M/S Lumbini Gardens Limited , Bangalore vs Department Of Income Tax

The Deputy Commissioner of Vs. M/s. Lumbini Gardens Ltd., Income Tax, Nagawara Lake, Circle 11(5), Nagawara Ring Road, Hebbal, Bangalore. Bangalore - 560 045. PAN : AAACL 9979L

APPELLANT RESPONDENT

Appellant by : Shri P. Dhivahar, Jt. CIT(DR) Respondent by : Shri Zain Ahmed Khan, C.A.

Date of hearing : 10.02.2015 Date of Pronouncement : 20.02.2015

ORDER

Per N.V. Vasudevan, Judicial Member

This is an appeal by the Revenue against the order dated 30.1.2014

of the CIT(Appeals)-I, Bangalore relating to assessment year 2007-08.

2. The only issue raised in this appeal is as to whether the CIT(A) was

justified in deleting the addition of Rs.2,40,00,000 made by the AO u/s. 68 ITA No.703/Bang/2014 Page 2 of 6

of the Act treating the receipt of share application money by the assessee

as unexplained cash credit.

3. The facts in this regard are that the assessee is a company and is

engaged in the business of development and maintenance of gardens,

beautification of lakes, amusements and entertainment. The assessee was

incorporated in Jan. 2004. During the previous year, assessee received

share application money of Rs.2.40 crores. The AO called upon the

assessee to furnish full details about share application money by providing

identity, genuineness and credit worthiness of the shareholders. The

assessee submitted that the shareholders are more than 200 in number

and are directly or indirectly related to the directors of the assessee. The

share application money had been paid by the shareholders in cash. The

assessee did not submit any evidence regarding source of income of these

persons. In these circumstances, the AO treated the receipt of share

application money as unexplained and added the same to the total income

u/s. 68.

4. Before the CIT(A), the assessee filed a letter dated 27.2.2012

seeking to file certain additional evidence regarding the shareholders who

contributed share application money. The additional evidence was

forwarded to the AO and remand report called for from him. Despite

sufficient opportunities, the AO did not file any remand report. ITA No.703/Bang/2014 Page 3 of 6

5. Before the CIT(Appeals), the assessee submitted name and

addresses, as also copies of share application forms, which were provided

to the AO for verification. According to the CIT(A), the AO has not

conducted any enquiry even after repeated reminders. On perusal of the

details furnished by the assessee, he found that the assessee had received

share application money amounting to Rs.2.40 crores from 313 persons

ranging from Rs.20,000 to Rs.10,00,000 and entire share application

money was received by cash only. He was of the view that the assessee

has furnished addresses of all investors and PAN in few cases and based

on the said information the AO could have made enquiry. It was also

observed by him that the relevant year under consideration is the first year

of commencement of assessee's business and loss was incurred during

the year.

6. The CIT(A) thereafter referred to the decision of the Hon'ble Delhi

High Court in CIT v. Dewan Leasing Finance Ltd. (2007) 158

Taxman 440 (Del) and the decision of Hon'ble Supreme Court in CIT v.

Lovely Export Pvt. Ltd., 216 CTR 195 (SC). The proposition laid

down in the aforesaid decision is that once the assessee gives the details

of the addresses of the persons who contributed to share application

money, then it is for the department to conduct necessary enquiries and

establish the creditworthiness and genuineness of the transaction before

making addition u/s. 68. According to the CIT(A), the assessee had ITA No.703/Bang/2014 Page 4 of 6

furnished identity and correct addresses of the creditors and PAN details of

20 creditors. According to him, this was sufficient discharge of onus that

lay on the assessee. Since the AO has not proved anything to the

contrary, he was of the view that addition made should be deleted.

Accordingly the addition made by the AO was deleted by the CIT(A).

7. Aggrieved by the order of CIT(A), the Revenue is in appeal before

the Tribunal.

8. The submission of the ld. DR before us was that the powers of the

CIT(A) are co-terminus with that of the Assessing Officer and he ought to

have examined the claim of assessee regarding receipt of share application

money. He ought to have also examined the genuineness of the

transaction and creditworthiness of the creditors. According to him, the fact

that out of 313 share applicants, only 20 persons were assessed to tax and

the fact that the payments were made in cash towards share application

money are all suspicious circumstances. According to him, the CIT(A )

without verifying the genuineness of the transactions and creditworthiness

of the creditors, ought not to have deleted the addition made by the AO

merely because the AO did not file a remand report before the CIT(A).

9. The ld. counsel for the assessee relied on the order of CIT(A). ITA No.703/Bang/2014 Page 5 of 6

10. We have considered the rival submissions. As rightly contended by

the ld. DR, the mere proof of identity of the creditors would alone not be

sufficient to delete the addition made u/s. 68 of the Act. In the present

case, there was a complete failure on the part of assessee to furnish any

details before the AO. It is only before the CIT(A) that the assessee filed

the necessary details. It is no doubt true that the AO did not file any

remand report, despite several opportunities by the CIT(A). As alleged in

ground No.3, the AO could get replies only from 49 share applicants out of

313 share applicants. In such circumstances, it was difficult for the AO to

have given a remand report. The powers of the CIT(A) are co-terminus

with that of the AO and he ought to have examined the genuineness of the

transaction and creditworthiness of the creditors. Absence of a remand

report cannot lead to the conclusion that the transactions were genuine and

that creditworthiness of the creditors are established. In the given

circumstances, we are of the view that it would be just and appropriate to

set aside the order of the CIT(A) and remand the issue with regard to the

addition u/s. 68 back to the AO for fresh consideration. The AO in the set

aside proceedings will examine the three ingredients necessary for

satisfactory explanation of credit u/s. 68 of the Act. The AO will afford

opportunity of being heard to the assessee.

ITA No.703/Bang/2014 Page 6 of 6

11. For statistical purposes, the appeal by the Revenue is treated as

allowed.

Pronounced in the open court on this 20th day of February, 2015.

Sd/- Sd/-

( ABRAHAM P. GEORGE ) ( N.V. VASUDEVAN ) Accountant Member Judicial Member

Bangalore, Dated, the 20th February, 2015.

/D S/

Copy to:

1. Appellant 2. Respondents 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file

By order

Assistant Registrar / Senior Private Secretary ITAT, Bangalore.