Amore Jewels P. Ltd, Mumbai vs Department Of Income Tax

सव ौी आर.सी. शमा , लेखा सदःय एवं ौी संजय गग , याियक सदःय के सम# । BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER

आयकर अपील सं./ITA No.98/M/2011 ( िनधा रण वष / Assessment Year; 2007-08)

M/s. Amore Jewels P. Ltd. DCIT 9(1) Plot No.3A, Behind Patel Aluminium, Village बनाम/Vs. Dindoshi, Malad (East), Mumbai - 4000263 Mumbai - 400020 PAN: AAECA7184J (अपीलाथ)/Appellant) (ू+यथ)/Respondent)

आयकर अपील सं./ITA No.345/M/2011 ( िनधा रण वष / Assessment Year; 2007-08)

DCIT 9(1) M/s. Amore Jewels P. Ltd. Plot No.3A, Behind Patel बनाम/Vs. Aluminium, Village Dindoshi, Malad (East), Mumbai - 400020 Mumbai - 4000263 PAN: AAECA7184J (अपीलाथ)/Appellant) (ू+यथ)/Respondent)

Assessee by : Shri B.V. Jhaveri (AR) Revenue by : Shri R.N. D'suoza (DR)

सुनवाई क, तार.ख/ Date of Hearing : 27.11.2014 घोषणा क, तार.ख /Date of Pronouncement : 13 .02.2015

आदे श / O R D E R

Per R.C. Sharma, J.M. :

These cross appeals filed by the Assessee & Revenue are directed against the order of Learned CIT(A) dated 22.10.2010 for the assessment year 2007-08.

ITANos.98&345/M/2011 2

2. Rival contentions have been heard and perused material on record. The assessee is in the business of manufacture of diamond studded jewellery. During the year the assessee was in receipt of various sums of money towards subscription to share capital, out of which a sum of Rs.2,37,24,900/- has been brought to tax u/s.68 of the Act.

3. The balance sheet as at 31.03.2007, disclosed receipt of various sums of money as share application for subscribing to share capital, as shown below;

Sr. Name of applicant Amt. towards share Amount towards Total amount No. capital premium 1 Coromandal Merchants P. Ltd. 80,000 7,20,000 8,00,000 2 Maple mercantile P. Ltd. 82,500 7,42,500 8,25,000 3 Criticare marketing P. Ltd. 96,500 8,68,500 4,85,000 4 Ziwani Barter P. Ltd. 48,500 4,36,500 4,85,000 5 Devraaj Mercantile 80,000 7,20,000 8,00,000 6 Smt. Nirmala Bermecha 19,84,990 1,78,64,910 1,98,49,900

The assessee has shown receipt of Rs.19,84,990/- towards share capital and Rs.1,78,64,910/- towards share premium thus aggregating Rs.1,98,49,900/- from Smt. Nirmal Barmecha.

4. By the order of Ld. CIT(A) deleting addition of Rs.1,98,49,900/- after having following observations;

6. I have considered the facts of the case, the findings of the A.O. and the submission of the appellant. There is no doubt that sums totaling Rs.1,98,49,900/- have been received as subscription to share capital of the appellant from one Smt. Nirmala Barmacha, who is a non-resident Indian, residing in Israel. There is also no doubt that money has been received through proper banking channels, as evidenced by copy of Forward Inward Remittance certificates dated 1.3.2007 and 21.3.2007 issued by Bank of India. Thus Identity of the investor and genuineness of the transaction stand ITANos.98&345/M/2011 3

established beyond doubt. The only question is regarding the credit- worthiness of the investor. The A. O. has not accepted the copy of Bank Statement of the investor, as provided by the appellant for the reason that it is in Israeli language. I have perused the said Bank Statement, copy of which is found at page 18 of the compilation on record. Though the printed matter under the head 'Type of Transaction' is in Israeli language, dates and amount debited/credited are mentioned in English. It is also mentioned in English that the statement is for the period from 6.2.2007 to 26.2.2007. The statements have columns for 'Date', 'Ref', 'Type of Transaction', 'Value', 'Credit', 'Debit', and 'Balance', which are mentioned in English at the top. Apart from description of 'Type of Transaction' which is in Israeli language, all other details are in the English language. In fact the statement is partly in English and partly in Israeli tongue. The, Bank Statement which is a copy of 'Foreign Currency Account Statement', reveals withdrawal of US Dollar 2,50,0001- on 15/2/2007 and a further withdrawal of US Dollar 2,00,0001- on 26.2.2007.

As per the certificate of Foreign Inward Remittance from Bank of India, an amount of US Dollar 2,49,965/- (Rupees equivalent 1,10,03,459) was credited to the appellant's account with the bank on 16.2.2007 and another sum of US Dollar 1,99,9651- (Rupee equivalent Rs. 88,46,452/- was credited on 27.2.2007. The remitting bank is Citi Bank, New York and the remitter is shown as Nirmal Barmecha. To corroborate the appellant's financial capacity, the appellant has filed Certificate from the Israeli Accountant dated November 25, 2001 (page 197 of the compilation) certifying that source of money is deposits savings from her joint account with her husband . The said certificate has not been considered by A.O. stating that it does not disclose details regarding her capital, source of income etc. Thus, it can be seen that A.O. has stated that genuineness of the transaction are not in doubt but creditworthiness is not proved. Thus what is to be looked into is whether the material produced before the A.O. establishes the creditworthiness of the investor. The appellant had stated that the source of the deposit is her joint account with her husband in Israel and to evidence which copy of. bank statement was furnished.

But the A.O. took no cognizance of the same, stating that it is in Israeli language. .But, as stated by me in earlier paragraph, scrutiny of the certificate reveals that certain details are partly written in English.

7. During the course of hearing of the appeal, the appellant was directed to furnish English translation of the Israeli Statement of Account. The appellant produced the same, as directed, during the course of hearing of the appeal. From the said Statement of Account of bank account bearing No. 001/109396/201 it is seen that the following details emerge.

Type of Alc. : Current Foreign Resident Deposit Currency : Dollar Period : February 6,2007 to February 26, 2007

As per details of transaction, on 15.2.2006, USD 2,50,000/-was transferred and further, on 26.02.2007, USD 2,00,000 stood transferred. It must be stated here that even in the statement produced before the A.O., written in Israeli tongue, dates and amounts transacted in are written in English. These entries ITANos.98&345/M/2011 4

in fact, match and corroborate with the entries as found in the Foreing Inward Remittance Certificates filed. Thus the appellant has been able to explain the source of investment in the Indian company as having been made out of her bank account held jointly with her husband in Mizrahi Ifahot (Israel). The fact that it is a joint account has been certified by her Accountant and copy of said certificate is on record. It has been certified that "sources of the funding is from deposits and savings in her joint account with her husband Mr. Barmecha

8. During. the course of hearing of the appeal, details were sought of income accruing or arising to the said investor in India or account of such huge investments being made .. In response to the said query, the appellant company, has produced, copy of Income Tax Return filed for A.Y. 2007-08, along with Balance Sheet and Profit & Loss account. As per the Balance Sheet as at 31st March 2007, Smt. Nirmala Barmecha has capital exceeding Rs. 3.45. crores, with investments mainly, in shares and debentures and income arising therefrom of Rs. 4,04,890/- which has been offered to tax. From an appreciation of the entire evidence as brought on record it must be taken to have been proved that the creditor had the capacity to make the investment.It has been held in CIT Vs. Metachem Industry 245 ITR 160 (MP) that an assessee is only to explain that an investment has been made by a particular individual and it is the responsibility of that individual to account for the investment made. When it is established that the amount has been invested by a particular person, then the responsibility of the assessee is over.

The same view is echoed in the decision of the Delhi High Court (FB) in CIT Vs. Sophia Finance Ltd. 205 ITR 98 wherein the Hon'ble Court has observed that only when the explanation is false or unbelievable or that evasive replies are given regarding source of credit, only then the A.O. will be justified in deeming the whole receipt to be revenue receipt. It is held that in this case the appellant company has established genuineness of the transaction and solvency of the donor by placing on record sufficient material/evidence and therefore the appellant has discharged its onus of explaining the nature and source of credit in its books of a/c. On an appreciation of the evidence and material as placed on record, it is seen that Smt. Nirmala Barmecha is an NRI, resident in Israel, whose family is in diamond business. She is filing her return in India on disclosing income from her investments made in the country. She has capital exceeding Rs. 3.45 crores in the Indian Income Tax Return. Therefore, it is held that in the case of money brought in by Shri Nirmal Barmecha, all the three ingredients of the explanation within the meaning of s. 68 been satisfactory proved i.e. identity of creditor, financial capacity of the creditor and geniuses of the transaction.

The addition made under s.68 in sum of Rs.1,98,49,900/- stands deleted.

5. However, the Ld. CIT(A) has confirmed the addition of Rs.38,75,000/-, after having following observations:

"I have considered the submission as made by the appellant. It is acknowledged by the A.O. that indeed appellant had filed confirmation letter, Bank Statement, ITR etc. to evidence the transaction. However, ITANos.98&345/M/2011 5

the AO has gone one step further and scrutinized the details as filed. A close scrutiny revealed that all the five companies but one functioned from common premises; all had opened accounts in the same bank, all had received share application money and either on the same day or the next paid sums to the appellant, and all had filed income tax return disclosing meager sums as income, all below Rs.5000/-. Thus a number of peculiar features have been brought on record which does not accord with normal features of a transaction but are simply out of the ordinary and which render the transactions as suspect and lacking in transparency. Ordinarily all entities will not function from same premises, will not have the same modus operandi to generate & transfer money and will not have more or less the same return on investment. Under the circumstances in respect of money brought in as investment towards share capital from the said five companies, the AO is certainly right in holding that the creditworthiness and genuineness has not been established. The submission of PAN, confirmation letter alone cannot be themselves vouch for the genuineness of a transition. The AO has looked beyond the apparent and found that the apparent is not real, as per the facts brought on record. Thus the AO is correct in stating that as regards money brought in of Rs.38,75,000/- the credits have not been explained to the satisfaction of the AO. Therefore, the deeming prevision of s.68 operates and said sums have been correctly brought to tax as deemed income. The addition of Rs.38,75,000/- is herby sustained.

6. It was argued by Ld. DR R.N. D'suoza that the Ld. CIT(A) has grossly erred in deleting the addition overlooking the following facts:

"1. That the assessee has not proved the creditworthiness of the parties either during the assessment proceedings or during the appellate proceedings.

2. The assessee has not filed a single paper either during the assessement proceedings or during the appellate proceedings to show that Smt Nirmala Barmecha filed her Income tax returns in Israel and that she had independent sources of income and the most important of all that she had the capacity to invest such a huge amount.

3. The Ld CIT(A) further over looked the fact that there is no evidence whatsoever regarding the due diligence etc carried out by the assessee to satisfy the party to invest in their company at a premium of Rs 90 per share.

4. No Valuation report has been filed by the assessee to justify a premium of Rs 90 per share.

5. It is further seen on the internet that Sh. Ranjeet Barmecha husband of Smt Nirmala Barmecha is a director in Niru Diamonds of Israel. Therefore their business relations with the assessee and accommodation transactions cannot be ruled out. 6. The details of investments of Rs 2.05 crores is also not available on records. It could be possible that the entire investment might be in the form of investments made in the assessee company i.e providing accommodation entry of investment in shares at premium.

7. The dividend of meager Rs 315 has been received by Smt Nirmala Barmecha.

7. On the other hand Ld. AR reiterated the contentions made before CIT(A). He supported the order of CIT(A) with respect to ITANos.98&345/M/2011 6

additions deleted by CIT(A). In respect of additions sustained, the Ld. AR contended that share application money was received through banking channel and all particulars required by AO were furnished before him. Accordingly the CIT(A) was not justified in confirming the addition.

8. Against the above order of Ld. CIT(A) both revenue and assessee are in appeal before us, wherein following grounds have been taken.

Assessee's ground;

1. "The orders passed by learned Assessing Officer & Commissioner of Income-tax (Appeals) is against equity and justice.

2. The learned Assessing Officer erred in making addition of Rs.38,75,000/- u/s.68, being 10% of total money receive by appellant towards share capital."

Revenue's ground;

1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the fact that the investor who has subscribed to the share capital of the company (Smt. Nirmala Barmecha) is an NRI and resides in Israel, and her credit-worthiness is not established by the assessee and the assessee was unable to prove the sources of deposit in the account from which share capital and share premium money has been received.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the fact noted at para 3.1 of the assessment order that the income-tax structure in Israel is similar to that in India and that the assessee has failed to submit the documentary evidence in support of source of income, balance sheet and other details in respect of income stated to have been generated in Israel by the creditor, from where the share capital and share premium has been received, to prove the credit- worthiness of the investor.

3. The appellant prays that the order of the CIT(A) be set aside on the grounds mentioned above and that of the Assessing Officer be restored".

9. We have considered rival contentions clearly gone through the orders of authorities below and find from record that during the year under consideration the assessee was in receipt share application money amounting to Rs.2,37,24,900/- from six parties as mentioned in para no.3 above. The AO doubted genuineness of the transactions, therefore, added ITANos.98&345/M/2011 7

entire amount u/s.68 of the I.T. Act. In respect of share application received from first five parties as mentioned in para 3, the AO observed that all the five companies were functioning from common premises; all had opened accounts in the same bank, all had received share application money either on the same day or the next date of deposit in the bank account. Thus, a number of peculiar features noted in all the five transactions clearly revealed that these were bogus transactions so as to dislodge assessee's claim of genuineness. The CIT(A) after recording detailed finding at para 9 of his appellate order further fortified the action of the AO. The findings recorded by lower authorities have not been controverted by Ld. AR by bringing any positive material on record. Accordingly we do not see any reason to interfere with the findings of Ld. CIT(A) resulting into confirmation of addition of Rs.38,75,000/- in respect of five parties mentioned at para 3 of this order.

10. In respect of share application money received from Smt. Nirmala Barmecha, we found that Smt. Nirmala Barmecha is a none resident Indian, residing in Israel. The assessee has filed a bank statement to substantiate remittance of money to assessee company. Sources of money was also substantiated by filing the Joint Bank Account of Smt. Nirmala Barmecha with her husband. The Bank statement which is a copy of 'foreign Currency Account Statement', reveals withdrawal of US Dollar 2,50,000/- on 15/2/2007 and a further withdrawal of US Dollar 2,00,000/- on 26.2.2007. The certificate of bank for remittance from the Israeli Accountant dated November 25, 2001 was also filed certifying that source of money was deposits/ savings in her joint account with her husband. We also find that as per the income tax return filed by the Smt. Nirmala Barmecha at India, she was having capital exceeding Rs.3.4 crores, with ITANos.98&345/M/2011 8

investments mainly, in shares and debentures and income arising therefrom amount to Rs.4.04 lacs which has been also offered for tax. After appreciation of the entire material placed on record, the Ld. CIT(A) concluded that not only identity of share applicant (Smt. Nirmala Barmecha) was established but also genuineness of transactions and her creditworthiness was established by assessee. The detailed findings recorded by CIT(A) with regard to identity, genuineness and creditworthiness of Smt. Nirmala Barmecha has not been controverted by Ld. DR by brining any positive material on record. Accordingly we do not see any reason to interfere in the findings recorded by the CIT(A) resulting into deletion of addition of Rs.1,98,49,900/- received on account of share application money from Smt. Nirmala Barmecha.

11. In the result both appeals of the Assessee & Revenue are dismissed.

Order pronounced in the open court on 13.02.2015.

आदे श क, घोषणा खुले यायालय म1 2दनांकः 13.02.2015 को क, गई ।

Sd/- Sd/- संजय गग / Sanjay Garg) (आर.सी. शमा /R.C.Sharma) याियक सदःय / JUDICIAL MEMBER लेखा सदःय / ACCOUNTANT MEMBER

मुंबई/Mumbai; 2दनांक/Dated 13.02.2015

* Patel

आदे श क, ूितिल4प अमे4षत/Copy षत of the Order forwarded to : 1. अपीलाथ) / The Appellant ITANos.98&345/M/2011 9

2. ू+यथ) / The Respondent. 3. आयकर आयु6(अपील) / The CIT(A)- 4. आयकर आयु6 / CIT

5. 4वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / The DR Concerned Bench,

6. गाड फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स+या4पत ूित //True Copy//

उप/सहायक पंजीकार (Dy./Asstt.

उप/ Registrar) आयकर अपीलीय अिधकरण, अिधकरण, मुंबई / ITAT, Mumbai