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2015 (12) TMI 1526 - ITAT JAIPUR

2015 (12) TMI 1526 - ITAT JAIPUR - TMI - Addition on unexplained share capital - discharge of onus laid down under section 68 - Held that:- During the course of search, no incriminating documents were found. Therefore, no notice can be issued U/s 153A read with Section 143(3) of the Act because no proceeding was pending before the Assessing Officer, which has abated for issue of notice on the date of initiation of search. Thus, on technical ground, the assessee’s appeal succeeds and order passed .....

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the basis of investigation conducted by the ITO, Investigation Wing, Kolkata but the ld Assessing Officer of the assessee has not clarified what inquiry had been conducted and what evidences collected which goes against the assessee. The notice U/s 131 issued by the ITO, Investigation Wing, Kolkata were served in case of Vidya Agencies Pvt. Ltd. and Shivarpan Mercantiles Pvt. Ltd., but compliance could not be made on the given date because concerned officer was on leave. In case of Middleton Go .....

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r dated 05/08/2014 of the learned CIT(A), Central, Jaipur for A.Y. 2008-09. The respective grounds of appeal are as under:- 1. On the facts and in the circumstances of the case and in law the ld CIT(A) Central, erred in confirming the addition of ₹ 60,00,000/- on account of alleged unexplained share capital received by the assessee company from following persons more so when the assessee has discharged its onus laid down under section 68 of the Income Tax Act and no evidence as the result .....

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0 2,50,000 7,50,000 10,00,000 2. The assessee is engaged in the business of trading and manufacturing of jewellery. Return for A.Y. 2008-09 was filed U/s 139(1) of the Income Tax Act, 1961 (in short the Act) on 30/09/2008 -. There was a search and seizure operation carried by the department U/s 132 and survey U/s 133A of the Act on the Members of KGK Group on 06/5/2010 of which the assessee is one of the Members. The ld Assessing Officer issued notice U/s 153A on 16/09/2011 and the assessee was .....

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y the assessee. However, in the return of income filed in response to notice U/s 153A of the Act no disclosed income pertaining to relevant year had been declared by the assessee. The ld Assessing Officer observed that during the year under consideration, the assessee has shown total turnover of ₹ 2.05 crores on which the assessee has returned a net loss of ₹ 13,29,220/- has been disclosed. During the year, the assessee had also started a branch at Indore for which separate books of .....

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/- 2008-09 M/s Viindya Agencies Pvt. Ltd. 10,00,000/- 2008-09 M/s Shivarpan Mercantiles Pvt. Ltd. 10,00,000/- 2008-09 M/s Middleton Goods Pvt. Ltd. 30,00,000/- 2008-09 M/s Lactrodryer Marketing Pvt. Ltd. 10,00,000/- 2010-11 M/s Bawa Hire Purchase Pvt. Ltd. 25,00,000/- 2010-11 M/s Omega Suppliers Pvt. Ltd. 20,00,000/- 2010-11 M/s Sabhyata Suppliers Pvt. Ltd. 25,00,000/- The ld Assessing Officer asked the assessee to produce these share holders for examination alongwith documents in support of the .....

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at summons were issued to the 10 parties and in respect of three parties the summons were received back and rest of parties did not comply to notice issued U/s 131 of the Act. The fact was brought to the knowledge of the assessee vide office letter dated 28/03/2013 and the assessee was asked to prove the genuineness, creditworthiness and identity of share holders. The assessee vide its reply dated 28/03/2013 filed his justification emphasizing that the assessee has submitted sufficient documents .....

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the notices issued to them. This shows that the assessee is in contact with the share holders and intentionally has not produced the share holders for examination. (b) Merely, by filing the certain documents do not prove the creditworthiness of the parties as without examining the source of funds with these companies, the creditworthiness and genuineness of the transaction cannot be examined. (c) From the documents submitted by the assessee its appears that all the companies are simply entry pro .....

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ny were later on in F.Y. 2011-12 and 2012-13 were purchased by the Directors of assessee company Sh. Prateek Kothari and Sh. Piyush Kothari at very nominal rates while as on the date of transfer the fair market value of the assessee company was much higher in comparison to value of shares as on the date of issue. Therefore, there is no reason to believe that how a prudent person would purchase the shares of a nascent company at very high value and later on transfer the same shares at below fair .....

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assessee. 3. Being aggrieved by the order of the ld Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition by considering the assessee s submission and held that the Assessing Officer specifically asked the assessee to produce these share holders instead of which the assessee merely filed copy of their bank statements, balance sheets, P&L accounts etc. When the assessee had expressed its inability to produce these share holders then the Asses .....

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efore the Assessing Officer. The assessee failed to do so. The ld CIT(A) found that the assessee was in constant communication with these principal officers because in its written submissions during the course of appellate proceedings it was mentioned that two parties had informed it that compliance had been made by them but on the date of hearing the office in Kolkata was on leave. This has been submitted in the cases of Vindya Agencies Pvt. Ltd. and Shivarpan Mercantile Pvt. Ltd. For the other .....

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es to personally examine them regarding the nature of business and transactions being conducted by these companies, because it was apparent from the evidence submitted that these companies were indulging in providing accommodation entries through the route of share application money. On assessee s submission that the assessee had furnished the copy of bank statements, IT returns and balance sheets of these parties showed that these parties had sufficient fund to make investment in the share appl .....

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e applicant companies with copy of bank account. It is found by the Assessing Officer in the bank accounts of share applicant company that cash was deposited and the same was utilized in form of purchasing shares. She applied Hon'ble Delhi High Court decision in the case of appellant. She further examined party wise cases and found that during the year, the appellant had received ₹ 10 lacs from M/s Vindya Agencies Pvt. Ltd. as share capital. On perusal of the director s report it was s .....

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ubscribing companies also have the same pattern of excess surplus and reserves as compared to share capital coupled with very low yearly profits. The ld CIT(A) has further held as under:- On perusal of the bank statement of this company furnished by the assessee for the period between 1/7/2007 to 31/1/2007 it is seen that the opening balance as on 01/7/2007 was only ₹ 7293/-. An amount of ₹ 10 lakh was transferred from an account No. 1077630 on 03/7/2007 which was then transferred vi .....

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part from these substantial inflows and outflows were undertaken. It is also interesting to note that all the cheques were coming from different accounts. While there are notings regarding the concerns to whom the amounts were given there are no notings from whom there advances were being received. This was required to be clarified from the Principal Officers of these companies to whom summons were issued for personal attendance. Another interesting observation made is that all these four compan .....

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the portfolio statement of Middleton Goods Pvt. Ltd. it was seen that apart from the appellant the company had also given an entry to M/s Radha Casting and Metallic Pvt. Ltd. like Shvarpan Mercantile Pvt. Ltd. Furthermore, the same pattern of cash, inflow and outflow was discernible, huge amounts of monies were being transferred in from different accounts and then transferred out on the same date or proximate dates as share application money to different companies. From the above discussion, it .....

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a loss by the shareholding company to the directors of the appellant company. The AR of the appellant has submitted that rates of shares were decided after discussion by the assessee company with the interested company. In the case of the unlisted shares this may be true but it is still not clear why any prudent business man would given a handsome premium or purchase of shares and sell these shares at a loss. On perusal of the balance sheet of the company during this A.Y. it is seen that the ap .....

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was valued at ₹ 1.80/-. In fact this assessment year was a bad financial year for jewellers in view of the international financial crisis where most jewellers had shown decrease in profits. The appellant company has shown losses at both its branches, so it could not possibly have been a case of strong sentiment to justify the premium of ₹ 30/- on its share which further affirms the doubts about the authenticity of the transaction. The fact that these companies were registered under t .....

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n of investigation of source of source in the case of share application money it is observed that it should not be construed that the various judicial pronouncements have given a carte balance to the assessee to introduce their unaccounted money via share application from entry providers. The law has been enunciated very clearly in the case of CIT vs Hospitality and CIT Vs Vijay Power Generators Ltd. ITA No. 514 of 2007 by the Hon'ble Delhi High Court. The Hon ble Division Bench of Delhi Hig .....

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worth of each of its subscribers. However, in the case of a private limited company the legal regime would not be the same. In the case of the latter that is in the case of a private Limited company the assessee would be required to explain the nature and source of share application money received by it by proving. a) Identity of shareholder; b) Genuineness of transaction; and c) Credit worthiness of shareholders. It was further observed that the A.O. was required to scrutinize the evidence fur .....

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later allotted. Summons were issued by the A.O. to these share applicants, these return unserved. The Hon'ble High Court upheld the decision of the A.O. to add the share application money to the income of the assessee. The above findings have further been affirmed by the Hon'ble Delhi High Court in the case of Nipun Builders and Developers Pvt. Ltd. Vs. CIT (2013) 350 ITR 407. Wherein the A.O. did not merely stop with issuing summons; he followed it up with a visit by the inspector who c .....

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of Nipun Builders & Developers Pvt. Ltd. Vs. CIT (supra) are particularly applicable to the facts of the case of the appellant. The assessee failed to produce the principal officers of these companies in spite of repeated opportunities. The AO has observed that during the assessment proceedings it was admitted by the assessee that it was unable to do so even though it was in constant touch with them. The AR of the appellant relied upon the decision of Hon ble Rajasthan High Court in the cas .....

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uring the course of search regarding accommodation entries. Therefore, assessment made U/s 153(A) read with Section 143(3) is void ab initio. She further held that in this case no scrutiny assessment on the basis of original return U/s 143(3) has been made by the Assessing Officer. Only return had been processed U/s 143(1) of the Act. She distinguished the decision of Hon ble Rajasthan High Court in the case of Jai Steel (India) Vs. ACIT (2013) 259 CTR 281 (Raj) on abated proceedings and complet .....

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eri Stock Brokers (P) Ltd. (2007) 210 CTR (SC) 30, the Hon'ble Supreme Court has distinguished between cases processed U/s 143(1) and the cases assessed U/s 143(3) for the purpose of initiation of proceedings U/s 147. The Hon ble Apex Court observed that U/s 143(1)(a) what was permissible was correction of errors apparent on the basis of the documents accompanying the return and the A.O. had no authority to make adjustment or adjudicate upon any debatable issue nor could he go behind the doc .....

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t. Moreover, even on the facts the submissions of the appellant is not found to be correct because evidence was found during search regarding investment in property by the appellant for which the source was not apparent. So even on facts, initiation of assessment proceedings U/s 153A and determining the total income in the case by the A.O. was not beyond the provisions of Income Tax law as enunciated by the Hon ble Rajasthan High Court in the case of Jai Steel (India) Vs. ACIT. Accordingly, she .....

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had been declared in original return i.e. loss of ₹ 10,71,546/-. The ld Assessing Officer completed the assessment on 31/03/2013 by adding ₹ 60 lacs. The assessee before the ld proved the identity, genuineness and creditworthiness of the share holders by submitting the following evidence: Name Party Details enclosed herewith Vindya Agencies Pvt. Ltd 1. Copy of share application in lieu of confirmation containing the name/address/PAN of party, detail of payment received etc. 2. Copy o .....

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ney. 4. Copy of Ack. Of Income Tax return of AY 2008-09 & AY 2007-08 5. Copy of directors report, auditors report, Balance Sheet, Profit & Loss a/c and supporting annexure for 31.03.2008. The copies of documents are enclosed at PB Page 55-71. Middleton Goods Pvt. Ltd 1. Copy of share application in lieu of confirmation containing the name/address/PAN of party, detail of payment received etc. 2. Copy of board resolution. 3. Copy of bank a/c of party showing the payment to assessee against .....

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t, Balance Sheet, Profit & Loss a/c and supporting annexure for 31.03.2008 and 31.03.2009. 5. Copy of bank a/c of party showing the payment to assessee against share application money. The copies of documents are enclosed at PB Page 88-117. The ld A.O. made a reference to the Investigation Wing Kolkata, for conducting enquiries, which was received on 28/03/2013. It was informed by the Assessing Officer to the appellant that the department had conducted inquiry but the AR argued that what kin .....

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here was no compliance to the summons by the above referred parties. The notice duly served to party but the compliance could not be made as the officer who issued the notice was on leave. Shivpran Mercantiles Pvt. Ltd. The notice duly served to party but the compliance could not be made as the officer who issued the notice was on leave. Middleton Goods Pvt. Ltd The notice duly served to party and in compliance to the notice the party submitted all the documents in Income Tax office. The copy of .....

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s. Further it is relevant to mention that all the companies are Pvt. Ltd companies duly registered with Registrar of Companies and duly existence and regularly filing their balance sheets etc. in ROC and the current status of the companies can be verified from website of ROC. The assessee submitted a print outs of master data of above companies taken from the website of the ROC to show the current status of the companies. He further relied upon the decision in the case of CIT v/s. Winstral Petro .....

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y to the income of the assessee. He further relied on the decision in the case of CIT v/s. Samir Bio-tech (P) Ltd. (2009) 17 DTR (Del) 224 wherein share application applied through banking channel amount shown in their audited balance sheet and given complete details. No addition U/s 68 can be made. He further argued that there was no reason with the department to presume that the amount received from the above mentioned companies is accommodation entries. Further during the course of search the .....

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ued that there was a search and during the course of search, no incriminating documents were found. The ld Assessing Officer made assessment for the year under consideration U/s 153A read with Section 143(3) of the Act. The return for the year under consideration was filed U/s 139(1) on 30/09/2008, which can be selected for scrutiny by 30/09/2009 as such no scrutiny notice U/s 143(2) was issued for the year under consideration. Therefore, proceeding were completed and were not abated as per law, .....

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:- (i) CIT V/s Smt. Shaila Agarwal, 204 Taxman 276 (Allahabad High Court) (ii) Vishal Dembla Vs Deputy Commissioner of Income Tax ITAT, JODHPUR BENCH ITA Nos. 304 to 308/Jd/2013; 22nd July, 2013 (2013) 93 DTR (Jd)(Trib) 1 (2013) 36 CCH 484 Jodh Trib (2014) 61 SOT 10 (Jodhpur)(URO). (iii) Marigold Merchandise (P) Ltd Vs Deputy Commissioner of Income Tax ITAT Delhi ITA Nos. 2666 & 2667/Del/2013 27th December, 2013 (2013) 38 CCH 050 Del Trib. (iv) Gurinder Singh Bawa v. DCIT (2012) 28 Taxmann.c .....

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ia, I.T.A. Nos. 3105, 3106 & 3107/Del/2011 20.5.2013. (xi) Natvar Parikh & Co Pvt Ltd Vs Deputy Commissioner of Income Tax (ITAT MUMBAI) ITA No. 2143/Mum./2009, 2144/Mum./2009 & 2145/Mum./2009 22nd January, 2014 (2014) 39 CCH 031. The ld AR further contended that since no any incriminating document was found as the result of search to visualize the non-genuine share capital, therefore, the addition is beyond the scope of section 153A of the Act. The assessee has proved the identity, .....

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s. The assessee received these share application money from the banking channel, therefore, the transaction cannot be doubted. The assessee company allotted the share against the share application money, these shares were not found in possession of the assessee during the course of search. There was no evidence found during the course of search that assessee s own unaccounted money has routed through these share holders companies. The ld Assessing Officer received the enquiry report on 26/3/2013 .....

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ies. The assessee never refused to produce the parties, there should be some time available with the Assessing Officer as well as party to produce the cash creditors. As the parties belonged to Kolkata, it is difficult to approach them in a short notice. The ld CIT(A) also has not directed to produce the share holders for cross examination verification. The case laws referred by the ld CIT(A) and Assessing Officer are not squarely applicable on the facts of the case. Therefore, he prayed to hold .....

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Castles Pvt. Ltd. wherein the Hon'ble High Court set aside the order of the ITAT on the ground that the Tribunal merely reproduced earlier order of the CIT(A) on addition made U/s 68 of the Act as share application money. The ld CIT DR further argued that the Hon ble Apex Court decision in the case of CIT Vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195 has distinguished in which SLP has been filed by the assessee and decided in favour of the revenue. Therefore, he prayed to uphold the or .....

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ing documents were found. Therefore, no notice can be issued U/s 153A read with Section 143(3) of the Act because no proceeding was pending before the Assessing Officer, which has abated for issue of notice on the date of initiation of search. Various case laws referred by the assessee including Hon ble Jurisdictional High Court decision in the case of Jai Steel (India) Vs. ACIT (supra) are squarely applicable on the case of the assessee. Thus, on technical ground, the assessee s appeal succeeds .....

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