Income Tax Appellate Tribunal – Mumbai
Dynamic Minechem Pvt. Ltd., … vs Dcit- Circle – 5(1), Mumbai on 29 January, 2020IN THE INCOME TAX APPELLATE TRIBUNAL “D”, BENCH MUMBAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAVISH SOOD, JUDICIAL MEMBER ITA No.2568/Mum/2018 (Assessment Year: 2010-11) Metro Woven Sacks Private Vs. DCIT,CC-5(1) Limited 19 t h Floor Express Zone, ‘A’ Wing Air India Building 8th Floor Nariman Point Western Express Highway Mumbai-400 021 Goregaon (East) Mumbai-400 63 PAN/GIR No.AAACM4059J (Appellant) .. Respondent)
& ITA No.2561/Mum/2018 (Assessment Year: 2010-11) Rukmani Mercantile Private Vs. DCIT,CC-5(1) Limited 19 t h Floor Express Zone, ‘A’ Wing Air India Building th 8 Floor Nariman Point Western Express Highway Mumbai-400 021 Goregaon (East) Mumbai-400 63 PAN/GIR No.AAACR4999N (Appellant) .. Respondent) & ITA No.2843/Mum/2018 (Assessment Year: 2010-11) Dynamic Minechem Private Vs. DCIT,CC-5(1) Limited 19 t h Floor 4th Floor, Silver Metropolis, Air India Building Jaicoach Compound, Opposite Nariman Point Bimbisar Nagar, Western Express Mumbai-400 021 Highway, Goregaon (E) Mumbai-400 063 PAN/GIR No.AACCS2552E (Appellant) .. Respondent)
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Rukmani Mercantile Pvt.Ltd.
Dynamic Minechem Pvt.Ltd.
Assessee by Ms. Hema Kataria, AR Revenue by H.N. Singh , CIT, DR Date of Hearing 12/12/2019 Date of Pronouncement 29 /01/2020 आदेश / O R D E R PER G. MANJUNATHA (A.M): These appeals filed by three different assessee’s are directed
against separate, but identical orders of the Commissioner of
Income Tax (Appeal)-53, Mumbai, all dated 07/03/2018 and they
pertains to Assessment Year’s (AY) 2010-11. Since, the facts are
identical and issues are common, for the sake of convenience, these
appeals were heard together and are disposed-off, by this
consolidated order.
ITA.N.2568/Mum/2018 2. The assessee’s have more or less raised common grounds of appeal in their respective appeal. Therefore, for the sake of brevity, grounds of appeal taken in ITA No. 2568/Mum/2018 for AY 2010-11 are reproduced as under:-

1. The learned CIT (A) has erred in law and on facts in upholding the additions made by the Assessing Officer u/s. 143(3) r.w.s. 153A of the Income-tax Act, 1961 which is invalid and bad in law.
2. The learned CIT(A) has erred in upholding the addition of Rs. 80,00,000/- made by the Assessing Officer u/s.68 of the Act.
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Metro Woven Sacks Pvt.Ltd.
Rukmani Mercantile Pvt.Ltd.
Dynamic Minechem Pvt.Ltd.
3. The learned CIT(A) has erred in upholding the addition of Rs.60,000/- made by the Assessing Officer, being alleged unexplained expenditure @ 0.75% on aforesaid alleged capital introduced of Rs,80,00,000/-.

4. The learned CIT(A) has erred in law and on facts in upholding the disallowance made by the Assessing Officer u/s. 14A of the Act read with Rule 8D of I.T. Rules, 1962.

5. The order passed by the learned CIT(A) is in violation of principles of natural Justice and bad in law.

6. The appellant craves leave to add to, amend, alter or delete all or any of the foregoing grounds of appeal, 3. The Brief facts of the case extracted from ITA No.2568/Mum/2018 for AY 2010-11 are that a search and seizure action u/s 132(1) of the I.T.Act, 1961 was conducted in the Anand Rathi Group along with their group concerns on 24/09/2013. During the course of search proceedings, it was noticed that the assessee had raised preference share capital of Rs. 24 Lacs, in the form of 2,40,000/-, 6% non cumulative redeemable preference shares bearing face value of Rs. 10/- each, on which, the assessee has shown to have received share premium of Rs. 96 Lacs, as on 31/03/2010. The assessee company has allotted preference shares to M/s Unicon Commdeal Pvt.Ltd., M/s. Benchmark Buildcon Pvt.Ltd.

(BBPL), M/s Topstar Dealers Pvt.Ltd. Further, it was noticed that ’14’ companies, including the assessee company of Anand Rathi Group had raised capital of Rs. 13,67,25,000/-. These companies
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had issued preference shares at premium varying from Rs. 30/- per share to Rs. 75/- per share. These 14 companies were controlled directly or through, the employees of Anand Rathi Group. The pattern of investments in all these companies was the same. The process of raising share capital started sometime in the month of July, 2009 and the preference shares were allotted in the month of March, 2010. Immediately, after the allotment of shares in these ’14’ companies, the shares were transferred within two months at face value to entities/persons related to Anand Rathi Group in the last week of May 2010. In the course of search proceedings, certain papers were found and seized in relation to share capital shown to have received by various group companies of Anand Rathi Group from various entities, including share application addressed to the board of directors of M/s Metro Woven Sacks Pvt Ltd for allotment of preference shares against payment of money. Further, certain other papers, including minutes of the board of directors meeting of the investors company, blank proforma bearing the heading “Delivery, “Challan”, ” Declaration”, “Receipt” and “Sale Bill” in the letter head of the ‘BBPL’ and such blank proforma’s were duly signed by shri Sawan Jajoo, Director of BBPL. Similarly, share transfer forms issued by Registrar of Companies, Maharashtra , Mumbai containing the seal of Registrar of Companies, Maharashtra, Mumbai, showing
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the presentation of the said form as on 28/01/2010 in the O/o The Registrar of Companies were also found. During the course of search proceedings, on being questioned, Shri Shailendra Singhai, Regional Manager of M/s. Anand Rathi, shares and Stock Brokers Ltd. merely stated that he does not know why such blank forms were kept with him. Further, statement of Shri Anand Rathi, Chairman and Director of Anand Rathi Group was also recorded on 17/07/2014, in the post search investigation proceedings, for which he did not provide any satisfactory explanation to explain various documents and to prove, the genuineness of the source of share capital, so received from the subscribers.
4. Consequent to search proceedings, the case has been selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee has received huge sum of shares capital from various companies. Therefore, he called upon the assesee to furnish necessary evidences, including name and address of the person from whom share capital is received, copy of blank statement highlighting relevant entries, ITR acknowledgment with annexure, name of the bank and branch from where amount has been received, amount of premium charged on issue of shares, copies of correspondence with the share subscriber and other
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details. In response, the assessee vide letter dated 30/11/2015 filed complete details of name and address, including PAN of the subscribers, copy of bank statement, ITR with annexure, profit and loss account, balance sheet etc., justification note on issue of shares at premium, copy of audited financial, details of share holding pattern and other relevant details. During the course of assessment proceedings, in order to verify correctness of details filed by the assessee, the AO issued 133(6) notices to all shareholders and asked them to furnish necessary details. In response to 133(6) notices, none of companies have responded. Thereafter, the AO called upon the assesee to file necessary evidences in the backdrop of notices issued u/s 133(6) notices were returned un-served, in case of one shareholder and accordingly, requested the assessee to ensure compliance of statutory notices issued to its shareholders. In response, the assesse filed detailed written submissions and explained why provisions of section 68 cannot be invoked.
5. The Ld. AO after considering relevant submissions of the assessee and also taken note of various evidences filed, during the course of search, including blank forms found in the name of assessee, which has been scanned in assessment order at para 5.6 on pages 19, came to the conclusion that the assesee has failed to
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prove three ingredients provided u/s 68 of the I.T.Act, 1961, in order to come out of said provision, in respect of share capital, including premium received from certain subscribers. The Ld. AO, further observed that although, the assessee has filed all evidences, including confirmation from the parties, but when the Department has taken up independent enquiry, in light of various incriminating material found, during the course of search to ascertain genuineness of transactions, none of subscribers have responded and in fact, notice issued u/s 133(6) of the I.T.Act, 1961 was returned un-served.

Further, the moot question arises as to why the investors are not answering all the queries along with documents to establish their identity and creditworthiness and also genuineness of the transactions. The Ld. AO, further analysing, the provision of section 68 of the Act, and also taken support from various judicial precedents, including the decision of Hon’ble Supreme Court in the case of CIT vs P.Mohanakala (2007) 291 ITR 278 (SC) held that from the details collected, during the course of search and post search investigation and also, the investigation carried out,during the course of assessment proceedings, clearly proves that the identity, genuineness of transactions and creditworthiness of the shareholders are not proved. The entire gamut of transactions shows that the funds, in form of share capital has been brought in
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by way of capital in the name of the various companies, whose very existence could not be established by the assesses company, nor the source of these funds. Therefore, he opined that the assessee has failed to prove credit found in form of share capital as genuine transactions and accordingly, made additions of Rs. 80,00,000/-

towards share capital u/s 68 of the I.T.Act, 1961. Similarly, the AO has made additions towards probable commission paid by the assessee to hawala dealers for obtaining accommodation entry and by taking note of industrial practice estimated 0.75% commission on total share capital received by the assesee and made additions of Rs. 60,000/-. Likewise, the AO has made additions towards disallowances of expenditure incurred in relation to exempt income U/s 14A r.w.Rule 8D amounting to Rs. 38,882/-.
6. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has reiterated its submissions made before the AO to argue that it has discharged initial onus by filing enormous details, including name, address, PAN, incorporation certificate of the investors. The assessee, further, submitted that it has filed confirmation letters along with income tax returns acknowledgments, copy of audited balance sheets, board resolution, details of cheque number/RTGS
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for movement of funds through proper bank channels. The assessee further claimed that in fact, when 133(6) were issued, except one investor remaining all investors have responded to 133(6) notices and answered all questions of the AO with necessary evidences.

The assessee, further submitted that once, assessee has discharged initial onus by filing necessary evidences then, the onus shifts to the AO to prove otherwise. In this case, the AO without ascertaining, the true nature of transactions, in light of various evidences filed by the assessee, came to the wrong conclusion that the transactions between the parties are not genuine, only for the reason that the investors did not respond to 133(6) notices. The fact of the matter is that the assessee could do whatever it can do within its powers. In this case, the assesee has filed complete set of documents, in order to prove share capital received from subscribers and also, the subscribers personally responded to 133(6) notices.

Therefore, it is incorrect on the part of AO to come to the conclusion that the transactions between the parties are non-genuine.
7. The Ld.CIT(A), after considering relevant submissions of the assessee and also relied upon various judicial precedents held that the assesee has not been able give any verifiable contemporaneous evidence of how, the investors were roped in, the persons contacted,
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the negotiations for raising such large amounts at huge premium, at the time of search, post search investigation, assessment proceedings and even, in appellate proceedings. The assesee has also failed to explain, why all these investors almost in unison decided to transfer, the shares at par to Anand Rathi group companies at huge losses. Although, the assessee has filed various evidences, but failed to furnish updated address of the investors, which is evident from the fact that, when 133(6) notices were served on them, the notices were returned un-served therefore, he opined that mere furnishing certain documents to prove identity is not sufficient enough and what is to be seen is whether, three ingredients have been collectively discharged or not, in the given facts and circumstances of the case. Accordingly, by taking note of various facts brought out by the AO and also by relied upon various judicial precedents, including the decision of Hon’ble Supreme Court in the case of Union of India vs Gosalia Shipping Pvt.Ltd. 1978 113 ITR 307 held that the assessee has failed to prove, the true identity, genuineness of transactions and creditworthiness of the parties, more particularly, in the backdrop of clear findings, during search proceedings and post search investigation carried, during the course of assessment proceedings and accordingly, opined that there is no error in the findings of the AO in making additions towards share
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capital u/s 68 of the I.T.Act, 1961. Similarly, the Ld.CIT(A) upheld additions made by the AO towards probable commission payment on accommodation entries obtained from Hawala dealers. Likewise, the Ld.CIT(A) has also upheld additions made by the AO towards disallowances of expenditure incurred, in relation to exempt income u/s 14A by invoking Rule 8D(2)(iii) of the I.T.Rules, 1962 @ 0.5% average value of investments. Aggrieved by the Ld.CIT(A) order, the assesee is in appeal before us.
8. The learned AR for the assessee, at the time of hearing submitted that the issue is covered in favour of the assessee by the decision of ITAT in assessee’s own group company case in ITA No.2563/Mum/2018 and other order dated 29/08/2019, where under identical set of facts and also on the basis of findings of the department in search conducted in Anand Rathi Group held that the assessee has proved identity, genuineness of transactiona and credit worthiness of parties. The ld. AR further submitted that the ld.

CIT(A) was erred in confirming the additions made by the Assessing Officer towards share application money received from subscribers amounting to ` 80,00,000/- u/s. 68 of the I.T.Act, 1961 without appreciating fact that the Assessing Officer never disputed identity of the subscribers and genuineness of the transactions. The AR further
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submitted that although the Assessing Officer has accepted identity of the subscribers, he disputed credit worthiness of the subscribers on the basis of financial statements to ascertain true nature of transactions between the parties. On the other hand, the assessee has discharged its initial onus by filing enormous documents, including confirmation from the parties where they have categorically stated that investments in assessee company is genuine transaction and has been routed through banking channels. The assessee has also filed complete details about identity of the subscribers including their PAN, address etc. The assessee has also filed income tax acknowledgment of the subscribers along with financial statement and bank statements. The Assessing Officer never disputed the fact that the assessee has filed necessary documents in order to prove identity of the subscribers and genuineness of the transactions.

Once, the assessee discharges initial burden placed upon him, then the onus shifts to the shoulder of the assessing officer to prove otherwise. In this case, the Assessing Officer neither carried out any further enquiries, nor called upon the assessee to explain the credit with further evidences. But, he came to the conclusion that the transaction between the parties are not genuine merely on the basis of financial statements of the assessee, more particularly on basis of income declared for the year under consideration without
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appreciating the correct legal position of law that in order to bring any credit within the ambit of section 68 of the Act, the Assessing Officer should prove that the credit is, in fact, the income of the assessee from undisclosed sources. In this case, nothing has been pointed out by the Assessing Officer. The learned AR further referring to various judicial precedents including the decision of Hon’ble Bombay High Court in the case of CIT vs. Creative World Telefilms Ltd. (333 ITR 100) submitted that once the assessee has discharged initial onus of proving identity, genuineness of transaction and credit worthiness of the parties, then the Assessing Officer can proceed to re-open the assessment of the creditors, but sum so received from the creditors cannot be regarded as undisclosed income of the assessee. The assessee has further relied on the following judicial precedents:

a) CIT vs. Green Infra Ltd (2017) 292 CTR 233(Bombay)
b) CIT vs. Gagandeep Infrastructure Pvt Ltd.(2017) 394 ITR 680(Bombay)
c) CIT vs. Goa Sponge and Power Ltd Tax Appeal No. 16 of 2012 (Bombay High Court)
d) CIT vs. Creative World Telefilms Ltd 333 ITR 100 (Bom-
High Court)
e) CIT vs. Lovely Exports (P) Ltd 216 CTR 195 (SC)
f) CIT vs. Steller Investment Ltd 251ITR 263 (SC)
g) SDB Estate Pvt Ltd vs. ITO ITA No.584/M/2015
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h) CIT vs. Expo Globe India Ltd 361 ITR(0147 (Del-High Court)
i) CIT vs. Victory Spinning Mills Ltd (2014) 90 CCH 55 (Mad -High Court)
j) CIT vs. Dwarkadhish Investment (P) Ltd (2011) 330 ITR 298 (Del-High Court)
k) CIT vs. Nishan Indo Commerce Ltd 101 DTR 0413 (Cal –
High Court)
l) CIT v. Vacmet Packaging (India) Pvt Ltd (2014) 88 CCH 065 (All-HC)
m) CIT vs. Gangeshwari Metal Pvt Ltd (2014) 361 ITR 10 (Del-High Court)
n) ACIT vs. Venkateshwar Ispat Pvt Ltd (2010) 319 ITR 393 (Chhatisgarh-High Court)
o) CIT vs. Nav Bharat Duplex Ltd (2013) 35 Taxmann.com 289 (All-High Court)
p) CIT vs. Samir Bio-Tech Pvt Ltd (2010) 325 ITR 294 (Del-
High Court)
q) Mod Creations Pvt Ltd vs. ITO (2011) 354 ITR 282 (Del-
High Court)
r) CIT vs. Jay Dee Securities & Finance Ltd 32 Taxmann.com 91 (All-High Court)
s) Jaya Securities Ltd vs. CIT (2008) 166 Taxman 7 (All-
High Court) (SLP filed by dept dismissed). 9. The Ld. DR, on the other hand, strongly supporting order of the Ld.CIT(A) submitted that the AO as well as, the Ld.CIT(A) has brought out clear facts, in light of various incriminating material
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found, during the course of search that transactions between the parties are not genuine, which are used to convert assessee own unaccounted income in form of share capital, which is evident from the fact that the assessee has issued share at a premium and within a short period of less than two months, the same shares have been purchased back by Anand Rathi group at far value. The Ld. DR, further, submitted that it is a fact that in all shell companies/hawala operators cases, paper documents have been kept so meticulously that there should not be any doubt, regarding transactions between the parties. But, when you go through the substance of the transactions, it is very clear that all the shell companies have maintained proper documentation, in respect of transactions of share capital and premium, but when it comes to verification carried out by the department, none of the parties were responded to 133(6) notices and in fact 131 summons were also issued, but no response 10. The Ld. DR, further submitted that the AO has brought out clear facts to prove that transactions between the parties are not genuine, in light of seized documents, including blank and signed share transfer forms and other evidences, during the course of search. Further, when these materials were confronted to the director of Anand Rathi company group, he was not able explain, the
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said documents, but only reiterated that said blank documents have been kept to have right of first refusal for purchase of shares from the investors. The Ld. DR submitted that in order to prove genuineness of transactions, the assessee has to prove beyond doubt with credible evidences, especially when, the shadow cast on genuineness of transactions thta tranactions are genuine. In this case although, assesee has filed various evidences, including confirmation from the parties, but when the AO as well as, the Ld.CIT(A) carried out investigations by issuing 133(6) and 131 notices, none of the investors have responded with details sought for by the authorities.
11. The Ld. DR further submitted that filing of confirmation letter and evidences to prove identity is not sufficient enough and what is to be seen is whether, the transactions between the parties are genuine in the given facts and circumstances of the case. In this case, on perusal of facts it is abundantly clear that all documents including confirmation have been filed by the assesee, but when the department has conducted independent enquiry none of the parties have responded to notice issued u/s 133(6). Insofar as creditworthiness of the parties, on perusal of financial statements filed by the assessee, in respect of all shareholders, it is noticed that
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those companies are carrying huge reserves and surplus, but when it comes business and profitability, they have declare megere net profit or losses. If, you go through, the amount of reserves and surplus carried in balance sheet and amount of net profit declared from the date of incorporation, there is a huge mismatch. Therefore, it cannot be said that those companies are having capacity to explain source of investments in assessee’s company. The Ld. DR explaining the method of transfer of funds through RTGS submitted that mere payment of money through RTGS is not sufficient enough to prove genuineness of transactions, because in RTGS mode of payment, except basic information about transferor of funds no other information is called for. Therefore, merely making payment through RTGS would not obsolve the assessee of its responsibility to prove genuineness of transactions and creditworthiness of the parties. In this regard, he relied upon plethora judicial precedents, including the decision of Hon’ble Supreme Court in the case of Pr.CIT vs NRA Iron & Steel Pvt.Ltd. ( 2019) 103 taxmann.com 48. The list of case relied upon by the assesee are extracted below:-

1. PR. CIT (C) -1 V/S NRA IRON AND STEEL (P) LTD
2. A.AGARWAL COAL CORP. (P) LTD V/S. ADDL. CIT (2012) 135 ITD 270 (INDORE) B. OTHER CASES
3. CIT V/S ULTRA MODERN EXPORTS (P) LTD (2014) 220 TAXMAN 165 (DEL)(MAG)
4. KOSTUB INV. LTD VS/ ACIT (2013) 36CCH 762 (DEL)(ITAT)
5. CIT V/S NOVA PROMOTERS & FINLEASE (P) LTD. (2012) 342 ITR 169 (DEL)
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6. CIT V/S N.R. PORTFOLIO PVT. LTD (2013) 263 CTR 456 (DEL)
7. CIT V/S N.R. PORTFOLIO (PJ LTD (2013) 96 DTR 281 DELL
8. CIT V/S MAF ACADEMY P. LTD (2014) 361 ITR 258 (DEL)
9. ITO V/S JANAK U. BHATT (2006) 8 SOT 353 (MUM)
10. EVIDENCE -RULES, CASE LAWS
11 THE BEST EVIDENCE RULE
12 HERSH WIN CHADHA VS DDIT (2011) 43 SOT 544 (DEL)
13 COLLECTOR OF CUSTOM VS, D. BHOORMUL 1974 AIR 859 (SC)
14 CIT V/S GOLCHA PROPERTIES (P) (LTD) (IN LIQ.) (1997) 227 ITR 391 (RAJ)
15 DOCTRINE OF NOTORIOUS FACTS
16 SOURCE OF SOURCE:LEADING AUTHORITIES
17 ON PRESUMED COMMISSION: RAJRANI GUPTA (2000) 72 ITD 155 (MUM) 12. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that the issue involved in the present appeal is squarely covered in favour of the assessee by the decision of ITAT in assessee’s own group company case in ITA No.2563/Mum/2018 and other order dated 29/08/2019, where under identical set of facts, the Tribunal has deleted additions made by the Ld. AO towards share capital and share premium u/s 68 of the I.T.Act, 1961. We further noted that the Tribunal has also deleted additions made by the Ld. AO towards probable commission paid on said share capital, on the ground that once, additions u/s 68 of the Act has been deleted, then consequent additions towards commission also needs to be deleted. The relevant findings of the Tribunal are as under:-
12. We have heard both the parties, perused the material available on record
and gone through orders of the authorities below. The Ld. AO has made
additions towards share capital and share premium, on the ground that
although, the assesee has filed various details to prove identity, genuineness of
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transactions and creditworthiness of the parties but, on perusal of details filed by
the assessee, it was noticed that the assessee has failed to establish
transactions between the parties are genuine in nature and also the subscriber
to the share capital are having capacity to explain huge investments in assessee
company. According to the AO, mere furnishing confirmation letters from the
parties along with their PAN Number and ITR acknowledgement is not sufficient
enough to discharge ,the onus cast upon u/s 68 of the I.T.Act, 1961 and what is
relevant is to discharge the true identity of the investors. Although, the assessee
has filed certain documents, including PAN number and ITR acknowledgement
and financial statements along with bank statement of subscribers, but when, it
comes to genuineness of transactions and creditworthiness of the parties,
except filing financial statements, no other evidences has been filed to prove
that share capital received from subscribers is genuine in nature, which is
supported by necessary evidences. The AO has also taken support from the
findings recorded, during the course of survey and statement recorded from
certain persons, including director and key employee of Anand Rathi Group to
come to the conclusion that the assessee has entered into an arranged
transactions with certain companies, in order to convert its own unaccounted
income in the form of share capital, which is evident from the fact that the
assessee has issued share capital with a huge premium of Rs. 30 to Rs. 72 per
share, even though, the financial of those companies is not supporting such a
huge valuation. Further, the AO has taken support from the statement of
Director, during the course of search where, he had not explained share capital,
including premium received for the year under consideration.
13. The provision of section 68 of the Income Tax Act, 1961 deals with a
cases, where any sum found credited in the books of accounts of an assesee, in
any previous year, for which the assesee offered no explanation about the
nature and source, thereof or the explanations offered by the assessee, in the
opinion of the AO is not satisfactory, then sum so found credited may be
charged to income tax, as income of the assesse of that previous year. In order
to fix any credit within the ambit of section 68 of the I.T Act, 1961, the AO has to
examine three ingredients i.e., identity, genuineness of transactions and
creditworthiness of the parties. In this factual and legal background, if you
examine, the present case in the light of various evidences filed by the
assessee, in order to prove credit found in the form of share capital and share
premium, one has to see, whether the assessee has discharged its initial onus
cast upon u/s 68 of the I.T.Act, 1961 or not. In this case, the assesee has filed
various details, including share application form, copy of declaration, board
resolution, bank statement of Investor Company, PAN card, acknowledgment of
return of income, financial statement of Investor Company, form No. 2 for
allotment of equity shares and bank statement reflecting, the amount received
through banking channels. Once, the assessee has discharged its initial onus
by filing various details, then the onus shift to the AO to carry out further
verification, in the light of evidences filed by the assessee to ascertain true
nature of transactions between the parties before, he come to the conclusion
that the transactions between the parties are genuine or not. In this case
although, the AO has issued 133(6) notices to the parties, no further enquiry has
been conducted, including issue of summons u/s 131. No doubt, none of the
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investors companies have responded to 133(6) notices issued by the AO, but
fact of the matter is when, assessee has filed complete set of documents,
including name and address of the parties, it is for the AO to carry out further
investigation by exercising all possible options available to him, but non
attendance of parties in response to 133(6) cannot be attributed to the
assessee, because due to time lag certain persons might have left the place
and for this no responsibility can be fastened upon the assessee. In this case,
the assessee done what best it could do and filed, whatever information
available with it, in order to satisfy the AO. In case, the AO is not satisfied with
documents furnished by the assessee, then he is free to carry out his own
investigations by exercising powers conferred u/s 131 or u/s 133(6) of the
I.T.Act, 1961. In this case, the AO, except issue of 133(6) notices nothing has
been done to find out, the nature of transactions between the parties. Therefore,
we are of the considered view that when, assessee has filed complete details to
prove identity, genuineness of transactions and creditworthiness of the parties,
then there is no reason for the AO to came to the conclusion that share capital
and share premium is unexplained only for the reason that during the search
proceedings, the director of the company had admitted that he cannot explain
reasons why blank forms are kept in his possession, ignoring the fact that such
admission has been retracted by filing affidavit along with letter explaining
reasons fro such admission during search proceedings. Further, additions made
by the AO cannot be sustained even on this count because, the AO has relied
upon statement of third paryies to make additions towards share capital, but
when the present director of the assessee company asked for copies of
statement of third party and also opportunity for cross examination of person
who gave such statement, the AO has denied, the opportunity of cross
examination and also not furnished copies of statement. It is a settled position of
law that once, any third party information/statements is relied upon to make
additions, it is the obligation of the AO to provide copies of such
statements/information and also to provide an opportunity of cross examination
of the person, who gave the statement, when such opportunity has been availed
by the person against whom, such statements are used. This legal proposition is
supported by the decision of Hon’ble Supreme Court in the case of Kishanchand
Chellaram vs CIT 1980 125 ITR 713 (SC), where it was held that when, third
party information is relied upon to draw an adverse inference against the
assessee, the same needs to be provided and also opportunity of cross
examination shall be given, if such opportunity is availed by the assessee. The
Hon’ble Supreme Court in the case of Andaman Timber Industries Ltd Vs CCE,
Kolkata II in Appeal No 4228 of 2006 has vide order dated 02.09.2015 had also
upheld a similar legal position and held that not allowing the assessee to cross-
examine the witnesses by the adjudicating the authority, though the statements
and those witnesses were made the basis of the impugned order is a serious
flaw, which makes the order nullity in, as much as, it amount to violation of
principle of natural justice, because of which, the assessee was adversely
affected. Therefore, on this count also the additions made by the AO cannot be
sustained.
14. Coming to the other aspect of the issue, the AO has invoked the
provisions of section 56(2)(viib) of the I.T. Act, 1961. We find that the said
21 Metro Woven Sacks Pvt.Ltd.
Rukmani Mercantile Pvt.Ltd.
Dynamic Minechem Pvt.Ltd.

provision has been inserted by Finance Act, 2012 w.e.f 10.04.2013, where it
provides that where a closely held company issues its shares at a price which is
more than its fair market value, then amount received in excess of fair market
value will be charged to tax in the hands of the company as income from other
sources. We, further noted that the provisions of section 56(2)(viib) was
inserted by Finance Act,2012 w.e.f. 1.04.2013 is applicable from A.Y. 2013-14
onwards. In fact, a similar amendment has been made in section 68 by
insertion of a proviso by the Finance At 2012 w.e.f. 01.04.2013 as per which the
assessee company (not being a company in which public are substantially
interested) and sums so credited consists of share application money, share
capital , share premium or any such amount by whatever name called, any
explanation offered by such assessee company shall be deemed to be not
satisfactory, unless the person being, a resident in whose name such credit is
recorded in the books of such company also offers an explanation about the
nature and source of such sum so credited and such explanation in the opinion
of the AO aforesaid has been found to be satisfactory. On perusal of
amendments brought out by Finance Act 2012, w.e.f. 01.04.2013 to the
provisions of section 56(2)(viib) and section 68 of the Act, it is very clear that
where the assessee has issued shares at premium and also received share
capital and if such company do not offer any explanation about the nature and
source, then sum so received may be regarded as income of the assessee from
undisclosed sources. In other words, the purpose of insertion of proviso is to
examine the source of investment by subscriber to the share capital. This
amendment has been examined by the Hon’ble Bombay High Court in the case
of CIT vs. Gagandeep Infrastructure (P) Ltd. (2017) 394 ITR 680, where the
court observed that proviso inserted to section 68 w.e.f. 01.04.2013 is
considered to be prospective in nature and is applicable from A.Y. 2013-14
onwards. From the above, it is very clear that similar amendment has been
made to provisions of section 56(2) by insertion of clause (viib) so as to bring
share premium within the ambit of section 56(2) of the I.T Act, 1961. Since, the
proviso inserted to section 68 is considered to be prospective in nature,
obviously sub clause (viib) inserted to section 56(2) is also considered to be
prospective and cannot be applied to the assessment year in question. Even
otherwise, assuming for a moment above provisions are applicable for the year
under consideration, in order to apply said amended provisions, the AO has to
prove that the assessee has not proved capacity of the investors and also not
offered any justification for issue of shares at premium. In this case, from the
facts on record, it is clear that the assessee has proved identity and
genuineness of the transactions by filing necessary evidences. The assessee
has filed valuation report from registered valuer as per which the share price of
the company is over and above premium charged by the assessee. Therefore,
we are of the considered view that provisions of section 56(2)(viib) has no
application.

15. Coming to the case laws relied upon by the assessee. The assessee has
relied upon plethora of judgements, including the decision of Hon’ble
Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd (2008) 216 CTR
195 (SC). In the case laws relied upon by the assessee, the issue has been
dealt as under:-
22
Metro Woven Sacks Pvt.Ltd.
Rukmani Mercantile Pvt.Ltd.
Dynamic Minechem Pvt.Ltd.

CIT vs. Goa Sponge and Power Ltd (13/02/2012) Tax Appeal No.
16 of 2012 (High Court-Bombay) “Once the authorities have got all the details, including the
name and addresses of the shareholders, their PAN/GIR number,
so also the name of the Bank from which the alleged investors
received money as share application, then, it cannot be termed
as “bogus”. The controversy is covered by the judgements
rendered b y the Hon’ble Supreme Court in the case of Lovely
Exports Pvt Ltd, vs. CIT, (2008) 216 CTR (SC) 195, as also by this
Court in CIT vs. Creative World Tele films Ltd, (2011) 333 ITR 100
(Bom). In such circumstances, we are of the view that the Tribunal’s
finding that there is no justification in the addition made under
Section 68 of the Income Tax Act,, 1961 neither suffers from
any perversity nor gives rise to any substantial question of law.”
CIT vs. Creative World Tele films Ltd (2011) 333 ITR 100 (Born-
High Court) “The question sought to be raised in the appeal was also
raised before the Tribunal and the Tribunal was pleased to
follow the judgment of the apex Court in the case of CIT vs. Lovely
Exports (P) Ltd. (2008) 216 CTR (SC) 195. wherein the apex
Court observed that if the share application money is received
by the assessee-company from alleged bogus shareholders, w
hose names are given to the AO, then the Department can always
proceed against them and if necessary reopen their individual
assessments. In the case in hand, it is not disputed that the
assessee had given the details of name and address of the
shareholder, their PAN/GIR number and had also given the
cheque number, name of the bank. It was expected on the part of
the AO to make proper investigation and reach the
shareholders. The AO did nothing except issuing summons which
were ultimately returned back with an endorsement “not
traceable In our considered view, the AO ought to have found
out their details through PAN cards, bank account details or from
their bankers so as to reach the shareholders since all the
relevant material details and particulars were given by the assessee
to the AO. In the above circumstances, the view taken by the
Tribunal cannot be faulted.”
CIT vs. Lovely Exports (P) Ltd (2008) 216 CTR 195 (SC) “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 assessee
company.”
CIT vs. Steller Investment Ltd (2001) 251 ITR 263 (SC) (civil
appeal) “That the increase in subscribed capital of the respondent
company could not be a device of converting black money into white
with the help of formation of an investment company, on the
round that, even if it be assumed that the subscribers to the
23 Metro Woven Sacks Pvt.Ltd.
Rukmani Mercantile Pvt.Ltd.
Dynamic Minechem Pvt.Ltd.

increased capital were not genuine, tinder no circumstances
could the amount of share capital be regarded as un disclosed
income, an appeal was taken by the Department to th e
Supreme Court. The Supreme Court dismissed the appeal
holding that the Tribunal had come to a conclusion on facts
and no interference was called for.”
CIT vs. Nav Bharat Duolex Ltd (2013) 35 Taxmann.com289 (All-
High Court) “We have considered the arguments of the counsel for the parties.
CIT(A) found that five companies subscribing the equity shares
amounting to Rs. 25,00.000/- were identified and they had
submitted their bank statements, cash extracts and returns filing
receipts. As such identity of the share applicant companies and
purchase of share had been proved by the assessee. Supreme
Court in the cases of CIT v. Steller Investments Ltd. [2001] 251
ITR 263 and Lovely Exports case (supra), has held that the identity
of the shareholder alone is required to be proved, in case of
the capital contributed by the shareholders. Accordingly CIT(A)
and the Tribunal has not committed any illegality in allowing the
appeal of the assessee. We do not find any illegality in the
judgment of the CIT(A) and the Tribunal.”
CIT vs. JayDee Securities & Finance Ltd (2013) 32
Taxmann.com91 (All-High Court) “The Tribunal recorded findings that the assessee had
produced the return of income filed by the relevant shareholders
who had paid share application money. The assessee had also
produced the confirmation of share holders indicating the details
of addresses, PAN and particulars of cheques through which
the amount was paid towards the share application money. The
Tribunal thereafter relied upon the judgment of the Supreme Court
in CIT V. Lovely Exports (P.) Ltd wherein it was held that if the
assessee produces the names, addresses, PAN details of the share
holders then the onus on the assessee to prove the source o f
share application money stands discharged. If the Assessing
Authority was not satisfied with the creditworthiness of the
shareholders, it was open to the Assessing Authority to verify
the same in the hands of the shareholders concerned, The Tribunal
has relied upon an order of the Supreme Court in case o f
CIT v. Divine Leasing & Finance Ltd. In view of the decision ‘of the Supreme Court, we dismiss the appeals with observations
that the department is free to proceed to reopen their individual
assessments of the shareholders whose names and details
were given to the Assessing Officer.”
ACIT vs. Venkateshwarlspat Pvt Ltd (2009) 319 ITR 393
(Chhatisgarh-High Court) “If the share applications are received by the assessee from alleged
bogus shareholders, whose names are given to the Assessing
Officer, then the Department is free to proceed to reopen their
individual assessments in accordance with law, but it cannot be
regarded as the undisclosed income of the assessee.”
24
Metro Woven Sacks Pvt.Ltd.
Rukmani Mercantile Pvt.Ltd.
Dynamic Minechem Pvt.Ltd.

Mod Creations Pvt Ltd vs. ITO (2013) 354 ITR 282 (Del-High
Court) “Held, allowing the appeal, (i) that the assessee had
discharged the initial onus placed on it. In the event the Revenue
still had a doubt with regard to the genuineness of the
transactions in issue or as regards the creditworthiness of the
creditors, it would have had to discharge the onus which had shifted
on to it. A bald assertion by the Assessing Officer that the
credits were a circular route adopted by the assessee to
plough back its own undisclosed income into its accounts,
could be of n o avail. The Revenue was required to prove this
allegation. An allegation by itself which is based on assumption will
not pass muster in law. The Revenue would be required to
bridge the gap between the suspicions and proof in order to bring
home this allegation. The Tribunal without adverting to the principle
laid stress on the fact that despite opportunities, the assessee
and/or the creditors had not proved the genuineness of the
transaction. Based on this it construed the intentions of the
assessee as being mala fide. The Tribunal ought to have
analysed the material rather than be burdened by the fact that
some of the creditors had chosen not to make a personal
appearance before the Assessing Officer. If the Assessing Officer
had any doubt about the material placed on record, which was
largely bank statements of the creditors and their income-tax
returns, it could gather the necessary information from the
sources to which the information was attributable……If it had
any doubts with regard to their creditworthiness, the Revenue
could always bring the sum in question to tax in the hands of the
creditors or sub- creditors.”
CIT vs. Al Anam Agro Foods (P.) Ltd (2013) 38 Taxmann.corn
375 (All-High Court)
Tribunal, however, held that since identity of share holders stood
proved on record, amount of share application money could not be
added to income of assessee. According to Tribunal, in such a case
amount could be taxed in hands of persons who had invested”
CIT vs. Dwarkadhish Investment (P) Ltd (2011) 330 ITR 298 (Del-
High Court) “Just because the creditors/share applicants could not be found
at the address given, it would not give the Revenue the right
to invoke s. 68– Revenue has all the power and wherewithal
to trace any person–Moreover, it is settled law that the
assessee need not to prove the ‘source of source’– In the instant
case, the Tribunal has confirmed the order of the CIT(A)
deleting the impugned addition holding that the assessee has
been able to prove the identity of the share applicants and the
share application money has been received by way of account
payee cheques.”
CIT vs. Namastey Chemicals Pvt Ltd (2013) 33
Taxmann.com271 (Guj-High Court)
25 Metro Woven Sacks Pvt.Ltd. Rukmani Mercantile Pvt.Ltd. Dynamic Minechem Pvt.Ltd. “In the present case also, the respondent assessee has
received share application money from different sub scribers. It
was found that large number of subscribers had responded to the
letters issued by the Assessing Officer or summons issued by
him and submitted their affidavits. In some cases such replies
were not received through posts. Rs. 9 lacs represented those
assessees who denied having made any investment altogether.
The issue thus would fall sq uarely within the ambit of the
judgment of the Supreme court in the case nf Lovely Exports
(supra). No error of law can be stated to have been committed by
the Tribunal. Tax Appeal is therefore dismissed.”
CIT vs. Peoples General Hospital Ltd (2013) 356 ITR 65 (MP-
High Court) ” Held , dismissing the appeals , that it the assessee had
received subscriptions to the public or rights issue through
banking channels and furnished complete details of the
shareholders, no addition could be made tinder section 68 of the
Income-tax Act, 1961, in the absence of any positive material
or evidence to indicate that the shareholders were benamidars
or fictitious persons or that any part o f the share capital
represented the company’s own income from undisclosed
sources. It was nobody’s case that the non resident Indian
company was a bogus or non-existent company or that the
amount subscribed by the company by way of share
subscription was in fact the money of the assessee. The
assessee had established the identity of the investor who had
provided the share subscription an d that the transaction was
genuine. Though the assessee’s contention was that the
creditworthiness of the creditor was also established, in this case,
the establishment of the identity of the investor alone was to be
seen. Thus, the addition was rightly deleted.”
CIT vs. Shree Rama Multi Tech Ltd (2013) 34 Taxmann.com177
(Guj-HC) “It is noted that Commissioner (Appeals) as well as the
Tribunal have duly considered issue and having found
complete details of the receipts of share application money, along
with the form names and addresses, PAN and other requisite
details, they found complete absence of the grounds noted for
invoking the provision of section 68. Moreover, both rightly had
applied the decision of CIT vs. Lovely Exports (P) Ltd to the case of
the assessee. Therefore, no reason was found in absence of any
illegality much less any perversity too to interfere with the
order of the both these authorities, who had concurrently held
the due details having been proved. The assessee company had
presented the necessary worth proof bef ore both the authorities
and it was not expected by the assesseecompany to further
prove the source of the deceased.”
CIT vs. Nikunj Eximp Enterprises (P.) Ltd (2013) 35
Taxmann.com384 (Bom)
26 Metro Woven Sacks Pvt.Ltd.
Rukmani Mercantile Pvt.Ltd.
Dynamic Minechem Pvt.Ltd.

“Whether merely because suppliers had not appeared before Assessing Officer or Commissioner (Appeals), it could not be concluded that purchases were not made by assessee – Held, Yes…. Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the CIT(A), one cannot conclude that the purchases were not made by the respondent- assessee”
CIT vs. Samir Bio- Tech Pvt Ltd (2010) 325 ITR 294 (Del-High Court) “Identities of the subscribers are not in doubt. The transactions have also been undertaken through banking channels inasmuch as the application money for the shares was given through account payee cheques. The creditworthiness has also been established, as indicated by the Tribunal. The subscribers have given their complete details with regard to their tax returns and assessments. In these circumstances, the Department could not draw an adverse inference against the assessee only because the sub scribers did not initially respond to the summons. The subscribers, however, subsequently gave their confirmation letters as would be apparent from the impugned order. The identity of the subscribers stands established and it is also a fact that they have shown the said amounts in their audited balance sheets and have also filed returns before the IT authorities. The decision of the Tribunal deleting the addition cannot befaulted.”

16. Coming to the case laws relied upon by the learned DR. Althogh, the ld.
DR placed his reliance on plethora of judgments, but he had heavily relied upon
the decision of the Hon’ble Supreme Court in the case of DCIT vs. NRA Iron &
Steel Pvt. Ltd. (supra). Insofar as most of case laws relied upon by the ld. DR
we, noticed that the issue involved is factual and has to be examined ratios of
case laws in light of facts of present case. When we had examined case laws
relied upon by the ld. DR in light of facts of present case, we find that the
coordinate benches have considered all those case laws and held that most of
cases are not applicable to facts of present case. Therefore, we do not wish to
discuss those case laws. But when it comes to Hon’ble Supreme Court decision
in case of PCIT vs. NRA IRON & STEEL PVT LTD, we find that co-ordinate
Bench of ITAT vide its order dated 03.05.2019 in the case of Shree Laxmi
Estate Pvt. Ltd. in ITA No. 6557/Mum2017 for A.Y. 2013-14 had considered the
decision of Hon’ble Supreme Court in the case of NRA Iron & Steel P. Ltd. and
held that the facts of the case before the Hon’ble Supreme Court are entirely
different, where on the basis of facts of that case Hon’ble Supreme Court came
to the conclusion that mere furnishing of certain documents is not sufficient
enough and what is relevant is all three ingredients, i.e. identity, genuineness of
transactions and creditworthiness of the parties should be proved beyond doubt.
We find that in the case before the Hon’ble Supreme Court the parties never
responded to 133(6) notices. The AO has carried out inquiries by issuing
notices u/s. 133(6), for which none of the companies have replied. None of the
27 Metro Woven Sacks Pvt.Ltd.
Rukmani Mercantile Pvt.Ltd.
Dynamic Minechem Pvt.Ltd.

companies produced bank statements to establish source of funds for making
such huge investments in shares, even though they were declaring a very
meagre income in the return. None of the investors appeared before the AO, but
merely sent response through Dak. In this case, from the facts on record, it is
clear that the assessee has filed complete set of documents, but the AO neither
carried out any investigation nor issued notices u/s. 133(6) or summons u/s.
131(1) to examine the veracity of documents furnished by the assessee.
Unless, the AO carried out further investigations to ascertain true nature of
transactions, he cannot come to the conclusion merely on the basis of
documents submitted by the assessee. Therefore, after considering relevant
facts, the co-ordinate Bench came to the conclusion that decision rendered by
Hon’ble Supreme Court in the case of NRA Iron & Steel Pvt. Ltd. (supra) has no
application, where the AO has not carried out any inquiries. The relevant
findings of the Tribunal re as under:
“8. We have heard the rival submissions and perused the materials available on record. It is not in dispute that the assessee had borrowed loans from the aforesaid loan creditors and had duly repaid the same in subsequent years by account payee cheques, for which evidences are already on record before us. It is also not in dispute that the assessee had paid interest on the aforesaid loans which had been allowed as a deduction by the lower authorities. We are unable to persuade ourselves as to how the interest portion on loan alone could be treated as genuine transactions after treating the principal portion of loan as ingenuine. We also find that the interest paid on such unsecured loans to aforesaid loan creditors have been duly subjected to deduction of tax at source. Notice issued u/s 133(6) of the Act by the ld AO had been duly replied by the concerned loan creditors directly before the ld AO and no deficiencies were noticed by the ld AO thereon. After this, the ld AO did not proceed to make further enquiry on the subject mentioned loan creditors. It is not in dispute that the assessee and the concerned loan creditors had duly filed their respective bank statements to prove the immediate source of credit for advancing loans to the assessee company, confirmation of having given loans to the assessee company, together with their income tax return acknowledgements and other requisite details called for by the ld AO in the notice u/s 133(6) of the Act. In case if the ld AO had any doubt on the veracity of the documents submitted by the loan creditors, the same could have been confronted on the said loan creditors by issuing summons u/s 131 of the Act and examine them on oath or correspondingly verify the same through the Assessing Offficers of the concerned loan creditors through the internal source of the department. The ld AO did not do either of these in the instant case and merely disregarded the evidences submitted on record before him both by the assessee as well as by the loan creditors directly to him. The written submissions filed by the ld DR in this regard is repetition of various contentions already available on record by the lower authorities, apart from placing reliance on certain decisions. We find that both the aforesaid loan additions were confirmed by the ld CITA by placing reliance on the decision taken by his predecessor in Asst Year 2012-13. We find that
28 Metro Woven Sacks Pvt.Ltd.
Rukmani Mercantile Pvt.Ltd.
Dynamic Minechem Pvt.Ltd.

this tribunal in assessee’s own case for the Asst Year 2012-13 in ITA
No. 5954/Mum/2016 dated 29.12.2017 in respect of loan transactions
of entities controlled by Shri Pravin Kumar Jain and others had
elaborately dealt this issue and held as under:-
“5. We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The AO made addition towards unsecured loans received from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd on the basis of information received from Investigation Wing which revealed that the assessee is the beneficiary of bogus accommodation entries provided by Shri Praveenkumar Jain through his bogus companies. The AO has made additions u/s 68 of the Income-tax Act, 1961 on the ground that though the assessee has furnished necessary evidences to prove identity of the parties, but failed to establish genuineness of transactions and creditworthiness of parties in the backdrop of clear findings of Investigation Wing that those companies are hawala companies involved in providing M/s Shree Laxmi Developers accommodation entries. The AO has brought out facts in the light of statement of Shri Pravinkumar Jain deposed before the Investigation Wing to make addition. Except this, there is no contrary evidence in the possession of the AO to disprove the loan transactions from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd. On the other hand, the assessee has furished various details including confirmation letters from the parties, their bank statements alongwith their financial statements to prove identity, genuineness of transactions and creditworthiness of the parties. The assessee also furnished evidences to prove that the parties have responded to the notices issued u/s 133(6) by AO by filing various details. The assessee also filed bank statements to prove that the said unsecured loans have been repaid in the subsequent financial years. Therefore, we are of the view that there is no reason for the AO to doubt the genuineness of transactions despite furnishing necessary evidences including their financial statements, bank statements and IT returns.

6. The AO has made addition u/s 68 of the Act, on the ground that the unsecured loans are bogus accommodation entries provided by Shri Pravinkumar Jain through his hawala companies. The provisions of section 68 deal with cases where any sum found credited in the books of account of the assessee in any financial year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the AO, satisfactory, then sum so credited may be charged to income-tax as the income of the assessee of that previous year. A plain reading M/s Shree Laxmi Developers of section
29 Metro Woven Sacks Pvt.Ltd.
Rukmani Mercantile Pvt.Ltd.
Dynamic Minechem Pvt.Ltd.

68 makes it clear that the initial burden of proof lies on the
assessee. It is well settled legal position that the assessee
has to discharge 3 main ingredients in order to discharge the
initial burden of proof, i.e. the identity of the creditor, the
genuineness of transaction and creditworthiness of the
creditors. Once the assessee discharges initial burden
placed upon him, then the burden todis prove the said claim
shifts upon the AO. In this case, the assessee has
discharged his onus cast u/s 68 by filing identity of the
creditors, genuineness of transactions and creditworthiness
of the parties which is evident from the fact that the assessee
has furnished financial statements of the creditors wherein
the said transaction has been disclosed in the relevant
financial years. We further notice that the assessee also filed
financial statements of the creditors which are enclosed in
paper book filed. On perusal of the financial statements filed
by the assessee, we find that both the companies are active
in the website of Ministry of Corporate Affairs. This fact has
been further supported by the letter of AO wherein the AO
has accepted that both companies, viz. Josh Trading
Company Pvt Ltd and Viraj Mercantile Pvt Ltd are active in
MCA website. We further notice that both the companies
have filed financial statements for the year ending 31-03-
2006. Therefore, we are of the considered view that the
assessee has discharged its initial burden cast u/s 68 by
filing identity, genuineness of transaction and
creditworthiness of the parties. Once, the assessee has
discharged its initial burden, the burden shifts to the AO to
prove otherwise. In this case, the AO made addition only on
the basis M/s Shree Laxmi Developers of information
received from Investigation Wing, but not based on any
evidence to disprove the loan transaction from above
companies are ingenuine. Therefore, we are of the view that
there is no reason for the AO to treat loans from above 2
companies as unexplained credits u/s 68 of the Act.

7. Coming to the case laws relied upon by the assessee, the
assessee has relied upon the decision of Hon’ble Bombay
High Court in the case of CIT vs Gagandeep Infrastructure
Pvt Ltd (2017) 394 ITR 680 (Bom). We have gone through
the case laws relied upon by the assessee in the light of the
facts of the present case and find that the Hon’ble High Court
categorically observed that the Proviso to section 68 has
been inserted by the Finance Act, 2012 wef 01-04- 2013 is
applicable from AY 2013-14 onwards. The Court further
observed that the Parliament did not introduce the proviso
to section 68with retrospective effect nor does the Proviso
introduced states that it was introduced for removal of
doubts. Therefore, it is not open to give retrospective effect.
30
Metro Woven Sacks Pvt.Ltd.
Rukmani Mercantile Pvt.Ltd.
Dynamic Minechem Pvt.Ltd.

The relevant portion of the order of High Court is extracted
below:-

“The proviso to section 68 has been introduced by
the Finance Act, 2012 with effect from 1-4-2013. Thus, it
would be effective only from the assessment year 2013-14
onwards and not for the subject assessment year. In fact,
before the Tribunal, it was not even the case of the Revenue
that section 68 as in force during the subject years has to be
read/understood as though the proviso added subsequently
effective only from 1-42013 was its normal meaning. The
Parliament did not introduced to proviso of section 68, with
retrospective effect nor does the proviso to introduced states
that it was introduced ‘for removal of doubts’ or that it is ‘declaratory’. Therefore, it is not open to give it retrospective
effect, by proceeding the basis that the addition of the
proviso to section 68is M/s Shree Laxmi Developers
immaterial and does not change the interpretation of section
68 both before and after the adding of the proviso.

In view of the matter the three essential tests while
confirming the section 68 laid down by the Court namely the
genuineness of the transaction, identity and the capacity of
the investor have all been examined by the impugned order
of the Tribunal and on fact it was found satisfied. Further it
was a submission on behalf of the Revenue that such large
amount of share premium gives rise to suspicion on the
genuineness (identity) of the shareholders, i.e., they are
bogus. The Apex Court in a case in this context to the pre-
amended section 68 has held that where the revenue urges
that the amount of share application money has been
received from bogus shareholders then it is for the Income-
tax Officer to proceed by reopening the assessment of such
shareholder and assessing them to tax in accordance with
law. It does not entitle the revenue to add the same to the
assessee’s income as unexplained cash credit.” [Para 3] 8. The assessee has also relied upon the decision of Hon’ble
Bombay High Court in the case of CIT vs Archid Industries
Pvt Ltd in ITA No1433/Mum/2014 dated 5th July, 2017. The
Hon’ble Bombay High Court, after considering relevant facts
and also by following judgement in the case of CIT vs
Gagandeep Infrastructure Pvt Ltd (supra) held as under:_ 6]
The Tribunal has considered that the Assessee has
produced on record the documents to establish the
genuineness of the party such as PAN of all the creditors
along with the confirmation, their bank statements showing
payment of share application money. It was also observed by
the Tribunal that the Assessee has also produced the entire
record regarding issuance of share i.e. allotment of shares to
31 Metro Woven Sacks Pvt.Ltd.
Rukmani Mercantile Pvt.Ltd.
Dynamic Minechem Pvt.Ltd.

these parties, their share application forms, allotment letters
and share certificates, so also the books of account. The
balance sheet and profit and loss account of these persons
discloses that these persons had sufficient funds in their
accounts for investing in the shares of the Assessee. In view
of these voluminous documentary evidence, only because
those persons had not appeared before the Assessing
Officer would not negate the case of the Assessee. The
judgment in case of Gagandeep Infrastructure (P) Ltd (supra)
would M/s Shree Laxmi Developers be applicable in the facts
and circumstances of the present case.”

9. The assessee has also relied upo the decision of Hon’ble
Supreme Court in the case of CIT vs Lovely Exports Pvt
Ltd (2008) 216 CTR 195 (SC). The Hon’ble Apex Court while
deleting the addition made u/s 68 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 this
amount of share application money cannot be regarded as
undisclosed income u/s 68 of the Income-tax Act, 1961.

10. Coming to the case laws relied upon by the Ld.DR. The
Ld.DR relied upon the decision of Hon’ble Delhi High Court in
the case of Principal CIT vs Bikram Singh in ITA
No.55/Del/2017 dated 25-03-2017. We have gone through
the case law relied by the Ld.DR in the light of facts of the
present case and find that the facts of case before Hon’ble
Delhi High Court are entirely different from facts of the
present case. The Hon’ble Delhi High Court, has considered
the fact that the individuals, who advanced loans had no
financial strength to lend such huge sum of money to the
assessee, that too, without any collateral security without
interest and without a lender agreement. Under these facts,
the Hon’ble Court held that mere establishing of their identity
and the fact that the amounts have been transferred through
cheque payment does not by itself mean that the
transactions are genuine. In this case, the assessee has
furnished all evidences and also the parties personally
responded to the notices M/s Shree Laxmi Developers
issued by the AO u/s 133(6) by filing various details,
therefore, case law relied upon by the Ld.DR cannot be
applicable to the facts of the present case.

11. In this view of the matter and considering the ratio of the
case laws discussed above, we are of the considered view
that the assessee has discharged identity, genuineness of
transactions and creditworthiness of the parties. Therefore,
there is no reason for the AO to make addition towards loan
32 Metro Woven Sacks Pvt.Ltd.
Rukmani Mercantile Pvt.Ltd.
Dynamic Minechem Pvt.Ltd.

u/s 68 of the Act. Hence, we direct the AO to delete addition made towards loans alongwith interest u/s 68 of the Act.

8.1. We find that the ld DR vehemently placed reliance on the recent decision of Hon’ble Supreme Court in the case of PCIT vs NRA Iron & Steel Pvt Ltd arising out of SLP(Civil) No. 29855 of 2018 dated 5.3.2019 in support of contentions of the revenue on the impugned issue. In this regard, we find that the facts before the Hon’ble Supreme Court are clearly distinguishable on the following grounds:-
a) In Para 3.6. of the said judgement of Hon’ble Supreme Court, it was mentioned that the entire share capital had been received by the assessee through normal banking channels by account payee cheques / demand drafts, and produced documents such as income tax return acknowledgements to establish identity and genuineness of the transaction. It was submitted that, there was no cause to take recourse to section 68 of the Act, and that the onus on the Assessee Company stood fully discharged.

b) In Para 3.7. of the said judgement of Hon’ble Supreme Court, it was mentioned that the AO had issued summons to the representatives of the investor companies. Despite the summons having been served, nobody appeared on behalf of any of the investor companies. The Department only received submissions through dak, which created a doubt about the identity of the investor companies.

c) In Para 3.8. of the said judgement of Hon’ble Supreme Court, it was mentioned that the AO independently got field enquiries conducted with respect to the identity and credit-worthiness of the investor companies, and to examine the genuineness of the transaction. Enquiries were made at Mumbai, Kolkata and Guwahati where these Companies were stated to be situated.

In the aforesaid case before the Hon’ble Supreme Court, the result of the enquiry by the AO revealed the following:-
a) Notice were duly served on certain investor companies, but no reply was received from them ;
b) Some of the investor companies were found to be closed at their correct address ;
c) Notice could not be served on some of the investor companies ;
d) Some of the investor companies replied to notice u/s 133(6) of the Act wherein they had confirmed having made investment in share application money in NRA Iron & Steel Pvt Ltd but had limited income as per their income tax returns which in turn resulted in doubting of creditworthiness ;
e) Most of the investor companies though confirmed the fact of having made investment in share application money in NRA Iron & Steel Pvt Ltd , but had not filed their bank statements to prove the immediate source of credit available to them for making the said investment.
33
Metro Woven Sacks Pvt.Ltd.
Rukmani Mercantile Pvt.Ltd.
Dynamic Minechem Pvt.Ltd.

8.1.1. In the instant case before us, the ld AO did not issue any
summons u/s 131 of the Act or make further enquiries to examine the
veracity of the evidences filed on record before him by the assessee
as well as by the loan creditors in response to notice u/s 133(6) of the
Act. Moreover, all the loan creditors had duly furnished their
respective bank statements proving the immediate source of credit for
them to justify that they had sufficient creditworthiness to advance
loan to the assessee company. From the perusal of the balance
sheet of all investor companies, all the loan creditors had sufficient
own funds in their kitty which prove their creditworthiness to advance
loan to the assessee company. As has been stated hereinabove, the
most excruciating point of difference in facts vis a vis the facts of the
case before the Hon’ble Supreme Court supra that the investor
companies had not even furnished their bank statements to prove
their immediate source of credit for making investment in share
application monies of NRA Iron & Steel Pvt Ltd. From the bank
statements furnished by the loan creditors in the case of the
assessee herein, we find that there were no cash deposits in the
bank accounts of the lenders prior to issuance of loan to the
assessee company. In the case before the Hon’ble Supreme Court,
the AO in that case had made field enquiries at Mumbai, Kolkata and
Guwahati where those investor companies were stated to be situated
to examine their identity and credentials and the result of such
enquiry had been summarized hereinabove. Whereas in the instant
case before us, no such enquiries were conducted by the ld AO to
doubt the veracity of the details and evidences filed by the loan
creditors in response to notice u/s 133(6) of the Act directly before
him. In the instant case before us, all the notices u/s 133(6) of the
Act were duly served on all the aforesaid loan creditors and all of
them had independently filed their replies directly before the ld AO.
The bank statements were also duly furnished by the loan creditors to
prove that they had sufficient creditworthiness to advance loan to the
assessee company and since all the transactions were routed
through regular banking channels by account payee cheques and in
view of the fact that there were no cash deposits prior to issuance of
loan to the assessee company, the genuineness of transactions also
stand clearly established. This goes to prove their identity,
creditworthiness and genuineness of transactions of all the loan
creditors. In this scenario, it could be safely presumed that the ld AO
was apparently satisfied with the replies given thereon by the loan
creditors directly before him in response to notice u/s 133(6) of the
Act and hence there is no need to make any examination further.
8.2. In view of the aforesaid distinguishing features on facts of the
assessee company vis a vis the facts before the Hon’ble Supreme
Court, we hold that the reliance placed by the ld DR on the decision
of Hon’ble Supreme Court supra does not come to the rescue of the
revenue.
8.3. At the cost of repetition, we would like to state that the ld
CIT(A) had merely placed reliance on the decision taken by his
predecessor in Asst Year 2012-13 in assessee’s own case in similar
34 Metro Woven Sacks Pvt.Ltd.
Rukmani Mercantile Pvt.Ltd.
Dynamic Minechem Pvt.Ltd.

set of facts. We find that this decision for Asst Year 2012-13 in assessee’s own case has been reversed by this tribunal vide its order dated 29.12.2017 referred to supra. In view of our aforesaid findings in the facts and circumstances of the case and respectfully following the decision of this tribunal in assessee’s own case for Asst Year 2012-13, we hold that the assessee company had duly proved the nature and source of credit in the form of unsecured loan and had duly satisfied the three necessary ingredients of section 68 of the Act viz, the identity of the loan creditors , creditworthiness of loan creditors and genuineness of loan transactions. Hence we direct the ld AO to delete the addition made in the sums of Rs 50 lacs and Rs 25 lacs towards unsecured loan u/s 68 of the Act. Accordingly, the Grounds 1 to 6 raised by the assessee are allowed.”
17. In the case of PCIT vs. Hi-Tech Residency Pvt. Ltd. (2018) 257 Taxman
335, Hon’ble Supreme Court has considered identical issue and held that where
an assessee company had discharged the onus of establishing identity,
genuineness of transaction and creditworthiness of investors, no additions could
be made u/s. 68 of the I.T. Act, 1961. We, further, noted that although the Apex
Court has not expressed any opinion, because of dismissal of SLP filed by the
assessee, the fact of the matter is that this issue has been considered by the
Hon’ble Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd (supra),
where the issue has been thoroughly examined in the light of provisions of
section 68 of the Act, and held that if the share application money is received by
the assessee company from alleged bogus share holders, whose names are
given to the AO, then the department is free to proceed to reopen their
assessment in accordance with law, but sum received from share holders
cannot be regarded as undisclosed income of the assessee.

18. In this view of the matter and considering the facts and circumstances of
this case and also taking into consideration various case laws as discussed
hereinabove, we are of the considered view that the assessee has discharged
its initial onus to prove identity, genuineness of transactions and
creditworthiness of the parties by filing various documents. The AO, without
carrying out further inquiries in order to ascertain the claim of the assessee,
jumped into conclusion on the basis of financial statements of the subscribers
that none of them had enough source of income to establish creditworthiness.
Therefore, we are of the view that the AO was erred in making additions towards
share capital u/s 68 of the Income Tax Act, 1961. The learned CIT(A) without
appreciating relevant facts has confirmed additions made by the AO towards
share capital u/s 68 of the Income Tax Act, 1961. Hence, we reverse findings of
ld. CIT(A) and direct the AO to delete the additions made towards share capital
u/s. 68 of the Income Tax Act, 1961.

19. Insofar as, additions towards probable commission payment to entry
provides, we find that since, we have deleted additions made by the AO towards
share capital, consequent additions made towards probable commission @
0.75%, on total transactions is also incorrect and accordingly, direct the AO to
delete additions made towards commission estimation.
35
Metro Woven Sacks Pvt.Ltd.
Rukmani Mercantile Pvt.Ltd.
Dynamic Minechem Pvt.Ltd.
13. In this view of the matter and by respectfully following the
decision of co-ordinate bench in assesee group company case, we
are of the considered view that the identity, genuineness of
transaction and creditworthiness of subscribers has been proved as
required u/s 68 of the Act. We, therefore, direct the Ld. AO to delete
additions made towards share capital and consequent commission
u/s 68 of the I.T.Act, 1961.
14. The next issue that came up for our consideration from ground No.4 of assessee’s appeal is disallowances of expenditure incurred in relation to exempt income u/s 14A of the Act r.w.Rule 8D of the I.T.Rules, 1962. We find that an identical issue has been considered by us in ITA No. 2563/Mum/2018, in the case of M/s Asha Leasing and Finance Pvt.Ltd., where under identical set of facts, the Tribunal has deleted additions made by the Ld. AO u/s 14A r.w.s.Rule 8D of I.T.Rules, 1962, on the ground that in absence of incriminating material found as a result of search no additions could be made in the assessments framed u/s 143(3) r.w.153A of the Act, 1961. The relevant findings of the Tribunal are as under:-
“20. The next issue that came up for our consideration from ground No.4 of assessee’s appeal is additions towards disallowances of expenditure incurred in relation to exempt income. We find that the AO has made additions towards disallowances of expenditure in the assessment framed u/s 143(3) r.w.s. 153A of the I.T.Act, 1961, without
36 Metro Woven Sacks Pvt.Ltd.
Rukmani Mercantile Pvt.Ltd.
Dynamic Minechem Pvt.Ltd.

reference to any incriminating material found as a result of search. It is settled position of law that in order to make any additions in the assessments, which are framed u/s 153A, the additions qua incriminating material is a must. Unless, the AO has incriminating material in his possession to prove that any item of addition is supported by incriminating material found, as a result of search, no additions could be made in the assessments framed u/s 153A, if such assessment has been completed /unabated as on the date of search. In this case, the facts with regard to no reference to incriminating material, in respect of additions towards disallowances of expenditure u/s 14A r.w.Rule 8D is not disputed by the revenue. When, the bench has specifically asked the Ld. DR about incriminating material, the Ld. DR failed to prove that the additions made by the AO towards disallowances of expenditure is supported by any incriminating material. Therefore, we are of the considered view that in absence of any incriminating material found as a result of search, no additions could be made in the assessment framed u/s 153A of the I.T.Act, 1961. This legal proposition is supported by the decision of Hon’ble jurisdictional Bombay High Court in the case of CIT vs Continental warehousing corporation (Nhava Sheva Ltd. (2015) 374 ITR 645, where the Hon’ble High Court clearly held that in absence of incriminating material no additions could be made, in respect of assessment which become final and no proceedings is pending, as on the date of search. Therefore, we are of the considered view that the AO was erred in making additions towards disallowances of expenditure, in relation to exempt income u/s 14A r.w.Rule 8D(2), in absence of seized materials. The Ld. CIT(A) without appreciating the facts simply upheld the additions made by the AO. Therefore, we reverse the findings of Ld.CIT(A) and delete additions made by the AO towards disallowance of expenditure incurred in relation to exempt income u/s 14A of the I.T.Act, 1961.”
15. In the result, appeal filed by the assesee is allowed.
ITA No’s 2561, 2843/Mum/2018:-

16. The facts and issues involved in these two appeals are identical to the facts and issues, which we had already considered in ITA No. 2568/Mum/2018. The reasons given by us in preceding paragraphs in ITA.No. 2568/Mum/2018 shall mutatis mutandis apply to these appeals as well. Therefore, for similar reasons, we direct
37 Metro Woven Sacks Pvt.Ltd.
Rukmani Mercantile Pvt.Ltd.
Dynamic Minechem Pvt.Ltd.

the Ld.AO to delete additions made towards share capital and consequent commission u/s 68 of the I.T.Act, 1961. Similarly, we direct the Ld. AO to delete additions made towards disallowances of expenditure incurred in relation to exempt income u/s 14A of the Act r.w.Rule 8D of I.T.Rules, 1962. Accordingly, the appeals filed by the assessee’s are allowed.
17. As a result, all appeals filed by the assessee’s are allowed.
Order pronounced in the open court on this 29 /01/2020 Sd/- Sd/-
(RAVISH SOOD) (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 29 /01//2020
Thirumalesh Sr.PS Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file. BY ORDER, स यािपत ित //True Copy// (Asstt. Registrar) ITAT, Mumbai

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