again shift from the Assessing Officer to assessee.

16. In the case before us, the assessee by producing the loan-confirmation- certificates signed by the creditors, disclosing their permanent account numbers and address and further indicating that the loan was taken by account payee cheques, no doubt, prima facie, discharged the initial burden and those materials disclosed by the assessee prompted the Assessing Officer to enquire through the Inspector to verify the statements.”

19. Further, the Hon’ble High Court at Calcutta in the case of Crystal Networks (P.) Ltd. v. Commissioner of Income-tax (353 ITR 171), on the issue of unexplained cash credits, held that when the basic evidences are on record the mere failure of the creditor to appear cannot be basis to make addition. The court held as follows:

8. Assailing the said judgment of the learned Tribunal learned counsel for the assessee submits that Income-tax Officer did not consider the material evidence showing the creditworthiness and also other documents, viz., confirmatory statements of the persons, of having advanced cash amount as against the supply of bidis. These evidence were duly considered by the Commissioner of Income-tax (Appeals). Therefore, the failure of the person to turn up pursuant to the summons issued to any witness is immaterial when the material documents made available, should have been accepted and indeed in subsequent year the same explanation was accepted by the Income-tax Officer. He further contended that when the Tribunal has relied on the entire judgment of the Commissioner of Income-tax (Appeals), therefore, it was not proper to take up some portion of the judgment of the Commissioner of Income-tax (Appeals) and to ignore the other portion of the same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so the Tribunal committed grave error in law in upsetting the judgment in the order of the Commissioner of Income-tax (Appeals).

9. In this connection he has drawn our attention to a decision of the Supreme Court in the case of Udhavdas Kewalram v. CIT [19671 66 ITR 462. In this judgment it is noticed that the Supreme Court as proposition of law held that the Tribunal must In deciding an appeal, consider with due care, all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner in the light of the evidence and the relevant law.

10. We find considerable force of the submissions of the learned counsel for the assessee that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore, it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter the creditworthiness. As rightly pointed out by the learned counsel that the Commissioner of Income-tax (Appeals) has taken the trouble of examining of all other materials and documents, viz., confirmatory statements, invoices, challans and vouchers showing supply of bidis as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued, in our view, is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the product of the assessee or not. When it was found by the Commissioner of Income- tax (Appeals) on facts having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this -fact finding. Indeed the Tribunal did not really touch the aforesaid fact finding of the Commissioner of Income-tax (Appeals) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 464, the Supreme Court has observed as follows:

“The Income-tax Appellate Tribunal performs a judicial function under the Indian Income-tax Act; it is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. “

11. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity.

12. Taking inspiration from the Supreme Court observations we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Commissioner of Income-tax (Appeals). We also found no single word has been spared to up set the fact finding of the Commissioner of Income-tax (Appeals) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made.

13. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Commissioner of Income-tax (Appeals). The appeal is allowed.

20. When a question as to the creditworthiness of a creditor is to be adjudicated and if the creditor is an Income Tax assessee, it is now well settled by the decision of the Calcutta High Court that the creditworthiness of the creditor cannot be disputed by the AO of the assessee but the AO of the creditor. In this regards our attention was drawn to the decision of the Hon’ble High Court, Calcutta in the CIT Vs Dataware Pvt Ltd (ITAT No. 263 of 2011) dated 21.09.2011 wherein the Court held as follows:

“In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness” of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence.

So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness” of transaction through account payee cheque has been established.

We find that both the Commissioner of Income Tax (Appeal) and the Tribunal below followed the well-accepted principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities.”

21. Our attention was also drawn to the decision of the Hon’ble Supreme Court while dismissing SLP in the case of Lovely Exports as has been reported as judgment delivered by the CTR at 216 CTR 295:

“Can the amount of share money be regarded as undisclosed income under section 68 of the Income tax Act, 1961? We find no merit in this special leave petition for the simple reason that if the share application money is received by the assessee- company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment.

22. Our attention was also drawn to the decision of the Hon’ble Calcutta High Court in the appeal of Commissioner of Income tax, Kolkata- IVVs Roseberry Mercantile (P) ltd., ITAT no. 241 of 2010 dated 10- 01-2011, wherein it was held as below:

“On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT (A) ought to have held that the assessee had not established the genuineness of the transaction. “

It appears from the record that in the assessment proceedings it was noticed that the assessee company during the year under consideration had brought Rs. 4, 00, 000/- and Rs.20,00,000/- towards share capital and share premium respectively amounting to Rs.24,00, 000/- from four shareholders being private limited companies. The Assessing Officer on his part called for the details from the assessee and also from the share applicants and analyzed the facts and ultimately observed certain abnormal features, which were mentioned in the assessment order. The Assessing Officer, therefore, concluded that nature and source of such money was questionable and evidence produced was unsatisfactory. Consequently, the Assessing Officer invoked the provisions under Section 68/69 of the Income Tax Act and made addition of Rs.24,00,000/-.

On appeal the Learned CIT (A) by following the decision of the Supreme Court in the case of CIT vs. M/s. Lovely Exports Pvt. Ltd., reported in (2008) 216 CTR 195 allowed the appeal by holding -that share capital/premium of Rs. 24,00,000/-received from the investors was not liable to be treated under Section 68 as unexplained credits and it should not be taxed in the hands of the assessee company.

As indicated earlier, the Tribunal below dismissed the appeal filed by the Revenue.

After hearing the learned counsel for the assessee and after going through the decision of the Supreme Court in the case of CIT vs. M/s. Lovely Exports Pvt. Ltd. [supra], we are at one with the Tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed.

23. Our attention was also drawn to the decision of the Hon’ble High Court, Calcutta in the case of Commissioner Of Income Tax vs M/s. Nishan Indo Commerce Ltd in ITA No. 52 of 2011 dated 2 December, 2013 wherein the Court held as follows:

“The Assessing Officer was of the view that the increase in share capital by RS.52,03,500/- was nothing but the introduction of the assessee’s own undisclosed funds/income into the books of accounts of the assessee company. The Assessing Officer accordingly treated the investment as unexplained credit under Section 68 of the Income Tax Act and added the same to the income of the assessee.

Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) being the First Appellate Authority and contended that the Assessing Officer had no material to show that the share capital was the income of the assessee company and as such the addition made by the Assessing Officer under Section 68 of the Act was wrong.

The learned Commissioner of Income Tax (Appeals) after hearing the department and the Assessee Company deleted the addition of Rs. 52, 03,500/- to the income of the assessee company during the Assessment Year in question. The learned Commissioner of Income Tax Appeals found that there were as many as 2155 allottees, whose names, addresses and respective shares allocation had been disclosed.

The Commissioner of Income Tax Appeals, further found that the Assessee Company received the applications through bankers to the issue, who had been appointed under the guidelines of the Stock Exchange and the Assessee Company had been allotted shares on the basis of allotment approved by the Stock Exchange. The Assessee Company had duly filed the return of allotment with the Registrar of Companies, giving complete particulars of the allottees.

The Commissioner of Income Tax (Appeals) found that inquires had confirmed the existence of most of the shareholders at the addresses intimated to the Assessing Officer, but the Assessing Officer took the view that their investment in the Assessee Company was not genuine, on the basis of some extraneous reasons. The Commissioner of Income Tax (Appeals) took note of the observation of the Assessing Officer that enquiry conducted by the Income Tax Inspector had revealed that nine persons making applications for 900 shares were not available at the given address and rightly concluded that the total share capital issued by the Assessee Company could not be added as unexplained cash credit under ‘Section 68 of the Income Tax Act. Moreover, if the nature and source of investment by any shareholder, in shares of the Assessee Company remained unexplained, liability could not be foisted on the company. The concerned shareholders would have to explain the source of their fund.

The learned Commissioner on considering the submissions of the, respective parties and considering the materials, found that the Assessing Officer had applied the provisions of Section 68 of the Income Tax Act arbitrarily and illegally and in any case without giving the assessee adequate opportunity of representation and/or hearing.

Learned Tribunal agreed with the factual findings of the learned Commissioner and accordingly the learned Tribunal dismissed the appeal of the Revenue and affirmed the decision of the learned Commissioner.

Mr. Dutta appearing on behalf of the petitioners cited judgment of the Division Bench of this Court in Commissioner of Income Tax Vs. Ruby Traders and Exporters Limited reported in 236 (2003) ITR 3000 where a Division Bench of this Court held that when Section 68 is resorted to, it is incumbent on the assessee company to prove and establish the identity of the subscribers, their credit worthiness and the genuineness of the transaction. The aforesaid judgment was rendered in the context of the factual background of the aforesaid case where, despite several opportunities being given to the assessee, nothing was disclosed about the identity of the shareholders. In the instant case, the assesseedisclosed the identity and address and particulars of share allocation of the shareholders. It was also found on the facts that all the shareholders were in existence. Only nine shareholders subscribing to about 900 shares out of 6, 12,000 shares were not found available at their addresses, and that too, in course of assessment proceedings in the year 1994, i.e., almost 3 years after the allotment.

By an order dated 2nd May, 2001, this Court admitted the appeal on three questions which essentially centre around the question of whether the Appellate Commissioner erred in law in deleting the addition of Rs. 52, 03, 500/- to the income of the assessee as made by the Assessing Officer. We are of the view that there is no question of law involved in this appeal far less any substantial question of law.

The learned Tribunal has concurred with the learned Commissioner on facts and found that there were materials to show that the assessee had disclosed the particulars of the shareholders. The factual findings cannot be interfered with, in appeal. We are of the view that once the identity and other relevant particulars of shareholders are disclosed, it is for those shareholders to explain the source of their funds and not for the assessee company to show wherefrom these shareholders obtained funds.”

24. Further, our attention was drawn to the decision of the Hon’ble High Court, Calcutta in the case of Commissioner of Income Tax vs M/s. Leonard Commercial (P) Ltd in ITAT No. 114 of 2011 dated 13thJune, 2011 wherein the Court held as follows:

“The only question raised in this appeal is whether the Commissioner of Income- tax (Appeals) and the Tribunal below erred in law in deleting the addition of Rs.8,52,000/-, Rs. 91,50,000/- and Rs. 13,00,000/- made by the Assessing Officer on account of share capital, share application money and investment in HTCCL respectively.

After hearing Md. Nizamuddin, learned Advocate appearing on behalf of the assessee and after going through the materials on record, we find that all such application money were received by the assessee by way of account payee cheques and the assessee also disclosed the complete list of shareholders with their complete addresses and GIR Numbers for the relevant assessment years in which share application was contributed. It further appears that all the payments were made by the applicants by account payee cheques. It appears from the Assessing Officers order that his grievance was that the assessee was not willing to produce the parties who had allegedly advanced the fund.

In our opinion, both the Commissioner of Income-tax (Appeals) and the Tribunal below were justified in holding that after disclosure of the full particulars indicated above, the initial onus of the assessee was shifted and it was the duty of the Assessing Officer to enquire whether those particulars were correct or not and if the Assessing Officer was of the view that the particulars supplied were insufficient to detect the real share applicants, to ask for further particulars.

The Assessing Officer has not adopted either of the aforesaid courses but has simply blamed the assessee for not producing those share applicants.

In our view, in the case before us so long the Assessing Officer was unable to arrive at a finding that the particulars given by the assessee were false, there was no scope of adding those money under section 68 of the Income- tax Act and the Tribunal below rightly held that the onus was validly discharged.

We, thus, find that both the authorities below, on consideration of the materials on record, rightly applied the correct law which are required to be applied in the facts of the present case and, thus, we do not find any reason to interfere with the concurrent findings offact based on materials on record.

The appeal is, thus, devoid of any substance and is dismissed summarily as it does not involve any substantial question of law.

25. Further, in the case of Pr.CITVs Hi-Tech Residency (P) Ltd (96 taxmann.com 402), the grievance of the Revenue before the Hon’ble Delhi High Court was that the none of the investors in the share capital of the assessee had personally appeared before the AO and for that reason the addition made by the AO u/s 68 was justified. While dismissing the appeal of the Revenue, the High Court held as follows:

“4. The Court finds that the exercise for determining the identity, genuineness and creditworthiness of the investors of the share capital of the Assessee as well as lenders was undertaken in an elaborate manner by the CIT (A). Comments from the AO were sought. Detailed reasons have been given by the CIT (A) to come to the conclusion that the Assessee had discharged its onus of establishing the identity, genuineness and creditworthiness of both the investors as well as the lenders. This has been concurred with by the ITAT in the impugned order which is again an extremely detailed one.

5. The concurrent factual findings of both the CIT (A) and ITAT have not been shown to be perverse by the Assessee. This is virtually the fourth stage of the litigation.

6. Question (1) is accordingly answered in the negative, i.e., in favour of the Assessee.”

It is noted that the SLP filed by the Revenue against this judgment has been dismissed by the Hon’ble Supreme Court.

26. As noted from the judicial precedents cited above, where any sum is found credited in the books of an assessee then there is a duty casted upon the assessee to explain the nature and source of credit found in his books. In the instant case, the credit is in the form of receipt of share capital with premium from share applicants. The nature of receipt towards share capital is seen from the entries passed in the respective balance sheets of the companies as share capital and investments. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e. identity of share applicants, genuineness of transactions and creditworthiness of share applicants. For proving the identity of share applicants, the assessee furnished the name, address, PAN of share applicants together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of share applicants, as we noted supra, these Companies are having capital in several crores of rupees and the investment made in the assessee company is only a small part of their capital. These transactions are also duly reflected in the balance sheets of the share applicants, so creditworthiness is proved. Even if there was any doubt if any regarding the creditworthiness of the share applicants was still subsisting, then AO should have made enquiries from the AO of the share subscribers as held in the several judgments cited above, which has not been done, so no adverse view could have been drawn. The third ingredient is genuineness of the transactions, for which we note that the monies have been directly paid to the assessee company by account payee cheques out of sufficient bank balances available in the bank accounts of the share applicants. It will be evident from the paper book that the assessee has even demonstrated the source of money deposited into their bank accounts, which in turn has been used by them to subscribe to the assessee company as share application. Hence the source of source is proved by the assessee in the instant case though the same is not required to be done by the assessee as per law as it stood/applicable in this assessment year. The share applicants have confirmed the share application as well as the payments made to the assessee company, which are duly corroborated with their respective bank statements and all the payments are by account payee cheques.

27. We find that the Hon’ble Supreme Court in the case of M/s Earth Metal Electricals P Ltd vs CIT &Anr. reported in 2010 (7) TMI 1137 in Civil Appeal No. 21073/2009 dated 30.7.2010 arising from the order of Hon’ble Bombay High Court had held as under:-

ORDER

Delay condoned.

Leave granted.

Heard learned counsel on both sides.

We have examined the position. We find that the shareholders are genuine parties. They are not bogus and fictitious. Therefore, the impugned order is set aside.

The appeal is allowed accordingly. No order as to costs.

28. In the instant case before us, we also note that the share subscribing companies are duly assessed to income tax. The Ld AR had placed on record the copies of the assessment orders framed in the cases of several of the share subscribing companies, as noted above. It therefore cannot be disputed that the share subscribing companies are not in existence. From the assessment orders, it is noted that the share subscribing companies are duly assessed to income tax and their income tax particulars together with the copies of respective income tax returns with their balance sheets are already on record. We also find that the Ld. CIT(A) had categorically stated that the scrutiny assessments were framed on the share subscribing companies for the Asst Year 2012-13 which shows their existence is genuine and transactions carried out by them were the subject matter of examination by the income tax department in scrutiny proceedings. This fact has not been controverted by the Revenue before us.

29. We may gainfully refer to the judgment in the case of Pr. CIT Vs Paradise Inland Shipping (P) Ltd (84 taxmann.com 58) wherein the Bombay High Court had deleted similar addition on similar set of facts made on account of unexplained cash credits and the SLP filed by the Revenue against the judgment has been dismissed by the Hon’ble Supreme Court. The relevant extracts of the judgment is as follows:

“5. We have given our thoughtful considerations to the rival contentions of the learned Counsel and we have also gone through the records. The basic contention of the learned Counsel appearing for the Assessees revolves upon the stand taken by the Assessees whether the shareholders who have invested in the shares of the Respondents are fictitious or not. In this connection, the Respondents in support of their stand about the genuineness of the transaction entered into with such Companies has produced voluminous documents which, inter alia, have been noted at Para 3 of the Judgment of the CIT Appeals which reads thus :

“The assessment is completed without rebutting the 550 page documents which are unflinching records of the companies. The list of documents submitted on 09.03.2015 are as follows :

1. Sony Financial Services Ltd. – CIN U74899DL1995PLC068362- Date of Registration 09/05/1995

6. On going through the documents which have been produced which are basically from the public offices, which maintain the records of the Companies. The documents also include assessment Orders for last three preceding years of such Companies.

7. The Assessees have failed to explain as to how such Companies have been assessed though according to them such Companies are not existing and are fictitious companies. Besides the documents also included the registration of the Company which discloses the registered address of such Companies. There is no material on record produced by the Assessees which could rebut the documents produced by the Respondents herein. In such circumstances, the finding of fact arrived at by the authorities below which are based on documentary evidence on record cannot be said to be perverse. Learned Counsel appearing for the Assessees was unable to point out that any of such findings arrived at by the authorities below were on the basis of misleading of evidence or failure to examine any material documents whilst coming to such conclusions. Under the guise of the substantial question of law, this Court in an Appeal under Section 260A of the Income Tax Act cannot re-appreciate the evidence to come to any contrary evidence. Considering that the authorities have rendered the findings of facts based on documents which have not been disputed, we find that there are no substantial question of law which arises in the present Appeal for consideration.

30. We also find that the Hon’ble Apex Court recently in the case of Principal CIT vs Vaishnodevi Refoils & Solvex reported in (2018) 96 taxmann.com 469 (SC) wherein the SLP of the Revenue has been dismissed by the Hon’ble Apex Court. The brief facts of that case were that the addition u/s 68 of the Act was made by the Assessing Officer in respect of capital contributed by the partner of the firm. The Hon’ble Gujarat High Court noted that when the concerned partner had confirmed before the Assessing Officer about his fact of making capital contribution in the firm and that the said investment is also reflected in his individual books of accounts, then no addition could be made u/s 68 of the Act. The decision of Hon’ble Gujarat High Court is reported in (2018) 89 taxmann.com 80 (Guj HC). The SLP of the revenue against this judgment was dismissed by the Hon’ble Supreme Court.

31. We may gainfully refer to the following decisions of the Hon’ble High Court in the cases as under :

(a) In the case of Pr. CIT Vs Chain House International (P) Ltd [2018] (98 taxmann.com 47)the AO had added the share application by way of unexplained cash credits was that the assessee was unable to give any justifiable reason for issuing shares at a premium. The Hon’ble Madhya Pradesh High Court did not agree with this reasoning given by the AO for making addition u/s 68, holding as under:

“Issuing the share at a premium was a commercial decision. It is the prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of shareholder whether they want to subscribe the shares at such a premium or not. This was a mutual decision between both the companies. In day to day market, unless and until, the rates is fixed by any Govt. Authority or unless there is any restriction on the amount of share premium under any law, the price of the shares is decided on the mutual understanding of the parties concerned. [Para 52]

Once the genuineness, creditworthiness and identity of investors are established, the revenue should not justifiably claim to put itself in the armchair of a businessman or in the position of the Board of Directors and assume the role of ascertaining how much is a reasonable premium having regard to the circumstances of the case. [Para 53]

There is no dispute about the receipt of funds through banking channel nor there is any dispute about the identity, creditworthiness and genuineness of the investors and, therefore, the same has been established beyond any doubt and there should not have been any question or dispute about premium paid by the investors; therefore, unless there is a limitation put by the law on the amount of premium, the transaction should not be questioned merely because the assessing authority thinks that the investor could have managed by paying a lesser amount as Share Premium as a prudent businessman. The test of prudence by substituting its own view in place of the businessman’s has not been approved by the Supreme Court. [Para 54]”

(b) In the case of CIT v. Gagandeep Infrastructure (P.) Ltd. [2017] 80 taxmann.com 272/247 Taxman 245/394 ITR 680 the Revenue contended that the fact that the shares were issued at high premium raised suspicion on the genuineness of the transactions. While dismissing this plea raised by the Revenue, the Hon’ble Bombay High Court held as under:

(e) We find that the proviso to section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced “for removal of doubts” or that it is “declaratory”. Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P.) Ltd.(supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee’s income as unexplained cash credit.

1. f) In the above circumstances and particularly in view of the concurrent finding of fact arrived at by the CIT(A) and the Tribunal, the proposed question of law does not give rise to any substantial question of law. Thus not entertained.

(c) In CIT Vs. Anshika Consultants Pvt Ltd (62 taxmann.com 192), the AO had added the share application monies treating it to be their unaccountedmonies routed though accommodation entries since the shares were issued at a high premium. The Hon’ble Delhi High Court did not agree with this contention put forth by the Revenue, by observing as under:

“Whether the assessee-company charged a higher premium or not, should not have been the subject matter of the enquiry in the first instance. Instead, the issue was whether the amount invested by the share applicants were from legitimate sources. The objective of section 68 is to avoid inclusion of amount which are suspect. Therefore, the emphasis on genuineness of all the three aspects, identity, creditworthiness and the transaction. What is disquieting in the present case is when the assessment was completed, the investigation report which was specifically called from the concerned department was available but not discussed by the Assessing Officer. Had he cared to do so, the identity of the investors, the genuineness of the transaction and the creditworthiness of the share applicants would have been apparent. Even otherwise, the share applicants’ particulars were available with the Assessing Officer in the form of balance sheets income-tax returns, PAN details etc. While arriving at the conclusion that he did, the Assessing Officer did not consider it worthwhile to make any further enquiry but based his order on the high nature of the premium and certain features which appeared to be suspect, to determine that the amount had been routed from the assessee’s account to the share applicants’ account. As held concurrently by the Commissioner (Appeals) and the Tribunal, these conclusions were clearly baseless and false. This Court is constrained to observe that the Assessing Officer utterly failed to comply with his duty considers all the materials on record, ignoring specifically the most crucial documents. “

32. We also find that the reliance placed by the Ld DR on the decision of Hon’ble Calcutta High Court in the case of Rajmandir Estates supra was distinguishable on facts as the said decision was rendered in the context of validity of revisionary jurisdiction u/s 263 of the Act by the Learned Administrative Commissioner. This fact has already been addressed by this tribunal in the case of VSP Steel P Ltd (Supra). No decision whatsoever was rendered by the Hon’ble Jurisdictional High Court in the case of Raj mandir Estates P. ltd on merits of the addition and hence does not come to the rescue of the revenue in the facts of the instant case.

33. Instead, we find that the decision of the Hon’ble Delhi High Court in the case of CIT Vs Gangeshwari Metal (P) Ltd (ITA No. 597 of 2012) dated 21.01.2012 is of much relevance in the facts of the assessee’s case. In this case the assessee had received share application money of Rs.55.50 lacs during the year in question. The assessee filed the complete names, addresses of the share applicants, confirmatory letters from them, copies of bank statements of both the company as well as the share applicants and copies of share application forms. In spite of the aforesaid documentary evidences the AO held the explanation to be unacceptable and treated the share application as unexplained cash credit thereby making addition under Section 68 of the Income-tax Act, 1961. On appeal the CIT(Appeals) deleted the aforesaid addition holding that the identity of the share applicants stood established beyond doubt, all the payments were through account payee cheques and the share applicants were regular income-tax assessees. The CIT(Appeals) further held that the Revenue did not bring any evidence on record to suggest that the share application had been received by the assessee from its own undisclosed sources nor any material was brought on record to show that the applicants were bogus. The Revenue was neither able to controvert the documentary evidences filed by the assessee nor prove that the share application were ingenuine or the applicants were non-creditworthy. The findings of the CIT(Appeals) were upheld by the Income-tax Appellate Tribunal. On appeal to the High Court, the Revenue placed strong reliance on the decision of another coordinate Bench of the same Court in the” case of CIT Vs Novo Promoters & Finlease (P) Ltd (342 ITR 169). The High Court however held that the aforesaid judgment was distinguishable from the facts of the present case. The Court observed that in that judgment the Assessing Officer had brought on record enough corroborative evidence to show that the assessee had routed unaccounted monies into its books through medium of share subscription. The share applicants had confessed that they were “accommodation entry providers”. The Assessing Officer in the latter case was able to prove with enough material that the share subscription was a pre-meditated plan to route unaccounted monies. In the present case however the Department was unable to bring any material whatsoever shows that share application was in the nature of accommodation entries. The Court observed that the assessee had filed sufficient documentary evidences to establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. The AO however chose to sit back with folded hands till the assessee exhausted all the evidence in his possession and then merely reject the same without conducting any inquiry or verification whatsoever. The Court thus held that the decision of CIT Vs Novo Promoters &Finlease (P) Ltd (342 ITR 169) was not applicable to the facts of the case. Instead it was held that the issue in hands was on the lines of the decision of the Supreme Court in the case of CIT Vs Lovely Exports Pvt Ltd (319 ITR 5). Accordingly, the addition made under Section 68 on account of share application was deleted. The relevant extracts of the judgment is as follows:-

“As can be seen from the above extract, two types of cases have been indicated. One in which the Assessing Officer carries out the exercise which is required in law and the other in which the Assessing Officer ‘sits back with folded hands’ till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the Assessing Officer after noting the facts, merely rejected the same. This would be apparent from the observations of the Assessing Officer in the assessment order to the following effect:-

”Investigation made by the Investigation Wing of the department clearly showed that this was nothing but a sham transaction of accommodation entry. The assessee was asked to explain as to why the said amount of Rs.1,11,50,000/- may not be added to its income. In response, the assessee has submitted that there is no such credit in the books of the assessee. Rather, the assessee company has received the share application money for allotment of its share. It was stated that the actual amount received was Rs.55,50,000/- and not Rs.1,11,50,000/- as mentioned in the notice. The assessee has furnished details of such receipts and the contention of the assessee in respect of the amount is found correct. As such the unexplained amount is to be taken at Rs.55,50,000/-. The assessee has further tries to explain the source of this amount of Rs.55,50,000/- by furnishing copies of share application money, balance4 sheet etc. of the parties mentioned above and asserted that the question of addition in the income of the assessee does not arise. This explanation of the assessee has been duly considered and found not acceptable. This entry remains unexplained in the hands of the assessee as has been arrived by the Investigation wing of the department. As such entries of Rs.55,50,000/- received by the assessee are treated as an unexplained cash credit in the hands of the assessee and added to its income. Since I am satisfied that the assessee has furnished inaccurate particulars of its income/penalty proceedings under Section 271(1)(c) are being initiated separately.

The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in the former category and that is why this Court decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of inquiry on the part of the Assessing Officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no addition can be made under Section 68 of the Income Tax Act 1961. Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law”

34. Further, in the decision of the Hon’ble Delhi High Court in the case of CIT v. Kamdhenu Steel & Alloys Ltd. [2012] 19 taxmann.com 26/206 Taxman 254/[2014] 361 ITR 220 is also relevant, wherein it was held as under :

“Once adequate evidence/material is given, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it has “created” evidence, the Revenue is supposed to make thorough probe before it could nail the assessee and fasten the assessee with such a liability under s.68; A.O. failed to carry his suspicion to logical conclusion by further investigation and therefore addition under s.68 was not sustainable.”

35. The SLP filed against the above decision has been dismissed by the Hon’ble Supreme Court.

36. In the case of FinleasePvt Ltd. 342 ITR 169 (supra) in ITA 232/2012 judgement dt. 22.11.2012 at para 6 to 8/it was held as follows.

“6. This Court has considered the submissions of the parties. In this case the discussion by the Commissioner of Income Tax (Appeals) would reveal that the assessee has filed documents including certified copies issued by the ROC in relation to the share application affidavits of the directors, form 2 filed with the ROC by such applicants confirmations by the applicant for company’s shares, certificates by auditors etc. Unfortunately, the Assessing Officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. MahesGarg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the Assessing Officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr.MaheshGarg that the income sought to be added fell within the description ofS.68 of the Income Tax Act 1961. Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra).

The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (supra). Where the assessee adduces evidence in support of the share application monies, it is open to the Assessing Officer to examine it and reject it on tenable grounds. In case he wishes to rely on the report of the investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between the assessee and the alleged hawala operators, such a link was shown to be present in the case of Nova Promoters &Finlease (P) Ltd. (supra) relied upon by the revenue. We are therefore not to be understood to convey that in all cases of share capital added under Section the ratio of Lovely Exports (supra) is attracted, irrespective of the facts, evidence and material. “

37. We also note that recently the ITAT Kolkata in several cases has deleted the addition on account of share application in similar circumstances. The relevant portion of the decisions, are as follows:

(a) In the case of DCIT Vs Global MercantilesPvt.Ltd in ITA No. 1669/Kol/2009 dated 13-01-2016, this Tribunal held as follows:

“3.4. We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee. The facts stated hereinabove remain undisputed are not reiterated herein for the sake of brevity. We find that the assessee had given the complete details about the share applicants clearly establishing their identity, creditworthiness and genuineness of transaction proved beyond doubt and had duly discharged its onus in full. Nothing prevented the Learned AO to make enquiries from the assessing officers of the concerned share applicants for which every details were very much made available to him by the assessee. We find that the reliance placed by the Learned Ld. CIT(1) on the decision of the Hon’ble Apex Court in the case of CIT vs Lovely Exports (P) Ltd reported in (2008) 216 CTR 195 (SC) is very well founded, wherein, it has been very clearly held that the only obligation of the company receiving the share application money is to prove the existence of the shareholders and for which the assessee had discharged the onus of proving their existence and also the source of share application money received.

3.4.1. We also find that the impugned issue is also covered by the decision of Hon’ble Calcutta High Court in the case of CIT vs Roseberry Mercantile (P) Ltd in GA No. 3296 of 2010 ITAT No. 241 of 2010 dated 10.1.2011, wherein the- questions raised before their lordships and decision rendered thereon is as under:-

“On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT(A) ought to have held that the assessee had not established the genuineness of the transaction. “

Held After hearing the learned counsel for the assessee and after going through the decision of the Supreme Court in the cases of CIT vs M/s Lovelv Exports Pvt Ltd, we are at one with the tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed.

3.4.2. In view of the aforesaid findings and respectfully following the decision of the apex court (supra) and Jurisdictional High Court (supra), we find no infirmity in the order of the Learned CIT(A) and accordingly, the ground no.2 raised by the Revenue is dismissed.

4. The last ground to be decided in this appeal of the Revenue is as to whether the Learned CIT(A) is justified in deleting the addition u/s 68 of the Act made in respect of allotment of shares to 20 individuals for an amount of Rs.57,00,000/- in the facts and circumstances of the case.

4.1. The brief fact of this issue is that the assessee had received share application monies from 20 individuals in the earlier year which were kept in share application money account. During the asst year under appeal, the assessee allotted shares to these 20 individuals out of transferring the monies from share application money account to share capital account. The details of 20 individuals are reflected in page 6 & 7 of the Learned CIT(A) order. The Learned AO asked the assessee to produce the shareholders before him. He found that the assessee did not do so but furnished copies ofpay orders used for payments to the assessee company and also furnished income tax particulars and balance sheets of all the shareholders. The Learned AO on analyzing all the balance sheets observed that the shareholders have paltry income and small savings and none of them have any bank account and huge cash balances were shown in their hands out of which Pay orders were obtained. Based on this, the Learned AO concluded that these shareholders do not have creditworthiness to invest in the assessee company and brought the entire sum of Rs. 57,00,000/- to tax as unexplained cash credit u/s 68 of the Act.

4.2. On first appeal, the Learned CIT(A) observed that entire share application monies of Rs. 57,00,000/- we received during the previous year 2004-05 relevant to Asst Year 2005-06from 20 persons and the shares were allotted to them during the asst year under appeal. He observed that the assessee had furnished details of the share applicants giving the date wise receipts, mode of payment, amount, name, address, income tax returns, PA No. of share applicants along with their balance sheet. The Learned CITA also observed that the assessee in its reply to show cause notice before the Learned AO had requested him to use his power and authority for the physical appearance of the shareholders which was not exercised by the Learned AO. Instead the Learned AO continued to insist on the assessee to produce the shareholders before him. He ultimately concluded that the assessee had duly discharged its onus of providing complete details of the shareholders and in any case, no addition could be made u/s 68 of the Act in the asst year under appeal as no share application monies were received during the asst year under appeal. Aggrieved, the Revenue is in appeal before us by filing the following ground:-

“That in the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made u/s 68 in respect of the allotment of shares to 20 numbers of individual investors for an amount of Rs. 57 lakhs, where genuineness of the transactions and creditworthiness of the investors were not established.”

(b) In the case of DCIT Vs. R.B Horticulture & Animal Projects Co. Ltd in ITA No. 632/Kol/2011 dated 13-01-2016, this Tribunal held as follows:

4.3. The Learned DR prayed for admission of the additional ground raised before us and vehemently supported the order of the Learned AO. In response to this, the Learned AR fairly conceded to admission of this additional ground and vehemently supported the order of the Learned CIT(A).

4.4. We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee. We find that the additional ground raised by the assessee separately before us vide its covering letter dated 9. 12.2011 is admitted as it appears to be a genuine and bonafide error of omission on the part of the Revenue from not raising this ground in the original grounds of appeal filed along with the memorandum of appeal. Moreover, it does not require any fresh examination of facts. Hence the same is admitted herein for the sake of adjudication.

4.4.1. We find from the details available on record that the share application monies from 20 individuals in the sum of Rs.57,00,000/- has been received by the assessee during the financial year 2004-05 relevant to Asst Year 2005-06 and only the shares were allotted to them during the asst year under appeal. Admittedly no monies were received during the asst year under appeal and hence there is no scope for invoking the provisions of section 68 of the Act. Hence we hold that the order passed by the Learned CITA in this regard does not require any interference. Accordingly the ground no. 3 raised by the Revenue is dismissed.

“6. We have heard the Learned DR and when the case was called on for hearing, none was present on behalf of the assessee. However, we find from the file that the assessee had filed a detailed paper book and written submissions. Hence the case is disposed off based on the arguments of the Learned DR and written submissions and paper book already available on record. The facts stated in the Learned CIT(A) were not controverted by the Learned DR before us. We find that the assessee had given the complete details about the share applicants clearly establishing their identity, creditworthiness and genuineness of transaction proved beyond doubt and had duly discharged its onus in full. Nothing prevented the Learned AO to make enquiries from the assessing officers of the concerned share applicants for which every details were very much made available to him by the assessee. We find that the reliance placed by the Learned CITA on the decision of the Hon’ble Apex Court in the case of CIT vs Lovely Exports (p) Ltd reported in (2008) 216 CTR 195 (SC) is very well founded, wherein, it has been very clearly held that the only obligation of the company receiving the share application money is to prove the existence of the shareholders and for which the assessee had discharged the onus of proving their existence and also the source of share application money received.

6.1. We also find that the impugned issue is also covered by the decision of Hon’ble Calcutta High Court in the case of CIT vs Roseberry Mercantile (P) Ltd in GA No. 3296 of 2010 ITAT No. 241 of 2010 dated 10.1.2011, wherein the questions raised before their lordships and decision rendered thereon is as under:- –

“On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT(A) ought to have held that the assessee had not established the genuineness of the transaction.” Held After hearing the learned counsel for the assessee and after going through the decision of the Supreme Court in the cases of CIT vs M/s Lovely Exports Pvt Ltd, we are at one with the tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed.”

6.2. We find that the issue is also covered by the decision of Hon’ble Delhi High Court in the case of CIT vs Value Capital Services P Ltd reported in (2008) 307 ITR 334 (Del), wherein it was held that:

“In respect of amounts shown as received by the assessee towards share application money from 33 persons, the Assessing Officer required the assessee to produce all these persons. While accepting the explanation and ITA No. 632/KoI12011–C-AM M/s. R.B Horticulture 6 & Animal Proj. Co. Ltd the statements given by three persons the Assessing Officer found that the response from the others was either not available or was inadequate and added an amount of Rs. 46 lakhs pertaining to 30 persons to the income of the assessee. The Commissioner (Appeals) upheld the decision of the Assessing Officer. On appeal, the Tribunal set aside the order of the Commissioner (Appeals) and deleted the additions. On further appeal:

Held, dismissing the appeal, that the additional burden was on the department to show that even if the share applicants did not have the means to make the investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. No substantial question of law arose. “

6.3. We find that the argument of the Learned DR to set aside this issue to the file of the Learned AO for verification of share subscribers would not serve any purpose as the ratio decided in the above cases is that in any case, no addition could be made in the hands of the recipient assessee. In view of the aforesaid findings and respectfully following the decision of the apex court (supra), Jurisdictional High Court (supra) and Delhi High Court (supra), we find no infirmity in the order of the Learned CIT(A) and accordingly, the grounds raised by the Revenue are dismissed.”

(c) In the case of ITO Wd.3(2) Kol, vs. M/s. Steel Emporium Ltdin ITA No.1061/Ko1/2012 dated 05-02-2016, this Tribunal held as follows:

“10. We have heard both the rival parties and perused the materials available on record. The Ld. DR vehemently supported the order of the AO. Before us the Ld Counsel submitted that the assessee raised share application money during the year from 25 applicants. The AO was furnished with the copy of Form 2 of Allotment of Shares to the Applicants as filed with the Registrar of Companies, West Bengal. On the date of receipt of Share applications from the Applicants, they furnished their addresses, which were recorded in the Register of Members. The AO observed that as per ROC records the addresses of the nine companies were different from the address as per Form filed with him. The AO issued notices u/s.133(6) to all the companies at the addresses furnished in Form 2 as filed with him, which were duly served at the given addresses. The A0 argued that the letters should not have been served at the given address by the assessee. He served a show a cause notice dated 09.12.2011 asking for the explanation from the assessee as to how the notices u/s. 133(6) could be served to these nine companies who had different address as per ROC records. The AO was explained vide letter dated 20.12.2011 of the assessee that those companies had changed their addresses since filing of Form 2 with the Registrar. Further, it was none of the business of the assessee to question the addresses of the applicants as long as they affirm the address. The applicants were duly incorporated bodies under the Companies Act. 1956 since long. They have been regularly filing their returns of income under the Income Tax Act and are being assessed by the Revenue since long. Some of them are even registered as Non-Banking Financial Companies with Reserve bank of India. They have been filing returns regularly with Registrar of Companies and RBI since long. The letters might have been received at their old addresses because in case of change in the address, people instruct the incumbents at old addresses not to refuse the receipt of letters and receive the same. Just because, a letter was received at the old address instead of present address, it cannot be said that the identity of the applicant has not been verified. All of these companies had duly replied to notice u/s. 133(6) and confirmed the transaction with all the evidences. The AO has not raised any objection on any of the information furnished before him. The AO has not asked the respective Company applicants also to explain the alleged discrepancy in the address. The AO has not brought any material on account of record to disbelief the evidences furnished with him and treat the transaction as not genuine. The assessee submitted the following material at the time of assessment.

1. a) Copy of share applications from the share applicants (copies enclosed)

1. b) Copy of Form 2 filed with Registrar of Companies, West Bengal (copy enclosed)

31. c) Copy of Form 18 about the Registered Office of the applicants for change of address subsequent to the date of allotment, i.e. 31.03.2009 (copies enclosed)

1. d) Members register

1. e) Share application & Allotment Register

1. f) Copy of board resolution.

1. g) Replies from Share applicants to the notice u/s. 133(6) issued to them by the AO seeking information and documents about the sources and to examine their identity, genuineness of the transaction and their creditworthiness. (copy enclosed).

1. h) Copy of audited accounts.

1. i) Copy of bank statements.

1. j) Copy of Income tax acknowledgment of return filed for AY 2009- k) Copy of PAN Card.

1. l) Details of sources of funds.

1. m) Copy of covering letter for delivery of shares.

1. n) Copy of master data as per ministry of Company Affairs records. o) Copy of Annual return.

1. p) Copy of Memorandum and articles of Association.

Finally the Ld Counsel relied on the order of the Ld. CIT(A 10. 1 From the aforesaid discussion we find that the AO has made the addition of the share application money because all the nine companies were having the common address and the notice sent under section 133(6) was received by the single person. Accordingly the AO opined that the assessee has used its unaccounted money in the share application transactions. However we find that all the money received in the form of share capital is duly supported with the requisite document as discussed above. To our mind the basis on which the addition was made by the AO is not tenable. The Ld. DR also could not brought anything on record to controvert the findings of the Ld. CIT(A). In view of above we find no reason to interfere in the order of the Id. CIT(A). Accordingly the ground raised by Revenue is dismissed. “

(d) In the case of ITO vs Cygnus Developers (I) P Ltd in ITA No. 282/Kol/2012 dated 2.3.2016, this Tribunal held as follows:

“6. On appeal by the assessee the CIT(A) deleted the addition made by the AO observing as follows

“6) I have considered the submission of the assessee and perused the assessment order. I have also gone through the details and documents filed by the assessee company in the course of assessment: proceedings vide letter dt. 3-10-2007. On careful consideration of the facts and in law I am of the opinion that the AO was not justified in making, the addition aggregating to Rs.54,00,000/- u/s.68 of the Act being the amount of share application money by holding that the assessee company has failed to prove the identity, and creditworthiness of The creditors as well as the genuineness of transactions. It is observed that all the three share applicant companies i.e. M/s. Shree ShyamTrexim Pvt. Ltd., M/s Navalco Commodities Pvt. Ltd. and M/s. JewellockTrexim Pvt. Ltd. had filed their confirmations wherein each of them confirmed that they had applied for shares of the assessee -company. All the three companies provided- the cheque number, copy of bank statements and their PAN. It is observed that these companies also filed, copies of their return of income and financial statements for as well as copy of their assessment order u/s. 143(3) of the I. T Act for AY 2005-06. In the case of M/s. JewellockTrexim Pvt. Ltd. the assessment for AY 2005-06 was completed by the ITO Ward 9(3), Kolkata and the assessments in the case of M/s. Navalco Commodities Pvt. Ltd. and M/s. Shree ShyamTrexim Pvt. Ltd. for A.Y.2005-06 and AY.2004-05 respectively were completed by the I TO, Ward 9(4), Kolkata. Under the circumstances, I am of the opinion that the AO was not justified in holding that the share applicant companies were not in existence. The assessment orders were completed on the address as provided by the assessee company in the course of assessment proceedings. It is not known as to how the AO’s inspector had reported that the aforesaid companies were not in existence at the given address. Since the assessee company had provided sufficient documentary evidences in support of its claim of receipt of share application money, I am of the opinion that the no addition u/s.68 could be made in the hands of assessee company. On going through the various judicial pronouncements relied upon by the assessee, it is observed that the view taken as above is also supported by them. In view of above the AO is directed to delete the addition of Rs.54,00,000/-. The ground Nos. 2 and 3 are allowed, “

7. Aggrieved by the order of CIT{A) the Revenue is in appeal before the Tribunal.

8. We have heard the submissions of the learned DR, who relied on the order of AO. The learned counsel for the assessee relied on the order of CIT(A) and further drew our attention to the decision of Hon’ble Allahabad High Court in the case of CIT vs Raj Kumar Agarwal vide ITA No. 179/2008, dated 17. 11.2009 wherein the Hon’ble Allahabad High Court took a view that non production of the director of a Public Limited company which is regularly assessed to Income tax having PAN, on the ground that the identity of the investor is not proved cannot be sustained. Attention was also to the similar ruling of the ITAT Kolkata bench in the case of ITO vs. Devinder Singh Shant in IT A No. 20BIKo112009 vide order dated 17.04.2009.

9. We have considered the rival submissions., We are of the view that order of CIT(A) does not call for any interference. It may be seen from the grounds of appeal raised by the Revenue that the Revenue disputed only the proof of identity of the shareholder. In this regard it is seen that for A Y.2004-05 Shree Shyam Trexim Pvt. Ltd., was assessed by ITO, Ward- 9(4), Kolkata and the order of assessment u/s/143(3) dated 25.01.2006 is placed in the paper book. Similarly Navalco Commodities Pvt. Ltd., was assessed to tax u/s 143(3) for A Y. 2005-06 by I TO,

Ward- 9(4), Kolkata by order dated 20.03.2007. Similarly Jewellock Trexim Pvt. Ltd was assessed to tax for A Y. 2005-06 by the very same ITO- Ward- 9(3), Kolkata assessing the Assessee. In the light of the above factual position which is not disputed by the Revenue, it cannot be said that the identity of the share applicants remained not proved by the assessee. The decision of the Hon’ble Allahabad High Court as well as ITA T Kolkata Bench on which reliance was placed by the learned counsel for the assessee also supports the view that for non production of directors of the investor company for examination by the AO it cannot be held that the identity of a limited company has not been established. For the reasons given above we uphold the order of CIT(A) and dismiss the appeal of the Revenue. “

38. To conclude, 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 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. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act. We delete the amount of Rs. 31,75,000/-, as it pertains to the previous assessment year, as explained by us in para No. 7 of this order and for balance sum of Rs.2,66,00,000/- received during the year, the assessee has proved identity, genuineness and creditworthiness of the share subscribers, hence we delete the same. Therefore, we delete the addition made by the assessing officer to the tune of Rs.2,97,75,000/-. (Rs. 31,75,000 + Rs.2,97,75,000).

39. In the result, the appeal of Assessee is allowed

Order Pronounced in the Open Court on 09-08-2019.v