MEMBA CHEM INDUSTIRES P. LTD, MUMBAI v. DCIT CIR 4(2), MUMBAI

ITA 1251/MUM/2010 | 2006-2007
Pronouncement Date: 10-12-2010 | Result: Allowed

Appeal Details

RSA Number 125119914 RSA 2010
Bench Mumbai
Appeal Number ITA 1251/MUM/2010
Duration Of Justice 9 month(s) 24 day(s)
Appellant MEMBA CHEM INDUSTIRES P. LTD, MUMBAI
Respondent DCIT CIR 4(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 10-12-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted J
Tribunal Order Date 10-12-2010
Assessment Year 2006-2007
Appeal Filed On 16-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J : MUMBAI BEFORE SHRI R.S. SYAL (AM) AND SHRI D.K. AGARWAL (JM) ITA NO.1251/MUM/2010 ASSESSMENT YEAR : 2006-07 MEMBA CHEM INDUSTRIES PVT. LTD. 19 M.J. BUILDING GROUND FLOOR 185/187 PRINCESS STREET MUMBAI-400 002. ..( APPELLANT ) P.A. NO. (AAACM 7274 K) VS. DY. COMMISSIONER OF INCOME TAX CIRCLE-4(2) AAYAKAR BHAVAN MUMBAI. ..( RESPONDENT ) APPELLANT BY : SHRI KESHAV S. BHUJLE RESPONDENT BY : SHRI S UMEET KUMAR O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 17.12.2009 PASSED BY THE LD. CIT(A) FOR T HE ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COM PANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PETROLEUM BASED CHEMICALS FILED RETURN DECLARING TOTAL INCOME OF RS.37 41 220/-. DURING THE COURSE OF ASSESSMENT PROCEEDING IT WAS INTERALIA OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS RAISED SHARE CAPI TAL OF RS.9.25 LACS ON A PREMIUM OF RS.46 25 000/-. THE ASSESSEE W AS ASKED TO FILE THE RELEVANT DETAILS WITH REGARD TO THESE EN TRIES FROM WHOM FRESH CAPITAL WAS RAISED DURING THE YEAR SUCH AS THEIR RE TURN OF ITA NO.1251/M/10 A.Y:06-07 2 INCOME THE CORRESPONDENCE MADE WITH THESE PARTIES THE MODE OF RAISING SHARE CAPITAL NAMES OF INTRODUCERS AND FURTHER T HE CREDIT WORTHINESS IDENTITY AND GENUINENESS OF THE TRANSACTION. IN RESPONSE THE ASSESSEE FILED DETAILS WHICH ARE REPRODUCED AS UNDER: NAME OF THE ENTRY SHARE CAPITAL SHARE PREMIUM RETURNED INCOME NIYATI INDUSTRIES 5 00 000/- 25 00 000/- 50 501/- ARPAN INDUSTRIES 3 00 000/- 15 00 000/- 10 048/- PAN INDIA DRUGS 1 00 000/- 5 00 000/- 2 02 098/- RIDER FINANCE 25 000/- 1 25 000/- NO DATA AVAILABLE TOTAL . 9 25 000/- 46 25 000/- THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE DID NOT FILE FULL DETAILS AND CORRESPONDENCE. THE ASSESSING OFFICER ALSO RECOR DED THE STATEMENT OF SHRI ANIL VALIA DIRECTOR OF THE COMPANY WHO STATED TO ASSESSING OFFICER THAT ONE MR. YOGESH SHAH OF METROPOLITA N CHEMICALS 105 PRINCESS STREET INTRODUCED HIM TO POTENTIAL SHAREHO LDERS. THE ASSESSING OFFICER OBSERVED THAT MR. YOGESH SHAH WAS THE DI RECTOR OF NIYATI INDUSTRIES AND PAN INDIA DRUGS. THE ASSESSING OFF ICER ALSO RECORDED THE STATEMENT OF MR. YOGESH SHAH ON 10.11.200 8 AND 12.12.2008 WHO OWNED RESPONSIBILITY OF INVESTING IN ME MBA CHEM THROUGH NIYATI INDUSTRIES AND PAN INDIAN DRUGS BUT MAD E NO REFERENCE TO ARPAN ENTERPRISES AND RIDER FINANCE. THE ASSESSING OFF ICER FURTHER OBSERVED THAT ANIL VALIAS CLAIM THAT HE WAS INTRODUCED TO THESE ENTERPRISES BY MR. YOGESH SHAH WAS UNSUBSTANTIATED. THE RELEVANT PORTION OF STATEMENT HAS BEEN QUOTED BY ASSESSING OFFICER IN THE ASSESSMENT ORDER AS UNDER :- Q.12 TO WHOM DID THE METROPOLITAN CHEMICALS INTRODUCED YOU? ITA NO.1251/M/10 A.Y:06-07 3 ANS: METROPOLITAN CHEM INTRODUCED ME TO YOGESHBHA I. YOGESHBHAI INTRODUCED ME TO 4 PERSONS I HAVE GIVEN THE LIST.(REFERRING TO THE LIST FURNISHED IN THE ASSESS MENT PROCEEDINGS). I DO NOT KNOW THE NAME OF THE PERSON AS OF NOW. Q.NO.9 CAN YOU ESTIMATE PROFIT MADE BY YOU THROUGH YOUR INVESTMENT IN ABOVE MENTIONED COMPANY I.E. MEMBA CHEM. PVT. LTD. ANS: ATLEAST 18% P.A. WE ARE ESTIMATING AS PROFIT FROM MCPL. WE ARE INVESTING IN SOCIAL POSITION OF THE CO MPANY RATHER THAN FINANCIAL POSITION. IN THE LIGHT OF THE ABOVE THE ASSESSING OFFICER CONCLUDED THAT THE TRANSACTIONS ARE PRE-ORDAINED. AS PROFIT MOTIVE IS ABSE NT TRANSACTIONS THROUGH CHEQUE ARE NOT SACROSANCT AND THE PARTIES FROM W HOM AMOUNTS HAVE BEEN RECEIVED DID NOT HAVE CREDITWORTHINE SS AND THE ASSESSEE HAS UTILIZED BOOKS OF FOUR ENTERPRISES TO INTRODUC E MONEY IN HIS ACCOUNT AND ACCORDINGLY MADE ADDITION OF RS.55 50 00 0/- UNDER SECTION 68 OF THE INCOME TAX ACT 1961(THE ACT) AND THER EBY COMPLETED THE ASSESSMENT AT AN INCOME OF RS .91 92 220/- VIDE ORDER DATED 29.12.2008 PASSED UNDER SECTION143(3) OF THE ACT. 3. ON APPEAL BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITT ED AS UNDER :- A. THE FOUR SHAREHOLDERS ARE COMPANIES ASSESSED TO TAX AND THEIR IDENTITY IS ESTABLISHED AND THE ASSESSEE REFERRED T O VARIOUS DECISIONS. B. THE CREDITWORTHINESS OF FOUR SHAREHOLDERS NEED NOT BE PROVED BY THE ASSESSEE AND ALL THE ASSESSEE IS REQUIRED TO PR OVE IS IDENTITY OF SHAREHOLDER AND THERE IS NO OBLIGATION TO PROVE THE CAPACITY OF THE SHAREHOLDER OR SOURCE OF THE SHAREHOLDER. WITHOUT PREJUDICE IT WAS STATED THAT SHOWING LOW INCOME BY FOUR COMPANIES DO ES NOT MEAN THAT FOUR SHAREHOLDERS ARE NOT CREDITWORTHY. THE A SSESSEE REFERRED TO THE DECISION OF CIT VS. ORISSA CORPORATION P. LT D. 159 ITR 78(SC). ITA NO.1251/M/10 A.Y:06-07 4 C. THE TRANSACTIONS ARE GENUINE AS THE TRANSACTIONS AR E TO INCREASE IN SHARE CAPITAL AND THE CONTRIBUTION BY THE SAID FOUR CORPORATE ENTITIES. D. THERE IS NO MATERIAL EVIDENCE TO PROVE THAT THE TRA NSACTIONS ARE NOT GENUINE AND THE ASSESSEE RELIED UPON THE CASE OF BE DI & COMPANY PVT. LTD. VS. CIT 144 ITR 352(KAR.) AND 230 ITR 580 (SC) OF THE SAME CASE AND STATED THAT THE BURDEN OF SHOWING THA T THE APPARENT STATE OF AFFAIRS IS NOT FAIR IS VERY HEAVY ON THE D EPARTMENT. 4. THE LD. CIT(A) WHILE UPHOLDING THE ADDITION MADE BY THE ASSESSING OFFICER HELD VIDE PARA-2.3 OF HIS ORDER AS UNDER :- 2.3 I HAVE GONE THROUGH THE ORDER OF THE ASSESSING OFFICER AND SUBMISSIONS OF THE APPELLANT. THE ASSESSING OFFICER HAS CLEARLY POINTED OUT THAT THE FOUR COMPANIES DO NOT HAVE CAPACITY TO ADVANCE THE LOAN; THE ASSESSEE DID NOT FURNISH DETAILS AS TO HOW IT APPRO ACHED THE FOUR COMPANIES AND HOW HE CONTACTED THEM FOR RAISING THE SHARE CAPITAL. THE TRANSACTIONS HAVE A LSO BEEN SHOWN TO BE NOT GENUINE IN VIEW OF THE STATEMENT OF MR. YOGESH SHAH RECORDED BY THE ASSESSING OFFICER. THE ENTRIES IN THE BOOKS OF ACCOUNTS IN THE GARB OF SHA RE CAPITAL IS UNEXPLAINED CASH CREDIT AS THE CAPACITY OF THE FOUR COMPANIES TO ADVANCE THE SUM OF RS.55 50 000/- IS JUST NOT THERE AND THE TRANSACTIONS ARE ALSO NOT GE NUINE. IT HAS BEEN HELD IN CATENA OF JUDGMENTS OF VARIOUS HIGH COURTS AND SUPREME COURT THAT THE ONUS IS ON THE APPELLANT TO PROVE IDENTITY CREDITWORTHINESS AND GENUINENESS OF TRANSACTION THE ADDITION U/S. 68 IS THEREFORE JUSTIFIED. 5. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSE SSEE AT THE OUTSET SUBMITS THAT THE IDENTITY OF THE SHARE HOLDERS IS NOT IN DISPUTE. THE DISPUTE IS WITH REGARD TO THEIR CREDIT WORTHINESS AN D GENUINENESS OF TRANSACTION. IN THIS REGARD HE SUBMITS THAT THE ASSESSEE HAS FILED THE COMPLETE DOCUMENTARY EVIDENCE TO PROVE THE CREDITWO RTHINESS AND GENUINENESS OF TRANSACTION I.E. COPY OF RETURN ALONGWIT H ACKNOWLEDGEMENT BOARDS RESOLUTION APPLICATION FOR SHA RES BALANCE SHEET P&L ACCOUNT AND OTHER SCHEDULES OF THE COMPANY APP EARING AT ITA NO.1251/M/10 A.Y:06-07 5 PAGE 12 TO 69 OF THE ASSESSEE'S PAPER BOOK. REFERRING TO THE STATEMENTS OF SHRI ANIL VALIA DIRECTOR OF THE COMPAN Y AND SHRI YOGESH SHAH INTRODUCER OF THE SHARE HOLDERS APPEARI NG AT PAGE 70 TO 80 OF ASSESSEE'S PAPER BOOK HE SUBMITS THAT SHRI YOG ESH SHAH HAS CONFIRMED THAT HE INTRODUCED THE PARTIES TO THE ASSESSEE W HO ARE ASSESSED TO TAX AND DEPOSITED THE SHARE APPLICATION MONEY WITH THE ASSESSEE THEREFORE THE ASSESSEE HAS DISCHARGED ITS BURDEN AND THEREFORE THE ADDITION MADE BY THE ASSESSING OFFICER AN D SUSTAINED BY THE LD. CIT(A) BE DELETED. THE RELIANCE WAS ALSO PLACE D ON THE DECISION OF HON'BLE SUPREME COURT IN CIT VS. LOVELY EXPORTS P. LTD. (2008) 216 CTR 195 (SC) AND CIT VS. DIVINE LEASING AND FINANCE LT D. (2008) 299 ITR 268(DEL.). 6. ON THE OTHER HAND THE LD. DR SUBMITS THAT FOR THE REASONS AS DISCUSSED IN THE ASSESSMENT ORDER AND IN THE ORDER OF THE LD. CIT(A) THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN MAKING ADDI TION OF RS.55 50 000/- U/S.68 OF THE ACT AND THE SAME BE UPHELD . 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIN D THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUTE THAT THE AMOUNT OF RS.55.50 LACS WAS RECEIVED BY THE ASSESSEE ON ACCOUNT OF IN CREASE IN SHARE CAPITAL RECEIVED FROM FOUR LIMITED COMPANIES WH O HAVE SUBSCRIBED TO THE SHARE CAPITAL AT PREMIUM. IN SUPPORT T HE ASSESSEE HAS FILED THE FOLLOWING DOCUMENTARY EVIDENCE OF ALL TH E FOUR COMPANIES TO SHOW THEIR IDENTITY CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION:- 1. LIST OF MEMBERS ITA NO.1251/M/10 A.Y:06-07 6 2. ACKNOWLEDGEMENT OF IT RETURN OF NIYATI INDUSTRIES LTD . 3. RESOLUTION OF NIYATI INDUSTRIES LTD. 4. LETTER FROM NIYATI INDUSTRIES LTD.- APPLICATION FOR SH ARES 5. BALANCE SHEET PROFIT & LOSS A/C. & SCHEDULES OF NIYATI INDUSTRIES LTD. 6. RESOLUTION OF ARPAN ENTERPRISE LTD. 7. LETTER FROM ARPAN ENTERPRISE LTD.-APPLICATION FOR SH ARES 8. ACKNOWLEDGEMENT OF IT RETURN OF ARPAN ENTERPRISE LTD. 9. DIRECTORS REPORT AUDITORS REPORT BALANCE SHEET PROFIT & LOSS A/C. & SCHEDULES OF ARPAN ENTERPRISE LTD. 10. RESOLUTION OF PAN INDIA DRUGS & CHEMICALS LTD. 11. LETTER FROM PAN INDIA DRUGS & CHEMICALS LTD. APPLICAT ION FOR SHARES 12. ACKNOWLEDGEMENT OF IT RETURN COMPUTATION OF PAN IND IA DRUGS AND CHEMICALS LIMITED 13. BALANCE SHEET PROFIT & LOSS A/C. OF PAN INDIA DRUGS & CHEMICALS LTD. 14. ACKNOWLEDGEMENT OF IT RETURN OF RIDER FINANCE LTD. 15. RESOLUTION OF RIDER FINANCE LTD. 16. LETTER FROM RIDER FINANCE LTD. APPLICATION FOR SHAR ES 17. DIRECTORS REPORT AUDITORS REPORT BALANCE SHEET PROFI T & LOSS A/C. & SCHEDULES OF RIDER FINANCE LTD. 18. COPY OF STATEMENTS OF DIRECTOR SHRI ANIL VALIA AND INT RODUCER SHRI YOGESH SHAH IN CONFIRMATION OF THE ABOVE. 8. IN CIT VS. LOVELY EXPORTS (P) LTD. (2009) 319 ITR (ST.) 5; 216 CTR 195(SC) IT HAS BEEN HELD AS UNDER : 2. CAN THE AMOUNT OF SHARE MONEY BE REGARDED AS UNDISCLOSED INCOME UNDER SECTION 68 OF THE INCOME-T AX ACT 1961 ? WE FIND NO MERIT IN THIS SPECIAL LEAVE PETITION FOR THE SIMPLE REASON THAT IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEECOMPANY FROM ALLEGED BO GUS SHAREHOLDERS WHOSE NAMES ARE GIVEN TO THE ASSESSIN G OFFICER THEN THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW . HENCE WE FIND NO INFIRMITY WITH THE IMPUGNED JUDGME NT. 9. RECENTLY IN CIT VS. ORBITAL COMMUNICATION (P) LTD. (2010) 327 ITR 560 (DEL.) IT HAS BEEN OBSERVED AND HELD (HEADNOT E):- ITA NO.1251/M/10 A.Y:06-07 7 WHERE THE ADDITION OF RS.1 70 00 000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SHARE APPLICATION M ONEY RECEIVED BY THE ASSESSEE-COMPANY WAS DELETED BY COMMISSIONER(APPEALS) AND THE TRIBUNAL ON THE GROUN D THAT THE ASSESSEE HAD PRODUCED SUBSTANTIAL EVIDENCE TO ESTABLISH THE IDENTITY AND CREDITWORTINESS OF S AND THE GENUINENESS OF THE SHARE APPLICATION WAS ALSO MANIF EST FROM THE RECORD AND THAT THEREFORE NON-PRODUCTION OF S WOULD NOT NEGATE THE EVIDENTIARY VALUE OF THE REST OF THE MATERIAL ON APPEAL : HELD DISMISSING THE APPEAL THAT THE VIEW OF THE TRIBUNAL WAS JUSTIFIED. 10. IT IS ALSO SETTLED LAW THAT THE ASSESSEE IS NOT REQUIRE D TO PROVE THE SOURCE OF SOURCE. 11. SINCE THE REVENUE HAS FAILED TO CONTROVERT THE AFO RESAID DOCUMENTARY EVIDENCE EVEN AT THIS STAGE AND IN THE ABS ENCE OF ANY CONTRARY MATERIAL OR DECISION PLACED ON RECORD BY THE RE VENUE WE KEEPING IN VIEW THE AFORESAID MANDATE OF LAW HOLD T HAT THE SHARE APPLICATION MONEY CANNOT BE REGARDED AS UNDISCLOSED INCO ME OF THE ASSESSEE U/S.68 OF THE ACT AND ACCORDINGLY THE ADDITION OF RS.55 50 000/- MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A) IS DELETED. THE GROUNDS TAKEN BY THE ASSESSEE AR E THEREFORE ALLOWED. 12. IN THE RESULT ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.12.2010. SD/- SD/- ( R.S. SYAL ) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED: 10.12.2010. JV. ITA NO.1251/M/10 A.Y:06-07 8 COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT(A) CONCERNED MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI.