Pr. Commissioner Of Income Tax -1 v. M/S. Ami Industries (India) P Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J. INCOME TAX APPEAL NO. 1231 OF 2017 Pr. Commissioner of Income Tax -1..Appellant Versus M/s. Ami Industries (India) P Ltd..Respondent ................... Mr. Suresh Kumar a/w Ms. Sumandevi Yadav & Ms. PriyankaTiwari for the Appellant Mr. Suresh Kumar a/w Ms. Sumandevi Yadav & Ms. PriyankaTiwari for the Appellant Mr. Riyaz Padvekar a/w Mr. Tanzil Padvekar for the RespondentMr. Riyaz Padvekar a/w Mr. Tanzil Padvekar for the Respondent ................... CORAM : UJJAL BHUYAN & MILIND N. JADHAV, JJ. DATE : JANUARY 29, 2020. P.C.: 1.Heard Mr. Suresh Kumar, learned standingcounsel, revenue for the appellant and Mr. Padvekar, learnedcounsel for the respondent - assessee. 2.This appeal under Section 260A of the Income TaxAct, 1961 ("the Act" for short) is preferred by the revenueagainst the order dated 26.8.2016 passed by the Income TaxAppellate Tribunal, Mumbai "A" Bench, Mumbai ("Tribunal"for short) in Income Tax Appeal No. 5181/Mum/2014 for theassessment year 2010-11. 3.The appeal has been preferred on the following three questions stated to be substantial questions of law:- (i) Whether on the facts and circumstances of the case and inlaw, the Tribunal was justified in directing the deletion of sumbrought to tax by the Assessing Officer as unexplained incomeunder Section 68 of the Act in respect of moneys credited inthe books as share application money of Rs. 34,00,00,000/-?law, the Tribunal was justified in directing the deletion of sumbrought to tax by the Assessing Officer as unexplained incomeunder Section 68 of the Act in respect of moneys credited inthe books as share application money of Rs. 34,00,00,000/-? (ii) Whether on the facts and circumstances of the case and inlaw, the Tribunal was justified in holding that the assesseeproved identity, credit worthiness and genuineness of moneyscredited in the books as share application money of Rs.34,00,00,000/- just by submitting PAN, acknowledgment ofincome tax returns filed and bank statements?law, the Tribunal was justified in holding that the assesseeproved identity, credit worthiness and genuineness of moneyscredited in the books as share application money of Rs.34,00,00,000/- just by submitting PAN, acknowledgment ofincome tax returns filed and bank statements? (iii) Whether on the facts and circumstances of the case and inlaw, the Tribunal was justified in deleting the addition ofRs.34,00,00,000/- ignoring the facts brought out by theAssessing Officer that return of the investing company showsno credit worthiness and that investing company merelytransferred share application money received from otherparties to assessee company?law, the Tribunal was justified in deleting the addition ofRs.34,00,00,000/- ignoring the facts brought out by theAssessing Officer that return of the investing company showsno credit worthiness and that investing company merelytransferred share application money received from otherparties to assessee company? 4. 4.From the above, it is evident that the issueinvolved in this appeal is the addition of share applicationmoney by the Assessing OfÏcer to the income of theassessee under Section 68 of the Act which additions havebeen deleted by the first appellate authority and confirmedby the Tribunal. 5.In the assessment proceedings, Assessing OfÏcernoted that assessee had disclosed funds from three Kolkatabased companies as share application money. The detailswere as under:- 5.1.Assessing OfÏcer issued notice to the assessee onthe ground that whereabouts of the above companies weredoubtful and their identity could not be authenticated. Thus,genuineness of the companies' became questionable.Assessing OfÏcer accordingly proposed to treat the shareapplication money as unexplained cash credit in the hands ofthe assessee under Section 68 of the Act and issued noticeto the assessee. 5.In the assessment proceedings, Assessing OfÏcernoted that assessee had disclosed funds from three Kolkatabased companies as share application money. The detailswere as under:- 5.1.Assessing OfÏcer issued notice to the assessee onthe ground that whereabouts of the above companies weredoubtful and their identity could not be authenticated. Thus,genuineness of the companies' became questionable.Assessing OfÏcer accordingly proposed to treat the shareapplication money as unexplained cash credit in the hands ofthe assessee under Section 68 of the Act and issued noticeto the assessee. 6.After considering the reply submitted by theassessee, Assessing OfÏcer vide the assessment order dated28.3.2013 passed under Section 143(3) of the Act treatedthe aforesaid amount of Rs. 34 crores as money fromunexplained sources and added the same to the income of the assessee as unexplained cash credit under Section 68 ofthe Act. 7. 7.Aggrieved by the aforesaid order, assesseepreferred appeal before the Commissioner of Income Tax(Appeals)-1, Mumbai i.e the first appellate authority. In theappeal proceedings, the assessee sought leave of the firstappellate authority to produce additional evidence which wasgranted by the first appellate authority. After hearing thematter, the first appellate authority vide the order dated18.6.2014 held that assessee had discharged its burdenunder Section 68 of the Act by proving the identity of thecreditors; genuineness of the transactions; and creditworthiness of the creditors. Consequently, the first appellateauthority set aside the addition made by the AssessingOfÏcer. 8.In appeal before the Tribunal by the revenue,Tribunal vide the order dated 26.8.2016 confirmed the orderpassed by the first appellate authority by holding that noaddition could be made under Section 68 of the Act and that factual findings of the first appellate authority required nointerference. 9.It is against this order of the Tribunal that revenueis in appeal before us. 10.Mr. Suresh Kumar, learned standing counsel,revenue has taken us through the assessment order andsubmits therefrom that it cannot be said that assessee haddischarged the burden to prove credit worthiness of thecreditors. His further contention is that the assessee is alsorequired to prove the source of the source. In thisconnection, he has placed reliance on a decision of theSupreme Court in Pr. CIT Vs. NRA Iron & Steel Pvt Ltd[1].He, therefore, submits that the finding returned by theTribunal is wholly erroneous and requires to be interferedwith by this Court. 11.Per contra, Mr. Padvekar, learned counsel for therespondent submits that from the facts and circumstances ofthe case, it is quite evident that assessee had discharged its 1(2019) 103 taxmann.com 48 burden to prove identity of the creditors, genuineness of thetransactions and credit worthiness of the creditors. Hesubmits that the legal position is very clear in as much asassessee is only required to explain the source and notsource of the source. Decision of the Supreme Court in NRAIron & Steel P Ltd (supra) is not the case law for the aforesaidproposition. In fact, the said decision nowhere states thatassessee is required to prove source of the source. 11.1.Referring to the orders passed by the authoritiesbelow, Mr. Padvekar submits that in the present case, theinvestigation wing of the department had carried outdetailed investigation at Kolkata and found the source of thecredit to be genuine. This report of the investigation wingwas not taken into consideration by the Assessing OfÏcer.Therefore, lower appellate authorities were justified indeleting the additions made by the Assessing OfÏcer. Beinga finding of fact, no substantial question of law arises in theappeal. Therefore, the appeal should be dismissed. 12.Submissions made by learned counsel for theparties have been considered. Also perused the materials onrecord. 11.1.Referring to the orders passed by the authoritiesbelow, Mr. Padvekar submits that in the present case, theinvestigation wing of the department had carried outdetailed investigation at Kolkata and found the source of thecredit to be genuine. This report of the investigation wingwas not taken into consideration by the Assessing OfÏcer.Therefore, lower appellate authorities were justified indeleting the additions made by the Assessing OfÏcer. Beinga finding of fact, no substantial question of law arises in theappeal. Therefore, the appeal should be dismissed. 12.Submissions made by learned counsel for theparties have been considered. Also perused the materials onrecord. 13.Section 68 of the Act deals with cash credits. Asper Section 68, where any sum is found credited in the booksof an assessee maintained for any previous year, and theassessee offers no explanation about the nature and sourcethereof or the explanation offered by him is not, in theopinion of the Assessing OfÏcer, satisfactory, the sum socredited may be charged to income tax as the income of theassessee of that previous year. Simply put, the sectionprovides that if there is any cash credit disclosed by theassessee in his return of income for the previous year underconsideration and the assessee offers no explanation for thesame or if the assessee offers explanation which theAssessing OfÏcer finds to be not satisfactory, then the saidamount is to be added to the income of the assessee to becharged to income tax for the corresponding assessmentyear. 14.Section 68 of the Act has received considerablejudicial attention through various pronouncements of theCourts. It is now well settled that under Section 68 of theAct, the assessee is required to prove identity of the creditor;genuineness of the transaction; and credit worthiness of thecreditor. In fact, in NRA Iron & Steel (P) Ltd (supra), SupremeCourt surveyed the relevant judgments and culled out thefollowing principles:- "11.The principles which emerge where sums of money arecredited as Share Capital/Premium are :credited as Share Capital/Premium are : i. The assessee is under a legal obligation to provethe genuineness of the transaction, the identity ofthe creditors, and credit-worthiness of theinvestors who should have the financial capacityto make the investment in question, to thesatisfaction of the AO, so as to discharge theprimary onus.the genuineness of the transaction, the identity ofthe creditors, and credit-worthiness of theinvestors who should have the financial capacityto make the investment in question, to thesatisfaction of the AO, so as to discharge theprimary onus. ii.The Assessing Officer is duty bound toinvestigate the credit-worthiness of the creditor /subscriber, verify the identity of the subscribers,and ascertain whether the transaction is genuine,or these are bogus entries of name-lenders.investigate the credit-worthiness of the creditor /subscriber, verify the identity of the subscribers,and ascertain whether the transaction is genuine,or these are bogus entries of name-lenders. iii.If the inquiries and investigations reveal that theidentity of the creditors to be dubious or doubtful,or lack credit-worthiness, then the genuinenessof the transaction would not be established. identity of the creditors to be dubious or doubtful,or lack credit-worthiness, then the genuinenessof the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act." 15.It is also a settled proposition that assessee is notrequired to prove source of source. In fact, this position hasbeen clarified by us in the recent decision in Gaurav TriyugiSingh Vs. Income Tax OfÏcer-24(3)(1)[2] 16.Having noted the above, we may now advert tothe orders passed by the authorities below. iii.If the inquiries and investigations reveal that theidentity of the creditors to be dubious or doubtful,or lack credit-worthiness, then the genuinenessof the transaction would not be established. identity of the creditors to be dubious or doubtful,or lack credit-worthiness, then the genuinenessof the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act." 15.It is also a settled proposition that assessee is notrequired to prove source of source. In fact, this position hasbeen clarified by us in the recent decision in Gaurav TriyugiSingh Vs. Income Tax OfÏcer-24(3)(1)[2] 16.Having noted the above, we may now advert tothe orders passed by the authorities below. 17.In so far order passed by the Assessing OfÏcer isconcerned, he came to the conclusion that the threecompanies who provided share application money to theassessee were mere entities on paper without properaddresses. The three companies had no funds of their ownand that the companies had not responded to the letterswritten to them which could have established their creditworthiness. In that view of the matter, Assessing OfÏcer tookthe view that funds aggregating Rs. 34 Crores introduced inthe return of income in the garb of share application moneywas money from unexplained source and added the same tothe income of the assessee as unexplained cash credit under 2Income Tax Appeal No. 1750 of 2017 decided on 22.1.2020 18.In the first appellate proceedings, it was held thatassessee had produced sufÏcient evidence in support ofproof of identity of the creditors and confirmation oftransactions by many documents, such as, share applicationform etc. First appellate authority also noted that there wasno requirement under Section 68 of the Act to explain sourceof source. It was not necessary that share application moneyshould be invested out of taxable income only. It may bebrought out of borrowed funds. It was further held that non-responding to notice would not ipso facto mean that thecreditors had no credit worthiness. In such circumstances,the first appellate authority held that where all materialevidence in support of explanation of credits in terms ofidentity, genuineness of the transaction and credit-worthiness of the creditors were available, without anyinfirmity in such evidence and the explanation requiredunder Section 68 of the Act having been discharged,Assessing OfÏcer was not justified in making the additions.Therefore, the additions were deleted. 19.In appeal, Tribunal noted that before the Assessing OfÏcer, assessee had submitted the following documents of the three creditors:- a)PAN number of the companies; b) Copies of Income Tax return filed by these three companies for assessment year 2010-11;for assessment year 2010-11; c) Confirmation Letter in respect of share application money paid by them; and paid by them; and d) Copy of Bank Statement through which cheques were issued. 20.Tribunal noted that Assessing OfÏcer had referredthe matter to the investigation wing of the department atKolkata for making inquiries into the three creditors fromwhom share application money was received. Though reportfrom the investigation wing was received, Tribunal noted thatthe same was not considered by the Assessing OfÏcerdespite mentioning of the same in the assessment order,besides not providing a copy of the same to the assessee. Inthe report by the investigation wing, it was mentioned thatthe companies were in existence and had filed income taxreturns for the previous year under consideration but theAssessing OfÏcer recorded that these creditors had verymeager income as disclosed in their returns of income andtherefore, doubted credit worthiness of the three creditors.Finally, Tribunal held as under:- "5.7As per the provisions of Section 68 of the Act, for any cashcredit appearing in the books of assessee, the assessee is requiredto prove the following- (a) Identity of the creditor (b) Genuineness of the transaction (c) Credit-worthiness of the party (i) In this case, the assessee has already proved the identity ofthe share applicant by furnishing their PAN, copy of IT return filed forasst. year 2010-11. (ii) Regarding the genuineness of the transaction, assessee hasalready filed the copy of the bank account of these three shareapplicants from which the share application money was paid and thecopy of account of the assessee in which the said amount wasdeposited, which was received by RTGS. (iii) Regarding credit-worthiness of the party, it has been provedfrom the bank account of these three companies that they had thefunds to make payment for share application money and copy ofresolution passed in the meeting of their Board of Directors. (iv) Regarding source of the source, Assessing Officer has alreadymade enquiries through the DDI (Investigation), Kolkata andcollected all the materials required which proved the source of thesource, though as per settled legal position on this issue, assesseeneed not to prove the source of the source. (v) Assessing Officer has not brought any cogent material orevidence on record to indicate that the shareholders werebenamidars or fictitious persons or that any part of the share capitalrepresent company’s own income from undisclosed sources. Accordingly, no addition can be made u/s.68 of the Act. In view ofabove reasoned factual finding of CIT(A) needs no interference fromour side. We uphold the same." 21.From the above, it is seen that identity of thecreditors were not in doubt. Assessee had furnished PAN,copies of the income tax returns of the creditors as well ascopy of bank accounts of the three creditors in which theshare application money was deposited in order to provegenuineness of the transactions. In so far credit worthinessof the creditors were concerned, Tribunal recorded that bankaccounts of the creditors showed that the creditors hadfunds to make payments for share application money and inthis regard, resolutions were also passed by the Board ofDirectors of the three creditors. Though, assessee was notrequired to prove source of the source, nonetheless, Tribunaltook the view that Assessing OfÏcer had made inquiriesthrough the investigation wing of the department at Kolkataand collected all the materials which proved source of thesource. 22.In NRA Iron & Steel (P) Ltd (supra), the AssessingOfÏcer had made independent and detailed inquiry including survey of the investor companies. The field report revealedthat the shareholders were either non-existent or lackedcredit-worthiness. It is in these circumstances, SupremeCourt held that the onus to establish identity of the investorcompanies was not discharged by the assessee. Theaforesaid decision is, therefore, clearly distinguishable onfacts of the present case. 21.Therefore, on a thorough consideration of thematter, we are of the view that the first appellate authorityhad returned a clear finding of fact that assessee haddischarged its onus of proving identity of the creditors,genuineness of the transactions and credit-worthiness of thecreditors which finding of fact stood afÏrmed by the Tribunal.There is, thus, concurrent findings of fact by the two lowerappellate authorities. Appellant has not been able to showany perversity in the aforesaid findings of fact by theauthorities below. 22.Under these circumstances, we find no error orinfirmity in the view taken by the Tribunal. No question of law, much less any substantial question of law, arises fromthe order of the Tribunal. Consequently, the appeal isdismissed. However, there shall be no order as to cost. [ MILIND N. JADHAV, J. ] [ UJJAL BHUYAN, J. ] 22.Under these circumstances, we find no error orinfirmity in the view taken by the Tribunal. No question of law, much less any substantial question of law, arises fromthe order of the Tribunal. Consequently, the appeal isdismissed. However, there shall be no order as to cost. [ MILIND N. JADHAV, J. ] [ UJJAL BHUYAN, J. ] Digitallysigned byRavindraRavindra M.AmberkarM.Date:Amberkar2020.02.0510:54:38+0530