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Cit v. Kamdhenu Steel & Alloys Ltd.
Concise HTML Summary of the Provided Opinion
Factual and Procedural Background
This appeal was filed by the Revenue against the order dated 09/12/2011 of the learned Commissioner of Income Tax (Appeals) [CIT(A)], Central, Jaipur, concerning assessment year 2006-07.
The Assessing Officer (A.O.) made an addition of Rs. 2,00,00,000 under Section 68 of the Income Tax Act, 1961, treating share application money and share premium received by the assessee (Kamdhenu group) as undisclosed income because the A.O. considered the identity, genuineness and creditworthiness of the subscribing private limited companies to be unproved. The A.O.'s conclusion drew on an Inspector's field report that several subscribing companies "do not exist at given address" and on a Delhi High Court decision (Sophia Finance Ltd., 205 ITR 98).
The assessee produced confirmations, PAN details, ROC master details and bank statements for the subscribers and challenged the A.O.'s addition before the CIT(A). The CIT(A) deleted the addition of Rs. 2 crores after examining the bank statements, ROC master details, confirmations and the inspector's report (noting, inter alia, that some addresses had changed and that the inspector's report was not supplied to the assessee prior to assessment). The Revenue then appealed to the Income Tax Appellate Tribunal (the Court), which heard arguments of the Revenue (learned D.R.) and the assessee (learned A.R.).
The Tribunal considered the record, including that there were no incriminating documents found in a related search (17/9/2008), that receipts were routed through banking channels, and that information under Section 133(6) had been served on the subscribers. The Tribunal upheld the CIT(A)'s order and dismissed the Revenue's appeal. The order was pronounced in open court on 28/08/2014.
Legal Issues Presented
- Whether the CIT(A) erred in law and on facts in deleting the addition of Rs. 2,00,00,000 made by the A.O. under Section 68 of the Income Tax Act in respect of share application money and premium received from companies whose identity, genuineness and creditworthiness were said to be not proved.
- Whether the CIT(A) erred in deleting the addition when the amounts had been deposited/transferred into the accounts of the share applicants before being transferred to the assessee's account.
- Whether the CIT(A) erred in accepting addresses given in bank statements and ROC master details (without independent enquiries by those agencies) to establish identity and creditworthiness, despite the Department's inquiries and the Inspector's report.
- Whether the CIT(A) erred in deleting the addition without establishing identity, genuineness and creditworthiness of transactions, contrary to the judicial pronouncement of the Delhi High Court in Commissioner Of Income Tax v. Oasis Hospitalities (Pvt.) Ltd., 333 ITR 119 (Del.).
Arguments of the Parties
Revenue's Arguments (learned D.R.)
- There was a search/seizure operation on 17/09/2008 and no disclosure was made during the search; no incriminating documents were found at the assessee's business premises.
- The assessee increased share capital by Rs. 3 crores and the A.O. added Rs. 2 crores as undisclosed income because the assessee did not prove identity, genuineness and creditworthiness of the cash creditors.
- Although PAN, bank account copies and ROC master details were submitted, the assessee provided different addresses to different authorities; the subscribing companies' addresses were inconsistent and not verifiable (e.g., "Jawahar Market" in Punjabi Bagh was asserted not to exist).
- Particulars of subscribers (e.g., Megatronics Systems Pvt. Ltd. and Vital Services Pvt. Ltd.) indicate lack of creditworthiness to subscribe at the stated premium; CIT(A) merely accepted the assessee's submissions and failed to verify details, so the A.O.'s order should be set aside.
Assessee's Arguments (learned A.R.)
- The assessee relied on a prior decision in its own case (ITA No. 972/2009 — CIT v. Kamdhenu Steel, A.Y. 2004-05) where the Delhi High Court held that submission of company registration, confirmations from share applicants, bank account details and payments by account-payee cheques discharged the assessee's initial onus under Section 68.
- Registration of the subscriber companies and bank-account payment through account-payee cheques established identity and that money was received through banking channels; that does not automatically make the money the assessee's unaccounted income.
- The A.O. failed to carry his suspicion to a logical investigative conclusion; mere inability to find a creditor at the given address does not by itself permit invocation of Section 68 without additional material.
- No incriminating documents were found during the search. Notices under Section 133(6) were issued and served on subscribers. The Inspector's field inquiries were made without properly informing the assessee and the inspector's report was provided late; the assessee filed additional corroborative documents at the appellate stage (e.g., ROC master details and bank statements) and offered explanations for address changes.
- Accordingly, the assessee contended that it had discharged its onus and that the CIT(A)'s deletion of the addition should be confirmed.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Commissioner Of Income Tax v. Oasis Hospitalities (Pvt.) Ltd., 333 ITR 119 (Del.) | The provided opinion references this decision in the appellant's grounds as a judicial pronouncement allegedly contrary to the deletion by the CIT(A). The specific rule/principle from this case is not quoted in the provided opinion text. | The provided opinion does not record that the Tribunal relied upon or applied this precedent in its reasoning; the ground asserted a conflict, but the Tribunal's analysis as recorded does not expressly invoke or follow Oasis Hospitalities. |
| Commissioner Of Income-Tax, N. Delhi v. Sophia Finance Ltd., 205 ITR 98 | The A.O. relied on this decision, which is quoted in the assessment context in the opinion: "capital receipts in the names of the genuine tax payers introduced in the books of account of the assessee are to be assessed in the hands of such an assessee." | The A.O. invoked Sophia Finance to support addition under Section 68. The Tribunal, however, after reviewing confirmations, ROC details, bank statements, the timing of the inspector's report and related facts, did not uphold the A.O.'s reliance and instead affirmed the CIT(A)'s deletion of the addition. |
| CIT v. Kamdhenu Steel (ITA No. 972/2009) — A.Y. 2004-05 (Hon'ble Delhi High Court decision relied on by assessee) | As presented in the opinion, the Delhi High Court held that where the assessee submits company registration details, confirmations from share applicants, bank account details and payments through account-payee cheques, the assessee discharges its initial onus; the A.O. must pursue further investigation rather than invoking Section 68 solely because a creditor cannot be found at a given address. | The assessee relied on this earlier favorable High Court decision. The Tribunal noted that the Hon'ble Delhi High Court had decided the assessee's own case on similar facts in its favour and treated that factual-legal context as supportive of upholding the CIT(A)'s deletion of the addition. |
Court's Reasoning and Analysis
The Tribunal's reasoning, as set out in the provided opinion, proceeded in the following steps:
- Record and preliminary facts: It noted that a search relating to a later assessment year yielded no incriminating documents for the Kamdhenu group, and that the share subscriptions in dispute were received through proper banking channels.
- Evidence produced by the assessee: The assessee produced confirmations, PAN numbers, ROC master details and bank account evidence for the subscribing companies. Notices under Section 133(6) were issued to the subscribers and were served.
- Weight of the Inspector's report and timing: The A.O. relied heavily on the Inspector's field report stating that subscribers were not found at given addresses. The Tribunal observed that the Inspector's report had been provided to the assessee only on 06/06/2011 while assessment was completed on 26/12/2010 — a timing the Tribunal characterized as contrary to natural justice when relied on by the A.O.
- Verification of addresses and effect of time gap: The Tribunal observed that some addresses (e.g., "Jawahar Market") did exist as evidenced in subscribers' bank statements and ROC master details. There was also a time gap (share subscription in FY 2005-06 and inspections/inquiries in FY 2010-11 of about five years) during which addresses could legitimately have changed; the A.O. could have verified ROC details but did not do so.
- Admission of appellate-stage evidence and remand: The CIT(A) allowed additional evidence (e.g., bank statement of M/s. Megatronics Systems Pvt. Ltd.) filed at the appeal stage and obtained a remand report; on examination the present A.O. did not give adverse comments after reviewing that bank statement.
- Precedential and comparative context: The Tribunal recorded that the assessee's own earlier case before the Delhi High Court had been decided in the assessee's favour on similar facts. The Tribunal noted that the learned Departmental Representative did not controvert the CIT(A)'s factual findings.
- Conclusion from combined factors: Considering the documents produced, the service of notices under Section 133(6), the timing and content of the inspector's report, ROC and bank evidence and the lack of adverse findings in remand, the Tribunal concluded the A.O. was unjustified in treating the share application money from the subscribing companies as undisclosed income solely on the basis of the inspector's report.
Holding and Implications
Final Holding: The appeal filed by the Revenue was DISMISSED and the CIT(A)'s deletion of the addition of Rs. 2,00,00,000 under Section 68 was upheld.
Direct effect on the parties: The deletion of the addition of Rs. 2 crores stands; the assessee's assessment is not reopened on that issue as per the Tribunal's order pronounced on 28/08/2014.
Broader implications: The provided opinion does not expressly state that a new legal principle or binding precedent was established by this order. The decision rests on the particular combination of evidentiary facts (ROC master details, bank statements, confirmations, service of Section 133(6) notices, the late provision of the inspector's report, and an earlier favourable High Court decision in the assessee's own case) and therefore the opinion, as provided, does not announce a novel legal rule beyond applying established principles about onus under Section 68 and the need for the Revenue to investigate further when the assessee furnishes primary evidence of identity and genuineness.
T.R Meena, A.M:— This is an appeal filed by the Revenue against the order dated 09/12/2011 of the learned C.I.T(A), Central, Jaipur for the A.Y 2006-07. The effective grounds of appeal are as under:—
“1. Whether on the facts and circumstances of the case of CIT(A) Central, Jaipur has erred in law as well as on facts in deleting the addition of Rs. 2,00,00,000/- made by the A.O U/s 68 of the IT Act on account of share application money and premium received from the companies of which identity, genuineness and creditworthiness had not been proved.
2. Whether on the facts and circumstances of the case of CIT(A), Central, Jaipur has erred in law as well as on facts in deleting the addition of Rs. 2,00,00,000/- made by the A.O U/s 68 of the IT Act on account of share application money and premium received despite the fact that amount had been deposited and/or transferred in the account of the share applicants before being transferred to the account of the assessee company.
3. Whether on the facts and circumstances of the case of CIT(A), Central, Jaipur has erred in law as well as on facts in deleting the addition of Rs. 2,00,00,000/- made by the A.O U/s 68 of the IT Act on account of share application money and premium received relying upon addresses given in bank statements and master detail of ROC of subscriber companies despite the fact that these agencies do not conduct and filed enquiry as done by the Department and moreover the address proof does not establish creditworthiness and genuineness of transaction.
4. Whether on the facts and circumstances of the case of CIT(A), Central, Jaipur has erred in law as well as on facts in deleting the addition of Rs. 2,00,00,000/- made by the A.O U/s 68 of the IT Act on account of share application money and premium received from the companies without establishing identity, genuineness and creditworthiness of the transaction which is contrary to the judicial pronouncement of Hon'ble Delhi High Court in the case of Commissioner Of Income Tax v. Oasis Hospitalities (Pvt.) Ltd. 333 ITR 119 (Del.).
5. The appellant craves the right to amend alter or add to any of the grounds of appeal given above.”
2. All the four grounds of appeal are interlinked on deletion of addition of cash creditor of Rs. 2 crores made by the Assessing Officer U/s 68 of the Income Tax Act, 1961 (hereinafter referred as the Act). The learned Assessing Officer observed that the assessee during the year under consideration had increased share capital to the tune of Rs. 3 crores. The Assessing Officer gave reasonable opportunity of being heard and asked to prove the genuineness of the transactions, identity of the cash creditor and creditworthiness of the cash creditors and filed copy of ledger account of share application money subscribed and paid up in share premium account. The assessee replied and filed various details on that basis. He deputed his Inspector to enquire the genuineness of the transactions and verified from the field. The Inspector had reported that the said following share holder do not exist at given address.
S. No. Name of the investor subscribing to share capital Share Capital Premium 1. M/s. Upercon Marketing Pvt. Ltd. Rs. 4,00,000 Rs. 16,00,000 2. M/s. Magic Multiplier Financial Services Pvt. Ltd. Rs. 4,00,000 Rs. 16,00,000 3. M/s. Growthwell Finlease Pvt. Ltd. Rs. 2,00,000 Rs. 8,00,000 4. M/s. Megatronics Systems Pvt. Ltd. Rs. 6,00,000 Rs. 24,00,000 5. M/s. Vital Services Pvt. Ltd. Rs. 8,00,000 Rs. 32,00,000 6. M/s. AGR Forex & Holdings Pvt. Ltd. Rs. 6,00,000 Rs. 24,00,000 7. M/s. Mantech Leasing & Finance Pvt. Ltd. Rs. 4,00,000 Rs. 16,00,000 8. M/s. Gold stone Financial Services Pvt. Ltd. Rs. 6,00,000 Rs. 24,00,000 Total Rs. 40,00,000/- Rs. 1,60,00,000/-
The Assessing Officer again gave reasonable opportunity of being heard on this issue and response to this notice, the appellant had filed the current date confirmation from these subscribers alongwith other details but concluded by him that these confirmation could not relied upon as on given address, no such persons were found. The genuineness was doubted by the Assessing Officer. He held that, it can be proved only by producing the Director of the company before him. Mere confirmation, in which, even the signatures put in by the persons giving confirmation are not verifiable, cannot be relied upon in view of the report of the Inspector and the circumstances of the case. He further relied in case of Hon'ble Delhi High Court decision in the case of Commissioner Of Income-Tax, N. Delhi v. Sophia Finance Ltd . reported in 205 ITR 98, wherein it has been held that capital receipts in the names of the genuine tax payers introduced in the books of account of the assessee are to be assessed in the hands of such an assessee. Therefore, he added Rs. 2 crores as undisclosed income of the assessee U/s 68 of the Act.
3. Being aggrieved by the order of the learned Assessing Officer, the assessee carried the matter to the learned CIT(A), who had allowed the appeal by observing as under:—
“4. I have considered the submission of the A.R and have perused the material on record. In brief, 8 private limited companies have subscribed to the share capital alongwith premium totaling Rs. 2 crores, as per list given in the earlier paras, which is under dispute. In respect of all these companies, the appellant filed names, address, PAN No. and also the current confirmation. When the A.O reported to the appellant about these companies not found at the address given, as reported by the Inspector, the appellant further filed the copy of the Master Details of the company (filed by the company with ROC) on 14/12/2010. These master details clearly indicated the name, the complete address of the company and also the fact that the company is registered. The copy of the Inspector report was not provided to A.R and hence he was not able to exactly comment on the Inspector Report. Now after the assessment was over, the appellant requested and collected the report and he has elaborately and specifically commented on each of the issue raised in the Inspector report. On perusal of the same, it is seen that argument of the appellant in this regard is correct. Briefly the Inspector reported that address of three companies namely M/s. Upercon Marketing Pvt. Ltd., M/s. Magic Multiplier Services Pvt. Ltd and M/s. Growth Well Fin Lease Pvt. Ltd. is shown as ‘Jawahar Market’ in Punjabi bagh but there is no ‘Jawahar Market’ in Punjabi Bagh. However, it is noticed that Jawahar Market did exist as is evident from the copy of the bank statement of these above referred 3 subscribers companies, wherein the bank statement show and include the address as Jawahar Market. In respect of M/s. Magic Multiplier Pvt. Ltd., new address of the registered office w.e.f 10/6/2008 is also mentioned.
4.1 In respect of other 4 companies, namely M/s. Vital Services Pvt. Ltd., M/s. AGR Forex & Holdings Pvt. Ltd., M/s. Mantek Leasing and Finance Pvt. Ltd. and M/s. Goldstone Financial Services Pvt. Ltd, the same address as given to the A.O by the A.R, was available in the bank statement of these companies as per the information received by the A.O directly from these concerns/their banks. Similarly, same address was available in the ROC Master details. Even the same address as given to A.O was noticed in their I.T returns. Hence considering the facts and circumstances as mentioned hereinabove, it cannot be said that existence of these companies is not verifiable. Moreover, When all the seven companies have responded to the notice, sent by A.O at the same address and have also furnished reply to the query raised by the A.O, the A.O was not at all justified to give finding that companies are not existing. Moreover, since bank account of these subscribers companies were also called by the A.O and were available on the record of A.O well before passing of the assessment order, wherein A.O has not found any adverse facts related to subscription of the share application money by these seven companies, A.O was totally unjustified in treating the share application money received from these companies as undisclosed income of the appelant company that too only on the basis of inspectors report.
4.2 Now coming to the 8th company namely M/s. Megatronics Systems Pvt. Ltd., it is seen that due to change in the address of the company, which were evident from the record of the A.O by way of ROC details filed by the A.R on 14/12/2010, the A.O did not receive information from the said company. On the other hand, the A.R has already filed the current date confirmation from the said company alongwith PAN and other details as mentioned by A.O himself on page 3 of the assessment order. Considering these facts and the fact that due to change in address and company was not found at the earlier address given, there was no justification for the A.O to treat this company as non-existent and further also doubting the transactions. In any case, as in these circumstances, it was not expected from the appelant limited company to file the copy of the bank statement of the subscriber private limited companies, the appellant could not be faulted for not filing the bank statement, as confirmation alongwith PAN No. etc. are usually treated the sufficient proof and non-availability of the old address was found explained due to address change. Thus there was reasonable cause for not filing of the bank account of the subscriber company at the assessment stage and therefore filing of the same at appeal stage as additional evidence is alowed to be admitted. Without prejudice to above, same has been filed only to doubly support the argument taken by the A.R The present A.O in the remand report, has not given any adverse comment after going through the bank statement of M/s. Megatronics Systems Pvt. Ltd.
4.3 In view of these facts and circumstances and considering the legal position on this issue, as decided by various courts, the addition so made by the A.O considering the share application money received from above referred 8 subscribers companies as undisclosed income of the appellant company totaling to Rs. 2 crores, is hereby deleted.”
4. Now the Revenue is in appeal before us.
5. The learned D.R vehemently argued that there was a search seizure operation in this case on 17/9/2008. There was no disclosure during the course of search. No incriminating documents were found from the business premises of the assessee. The assessee has increased share capital by Rs. 3 crores out of this Assessing Officer made addition of Rs. 2 crores on the ground that the appellant had not proved the identity for the cash creditors, genuineness of the transactions and creditworthiness of the parties. However, it has submitted PAN No., copy of the bank account, master copy of company details of ROC. He further drawn our attention on various information submitted by the assessee in its paper book and argued that the assessee itself gave different addresses before the different authorities likewise it had also given different addresses of the subscribers of share capital. There is no Jawahar Market in Punjabi Bagh, New Delhi. He particularly drawn our attention on particulars submitted for the capital subscribers in the case of Megatronics Systems Pvt. Ltd. and Vital Services Pvt. Ltd. and argued that as per return submitted by them, they do not have creditworthiness to subscribe the share capital which has face value of 10 rupees and premium amount of Rs. 40 per share. The learned CIT(A) has simply accepted the submission of the assessee even he has coterminous power and had not verified the detail information submitted by the appellant before him. Therefore, he requested to set aside the order of the Assessing Officer.
6. At the outset, the learned A.R for the assessee argued that in assessee's own case in ITA No. 972/2009 CIT v. Kamdhenu Steel company for A.Y 2004-05 held that the assessee had submitted the particulars of registration of the applicant company, the confirmation from the share applicants, bank account details from which payment through account payee cheques, it has been held by the Hon'ble Delhi High Court that the assessee had discharged its initially onus. With the registration of the company, the identity has been established, the applicant company was having bank account, it had made the payments through account payee cheques. It is further held that it would not automatically follow that the said money belongs to the assessee and become unaccounted money. According to the Hon'ble High Court, the assessee appears to be correct on this aspect. The Hon'ble Court felt that something more, which was necessary and required to be done by the Assessing Officer, was not done. The Assessing Officer failed to carry his suspicion to logical conclusion by further investigation. The learned A.R further drawn our attention on the findings given by the Hon'ble Court that just because of the creditor/share applicant could not be found at the addresses given, it would not give the revenue a right to invoke Section 68 of the IT Act without any additional material to support such a move. The Hon'ble Delhi High Court also not allowed to remit back the issue to the Assessing Officer to make further inquiry on addition made U/s 68 of the Act on the ground that there is no reason to send back to the Assessing Officer, only substantial question of law can be decided and second inning cannot be allowed to the Revenue. The learned AR further submitted that during the course of search, no indiscriminating documents were found at the business premises of the assessee. The Assessing Officer issued notice U/s 133(6) of the Act to the share subscribers, which has been served by the postal authorities. The learned Assessing Officer made inquiry from the field office at its back without informing them and used the information against the assessee but the learned CIT(A) had provided opportunity on it. Thus, the appellant had discharged his onus and proved the identity of the persons by following company master details of ROC, copy of PAN No. confirmation. The appellant had received these subscriptions through banking channels, therefore, these transactions are genuine. Copy of return filed shows that subscribers have sufficient fund to apply the share subscription. It can be proved from the bank account of the subscribers on which Jawahar Market had been mentioned. Therefore, he prayed to confirm the order of the learned CIT(A).
7. We have heard the rival contentions of both the parties and perused the material available on the record. It is undisputed that during the course of search, relevant to A.Y 2009-10, no incriminating documents were found in Kamdhenu group cases. The appellant filed confirmation of PAN No., addresses of the subscribers & company master detail of ROC. The share capital was received through proper banking channels. The Assessing Officer collected information U/s 133(6) of the Act, which was served on all the subscribers; therefore, these are the sufficient proof of identity, genuineness and creditworthiness of the subscribers. The learned Assessing Officer heavily relied upon the Inspector's report, which was against the natural justice as the copy was provided on 06/6/2011 to the appellant whereas assessment order was completed by the learned Assessing Officer on 26/12/2010. Jawahar market is evident from the copy of bank account of subscriber, on which this address had been mentioned as well as on master detail of ROC. The share capital was subscribed in F.Y 2005-06 and inquiries were made in F.Y 2010-11. There is a time gap of near about 5 years, the share applicant might have changed their addresses, which could be verified from the ROC by the Assessing Officer to substantiate his findings, which has not been done by him. The learned CIT(A) has called for remand report from the Assessing Officer on furnishing of copy of bank account of M/s. Megatronics Systems Pvt. Ltd. at the time of appellate proceedings. Further the Hon'ble Delhi High Court has decided assessee's own case on similar facts in its favour in A.Y 2006-07. The learned CIT D.R has not controverted the findings given by the learned CIT(A). Therefore, we upheld the order of the learned CIT(A).
8. In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on 28/08/2014
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