DY. CIT-1(1)(1),
MUMBAI VS M/S ALCON BIOSCIENCES P. LTD.
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH “H”, MUMBAI
Before Shri Mahavir Singh(JUDICIAL MEMBER)
AND
Shri G Manjunatha (ACCOUNTANT MEMBER)
I.T.A No.1946/Mum/2016
(Assessment year: 2010-11)
Dy.
CIT-1(1)(1), Mumbai
VS
M/s Alcon Biosciences P Ltd
VS
M/s Alcon Biosciences P Ltd
112, Marine Chambers, New
Marine Lines, Mumbai-400 020
PAN: AAACA5119P
Appellant by Shri MC Omi Ningshen
Revenue by Shri Prakash Jothwani
Date of hearing 29-01-2018
Date of pronouncement 28-02-2018
O R D E R
Per G Manjunatha, AM :
This appeal filed by the revenue is directed against order of the
CIT(A)-2, Mumbai dated 15-12-2015 and it pertains to AY 2010-11.
2. The brief facts of the case are that the assessee company is
engaged in the business of manufacturing, trading and exporting pharmaceutical
items, filed its return of income for the assessment year 2010-11 on 05-10-2010
declaring total income of Rs.32,81,207. The case has been selected for scrutiny and notice u/s 143(2) and
142(1) of the Act were issued. In response to the notices, the authorized
representative of the assessee appeared from time to time and furnished
details, as called for. The assessment has been completed u/s 143(3) on
04-03-2013 determining total income at Rs.1,73,63,846 inter-alia making
addition towards unexplained cash credits u/s 68, towards share application
money received from 3 parties and disallowance of interest expenses u/s
36(1)(iii) of the Act. The assessee carried the matter in appeal before the
CIT(A). The CIT(A) for the detailed reasons recorded in his order dated
15-12-2015 allowed appeal filed by the assessee, wherein he has deleted
addition made by the AO towards share application money u/s 68 of the Act,
disallowance of interest u/s 36(1)(iii) of the Act. Aggrieved by the CIT(A)’s
order, revenue is in appeal before us.
3. The only issue that came up for our consideration from this
appeal is deletion of addition made by the AO towards share application money
u/s 68 of the Act. The facts with regard to the impugned addition are that
during the course of assessment proceedings, the AO noticed that the assessee
has received share application money to the tune of Rs.1.15 crores from 3
parties, therefore, called upon the assessee to furnish necessary evidence
including share application forms, copy of PAN card, incorporation certificate
of the share applicants and copy of bank statements. In response to notice, the
assessee vide letter dated 05-09-2010 furnished the details called for by the
AO in respect of 3 share applicants, viz. (i) Hemang Fincap Services Pvt Ltd;
(ii) Avdhan Tradelink Pvt Ltd; and (iii) Arpita Tradelink Pvt Ltd. In order to
verify the genuineness of details filed by the assessee, the AO issued notice
u/s 133(6) to all the parties calling for the details of share application
money paid to the assessee including bank statement highlighting the amount of
share application money paid along with financial statements for the relevant
financial year. The notices issued u/s 133(6) to all three parties were
returned unserved as the parties refused to accept the notices. Thereafter, the
AO issued notice u/s 133(6) to Bank of Baroda calling for the details of bank
account number from which share application money has been credited to the
account of the assessee. In response to notice, Bank of Baroda, vide its letter
dated 07-12-2012 furnished the details of credits made to the account of the
assessee. On verification of details, the AO noticed that cheque deposits in
Bank of Baroda in the name of all 3 concerns were made by single person.
Therefore, issued further notices u/s 133(6) to ICICI Bank, i.e. the bank in
which the share applicants held their accounts calling for statements of M/s
Hemang Fincap, Avdhan Tradelink Pvt Ltd; and Arpita Tradelink Pvt Ltd.. The AO,
on verification of bank statement furnished by ICICI Bank Ltd, observed that
all three bank acccounts operated by these 3 share applicants were operated
only for a limited period during which share application money has been
received by the assessee and also those bank accounts have received money from
some individual. The AO further observed that on further verification of source
of money received from individuals, it was noticed that the individuals have
deposited cash into their bank account either on the same day or immediately
preceding the day on which the funds have been transferred to the share
applicants’ bank accounts. Therefore, he opined that the assessee has failed to
discharge the genuineness of transactions and creditworthiness of the parties.
Accordingly, the amount received by the assessee from 3 parties to the
extent of Rs.1.15 crores has been treated as assessee’s own undisclosed income
and the same has been brought to tax u/s 68 of the Act.
4. Aggrieved by the assessment order, assessee preferred appeal
before the CIT(A). Before the CIT(A), assessee has reiterated its submissions
made before the AO to argue that it has furnished various details including
share application forms, PAN card, incorporation certificate, bank statement of
share applicants and also the bank statement of the persons from whom share
applicants have received money to the AO. However, the AO has ignored all
evidences merely for the reason that share applicants have received money from
other persons and the other persons have deposited cash into their bank
accounts without appreciating the fact that once assessee discharged its onus
by filing identity, genuineness of transactions, creditworthiness of the
parties, AO cannot look into the source of source. The assessee further
contended that out of 3 applicants, M/s Hemang Fincap Services Pvt Ltd filed
its return of income and copy of ITR acknowledgements have been furnished to
the AO. Though the other two applicants have not filed return of income, they
have filed enough evidences to justify the source of share application money
given to the assessee, therefore, the AO was incorrect in making addition u/s
68 of the Act. The CIT(A), after considering relevant submissions of the
assessee and also relying upon the decision of Hon’ble Supreme Court in the
case of CIT vs Lovely Exports Pvt Ltd (2008) 216 CTR (SC) 195, observed 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,
but it cannot be regarded as undisclosed income of the assessee. Accordingly,
directed the AO to delete addition made towards share application money
received from 3 share applicants, however, the CIT(A) further directed the AO
to take proper care in passing on the information of 3 share applicants to the
concerned AO where PAN have jurisdiction and request them to make further
enquiry and see to that whether they have been properly assessed to tax
and paid tax thereon. Aggrieved by the order of CIT(A), revenue is in appeal
before us.
5. The Ld.DR submitted that the Ld.CIT(A) was erred in deleting
the addition made u/s 68 in respect of share application money received from
the investors when the AO gave a clear finding that the assessee could not
satisfactorily explain the nature and source of credit in its books. The Ld.DR
further referring to the company master data extracted from ROC website
submitted that out of three share applicants, two share applicants, viz. Avdhan
Tradelink Pvt Ltd; and Arpita Tradelink Pvt Ltd, the names of these two
companies have been struck off by the ROC from this, it is abundantly clear
that those companies are shell companies engaged in providing accommodation
entries under the guise of share application money which was further supported
by the facts gathered by the AO during the course of assessment proceedings.
Therefore, the CIT(A) erred in deleting addition without properly appreciating
the facts and hence, the addition made by the AO should be sustained.
6. On the other hand, the Ld.AR for the assessee strongly
supporting the order of the CIT(A) has submitted that the assessee has
furnished enormous documents to prove the identity, genuineness of transactions
and creditworthiness of the parties including share application forms, PAN,
bank statements and their income-tax return acknowledgment copies.
Therefore, the AO was incorrect in making addition merely because the notices
issued u/s 133(6) were returned unserved and also the share applicants have
received money from third parties where they have deposited cash into their
bank accounts without appreciating the fact that once assessee proves identity
of the share applicants, the AO cannot question source of source. The Ld.AR
further submitted that the assessee has discharged its initial onus cast u/s 68
of the Act by filing various documents and once the initial burden has been
discharged, the onus shifts to the revenue to prove otherwise. The AO without
any evidence which could rebut the documents produced by the assessee, made
addition merely on the basis of surmises and suspicion only on the basis of
bank statements of share applicants and their concerns. In this regard relied
upon decision of Hon’ble Bombay High Court in the case of CIT vs M/s Gagandeep
Infrastructure Pvt Ltd (2017) 394 ITR 680 (Bom). The assessee also relied upon
the decision of Hon’ble Supreme Court in the case of CIT vs Orissa Corporation
Pvt Ltd 1986 AIR 1849. Insofar as the arguments of the Ld. DR, that the name of
two companies have been struck off by the ROC, the Ld.AR submitted letters from
those companies stating that their names have been struck off by the ROC as the
annual returns of the companies were not filed for years. However, they are in
the process of restoring the name of the companies with ROC by filing a
petition before NCLT. The Ld.AR further submitted that merely because the names
found struck off from the register of Registrar of Companies, the genuineness
of transactions cannot be questioned as the names of companies can be struck
off for various reasons including non filing of balance-sheets. The assessee has filed various
details, therefore, there is no reason for the AO to make addition towards
share application money u/s 68 of the Act.
7. We have heard both the parties, perused the materials available
on record and gone through the orders of the authorities below. The AO made
additions towards share application money u/s 68 of the Act on the ground that
the assessee has failed to discharge identity, genuineness of transaction and
creditworthiness of the parties which is evident from the fact that the AO
has brought out certain facts with regard to the share applicants by issuing
notice u/s 133(6) of the Income-tax Act, 1961. According to the AO, the
assessee has raised share application money from three companies and all the
three companies are having bank accounts in Bank of Baroda where a single
person has operated the accounts of all the companies. The AO further observed
that the share applicants have received money from certain individuals before
the date of transfer of money to the assessee company and those individuals
have deposited cash on the same day or a day before the date on which the money
has been transferred to share applicants’ bank account. The AO further observed
that notice u/s 133(6) were not served and the parties refused to accept the
notice. The AO also observed that the assessee failed to explain how it has
issued share having face value of Rs.10 with a huge premium of Rs.990 per share
when it was an unlisted company. Therefore, the AO opined that the assessee has
obtained accommodation entries from so-called share applicants to convert its
own undisclosed income in the guise of share application money. Accordingly
treated share application money received from all the three parties as
unexplained credit and brought to tax u/s 68 of the Act.
8. The AO has made addition towards share application money on the
basis of analysis of bank statements of share applicants and the source of
applicants’ bank accounts. The assessee has filed various details including
share application forms, incorporation certificate of the share applicants and
their bank statement. The assessee also furnished copy of income-tax return
acknowledgment in respect of M/s Hemang Fincap Services Pvt Ltd. On
verification of details filed by the assesse, we find that the share applicants
have paid share application money to the assessee through bank accounts and
also disclosed investments in their financial statements for the relevant
financial year. Though two share applicants have not filed their income-tax
returns, furnished copy of PAN and their bank statements. Once the assessee has
discharged its initial burden cast u/s 68 by filing documents to prove
identity, genuineness of transactions and creditworthiness of the parties, then
the burden shifts to the revenue to prove otherwise. In this case, the AO does
not have any evidence which could rebut the documents produced by the assessee. The
AO made addition only on the basis of suspicion and surmises on the ground that
the share applicants do not have any capacity to explain amount transferred to
their account.
9. Having considered facts, we do not find any merit in the
arguments of the revenue for the reason that once the assessee has furnished
necessary evidence to prove the identity of the share applicants and their PAN
details to the AO, then the department is free to proceed to reopen their
individual assessments in accordance with law, but it cannot be regarded as
undisclosed income of the assessee. This legal proposition is supported by the
decision of Hon’ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd
(supra), wherein it was categorically held that the AO cannot make addition
towards share application money, if the names and addresses and PAN of the
creditors have been furnished to the AO. This legal proposition is supported by
the judgment of Hon’ble Supreme Court in the case of CIT vs Orissa Corporation
Ltd (supra). The jurisdictional High Court of Bombay in the case of CIT vs M/s
Gagandeep Infrastructure Pvt Ltd (supra) and CIT vs Paradise Inland Shipping
Pvt Ltd in ITA No. 66 of 2016 dated 10-04-2017, has reiterated the legal
position laid down by the Hon’ble Supreme Court in the case of CIT vs Lovely
Exports Pvt Ltd (supra). The sum and substance of the ratios of the Hon’ble
Supreme Court and jurisdictional High Court, is that once the assessee has
furnished names and addresses alongwith PAN of subscribers, then the AO is free
to reopen the assessment of subscribers in accordance with law, but the share
application money cannot be regarded as undisclosed income of the assessee.
10. Insofar as the argument of the Ld.DR in the light of Company
Master Data taken from ROC website that the names of two companies have been
struck off by the ROC, we find that the ROC has struck off the names of two
companies for the reason that those two companies have not filed their annual
accounts for few years, but fact remains that the assessee has furnished
letters from those two companies wherein they have admitted that their names
have been struck off by the ROC for non filing of annual accounts, but they are
in the process of restoring the names by filing an application before NCLT. As
regards the AOs observation with regard to the issue of shares at a face value
of Rs.10/- issued at a premium of Rs.990 per share, we find that there is
no merit in the findings of the AO for the reason that the issue of shares at a
premium and subscription to such shares is within the knowledge of the company
and the subscribers to the share application money and the AO does not have any
role to play as long as the assessee has proved genuineness of transactions. We
further notice that the AO cannot question issue of shares at a premium and
also cannot bring to tax such share premium within the provisions of section 68
of the Act, before insertion of Proviso to section 68 by the Finance Act, 2012
w.e.f. 1-04-2013 as the Hon’ble Bombay High Court in the case of CIT vs M/s
Gagandeep Infrastructure Pvt Ltd (supra) held that Proviso inserted to section
68 is prospective in nature.
11. In this view of the matter and considering the ratios of the
case laws discussed above, we are of the considered view that the assessee has
proved identity, genuineness of transaction and creditworthiness of the parties
insofar as 3 share applicants are concerned. The CIT(A), after considering
relevant facts has rightly deleted addition made by the AO. We do not find any
error in the order of the CIT(A); hence, we are inclined to uphold the findings
of the CIT(A) and dismiss the appeal filed by the revenue.
12. In the result, appeal filed by the revenue is dismissed. Order
pronounced in the open court on 28th February, 2018.
Sd/- sd/-
(Mahavir Singh) (G Manjunatha)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dt : 28th February, 2018
Pk/-
Copy to :
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR
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