TMI Blog2018 (6) TMI 1048X X X X Extracts X X X X X X X X Extracts X X X X ..... elled on this issue. On the issue of WIP being nil, nowhere the Ld. PCIT has discussed why the order of the AO is erroneous in so far as it is prejudicial to the interest of revenue. In fact there is no adverse finding or comment by him as why the WIP as shown by the assessee at nil is not correct or requires further inquiry or verification. To set-aside the assessment on this issue he has to demonstrate that order of the AO is erroneous or prejudicial. No reason for setting aside this matter to the AO and accordingly, on this issue also the order of the Ld. PCIT is cancelled. - Decided in favour of assessee. - ITA No.:- 574/Del/2018 - - - Dated:- 19-6-2018 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI B.R.R. KUMAR, ACCOUNTANT MEMBER For The Assessee : Shri Ashwani Kumar, CA For The Department : Smt. Deepali Chandra, CIT(DR) ORDER PER AMIT SHUKLA, J.M. The aforesaid appeal has been filed by the assessee against impugned order dated 12.1.2018, passed by Ld. Pr. Commissioner of Income Tax, Delhi -9 under section 263 for the assessment year 2014- 15. In the grounds of appeal assessee has raised following grounds:- 1. That the order dated 12- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecorded from where it was gathered that the share price movement of these companies and sale/purchase are not genuine and transaction of the purchase and sale of shares of the aforesaid companies were in the nature of accommodation entry and circular entry to claim bogus long term capital gain. After incorporating the relevant statements in his order and detailed discussion, he held that amount of ₹ 2,36,00,699/- debited by the assessee out of sale of bogus shares is to be taxed as unexplained cash credit and accordingly, addition of this amount was made to the income of the assessee and assessment was completed at an income of ₹ 4,54,46,162/- after making certain other minor disallowances on account of employee contribution of ESI of ₹ 75,498/- and disallowance u/s 40A(3) of ₹ 2,56,682/-. 3. Later on Ld. Pr. CIT in his revisionary proceedings u/s 263 had called for the assessment records and on perusal of the same observed that the AO while framing the assessment u/s 143(3) had failed to verify the following issues :- 1. To enquire about the fresh share capital amounting ₹ 2.75 Cr. and fresh share premium amounting ₹ 5.05 Cr. ~received b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice the details submissions were made. 5. Ld. Pr. CIT dropped the third point as raised in the show cause notice. However in so far as the fresh share capital receipt during the year receipt of ₹ 2.75 crores and share premium of ₹ 5.05 crores was, Ld. PCIT has given very exhaustive reasons in the impugned order. He had also taken note of show cause notice issued by the AO with regard to share subscribed by M/s. Prosperity Mercantile (P) Ltd. and share premium received on such shares, however he observed that AO did not took it logical conclusion and it appears AO has inadvertently ignored this issue while passing the assessment order without adding the share capital / share premium while framing the assessment. After taking note of assessee s legal objection with regard to the wrong assumption of revisionary jurisdiction u/s 263, rejected assessee s contention on the ground that after the insertion of Explanation 2 in section 263 w.e.f 1st June 2015, if the AO has not made proper inquiry or verification then said assessment order is deemed to be erroneous in so far as it is prejudicial to the interest of the revenue. The relevant observation of the Ld. PCIT with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of four months share capital/share premium raised by this company was to the tune of ₹ 29.50 crores. This company was probably sold to the assessee company and two other persons who were appointed as Directors in this company. This company was showing a nominal income and in the fixed asset side it had one car and one computer software. Bank account reveals that in most of the occasions there were matching credits/debit entries and their initial Directors were also directors in several companies in Kolkata and other places who were either employees of the beneficiary who were not men of great worth. No major business operations have been carried out. Thus, all these indicators required the AO to further inquire from investigation wing or through the AO of M/s. Prosperity Mercantile Private Limited. 7. Ld. PCIT then wrote letter to the investigation wing Meerut and also Investigation Wing Kolkata to inquire in the case of M/s. Prosperity Mercantile Pvt. Ltd. and also in the case of the assessee. In response to such letters, reports were received by him which has been taken note in para 15.1 of the impugned order. The sum and substance of the said report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee company after paying some commission. M/s. Prosperity Mercantile Pvt. Ltd. did not show any worthwhile income since its inception. The bank account of M/s. Prosperity Mercantile Pvt. Ltd. runs into more than 60 pages, however, no corresponding turnover / receipts are shown in the return of income of M/s. Prosperity Mercantile Pvt. Ltd. v. The signing power for issuing cheques in M/s. Prosperity Mercantile Pvt. Ltd. is given only to Sh. Naveen Kumar Jain and Sh. Pankaj Kr. Jain. vi. In normal course, if there is a real company having 30 crores assets/ investments then it is highly unlikely that two ordinary persons who are based at Meerut would practically acquire such company without paying any corresponding sum. Thus in all likelihood M/s. Prosperity Mercantile Pvt. Ltd. is an entry operator/shell/ paper company which had been acquired by the assessee company for routing its own unaccounted money into its books of account. vii. The assessee company has received ₹ 7.80 crores approx. as share capital/ share premium from M/s. Prosperity Mercantile Pvt. Ltd. in A. Y. 2014-15. M/s. Prosperity Mercantile Pvt. Ltd. also paid ₹ 1 crore to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mium); xiii. Information in the case of M/s. Prosperity Mercantile Pvt. Ltd. was passed to the Pr.CIT -1, Aaykar Bhawan, Kolkata vide our letter dated 24.10.2017 and then the same information was passed to the Pr.CIT-2, Aaykar Bhawan, Kolkata vide our letter dated 13.11.2017 for taking appropriate action at their end. In response to our letters, Add1.CIT, Range -5, Kolkata vide his letter dated 27.12.2017 informed that the assessment proceedings in respect of M/s. Prosperity Mercantile Pvt. Ltd. for A.Y. 2011-12 have been re-opened and the re-assessment proceedings are in progress. xiv. On 24.10.2017, summons u/s. 131 were issued to Sh. Pankaj Kr. Jain and Sh. Naveen Kr. Jain, the Directors of M/s. Prosperity Mercantile Pvt. Ltd. for their personal appearance on 31.10.2017, however none of these Directors appeared. Thereafter summons to Sh. Naveen Kr. lain, Sh. Sanjay Kr. Jain and Sh. Pankaj Kumar Jain all Directors of M/s. Prosperity Mercantile Pvt. Ltd. were again issued on 04.12.2017 and they were- requested to appear personally on 08.12.2017. For this purpose our Inspector was deputed to serve the summons personally at Meerut. In response an adjournment applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived from M/s. Prosperity Mercantile Pvt. Ltd. and also receipt of ₹ 1 crore from same company on behalf of Shri Basant Kumar Jain shareholder/ Director of the assessee company. He also directed the AO to inquire the issue of NIL WIP found in the final accounts of the assessee company. 9. Before us Ld. Counsel for the assessee, Shri Ashwani Kumar pointed out that during the course of the original assessment proceedings the genuineness of the transaction of receiving of share capital and share premium and the creditworthiness of M/s. Prosperity Mercantile Pvt. Ltd. was inquired into by the AO and in response the assessee had submitted the entire details like confirmation of account, bank statement, income tax returns, audited balance sheet and other documents. Once all these documents were there and AO has duly applied his mind, then it cannot be said that no inquiry has been done by the AO and in so far as assessee is concerned primary requirement of discharging the onus u/s 68 stood satisfied. He drew our attention to the balance sheet of M/s. Prosperity Mercantile Pvt. Ltd. and pointed out that this company as on 31st March, 2013 had reserve and surplus of ₹ 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y kind of its unaccounted money for getting the share capital or share premium and it is also not the case that any cash was deposited in the bank account of the said company which has been routed through this company. Thus, on these facts neither the assessment order can be set aside nor any adverse inference can be drawn for making any addition u/s 263. 10. On the other hand, Ld. CIT (DR) strongly relied upon the order of the Ld. PCIT and pointed out that specific enquiries has been conducted by Ld. PCIT and reports have been sought which points that how M/s. Prosperity Mercantile Pvt. Ltd. was a shell company and the shareholders of the said company were found to be either bogus or involved in providing accommodation entry. Once a shell/ bogus company has subscribed to share capital and paid huge share premium and then it is definitely a good ground for carrying out necessary inquiry and investigation for scrutinising the genuineness of the transaction. Further detailed written submissions have been filed with regard to the power of revision u/s 263 and also the effect of insertion of Explanation 2 and also purpose of insertion of Explanation 2 inserted w.e.f. 1st June, 2015. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding companies and the persons who were operating them were reported by the Investigation Kolkata Wing as mere entry provider. The entire adverse finding in report has been with regard to M/s. Prosperity Mercantile Private Limited; and since, assessee company has received 7.80 crores approx as share capital / share premium from the said company, he has formed an opinion that the said amount must not only be non-genuine but also in the nature of accommodation entry. One very important fact as noted by the Ld. PCIT is that, already reassessment proceedings in the case of M/s. Prosperity Mercantile Private Limited has been reopened for the assessment year 2011-12 which is still in progress as huge funds have been generated in that year. However, in the entire report received by him or in the impugned order, there is no reference of any inquiry or statement by any person or any evidence whereby it has been found that the assessee company has given any kind of unaccounted money to any of the share holding company of M/s. Prosperity Mercantile Private Company; or to any entry operator who has facilitated such kind of accommodation entry of unaccounted money; or money has been received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Prosperity Mercantile Pvt. Ltd., as on 31st March, 2014 , details investment in the shares in various companies also reflect investment in Vidya Prakashan Mandir P. Ltd. i.e., assessee of ₹ 8,79,58,000/-. The shares subscribed had already allotted to this company. Apart from that, we also find that scrutiny assessment u/s 143(3) has been passed in the case of M/s. Prosperity Mercantile Pvt. Ltd. for the assessment year 2014-15, vide order dated 17.12.2015, wherein books of account and entries in the balance sheet has been examined. This inter-alia means that the investment in shares as well as the funds available in the balance sheet stands accepted. If this company had huge unaccounted or unexplained fund in the form of reserves and surplus in the earlier years which may have been scrupulously generated through unaccounted money of other companies or persons, then it requires investigation and inquiry in the case of that company, because any action or adverse inference on the source of its funds should be drawn in the case of that company. As long as the funds available with the said company stands accepted in the scrutiny proceedings by the department which has not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accommodation entry from this company. Till such adverse material is found from or inquiry, we do not find any reason to hold that such a share capital premium received by the assessee company is to be treated as bogus. As observed earlier, if something adverse is found qua the assessee in the proceedings in the case of M/s. Prosperity Mercantile Pvt. Ltd., then department is free to rope in assessee under the provisions of Act. But as of now, it cannot be held that assessment order accepting the share capital/ share premium is prejudicial to the interest of revenue. Accordingly, we hold that no addition u/s 68 could be warranted in the case of the assessee in facts and circumstances of the case. Thus, the impugned order u/s 263 setting aside the assessment order is cancelled on this issue. 13. In so far as the second point raised by the Ld. PCIT on the issue of WIP being nil, nowhere the Ld. PCIT has discussed why the order of the AO is erroneous in so far as it is prejudicial to the interest of revenue. In fact there is no adverse finding or comment by him as why the WIP as shown by the assessee at nil is not correct or requires further inquiry or verification. To set-aside th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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