Unreported Decisions – March 2021

By Ajay R. Singh, Advocate

1. S. 68 Bogus share capital – The assessee had furnished PAN, copies of the income tax returns of the investors as well as copy of the bank accounts in order to prove genuineness of the transactions – credit worthiness of the creditors were concerned, the bank accounts of the investors showed that they had funds to make payments – not required to prove source of the source – no addition is justified

The assessee company is engaged in the business of Designing, Manufacturing and Marketing of Jewellery. During the year the A.O made the addition of ₹ 4,00,00,000/- made by the AO u/s. 68 of the Act on the basis of assessee has taken accommodation entries in the form of share premium money from the companies operated and managed by known hawala operator Shri Pravin Kumar Jain.

The CIT(A) deleted the addition on the basis that the assessee has produced all evidences to prove the identity, source and the genuineness and credit worthiness. It is submitted that the assessee has done everything in its control to establish the bonafides. It is also submitted that, even if it proved that the creditor has advanced funds from undisclosed sources, still it would be the income of the creditor. The assessee has produced all the details, confirmation with PAN, even the return of income of the share applicants. When such material is produced the assessee can be said to have discharged his onus and the onus would shift to the AO to bring some material on record which would prove that the material’s produced by the assessee is either not genuine or are insufficient. The AO’s response to the assessee’s material is simply that the assessee has not proved the source of funds in the hands of the share applicants. In the case of CIT V/s. U.M. Shah, Proprietor, Shrenik Trading Co. 90 ITR 396 (Bom.) the Hon’ble jurisdictional High Court held that once credible material is produced before the AO, the AO is expected to make efforts to dislodge the explanation given by the assessee. No such thing has been done by the AO. The AO cannot simply reject explanation/materials produced by the assessee without bringing any contrary findings on record.

The Tribunal held that the CIT(A) has examined all the necessary ingredients to prove the transactions such as identity, creditworthiness, genuineness of the claim. The details of the necessary documents have been mentioned by CIT(A) in his order. Initially, the AO has not verified the claim of the assessee and was not having proper material to decline the claim of the assessee. The documents relied by the assessee nowhere discredited with the sufficient evidence on record. Admittedly, all the necessary documents were filed by the assessee before the AO and no adverse inference was drawn by the AO on the said documents except merely stating that the share subscribers have negative reserves in their balance sheet thereby doubting their creditworthiness. It is pertinent to note that the AO remained silent after this. He did not even resort to issue notice u/s. 133(6) of the Act to the share subscribers and seek their replies before arriving at a conclusion that the receipt of share capital by the assessee is to be added as unexplained cash credit under section 68 of the Act. In these circumstances, the CIT(A) went through each and every document filed by the assessee before the AO and concluded that the assessee had duly proved all the three necessary ingredients viz identity and creditworthiness of share subscribers together with the genuineness of transactions, apart from placing reliance on various decisions.

Further, Tribunal find that the same parties from whom share subscription money is received by the assessee has been the subject matter of adjudication and this tribunal in various decisions as listed by the CIT(A) had considered them to be genuine and having sufficient creditworthiness apart from proving their identity beyond doubt. The decision of Hon’ble Jurisdictional High Court in the case of CIT vs Gagandeep Infrastructure Pvt. Ltd. in Income Tax Appeal No. 1613 of 2014 dated 20.3.2017 held that the proviso to s. 68 (which creates an obligation on the issuing Co to explain the source of share capital & premium) has been introduced by the Finance Act 2012 with effect from 01.04.2013 and does not have retrospective effect. Prior thereto, as per Lovely Exports 317 ITR 218 (SC), if the AO regards the share premium as bogus, he has to assess the shareholders but cannot assess the same as the issuing company’s unexplained cash credit.

Therefore, Tribunal affirm the finding of the CIT(A) on this issue and decide this issue in favour of the assessee against the revenue.

The Income Tax Officer 12 v M/s. Kundali Jewels (India) Pvt. Ltd, ITA No. 4337/MUM/2019, dated: 23/02/2021 (Mum- Trib)

2. Section 271(1)(c) – Penalty – concealment of income – where income surrendered by assessee during survey had been shown by it in its regular income-tax return filed within prescribed time – no penalty could be imposed upon it u/s. 271(1)(c) of the Act.

The assessee is a company engaged in the business of manufacturing and marketing of plastic products and had filed its return of income for the A.Y.2009-10 on 24/09/2009 declaring total income of ₹ 2,99,94,911/-. During the year under consideration, the assessee has purchased land along with house at Hyderabad for ₹ 10.50 Crores vide sale deed dated 10-06-2008. The survey u/s. 133A of the Act was conducted on the assessee’s premises on 29-07-2008. During the course of survey proceedings, statement on oath of Shri Sanjay Damji Shah, authorised signatory on behalf of the assessee company for purchase of land at Jubilee Hill Road, Hyderabad was recorded and later on in the post survey proceedings on 08-09-2008, statement of Shri Jadavji Lalji Shah, Director of the assessee company was recorded wherein they had admitted additional income of ₹ 4.50 Crores as cash component towards purchase of property at Hyderabad. However, in the return of income, the assessee offered only a sum of ₹ 3 Crores as onmoney payment made for purchase of property at Hyderabad as its additional income by duly crediting the same in its profit and loss account under the head ‘other income’ by clearly mentioning that this sum of ₹ 3 Crores was the additional income offered during survey.

The A.O completed the assessment without considering the income of ₹ 3 Crores offered by the assessee in the return of income and made a total addition of ₹ 4.50 Crores based on the statement recorded as stated supra as unexplained investment u/s. 69B of the Act. The ld. CIT(A) in the quantum appeal deleted the addition made in the sum of ₹ 1.50 Crores and also held that the sum of Rs.3 Crores has already been disclosed by the assessee in the return of income which was accepted by the ld. AO while completing the assessment.

Thereafter, the ld. AO levied the penalty u/s. 271(1)(c) of the Act on the sum of ₹ 3 Crores ultimately offered by the assessee pursuant to the survey. This action of the ld. AO was upheld by the ld. CIT(A) on the ground that assessee had not recorded the cash of ₹ 3 Crores in its regular books of accounts, and that , but for the survey, the assessee would not have come forward to offer the same to the Income Tax department.

The Tribunal find that the profit and loss account for the year ended 31-03-2009 and the schedule for the other income thereon, the sum of ₹ 3 Crores has been disclosed by the assessee exclusively as income declared under survey under the head ‘other income’. This itself goes to prove that the assessee had duly recorded that income offered in the survey in its books of accounts. This sum of ₹ 3 crores was also duly offered to tax by the assessee in the return of income filed. Moreover, we find that similar issue had been the subject matter of adjudication by the Hon’ble Delhi High Court in the case of CIT vs. SAS Pharmaceuticals reported in 335 ITR 259 (Del) wherein it was held that for the purpose of imposing penalty u/s. 271(1)(c) of the Act, concealment of particulars of income or furnishing of inaccurate particulars of income by the assessee has to be in the income tax return filed by the assessee. The facts before the Delhi High Court was that certain income was surrendered by the assessee during survey and the same was shown by it in regular income tax return which was filed within the prescribed time. The Hon’ble Delhi High Court held that no penalty would be eligible in such scenario. The facts of the case before us are exactly similar and identical to the facts before the Hon’ble Delhi High Court. In the instant case also there is no dispute that assessee had indeed disclosed ₹ 3 Crores additional income in the income tax return filed by it.

Further, we also find similar view was taken by the Hon’ble Gujarat High Court in the case of PCIT vs. Shree Sai Developers reported in 418 ITR 306. In the facts before the Hon’ble Gujarat High Court, a survey took declared during the survey of the assessee firm which was also subsequently included in the return of income filed by the assessee firm for the A.Y. 2012-13.The assessment was completed accepting the returned income thereon. The Hon’ble Gujarat High Court held that since there was no concealment in the return of income filed by the assessee which was ultimately accepted by the Revenue, there cannot be any levy of penalty u/s. 271(1)(c) of the Act.

Following the aforesaid decisions, it was held that no penalty u/s. 271(1)(c) would be eligible thereof in the hands of the assessee. Accordingly, the appeal of the assessee was allowed.

M/s. Balee Plastics Pvt. Ltd. v. ITO 5(1)(2), ITA No. 7663/MUM/2013, dated: 23/02/2021 (Mum- Trib)