7. os itxa 1231-17.doc R.M. AMBERKAR (Private Secretary) IN HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. INCOME TAX APPEAL NO. 1231 OF 2017 Pr. Commissioner of Income Tax -1 Appellant Versus M/s. Ami Industries (India) P Ltd Respondent Mr. Suresh Kumar a/w Ms. Sumandevi Yadav & Ms. Priyanka Tiwari for Appellant Mr. Riyaz Padvekar a/w Mr. Tanzil Padvekar for Respondent CORAM : UJJAL BHUYAN & MILIND N. JADHAV, JJ. DATE : JANUARY 29, 2020. P.C.: 1. Heard Mr. Suresh Kumar, learned standing counsel, revenue for appellant and Mr. Padvekar, learned counsel for respondent - assessee. 2. This appeal under Section 260A of Income Tax Act, 1961 ("the Act" for short) is preferred by revenue against order dated 26.8.2016 passed by Income Tax Appellate Tribunal, Mumbai "A" Bench, Mumbai ("Tribunal" for short) in Income Tax Appeal No. 5181/Mum/2014 for assessment year 2010-11. 1 of 15 7. os itxa 1231-17.doc 3. appeal has been preferred on following three questions stated to be substantial questions of law:- (i) Whether on facts and circumstances of case and in law, Tribunal was justified in directing deletion of sum brought to tax by Assessing Officer as unexplained income under Section 68 of Act in respect of moneys credited in books as share application money of Rs. 34,00,00,000/-? (ii) Whether on facts and circumstances of case and in law, Tribunal was justified in holding that assessee proved identity, credit worthiness and genuineness of moneys credited in books as share application money of Rs. 34,00,00,000/- just by submitting PAN, acknowledgment of income tax returns filed and bank statements? (iii) Whether on facts and circumstances of case and in law, Tribunal was justified in deleting addition of Rs.34,00,00,000/- ignoring facts brought out by Assessing Officer that return of investing company shows no credit worthiness and that investing company merely transferred share application money received from other parties to assessee company? 4. From above, it is evident that issue involved in this appeal is addition of share application money by Assessing Officer to income of assessee under Section 68 of Act which additions have been deleted by first appellate authority and confirmed by Tribunal. 2 of 15 7. os itxa 1231-17.doc 5. In assessment proceedings, Assessing Officer noted that assessee had disclosed funds from three Kolkata based companies as share application money. details were as under:- Parasmani Merchandise Pvt Ltd Rs. 13.50 Crores Ratanmani Vanijya Pvt Ltd Rs. 2.00 Crores Rosberry Merchants Pvt Ltd Rs. 18.50 Crores Total Rs. 34.00 Crores 5.1. Assessing Officer issued notice to assessee on ground that whereabouts of above companies were doubtful and their identity could not be authenticated. Thus, genuineness of companies' became questionable. Assessing Officer accordingly proposed to treat share application money as unexplained cash credit in hands of assessee under Section 68 of Act and issued notice to assessee. 6. After considering reply submitted by assessee, Assessing Officer vide assessment order dated 28.3.2013 passed under Section 143(3) of Act treated aforesaid amount of Rs. 34 crores as money from unexplained sources and added same to income of 3 of 15 7. os itxa 1231-17.doc assessee as unexplained cash credit under Section 68 of Act. 7. Aggrieved by aforesaid order, assessee preferred appeal before Commissioner of Income Tax (Appeals)-1, Mumbai i.e first appellate authority. In appeal proceedings, assessee sought leave of first appellate authority to produce additional evidence which was granted by first appellate authority. After hearing matter, first appellate authority vide order dated 18.6.2014 held that assessee had discharged its burden under Section 68 of Act by proving identity of creditors; genuineness of transactions; and credit worthiness of creditors. Consequently, first appellate authority set aside addition made by Assessing Officer. 8. In appeal before Tribunal by revenue, Tribunal vide order dated 26.8.2016 confirmed order passed by first appellate authority by holding that no addition could be made under Section 68 of Act and that 4 of 15 7. os itxa 1231-17.doc factual findings of first appellate authority required no interference. 9. It is against this order of Tribunal that revenue is in appeal before us. 10. Mr. Suresh Kumar, learned standing counsel, revenue has taken us through assessment order and submits therefrom that it cannot be said that assessee had discharged burden to prove credit worthiness of creditors. His further contention is that assessee is also required to prove source of source. In this connection, he has placed reliance on decision of Supreme Court in Pr. CIT Vs. NRA Iron & Steel Pvt Ltd 1. He, therefore, submits that finding returned by Tribunal is wholly erroneous and requires to be interfered with by this Court. 11. Per contra, Mr. Padvekar, learned counsel for respondent submits that from facts and circumstances of case, it is quite evident that assessee had discharged its 1 (2019) 103 taxmann.com 48 5 of 15 7. os itxa 1231-17.doc burden to prove identity of creditors, genuineness of transactions and credit worthiness of creditors. He submits that legal position is very clear in as much as assessee is only required to explain source and not source of source. Decision of Supreme Court in NRA Iron & Steel P Ltd (supra) is not case law for aforesaid proposition. In fact, said decision nowhere states that assessee is required to prove source of source. 11.1. Referring to orders passed by authorities below, Mr. Padvekar submits that in present case, investigation wing of department had carried out detailed investigation at Kolkata and found source of credit to be genuine. This report of investigation wing was not taken into consideration by Assessing Officer. Therefore, lower appellate authorities were justified in deleting additions made by Assessing Officer. Being finding of fact, no substantial question of law arises in appeal. Therefore, appeal should be dismissed. 6 of 15 7. os itxa 1231-17.doc 12. Submissions made by learned counsel for parties have been considered. Also perused materials on record. 13. Section 68 of Act deals with cash credits. As per Section 68, where any sum is found credited in books of assessee maintained for any previous year, and assessee offers no explanation about nature and source thereof or explanation offered by him is not, in opinion of Assessing Officer, satisfactory, sum so credited may be charged to income tax as income of assessee of that previous year. Simply put, section provides that if there is any cash credit disclosed by assessee in his return of income for previous year under consideration and assessee offers no explanation for same or if assessee offers explanation which Assessing Officer finds to be not satisfactory, then said amount is to be added to income of assessee to be charged to income tax for corresponding assessment year. 7 of 15 7. os itxa 1231-17.doc 14. Section 68 of Act has received considerable judicial attention through various pronouncements of Courts. It is now well settled that under Section 68 of Act, assessee is required to prove identity of creditor; genuineness of transaction; and credit worthiness of creditor. In fact, in NRA Iron & Steel (P) Ltd (supra), Supreme Court surveyed relevant judgments and culled out following principles:- "11. principles which emerge where sums of money are credited as Share Capital/Premium are : i. assessee is under legal obligation to prove genuineness of transaction, identity of creditors, and credit-worthiness of investors who should have financial capacity to make investment in question, to satisfaction of AO, so as to discharge primary onus. ii. Assessing Officer is duty bound to investigate credit-worthiness of creditor / subscriber, verify identity of subscribers, and ascertain whether transaction is genuine, or these are bogus entries of name-lenders. iii. If inquiries and investigations reveal that identity of creditors to be dubious or doubtful, or lack credit-worthiness, then genuineness of transaction would not be established. In such case, assessee would not have discharged 8 of 15 7. os itxa 1231-17.doc primary onus contemplated by Section 68 of Act." 15. It is also settled proposition that assessee is not required to prove source of source. In fact, this position has been clarified by us in recent decision in Gaurav Triyugi Singh Vs. Income Tax Officer-24(3)(1)2 16. Having noted above, we may now advert to orders passed by authorities below. 17. In so far order passed by Assessing Officer is concerned, he came to conclusion that three companies who provided share application money to assessee were mere entities on paper without proper addresses. three companies had no funds of their own and that companies had not responded to letters written to them which could have established their credit worthiness. In that view of matter, Assessing Officer took view that funds aggregating Rs. 34 Crores introduced in return of income in garb of share application money was money from unexplained source and added same to income of assessee as unexplained cash credit under 2 Income Tax Appeal No. 1750 of 2017 decided on 22.1.2020 9 of 15 7. os itxa 1231-17.doc Section 68 of Act. 18. In first appellate proceedings, it was held that assessee had produced sufficient evidence in support of proof of identity of creditors and confirmation of transactions by many documents, such as, share application form etc. First appellate authority also noted that there was no requirement under Section 68 of Act to explain source of source. It was not necessary that share application money should be invested out of taxable income only. It may be brought out of borrowed funds. It was further held that non- responding to notice would not ipso facto mean that creditors had no credit worthiness. In such circumstances, first appellate authority held that where all material evidence in support of explanation of credits in terms of identity, genuineness of transaction and credit- worthiness of creditors were available, without any infirmity in such evidence and explanation required under Section 68 of Act having been discharged, Assessing Officer was not justified in making additions. Therefore, additions were deleted. 10 of 15 7. os itxa 1231-17.doc 19. In appeal, Tribunal noted that before Assessing Officer, assessee had submitted following documents of three creditors:- a) PAN number of companies; b) Copies of Income Tax return filed by these three companies for assessment year 2010-11; c) Confirmation Letter in respect of share application money paid by them; and d) Copy of Bank Statement through which cheques were issued. 20. Tribunal noted that Assessing Officer had referred matter to investigation wing of department at Kolkata for making inquiries into three creditors from whom share application money was received. Though report from investigation wing was received, Tribunal noted that same was not considered by Assessing Officer despite mentioning of same in assessment order, besides not providing copy of same to assessee. In report by investigation wing, it was mentioned that companies were in existence and had filed income tax returns for previous year under consideration but Assessing Officer recorded that these creditors had very meager income as disclosed in their returns of income and therefore, doubted credit worthiness of three creditors. Finally, Tribunal held as under:- 11 of 15 7. os itxa 1231-17.doc "5.7 As per provisions of Section 68 of Act, for any cash credit appearing in books of assessee, assessee is required to prove following- (a) Identity of creditor (b) Genuineness of transaction (c) Credit-worthiness of party (i) In this case, assessee has already proved identity of share applicant by furnishing their PAN, copy of IT return filed for asst. year 2010-11. (ii) Regarding genuineness of transaction, assessee has already filed copy of bank account of these three share applicants from which share application money was paid and copy of account of assessee in which said amount was deposited, which was received by RTGS. (iii) Regarding credit-worthiness of party, it has been proved from bank account of these three companies that they had funds to make payment for share application money and copy of resolution passed in meeting of their Board of Directors. (iv) Regarding source of source, Assessing Officer has already made enquiries through DDI (Investigation), Kolkata and collected all materials required which proved source of source, though as per settled legal position on this issue, assessee need not to prove source of source. (v) Assessing Officer has not brought any cogent material or evidence on record to indicate that shareholders were benamidars or fictitious persons or that any part of share capital represent company s own income from undisclosed sources. 12 of 15 7. os itxa 1231-17.doc Accordingly, no addition can be made u/s.68 of Act. In view of above reasoned factual finding of CIT(A) needs no interference from our side. We uphold same." 21. From above, it is seen that identity of creditors were not in doubt. Assessee had furnished PAN, copies of income tax returns of creditors as well as copy of bank accounts of three creditors in which share application money was deposited in order to prove genuineness of transactions. In so far credit worthiness of creditors were concerned, Tribunal recorded that bank accounts of creditors showed that creditors had funds to make payments for share application money and in this regard, resolutions were also passed by Board of Directors of three creditors. Though, assessee was not required to prove source of source, nonetheless, Tribunal took view that Assessing Officer had made inquiries through investigation wing of department at Kolkata and collected all materials which proved source of source. 22. In NRA Iron & Steel (P) Ltd (supra), Assessing Officer had made independent and detailed inquiry including 13 of 15 7. os itxa 1231-17.doc survey of investor companies. field report revealed that shareholders were either non-existent or lacked credit-worthiness. It is in these circumstances, Supreme Court held that onus to establish identity of investor companies was not discharged by assessee. aforesaid decision is, therefore, clearly distinguishable on facts of present case. 21. Therefore, on thorough consideration of matter, we are of view that first appellate authority had returned clear finding of fact that assessee had discharged its onus of proving identity of creditors, genuineness of transactions and credit-worthiness of creditors which finding of fact stood affirmed by Tribunal. There is, thus, concurrent findings of fact by two lower appellate authorities. Appellant has not been able to show any perversity in aforesaid findings of fact by authorities below. 22. Under these circumstances, we find no error or infirmity in view taken by Tribunal. No question of 14 of 15 7. os itxa 1231-17.doc law, much less any substantial question of law, arises from order of Tribunal. Consequently, appeal is dismissed. However, there shall be no order as to cost. [MILIND N. JADHAV, J.] [UJJAL BHUYAN, J.] Digitally signed by Ravindra Ravindra M. Amberkar M. Date: Amberkar 2020.02.05 10:54:38 +0530 15 of 15 Pr. Commissioner of Income-tax-1 v. Ami Industries (India) P. Ltd