Penalty-271(1)(c) for share application money received from different companies with common addresses, bank account deleted

The Explanation 1 to section 271(1)(c) raises rebuttable presumption and once the assessee has furnished all the evidences in support of its explanation and has substantiated his claim then the onus cost upon him is discharged and onus then shifts upon the AO to prove that such an explanation or evidence is false


ITA No. : 6267/Mum/2013 (Assessment year: 2007-08)

DCIT  (Appellant) vs. M/s Amore Jewels P Ltd. (Respondent)

Date of Order: 04/03/2016



The aforesaid appeal has been filed by the revenue against impugned order dated 22.10.2010, passed by Commissioner of Income Tax (Appeals)-19, Mumbai [CIT(A)] in relation to the penalty proceedings under section 271(1)(c) for the assessment year 2007-08.

2. The revenue is aggrieved by cancelling of penalty of Rs.12,78,750/- levied by the AO under section 271(1)(c) on account of addition on share application money received from five companies aggregating to Rs. 38,75,000/-.

3. Brief facts are that, the assessee had received share application money from various companies. The total share application money received from various companies aggregated to Rs. 2,37,24,900/-. From the stage of the CIT(A), relief of Rs.1,98,49,900/- was given on account of share application received from Smt Nirmala Barmecha, however, in respect of following five companies share application money received was confirmed by the CIT(A) under section 68, as unexplained credit:-

1. Coromandal Merchants P. Ltd. 2. Maple Mercantile P. Ltd. 3. Certicare Marketing P. Ltd. 4. Ziwani Barter P. Ltd. 5. Devraaj Mercantile P. Ltd.

The addition of Rs. 38,75,000/- on account of share application money from above stated companies have also been confirmed from the stage of the Tribunal also. 4. Before us, the Ld. Counsel for the assessee submitted that with regard to these five companies, the assessee had filed following documents before the AO during the course of the quantum proceedings:-

1. Form no. 2 filed with the Registrar of Companies 2. Confirmation letters from the share subscribers. 3. Copies of the share subscriber’s statements showing the transaction of shares. 4. Copies of the PAN card of the share subscribers. 5. Copies of the Income Tax Return of the share subscribers

Further, at the stage of the Tribunal, the assessee had filed copies of on audited Balance Sheets, profit and loss account of these companies for the year ending 31st March, 2009 and also copy of company master details from the site of Ministry of Corporate Affairs. All the said document goes to prove that, so far as the assessee is concerned, the entire onus stood discharged. Now, in the quantum proceedings, the addition has been confirmed only on the ground that the addresses of these companies were same and their bank account were opened in the same bank and all of them remitted the amount of share application money on the same day. However, there is no further enquiry by the AO either in the course of the assessment proceedings or in the course of penalty proceedings, to rebut the assessee’s evidence and explanation. During the course of penalty proceedings, the assessee had submitted the entire documents and evidences including bank account of the parties; Balance sheet; copy of return of income filed; confirmation letter; Form No. 2 filed with the Registrar of Companies; ‘PAN card’, etc. Thus, the onus of the assessee stood fully discharged and accordingly, no penalty can be levied under section 271(1)(c) for furnishing of inaccurate particulars or for concealment of income.

5. On the other hand, Ld. DR strongly relied upon the order of the AO and submitted that, once the addition has been confirmed the penalty has rightly been levied.

6. The Ld. CIT(A) has deleted the penalty after considering the entire documents and analyzing of the bank account of the five companies under which share transaction have been taken place. The relevant finding of the CIT(A) is reproduced hereunder:

“5. Decision – I have carefully considered the orders of the various authorities on record as also the oral as well as written submissions made by the AR. It is clear that the CIT(A), while allowing considerable relief has upheld the addition to the extent of Rs. 38,75,000/- by way of Investment in share capital made by the five entities listed earlier. Penalty has been levied on this confirmed addition. Coming to the observations of the AO, it seem that his observation in para no. 4 of the order to the effect that no documentary evidences has been furnished to establish the genuineness of the transactions or the creditworthiness of the shareholder-companies is misplaced. This is so because in the same paragraph the AO has mentioned that the perusal of the bank statements of these shareholdercompanies had lead him to certain conclusions. In other words, the availability to the AO of the bank statements has been accepted in the body of the penalty order itself. Further, going back to the assessment order, on page no. 3 under the paragraph entitled ‘share application money received from other companies’ the AO has himself stated that he had received confirmation letters, copies of bank statements, income tax returns and PAN cards of all the five shareholdercompanies in question, it is hence clear that the AO was in possession of specific documents which point towards the genuineness of the transactions as also the existence and creditworthiness of the companies.

5.1 I have also gone through the bank accounts of all the five companies for the month of July, 2005 in which all these transactions of investment are stated to have taken place. It is clear that all the five companies have had substantial transactions and they had substantial inflow and outflow of monies in all these accounts. Be that as it may, this by itself cannot lead to a situation where levying of is the natural consequence. The AO appears to have erred in presuming that the arguments which apply to the quantum additions are identical to the arguments which apply to the levy of penalty. It is clear that the appellant had received money from five companies by way of share application money. It is also clear that all possible documentation had been furnished before the AO. The lack of satisfaction about the extent of the documentation can give rise to a quantum addition, as it has in this case but there has to be a clear-cut case of furnishing of inaccurate particulars or concealment of income for levying penalty, which is not to be seen, in fact, the penalty order virtually states everything that has been stated in the assessment order.

5.2 The case-laws cited by the appellant are very much to the point insofar as the quantum addition is concerned. All of them basically say that furnishing of details such as names, address, PANs, cheque numbers, names of the bankers, etc of the investors would be sufficient to establish that monies had indeed been received. They further held that in case of any doubt, investigation has to be carried out in the case of the investors. But unless the amounts are linked back from the investors to the appellant-companies, additions under section 68 of the Act on this count are not merited. The subject matter of this appeal is however not the quantum, but the concealment penalty. The AO has unfortunately not made out any case whatsoever in terms of inaccurate particulars or concealment, thereby implying that the successful finalization at the quantum appeal at the level of CIT(A) would indicate an acceptance on part of the appellant that it had indeed sought to introduce unexplained cash credits. As the AR has been at pains to point out the decision not to further agitate the matter cannot in any way be taken as proof of acceptance of the penal consequences as well.

5.3 The upholding of the quantum addition by the CIT(A) is seen to hinge on factors such as commonality of addresses of all the investors and debits from the bank accounts of the investors following on the heels of the credits made. The AO has chosen to reiterate these issues, rather than make out a case for imposition of penalty. It is seen that the AO has simply not found acceptable the explanation and the documentation furnished by the appellant. Nowhere has he been able to make out a case that the appellant has clearly received monies from several investors. The proofs thereof have not been found to be acceptable by the AO. But nowhere has the AO been able to point out any lack of accuracy or lack of genuineness in the explanation or the documentation. Obviously the only argument that the AO has taken is that he feels that the assessee has introduced unexplained cash credits. But this has been not backed up by any linkage whereby the same money received by the appellant from the investors is shown to have earlier travelled from the appellant to the investors. I am hence unable to see a worthwhile case being built up by the AO for levy of penalty”.

7. After considering the rival submissions and on perusal of the impugned orders and material placed on record, we find that the addition on account of share application money has been confirmed on the ground that all these five companies were having the same addresses had opened the account in the same bank and all of them received the said amount as share application money either on the same day or next day. However, during the course of penalty proceedings, the assessee vide letter dated 19th March, 2012 has again furnished the entire details and submitted that, assessee has discharged its onus by submitting the evidences to substantiate its claim; like, copy of confirmation letters from these companies; copies of Bank statement showing the transaction of share subscription money; copies of audited Balance Sheet as on 31st March, 2007 reflecting the share application money applied; Copies of income-tax return filed for the same assessment year along with PAN; return of allotment filed with the ROC; allotment of shares to the respective allottees. All these evidences filed by the assessee has not been rebutted or disputed by the AO. It is a trite law that penalty proceedings are separate and distinct from the assessment proceedings and even if in the quantum proceedings, the matter has attained finality, however in the penalty proceedings, assessee may chose to rely upon the same material to prove that he has not guilty of furnishing of concealment of income. The Explanation 1 to section 271(1)(c) raises rebuttable presumption and once the assessee has furnished all the evidences in support of its explanation and has substantiated his claim then the onus cost upon him is discharged and onus then shifts upon the AO to prove that such an explanation or evidence is false. Here in this case the AO has failed to rebut the assessee’s explanation regarding nature and source of credit by conducting any enquiry or brining any material on record. The degree of burden under section 68 upon the assessee is to prima facie prove the nature of credit and then source which has to be proved by showing the identity, creditworthiness and genuineness of the transaction. Here all these primary ingredient has been discharged. Therefore, on these facts, the finding given by the CIT(A), as above cannot be deviated from and accordingly, the same is confirmed. Accordingly, ground raised by the revenue stands dismissed.

8. In the result, appeal of the revenue stands dismissed.

Order pronounced in the open court on 4th March, 2016


----------- Similar Posts: -----------

Leave a Reply