ACIT vs MGM Realtors Pvt. Ltd.

"1)

Whether on the facts and circumstances, the Ld. CIT(A) was justified in deleting the addition amounting to Rs. 59,53,92,255/- made by AO u/s 68 of the Act?

2)

Whether on the facts and circumstances, the Ld. CIT (A) was justified in ignoring the facts that the notices issued u/s 133(6) to the investor parties have either returned back or found not in existence?

3)

Whether on the facts and circumstances, the Ld. CIT(A) was justified in deleting the addition of Rs. 59,53,92,255/- made u/s 68 by ignoring the fact that the financials of investing companies submitted by the assessee company had shown negligible income and clearly these companies were not in such a financial position that they could invest such an amount in the assessee company as these companies were only providing accommodation entries for the assessee company?

4)

Whether on the fact, circumstances, and law of the case, the Ld. CIT(A) was justified in ignoring the finding of decision Of Hon'ble Apex Court In case of Konark Structural Engineers private limited [2018] 96 taxmann.com 255(SC)/[2018] 257 taxman 262 (SC)?

5)

Whether on the fact, circumstances, and law of the case, the Ld. CIT(A) was justified in ignoring the finding of decision Of Hon'ble Delhi High Court in case of CIT vs. Nipun Builders & Developers Pvt. Ltd.?"

"4.

I have carefully gone through the details available and considered the facts and circumstances of the case, submission of the appellant and perused the assessment order on the issue of share capital received by the appellant during the year from 12 group entities. It was reiterated that all the share applicants pertaining to the same group of companies. I have also gone through the copies of the bank statements of the investor companies, source investor companies and source of source of investor companies. It is seen that the funds have been transferred by way of RTGS through banking channel and there is no deposit of cash in the bank accounts.

4.1

The appellant filed detail, confirmations, copy of PAN, ITR, balance sheet, copies of bank statements etc. of all the share applicants (pp15-85). The appellant has also filed details/ documents in support of ultimate source of source with regard to share application money before AO as well as before me. All the payments of share application money were routed through banking channels.

4.2

In addition to all the facts it is pertinent to mention that the following details have been duly furnished by the appellant before the AO during the course of assessment proceedings.

1.

Confirmations

2.

Note on Transaction

3.

ITR Acknowledgement

4.

Bank statement

5.

Annual accounts

6.

Source of fund

7.

Ultimate Source of source fund

8.

Replies u/s 133(6) of the investor companies

9.

Justification of share premium

10.

Land acquisition papers as source is land acquisition

11.

Sale deed/property documents as source of investor companies came from sale of properties.

4.3

The appellant states that the prima facie onus cast upon it and its shareholders had established the identity, creditworthiness and genuineness of the transaction. The appellant had to prove these ingredients on a prima-facie basis and once this is done, the onus shifts to the A.O. to prove that there are facts available with him to displace the evidence produced by the appellant. The appellant contended that if AO wanted to examine the subscribers, he ought to have pursued his enquiry further by enforcing the notices. However, AO was of the view that the burden lies wholly on the appellant to prove its case to the hilt, which is not correct in law. Thus, the appellant submitted that AO not only erred in coming to wrong conclusion on facts but also erred in law in holding that provisions of section 68 are applicable.

4.4

Appellant stated that The Section 68 states that in case where a sum is found credited in the books of account of an assessee, the initial burden is placed on the assessee to adduce evidence regarding identity of the creditor, his creditworthiness and genuineness of the transaction. The initial burden is only a prima-facie one i.e. where the explanation is prima-facie credible, the burden then shifts to other party. What decides the matter finally is pre-ponderous of probability. Once an explanation is furnished by the assessee it should be considered objectively by the A.O.

In the case of Shri Lekha Banerjee vs. CIT 1963 49 ITR 112 (SC), it has been held that the good evidence cannot be converted into no evidence by the A.O. and he cannot act unreasonably to reject the same. In CIT VS Orissa Corporation Pvt. Ltd. (1986) 159 ITR 78 (SC), it has been held that witse the assessee furnished full details regarding the creditors it was up to department to pursue the matter to trace them and examine their credit worthiness. In fact the case law has gone beyond this proposition.

In Homi Jehagir Gheesta Vs. CIT 1961 41 ITR (SC) and CIT VS. Bharat Engineering and Construction co (1972) 83 ITR 187 (SC), it has been held that the AO cannot treat an item of credit as income by merely rejecting the explanation put forward by the assessee. Even witse assessee's explanation has been rejected correctly. It does not necessarily or invariably mean in all cases an addition to the appellant's income.

The points which emerge from these cases are that only initial burden lies on the assessee and if various details are filed to prima-facie discharge this burden, it will be for the assessing officer to make further enquiries which may include gathering further facts, examining the creditors etc. However, without making such enquiries, the good evidence filed by an assessee cannot be converted into NIL evidence.

Coming to facts of appellant's case, the credits of capital were proved by filling the evidences from the creditors, consisting of copies of bank accounts, and annual accounts, ITRs and confirmations. The AO had issued Notices to shareholders from whom capital was received. They responded to notices once they came to know about them and filed evidences about their investments, ITRs, Bank Accounts and source of their source. Therefore, sufficient evidence existed on the record of the AO to prove the identity of shareholders, their creditworthiness, genuineness of the transactions and even sources of their money were proved. Thus, the onus cast upon the appellant stood discharged. Assessing Officer has not brought any material on record which in any manner displaces the evidence filed by the appellant, its shareholders and others and therefore, application of section 68 is fundamentally flawed in the light of aforesaid decisions.

4.5

All these facts established that the share capital received by the appellant company is from explained sources and the same has been received from the group companies. The transactions of the share capital are within the group companies and there is no evidence to establish that the appellant company has received any accommodation entry of share capital or any unexplained funds. In the assessment order there is no evidence brought on record by the AO to support its finding about the unexplained share capital.

4.6

It is clear that evidence has been furnished which shows the money was available with the investor-companies from previous unimpeachable transactions done in the course of business, which constitutes the sources of the subscribing companies. No adverse statement exists on record about mere providing of entries. Thus, it is clear that the explanation of the appellant has been rejected without any proper argument or by bringing on record any contradictory evidence.

4.7

On careful perusal of the details/documents filed by the appellant in support of receipt of share application money, I am of the considered view that the appellant has proved genuineness of the share applicants by filing the necessary documents/details, thereby, proving identity and credit worthiness of the persons concerned and accordingly the genuineness of the transactions was proved.

4.8

The scrutiny selection guidelines are administrative instructions given by the CBDT to the Assessing Office and it is not an appealable section u/s 246A of the Act. If there is any violation in sending the statutory notice as per law that can be challenged but not the procedure of scrutiny selection which is not made appealable under the Act.

4.9

Thus after considering the entire evidence submitted by the appellant before me I find that the appellant has more than sufficiently discharged its onus as envisaged under the provisions of section 68.