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ITO-5 (1) (2) , Mumbai Versus M/s Genesis Trading Pvt. Ltd. and Vica-Versa

2016 (7) TMI 197 - ITAT MUMBAI

Unexplained investment u/s.68 - genuineness of the share capital introduced - Held that:- In view of the findings recorded by CIT(A), all share holders are produced with their books & Bank statements, hence covered by Bombay High court in CIT v/s Tania Investment (2009 (3) TMI 473 - BOMBAY HIGH COURT ). All are assessed since last 10 years. Acknowledgements of filling returns filed by share holders with AO under proceedings u/s 131. Majority share holders are assessed u/s 143(3) & before CIT(App .....

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Securities also have bank accounts. No cash was deposited anywhere. Under KYC norms banks are instructed by RBI to collect photo, Address proof, PAN cards Photo ID etc. The A.O. is totally silent on these facts. Share holders filed their balance sheets along with list of investments where investment in assessee company is clearly shown in schedule of investment. - In view of the above, we do not find any infirmity in the order of CIT(A) for deleting the addition made on account of share capi .....

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ssee : Shri N.R.Agrawal ORDER PER R.C.SHARMA (A.M): These are the appeals filed by the revenue against the order of CIT(A)-Mumbai, for the assessment year 2005-06 to 2007-08, in the matter of order passed u/s.143(3) r.w.s.147 of the I.T.Act. The assessee has also filed cross objection. 2. Common grounds have been taken by the revenue in all the years under consideration. Grounds taken in the assessment year 2005-06 read as under:- 1) On the facts and in the circumstances of the case and in law, .....

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h the Lovely Exports Pvt. Ltd. 3) The appellant prays that the order of ld. CIT(A) be set aside and the order of AO be restored. 3. Rival contentions have been heard and record perused. The facts of the case are that a search and seizure action u/s.132(1) of the Act was conducted in Chandbibi Zaidi Group of cases on 20.8.2009 and on subsequent dates by DClT (Inv), Unit-1(3), Mumbai. The assessee company was incorporated in May 2003 as a closely held company of Ms Chandbibi Zaidi. Post search enq .....

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-07 31,70,000 2,85,30,000 23,00,000 The above investments in the shares are made by 30 share holders whose details are given in the assessment order. Out of the said 30 share holders 7 share holders have given Mumbai address and the summons were issued to these 7 share holders by the deputy director of Income-tax, investigation, Mumbai in response to which the replies were received enclosing the bank accounts held with ABN Amro Bank, Mumbai through which the transactions have taken place. The fu .....

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out that the sums debited exactly matched with the sums credited in the bank account of Shri R.K Parekh Prop. R.K.P. Securities suggesting that the flow of money from one account to the other was only with a view to layer the unaccounted money of the assessee company. Summons issued to the Shri R.K. Parekh were returned unserved. The sources of fund to Mls R.K.P. Securities originate from three accounts in the names of (i) Mahalaxmi Commodity traders (ii) M/s Panchanan Traders and (iii) Mls Vik .....

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ducted to show that the sources of money in the above said 3 companies are originated from 8 other accounts maintained by 8 different parties as mentioned in paragraph No. 7.17 of the assessment order. Further enquiries reveal that the funds have flown to these 8 accounts from 9 other accounts maintained by 9 different parties as mentioned in paragraph No. 7.18 of the assessment order. 4. The investigation wing in Guwahati conducted enquiries in respect of 3 share holders located in Guwahati. It .....

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unserved with the postal remark "not known" in respect of 2 share holders. In respect of 7 other share holders, it is mentioned in the assessment order that only submissions were received and no one appeared though personal appearance was requested. The field enquiries conducted by the inspector of Income-tax revealed that no such companies existed in the given addresses. It is also mentioned in the assessment order that the returned income is disproportionate to the investments made b .....

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ome details of all the share holders and held that the income returned by the said share holders is disproportionate to the investments made, During the course of assessment proceedings it was submitted by the assessee that the share holders have sufficient reserves and surplus to invest in the assessee company. The AO. observed that the huge reserves and surplus is nothing but share application money and premium received from other companies. In view of the enquiries conducted by the Investigat .....

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here the directors of the companies attended for examination is referred to as annexure 'A' and where the authorized representatives of the share holder companies attended with the authority letter is referred to as annexure '8'. The AO. recorded the statement of the shareholders u/s 131 of the Act. In the statements recorded the shareholders confirmed the investment in shares of the assessee company. It is also mentioned that the shareholders produced the copies of the returns o .....

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the decision of Supreme Court in the case of CIT vs Lovely Exports (P) Ltd. [216 CTR 195]. The A.O. did not accept the decision in the case of Lovely Exports (P) Ltd. on the ground that the decision in the case of Lovely 'Exports (P) Ltd. and also in some other cases relate to public limited company and have received the subscription through the public issue as per SEBl's guidelines whereas the assessee company is a private limited company. It is also mentioned that the share applicants .....

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e of Pratiksha Mercantile Pvt. Ltd. I.T.A No. 2096/M/11 dated 10.8.2012. The AO. also relied upon the decision of Hon'ble ITAT Delhi in the case of Beautex India (P) Ltd. [34 SOT 465]. The AO. finally relied on the decision of Hon'ble ITAT, Delhi in the case of Hersh W Chadda vs DCIT [(2011) 43 SOT 544] wherein it is held that it is hard to unearth direct evidence or demonstrative proof, circumstantial evidence and its appreciation thereof would acquire importance and it is the duty of t .....

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ars under consideration after observing as under :- Decision: 7.0 In ground No. 1 the appellant contested addition u/s 68 of ₹ 1,22,00,000/- for A.Y. 2005-06, ₹ 1,95,00,000/1- for A.Y. 2006- 07 and ₹ 3,40,00,000/- for AY. 2007- on account of unexplained investment in share capital. The AO. brought on record the investigation carried by the Investigation Wing, Mumbai to show that the share capital in respect of 7 out of 30 share holders have been routed from one company to the o .....

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milar enquires conducted in respect of 9 share holders located in Kolkata by the Investigation Wing Kolkata also reveal that the parties are not existing in the address given though replies have been received from 7 share holders. 7.1 The assessment order can be divided into two parts, the first part of the assessment order brings out the investigation carried out by the Investigation Wing and the second part of the assessment order mentions about the enquiries conducted during the course of ass .....

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e persons have appeared before the AO. thereby establishing their identity before the AO. In the statement recorded u/s131 of the Act all persons have confirmed that they have invested in the shares of the appellant company. In support of their assertion they also produced copies of the returns of income filed, bank statements showing the relevant transactions and the balance sheet in which the said transactions are reflected. In such circumstances I am of the view that the decisions in the case .....

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disclosed income u/s 68 of the appellant company. In the assessment order the AO mentioned that the said decision is not applicable. One of the grounds on which the AO refused to accept the said decision is that it was rendered in a case relating to public limited company whereas the case of appellant is private limited company. In this regard it is clarified that the observation of the A.O. is not correct as the name Lovely Exports (P) Ltd. comprises acronym (P) Ltd., which means private limite .....

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existence is questionable. The A.O's reliance that no investigation was carried out by the A.O. in the case of Lovely Exports (P) Ltd. is not significant to the finding of the Supreme Court which simply held that in the case of alleged bogus share holders whose names are given to the A.O. then the department is free to proceed to re-open the individual assessments. 7.3 The A.O's reliance on the decision of ITAT, Mumbai in the case of Pratiksha Mercantile (P) Ltd. is not applicable to th .....

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by cash receipts and cash payments for various entries. Therefore, the ITAT held that since the genuineness of the transaction was not established in the case of Pratiksha Mercantile (P) Ltd the case was distinguished from that of Lovely Exports (P) Ltd. In the case of the appellant company no statements have been brought on record to show that the transactions are not genuine. The enquiries conducted in respect of 7 share holders only shows that the funds have flown from one company to the othe .....

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bted the same will be an issue in his case and not in the case of the appellant. If Shri R.K Parekh is proved to be not in existence then he being the first source for the deposits in the names of M/s S.S.Securities and M/s S.S.Securities Client Alc which are operated by Shri Sanjay Kumar Sarawgi who is the member of Gawahati Stock Exchange, further investigation could have been carried out in respect of these two accounts and Shri Sanjay Kumar Sarawgi to know about the genuineness of the transa .....

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hare holders have been produced before the AO. and they have admitted to be the genuine share holders and in support produced the return of income filed, bank statements and the balance sheet. The investigation which lead to the examination of source of source only raises doubts about the genuineness of the transaction in view of transfer of funds involving multiple companies, however, nothing has been established showing that the transfer of funds are mere accommodation entries and not genuine .....

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tion filed by the assessee and affidavit are forged and fabricated. All transactions in bank by way of circular entries, identity of share holders not proved. In these circumstances, it was held that the share holders are not in existence and accordingly the share capital was brought to tax u/s 68 of the Act but in the case of the appellant company the share holders appeared before the A.G. and confirmed the share investments in the appellant company and the same was supported by copies of bank .....

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mount of share capital be regarded as undisclosed income of the assessee. It was held that it might be that there were some bogus shareholders in whose names shares had been issued and the money might have been provided by some other persons and if the assessment of the persons who alleged to have really advanced the money was sought to be reopened, that would have made some sense but there was no reason why this amount of increased share capital could be assessed in the hands of the company its .....

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the above decision of Supreme Court in the case of Lovely Exports Pvt. Ltd. It was held by the Bombay High Court that the assessing officer ought to have found out the details of share holders through PAN cards, bank account details or from their bankers so as to reach them. 7.5.3 The Delhi High Court (Full Bench) in the case of Sophia Finance Ltd 205 ITR 98 held that If the shareholders are identified and it is established that they have invested money in the purchase of shares then the amount .....

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n shares, then any assessment relating to such investment can only be made in the case of share holder himself or itself and not in the case of the assessee company, but, in a case where the share holder is not in existence or the assessee offers no explanation then the same will be brought to tax as unexplained share capital in the case of assessee company u/s.68 of the Act. This rule is equally applicable for both public limited company as well as the private limited company though in the case .....

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. The enquiries relating to source of source in respect of share holders also did not prove the case of the department that they are mere accommodation entry providers as in the case of M/s.Pratiksha Mercantile (P) Ltd. If the AO finds that the source for any person in the chain of investigation conducted about source of source is not genuine, it would be appropriate for him to take action in that case but not in the case of the appellant. 7.7 In view of the legal position and facts as mentioned .....

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authorities in their respective orders as well as cited by ld. AR and ld. DR during the course of hearing before us in the context of factual matrix of the case and found from the record that all the shareholders in respect of which addition was made by AO u/s.68 had produced books of accounts in proceedings u/s.131. They had also filed their balance sheet, net worth statement etc. We found that source in the hands of all the shareholders were also proved by AO himself as per his observation in .....

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hareholders, genuineness of the transaction as well as capacity of the shareholders to invest in the shares of the assessee company, the CIT(A) has deleted the addition. The detailed finding so recorded by CIT(A) are as per material on record. From the record we also found that in the case of assessee all share holders are produced before A.O., Most of them are assessed u/s 143(3), Six companies are listed in stock Exchange, M/s Hill Crest Pvt. Ltd. is part of well known builder group known by n .....

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holders are bogus is totally uncalled for. When share holders are filling returns regularly since last 10 to 15 years, AO could have easily informed the assessing officer concerned. However, the AO has just added the share capital by relying on the decision of Smuti Dayal, wherein facts are totally different. When there are number of judgements from different High Courts and the Supreme court on share application, the A.O. is bound to stick to those and follow these judgements. The list of such .....

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td. 350 ITR 220 (All) CIT v. Samir Bio-Tech P. Ltd .. 325 ITR 294 (Delhi) CIT v/s Victor Electrodes Ltd 329 ITR 271 (Del) CIT v/s K.C.Fibres Ltd 332 ITR 481 (Del) CIT v/s STL Extrusion Pvt.Ltd 333 ITR 269 (M.P.) CIT v/s Arunananda Textiles Pvt. Ltd 333 ITR 116 (Karn) CIT v/s ASK Brothers Ltd 333 ITR 111 (Karn) CIT v/s Kamdhenu SHel & Alloys Ltd. 361 ITR 220 (Del) C IT v/s Oasis Hospitalities Pvt. Ltd 333 ITR 119 (Del) CIT v. Orbital Communication (P) Ltd. (Delhi) 3271TR 560 CIT v. Ambuja Gin .....

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