Taxc v. The Income Tax Officer-1 Raigarh (C.g.) The Income Tax Officer-1 Raigarh (C.g

AFR HIGH COURT OF CHHATTISGARH, BILASPUR TAXC No. 120 of 2024 M/s. Sumit Global Pvt. Ltd. A Company Registered Under TheCompanies Act Having Its Registered Office At C/o Kanha Electricals& Electronics, Nanhu Nagar, Vijay Nagar, P.O. Kirodimalnagar,Raigarh (C.G.), pan- , through its Director Mr. RakeshJindal, Aged About 62 Years, S/o Shri Anand Swaroop Jindal, R/o 2BBuilding 5 Hibiscus, Sector 50, Gurugram, Haryana -122018, M/s. Sumit Global Pvt. Ltd. A Company Registered Under TheCompanies Act Having Its Registered Office At C/o Kanha Electricals& Electronics, Nanhu Nagar, Vijay Nagar, P.O. Kirodimalnagar,Raigarh (C.G.), pan- , through its Director Mr. RakeshJindal, Aged About 62 Years, S/o Shri Anand Swaroop Jindal, R/o 2BBuilding 5 Hibiscus, Sector 50, Gurugram, Haryana -122018, ---- Appellant Versus The Income Tax Officer-1 Raigarh (C.G.) The Income Tax Officer-1 Raigarh (C.G.) ---- Respondent For Appellant: Shri Sidhdharth Dubey, Advocate For Respondent :Ms. Naushina Afrin Ali, Advocate alongwith Shri Ajay Kumrani, Advocate on behalf of Shri Amit Chaudhari, Advocate with Shri Ajay Kumrani, Advocate on behalf of Shri Amit Chaudhari, Advocate Hon'ble Shri Justice Goutam Bhaduri & Hon'ble Smt. Justice Rajani DubeyJudgment on Board Per Goutam Bhaduri, J 21/06/2024 Heard. 1.The instant appeal has been filed against the order dated 29/11/2023passed by the Income Tax Appellate Tribunal (hereinafter referred to as‘the ITAT’), whereby the order passed by the Commissioner of IncomeTax (Appeals) adding Rs.1,87,00,000/- was upheld.passed by the Income Tax Appellate Tribunal (hereinafter referred to as‘the ITAT’), whereby the order passed by the Commissioner of IncomeTax (Appeals) adding Rs.1,87,00,000/- was upheld. 2.The brief facts of the case are that in respect of the F.Y. 2013-14 and A.Y. 2014-15, the original return was filed by the appellant-company 3. on 30/09/2014. Subsequently, the case was taken up in a scrutiny underSection 143 (3) of the Income Tax Act, 1961 (hereinafter referred to asthe Act, 1961) and on 27/12/2016 the Assessment Officer passed anorder of addition of Rs.4,13,41,500/- under Section 68 of the Act, 1961assigning the reason that share application money was received frombogus shell companies, which actually belong to the appellant. According to the respondent, the case of the assessee company wasselected for complete scrutiny to verify the share premium receivedduring the year under consideration whereas the company has shownlow income in comparison to high loans & advances and investment inshare and the investment made in unlisted equities. The details wereasked to be supplied about the shareholders who actually invested themoney. Subsequently, in order to verify the genuineness andcreditworthiness of the shareholding companies, a notice was issuedunder Section 133(6) of the Act, 1961 to Kolkata based sharecompanies namely M/s Eagle Commotrade Pvt. Ltd. and M/sKrishnakali Distributors Pvt Ltd at their registered address. The noticeswere returned unserved, consequently, the Assessment Officer deputedone Inspector to find out the identity of the companies. On averification, it was found that the companies namely EagleCommotrade Pvt. Ltd. and M/s Krishnakali Distributors Pvt Ltd do notexist. Since the credible explanation regarding the amount credited tothe company was not explained, the amount of unexplained cash creditwas added under Section 68 of the Act, 1961 for the A.Y. 2014-15. 4.The appellant filed an appeal before the CIT (Appeals) and the CIT(Appeals) by its order dated 23/03/2018 carved out the addition ofRs.4,13,41,500/- as it was found to be for different Assessment Year.Rs.2,26,41,500/- was found to have been received for previousassessment year and for the relevant Financial Year 2013-14:Assessment Year 2014-15. It was also found that Rs.1,87,00,000/- wasreceived by the assessee company during the year which is subjectmatter of consideration in appeal. The appellant filed an appeal beforethe ITAT wherein the ITAT by its order dated 29/11/2013 dismissed theappeal. Hence this appeal. 5.Learned counsel for the appellant would submit that admittedly theincome of Rs.1,87,00,000/- was added to the income of one RashiSteels and the Rashi Steels having been subjected to assessment, therecannot be double taxation towards the M/s Sumit Global Pvt Ltd i.e. theappellant herein. He placed his reliance on the ratio laid down by theDelhi High Court in the matter of PRO Commissioner of Income TaxVs. Vijay Conductors India Pvt Ltd, and other connected matters{2015 (9) TMI 1519-Delhi High Court} to submit that the assesseeand Eagle Commotrade Pvt. Ltd. and M/s Krishnakali Distributors PvtLtd, if were found to be conduit entities/non-existing and if ultimatebeneficiary was Rashi Steels, the appellant cannot be subjected toassessment and it cannot be added to the income of the appellant. Hewould further submit that Section 68 of the Act, 1961 uses the word“may” and if it has been found that Rashi Steels is the ultimatebeneficiary and the present appellant along with Eagle CommotradePvt. Ltd. and M/s Krishnakali Distributors Pvt Ltd are continued 6. 7. 8. companies then there is no mandate to impose the tax liability as theRashi Steels is already under assessment to tax. Per contra, learned counsel for the respondent opposes the submissionadvanced by learned counsel for the appellant. She would submit thatsince the appellant was part and parcel of the financial transaction andwhen the enquiry was opened, the amount received as a share capitalfrom the companies which were found to be non-existing, the presentappellant having filed the return they are also part and parcel as abeneficiary. She placed her reliance in the law laid down by theSupreme Court in the matter of Principal Commissioner of IncomeTax (Central-1) Vs. NRA Iron and Steel Private Limited {(2019) 15SCC 529} and would submit that the assessee has failed to discharge theprimary onus to establish the genuineness of the transaction, which isrequired under Section 68 of the Act, 1961. She would further submitthat since the said burden has not been discharged, as such the taxliability imposed on the present appellant is justified. She wouldfurther submit that no question of law arises for consideration in thiscase, consequently, the appeal sans merit is liable to be dismissed. We have heard learned counsel for the parties and perused thedocuments. In order to find out whether the question of law arises for consideration,we went through the orders passed by the ITAT and CIT. The originalassessment order was dated 27/12/2016 wherein the income of thecompany was assessed at Rs.4,13,41,500/- and accordingly the demandnotice of Rs.1,78,39,640/- was raised. Pursuant to the scrutiny, the 9. We have heard learned counsel for the parties and perused thedocuments. In order to find out whether the question of law arises for consideration,we went through the orders passed by the ITAT and CIT. The originalassessment order was dated 27/12/2016 wherein the income of thecompany was assessed at Rs.4,13,41,500/- and accordingly the demandnotice of Rs.1,78,39,640/- was raised. Pursuant to the scrutiny, the 9. assessee company was directed to furnish the details of the shareholders and prove their creditworthiness, meaning thereby who hasinvested the amount in the share and nature of source i.e. wherefrom theinvestors got the money. The order was under challenge before theCIT(A). CIT(A) by its order dated 23/03/2018 deleted the addition of2,26,41,500/- out of 4,13,41,500/- which was received by the assesseecompany prior to assessment year 2014 thereby addition ofRs.1,87,00,000/- was done. The company came out with a defence thatEagle Commotrade Pvt. Ltd. and M/s Krishnakali Distributors Pvt Ltdhave respectively contributed to the share of Rs.1,00,00,000/-;1,00,000/-; and 86,00,000/-, however, when the notices were issued tothe said companies, which was found to be non-existent followed by thefact that the Inspector when was sent to enquire about identity &existence of the company, he too came out with a report itself that thecompanies do not exist. When the notice which was issued underSection 133 (6) of the Act, 1961, the requirement of Section 68 of theAct, 1961 was to be satisfied. For the sake of brevity Sections 133(6) & Section 68 of the Act, 1961are reproduced hereinbelow:- 133. Power to call for information.- xxxxxxxxxxxxxxxxxxxxxxxxxxx(6) require any person, including a banking company orany officer thereof, to furnish information in relation tosuch points or matters, or to furnish statements of accountsand affairs verified in the manner specified by theAssessing Officer, the Deputy Commissioner (Appeals),the Joint Commissioner or the Commissioner (Appeals)],giving information in relation to such points or matters as,in the opinion of the Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or thethe Commissioner (Appeals)], will be useful for, orrelevant to, any [inquiry or]proceeding under this Act:Provided that the powers referred to in clause (6), may alsobe exercised by the [Principal Director General or DirectorGeneral], the [Principal Chief Commissioner or ChiefCommissioner], the [Principal Director or Director] [or thePrincipal Commissioner or Commissioner or the JointDirector or Deputy Director or Assistant Director]: [Provided further that the power in respect of an inquiry,in a case where no proceeding is pending, shall not beexercised by any income tax authority below the rank of[Principal Director or Director] or [Principal Commissioneror Commissioner][, other than the Joint Director or DeputyDirector or Assistant Director,] without the prior approvalof the Principal Director or Director or, as the case may be,the [Principal Commissioner or Commissioner] : [Provided also that for the purposes of an agreementreferred to in Section 90 or Section 90-A, an income taxauthority notified under sub-section (2) of Section 131 mayexercise all the powers conferred under this section,notwithstanding that no proceedings are pending before itor any other income tax authority.] 68. Cash Credits.- Where any sum is found credited in thebooks of an assessee maintained for any previous year, andthe assessee offers no explanation about the nature andsource thereof or the explanation offered by him is not, inthe opinion of the Assessing Officer, satisfactory, the sumso credited may be charged to income tax as the income ofthe assessee of that previous year. [Provided also that for the purposes of an agreementreferred to in Section 90 or Section 90-A, an income taxauthority notified under sub-section (2) of Section 131 mayexercise all the powers conferred under this section,notwithstanding that no proceedings are pending before itor any other income tax authority.] 68. Cash Credits.- Where any sum is found credited in thebooks of an assessee maintained for any previous year, andthe assessee offers no explanation about the nature andsource thereof or the explanation offered by him is not, inthe opinion of the Assessing Officer, satisfactory, the sumso credited may be charged to income tax as the income ofthe assessee of that previous year. [Provided that] where the assessee is a company, (not beinga company in which the public are substantially interested)and the sum so credited consists of share applicationmoney, share capital, share premium or any such amountby whatever name called, any explanation offered by suchassessee-company shall be deemed to be not satisfactory,unless— (a) the person, being a resident in whose name such creditis recorded in the books of such company also offers anexplanation about the nature and source of such sum socredited; and (b) such explanation in the opinion of the Assessing Officeraforesaid has been found to be satisfactory: [Provided further] that nothing contained in the [firstproviso] shall apply if the person, in whose name the sumreferred to therein is recorded, is a venture capital fund or aventure capital company as referred to in clause (23-FB) ofSection 10. 10.The Supreme Court in the matter of Principal Commissioner ofIncome Tax (Central-1) Vs. NRA Iron and Steel Private Limited{(2019) 15 SCC 529} has laid down the parameters and the issues whicharises for determination whether the respondent assessee has dischargedthe primary onus to establish the genuineness of the transactionrequired under Section 68 of the Act, 1961. It primarily laid down thatthe initial onus is on the assessee to establish proof of identity of thecreditors; capacity of creditors to advance money; and genuineness oftransaction. The Court at para 9.3 & 9.5 has reiterated the principle laiddown by the Court, which are reproduced hereinbelow:- 9.3. As per settled law, the initial onus is on theassessee to establish by cogent evidence thegenuineness of the transaction, and creditworthinessof the investors under Section 68 of the Act. Theassessee is expected to establish to the satisfactionof the assessing officer [CIT v. Precision Finance(P) Ltd., 1993 SCC OnLine Cal 384 : (1994) 208ITR 465] : Proof of identity of the creditors; Capacity of creditors to advance money;andand Genuineness of transaction This Court in the landmark case of Kale KhanMohd. Hanif v. CIT [Kale Khan Mohd. Hanif v.CIT, (1963) 50 ITR 1] and, Roshan Di Hatti v. CIT[Roshan Di Hatti v. CIT, (1977) 2 SCC 378 : 1977SCC (Tax) 292 : (1977) 107 ITR 938] laid downthat the onus of proving the source of a sum ofmoney found to have been received by an assessee,is on the assessee. Once the assessee has submittedthe documents relating to identity, genuineness ofthe transaction, and creditworthiness, then the AOmust conduct an inquiry, and call for more detailsbefore invoking Section 68. If the assessee is notable to provide a satisfactory explanation of thenature and source, of the investments made, it isopen to the Revenue to hold that it is the income ofthe assessee, and there would be no further burdenon the Revenue to show that the income is from anyparticular source. xxx xxxxxxxxx xxxxxxxxx xxxxxx 9.5. The Delhi High Court in CIT v. OasisHospitalities (P) Ltd. [CIT v. Oasis Hospitalities (P)Ltd., 2011 SCC OnLine Del 506 : (2011) 333 ITR119] , held that: (SCC OnLine Del para 43)Hospitalities (P) Ltd. [CIT v. Oasis Hospitalities (P)Ltd., 2011 SCC OnLine Del 506 : (2011) 333 ITR119] , held that: (SCC OnLine Del para 43) xxx xxxxxxxxx xxxxxxxxx xxxxxx 9.5. The Delhi High Court in CIT v. OasisHospitalities (P) Ltd. [CIT v. Oasis Hospitalities (P)Ltd., 2011 SCC OnLine Del 506 : (2011) 333 ITR119] , held that: (SCC OnLine Del para 43)Hospitalities (P) Ltd. [CIT v. Oasis Hospitalities (P)Ltd., 2011 SCC OnLine Del 506 : (2011) 333 ITR119] , held that: (SCC OnLine Del para 43) “43. … the initial onus is upon the assessee toestablish three things necessary to obviate themischief of Section 68 of the Act. These are:(i) identity of the investors; (ii) theircreditworthiness/investments;and(iii)genuineness of the transaction. Only whenthese three ingredients are established primafacie, the department is required to undertakefurther exercise….”establish three things necessary to obviate themischief of Section 68 of the Act. These are:(i) identity of the investors; (ii) theircreditworthiness/investments;and(iii)genuineness of the transaction. Only whenthese three ingredients are established primafacie, the department is required to undertakefurther exercise….” 11.The submission of the appellant that since the original beneficiary washeld to be Rashi Steel, the present appellant cannot be assessed for thesaid tax liability do not impress us. If the notices were issued to EagleCommotrade Pvt. Ltd. and M/s Krishnakali Distributors Pvt Ltd, theywere found to be fake/non-existent, the appellant company could notfall back to say that Rashi Steels was the original beneficiary as hasbeen held that the practice of conversion of unaccounted moneythrough the cloak of share capital/premium must be subjected to carefulscrutiny. 12.The initial enquiry which came to fore revealed that on close scrutinythe investment which was made by the said two companies their proofof identity of creditors and the capacity of creditors to advance moneyand genuineness of transaction fell apart when the company was foundto be non-existent. Consequently, in our view the Supreme Court in theabove judgment has held thus in para 16:-the investment which was made by the said two companies their proofof identity of creditors and the capacity of creditors to advance moneyand genuineness of transaction fell apart when the company was foundto be non-existent. Consequently, in our view the Supreme Court in theabove judgment has held thus in para 16:- 16.The practice of conversion ofunaccounted money through the cloak of A S H U share capital/premium must be subjected tocareful scrutiny. This would be particularlyso in the case of private placement of shares,where a higher onus is required to be placedon the assessee since the information iswithin the personal knowledge of theassessee. The assessee is under a legalobligation to prove the receipt of sharecapital/premium to the satisfaction of theAO, failure of which, would justify additionof the said amount to the income of theassessee. 13.It is the first barrier, therefore, the onus of Section 68 of the Act, 1961 is to be discharged by the assessee and having failed to do so.Accordingly, no question of law appears to be arises for consideration.Accordingly, no question of law appears to be arises for consideration. 14.In the result, the appeal is dismissed. SD/- SD/- SD/- (Goutam Bhaduri) (Rajani Dubey) Judge Judge TAXC No. 120 of 2024 HEAD-NOTE Under Section 68 of the Income Tax Act, 1961, theinitial onus is on the assessee to establish Proof ofidentity of the creditors; Capacity of creditors toadvance money; and Genuineness of transaction. vk;dj vf/kfu;e 1961 dh /kkjk 68 ds rgr] _.knkrkvksa ds igpku dkizek.k] _.knkrkvksa dh vfxze /kujkf’k nsus dh {kerk vkSj laO;ogkj dhokLrfodrk] LFkkfir djus dk izkjafHkd nkf;Ro fu/kkZfjrh ij gSA