TMI Blog2020 (2) TMI 350X X X X Extracts X X X X X X X X Extracts X X X X ..... 008 (1) TMI 575 - SC ORDER] - We do not concur with the view adopted by the CIT(A) while allowing the appeal of the assessee. No exercise was carried out by the learned CIT(A) to go into the root of the matter and find out the actual business carried out by the assessee and the investing companies and he had also not examined the issues from the prospective of a prudent businessman , i.e. whether the prudent business man would like to invest and buy shares of a paper company having a negative NAV at a premium of ₹ 190/- per share or not. CIT(Appeals) has not dealt with any of the findings recorded by the Assessing Officer on merit whereby he had brought on record the financial status of these companies, the working of these companies from the same premises through the key person. The Ld. CIT(Appeals) has not discussed anything with respect to the report of the Inspector and operation of these companies being carried out by Shri Praveen Kumar Jain. We deem it appropriate to remand this matter to the file of Ld. CIT(Appeals) to decide the appeal in accordance with the decision of the Hon ble Supreme Court in the matter of NRA Iron Steel Pvt. Ltd. [ 2019 (3) TMI 323 - S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etals Limited Vs UOI in writ petition No. 397 of 2011 and decision of Delhi High Court in case of Nova Promoters and Finlease Pvt. Ltd. (ITA No.342 of 2011) are applicable in the facts and circumstances of the case. 5. The Ld. CIT(A)-II, Nashik has erred in holding that the transaction of subscribing share premium at the rate of ₹ 190/- per share is genuine because the transaction is routed through banking channel and the share holding companies have filed the income tax returns. The CIT(A) has not considered the surrounding circumstances of the transaction. 6. The Ld. CIT(A)-II, Nashik has erred by not considering a report received from Investigation Wing, Mumbai which shows that the assessee has obtained accommodation entries from Shri Pramod Jain who has accepted in his statement given during the search conducted u/s. 132 of the I.T. Act that he has given accommodation entries to various beneficiaries. 7. The Ld. CIT(A)-II, Nashik has erred by not giving an opportunity to represent the case by JCIT, Range 2 Nashik on behalf of Department inspite of the request made to represent the cases of Range 2, Nashik for the same. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 190 25000 4750000 8 Fairmount Venture Pvt. Ltd. 190 10000 1900000 9 Jaimambe Cassets Pvt. Ltd. 190 20000 3800000 10 Kapindra Multitrade Pvt. Ltd. 190 47500 9025000 11 Mendow Venture Pvt. Ltd. 190 175000 3325000 12 Coral Venture Pvt. Ltd. 190 15000 2850000 13 Doldrum Investment Financial Ltd. 190 12250 2327500 14 Oshin Investment Financial Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 190 16250 3087500 29 Rigma Grapahite Investment Pvt. Ltd. Al-Proog Engg. 190 25000 4750000 30 Al-Proog Engg. 190 4250 807500 31 Al-Bright Electrical Pvt. Ltd. 190 50000 9500000 32 Nakshtra Business Pvt. Ltd. 190 27500 5225000 33 Eternity Multitrade Pvt. Ltd. 190 34500 6555000 34 Realgold Trading Co. 190 37500 7125000 35 Hema Trading Co. Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies. It is noticed that the directors are not aware about the Co and about the financial transactions. The financial transactions have actually been handled by some other person. A copy of this report is annexed herewith as Annexure-A. 4.3 The Assessing Officer also recorded statement of Managing Director, Shri Nitin Prakash Wagaskar u/s.131 of the Act. The sum and substance of the statement recorded by the Assessing Officer was mentioned in Para 5.4 to the following effect: 5.4 ..His statement revealed that the Managing Director and promoter of the company do not know their shareholder companies. Neither the director nor these shareholders have made any contact after the subscription of share capital. The shareholder companies who have purchased the shares of the assessee at the premium of ₹ 190/- per share have not even enquired any details of their investments or any details regarding the business transactions and profitability of the assessee company. 4.4 The Assessing Officer issued show cause notice to the assessee on 14.02.2013 and in response thereto, the assessee filed detailed reply and the Assessing Officer has considered the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o say 200 Thus, the valuation of share price of the company is determined at ₹ 200/- per share on the basis of projected earning value method. As already stated above this company was incorporated in the FY 2006-07 and has started business activities only in the FY 2012-13. The entire projections done by the Chartered Accountant is without any rationale and without any application of mind. This calculation is done on hypothetical basis and by applying this method on hypothetical basis any one can justify any value of share. How can a company which has started business activities in the FY 2012-13 only can project its profit of ₹ 32.33 Crs in the FY 2012-13. If this projected profit and turnover is compared with the actual transactions of the assessee company then there is no comparison of these projected figures with the actual. The projected profit for the FY 2009-10 was 23.37 Crores whereas the assessee has not started any business activity in the FY 2009-10. Similarly the projected profits for the FY 2010-11 was 25.97 crs whereas the company has shown l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of ₹ 8,52,50,000/- is added to the total income. The assessee has furnished inaccurate particulars about his income and concealed his taxable income on these issues. Therefore, I am satisfied that penalty is leviable on these issues and accordingly penalty proceedings u/s.271(1)(c) is initiated. 5. Feeling aggrieved by the order of the Assessing Officer, the assessee preferred appeal before the Ld. CIT(Appeals) and the Ld. CIT(Appeals) relying on the decision of the Hon ble Jurisdictional High Court in the matter of CIT Vs. Creative World Telefilms Ltd., (2011) 333 ITR 100 (Bom.) and the decision of Tribunal in the matter of M/s. Orchid Industries Pvt. Ltd. Vs. DCIT, CC-22, Mumbai, dated 07.02.2014 granted relief to the assessee as per Para 21 and 22 to the following effect: 21. In the above cited cases, the Bombay High Court, the Tribunals in Mumbai and Pune have followed the Hon ble Supreme Court decision in the case of CIT Vs. Lovely Exports (P) Ltd. (supra.) which has dealt with the issue of cash credit/share application money and has held as under:- If the share application money is received by the assessee company from alleged b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act. 7.1 It was further submitted by the Ld. DR that the Assessing Officer in the present case in effect had meticulously examined the financial statements and affairs of the assessee as well as of the investor companies and thereafter had come to the conclusion that these 35 share investing companies are paper companies. It was also submitted that these companies are not doing any business and having common key person namely Praveen Kumar Jain and are also operating from same address in small cubicles. It was submitted by the Ld. DR that assessee was not able to discharge his onus as contemplated u/s.68 of the Act. 7.2 In effect, the Assessing Officer has given a detailed reasoned order while coming to the conclusion t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts of the said case and the ratio laid down by the Hon ble Supreme Court by filing supplementary synopsis dated 10.04.2019 to the following effect: 1. Facts related to identity of Investors- Perusal of the above referred recent apex court decision reveals following facts relating to identity aspect a) There were 19 investor companies who made investment @ ₹ 10 (face value) + ₹ 190 (Premium) in the share capital of NRA Iron Steel P Limited. b) After getting primary information from assessee, AO made enquiries with these 19companies c) Summons were issued to the 19 companies d) 2 investors of Mumbai and 2 investors of Gauhati were non-existent on given address e) 4 investors of Mumbai received summons but did not reply f) 11 investors of Kolkata made submissions in DAK g) (None of the investors appeared, which created doubts...) 2. Facts relating to Credit-worthiness of Investors - Perusal of the Honorable apex court ruling reveals following facts relating to credit-worthiness aspect a) All 11 Kolkata compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty-bound to investigate into credit-worthiness aspect once primary onus is discharged by the assessee (Para-4) c) Crucial observation w.r.t. Kamdhenu's decision for the proposition that, efforts to fasten racket of bogus investment companies go in vein due to lack of steps by revenue [Para-8.4] d) Crucial observation w.r.t. Mohankala's decision for the proposition that an assessee, despite his explanations are not acceptable to the revenue, can still contend that sums credited in his books is not his income (Para-9) e) Practice of conversion of unaccounted money through cloak of Share Capital/ Premium must be subjected to careful scrutiny (Para - 14) 5. Submission- It was held that, discharge of higher onus is not emanating from the facts of the case. In this regard, following key points emerge a) Primary failure with respect to identity of some of the investment companies b) non-discharge of onus as regards credit-worthiness c) non-substantiation of the factum of absence of income In the present case, all the investors were found on the addre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. Against sale of investment 62,00,000 17,00,000 21/10/2009 18/01/2010 Received from Grafton Merchant Pvt. Ltd. against sale of investment 50,00,000 35,00,000 18/01/2010 08/02/2010 Received from Sital Mercantile Credit Pvt. Ltd. against sale of investment 10,00,000 10,00,000 08/02/2010 15/02/2010 Received from Kripasagar Commercial Pvt. Ltd. towards Share Application money 37,00,000 37,00,000 15/02/2010 1,59,00,000 99,00,000 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t sale of investment 12,00,000 15/02/2008 Received from Bhuwania Vinimay Pvt. Ltd. against sale of investment 38,00,000 50,00,000 15/02/2008 21/04/2008 Received from Suvidha Securities Pvt Ltd. against sale of investment 25,00,000 25,00,000 21/04/2008 20,00,000 95,00,000 28/07/2009 Received from Sital mercantile Credit Pvt. Ltd. against sale of investment 20,00,000 95,00,000 28/07/2009 6 Grafton Merchant Pvt. Ltd. 07/12/2009 Received from Octopus Infot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Rigmandirappa Investment Pvt. Ltd. 24/03/2010 Received from Nirnidhi Consultants Pvt. Ltd. towards share application money 14,00,000 25/03/2010 40,00,000 25/03/2010 Received from Crown Commtrade Pvt. Ltd. towards share application money 7,00,000 50,00,000 25/03/2010 Received from Grafton Merchant Pvt. Ltd. towards share application money 61,00,000 50,00,000 10. Madhav Vanjiya Pvt. Ltd. 23/09/2009 Received from Manoj Kumar Jaiswal against advance 12,00,000 24/09/2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Hon ble Delhi High Court in the matter of NDR Promoters Pvt. Ltd. Had laid down in Paragraph 13 to the following effect: 13. As we perceive, there are two sets of judgments and cases, but these judgments and cases proceed on their own facts. In one set of cases, the assessee produced necessary documents/evidence to show and establish identity of the shareholders, bank account from which payment was made, the fact that payments were received thorough banking channels, filed necessary affidavits of the shareholders or confirmations of the directors of the shareholder companies, but thereafter no further inquiries were conducted. The second set of cases are those where there was evidence and material to show that the shareholder company was only a paper company having no source of income, but had made substantial and huge investments in the form of share application money. The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and surrounding circumstances. The primary requirements, which should be satisfied in such cases is, identification of the creditors/shareholder, creditworthiness of creditors/share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... project certificate issued to the assessee by Designated Authority on 18-2-2009 and thereafter only credit facilities were provided by the S.B.I. to the assessee, meaning thereby upto 18-2-2009 there was no business activity of the assessee and the assessee-company was merely a paper company. For setting up of the project clearance certificate was issued on 18-2-2009 by the Industries and Labour Department, Government of Maharashtra. In view of the above, we can safely conclude that the projection made by the Auditors for the assessee was not based on cogent and scientific method as there was no history of business activities upto F.Y.2012-13. In our opinion, it would be difficult to comprehend and project the value of the shares based on project report only. For the purposes of valuation of shares, the valuation is required to be done on the basis of the book value in the balance sheet of the assessee, liabilities of the assessee, paid up equity shares, capital paid up value on such equity shares. In the present case the valuation was done by the Auditor without any basis on the projections, without there being any clearance of setting up of the project by the Govt. or commencemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.8 We have also perused the order of the Ld. CIT(Appeals). In fact, Ld. CIT(Appeals) has not dealt with any of the findings recorded by the Assessing Officer on merit whereby he had brought on record the financial status of these companies, the working of these companies from the same premises through the key person. The Ld. CIT(Appeals) has not discussed anything with respect to the report of the Inspector and operation of these companies being carried out by Shri Praveen Kumar Jain. In fact, the entire focus of the Ld. CIT(Appeals) was on the decision in the matter of CIT v. Lovely Exports Pvt. Ltd. (supra.) and also CIT Vs. Creative World Telefilms Ltd. (supra.). 9.9 IN our view, both these judgments, which were relied upon by the Ld. CIT(Appeals) were discussed and deliberate by the Hon ble Supreme Court in the matter of Principal Commissioner of Income Tax (Central)-1 Vs. NRA Iron Steel Pvt. Ltd (supra.) and also in the matter of PCIT Vs. NDR Promoters Pvt. Ltd. ITA No.49/2018 dated 17.01.2019 by the Hon ble Delhi High Court against which appeal filed by the assessee was dismissed by the Hon ble Supreme Court. Therefore, we are of the opinion that once the Hon ble Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , objection pointed out by the Ld. AR of the assessee in support of his contention that the decision of the Hon ble Supreme Court in the matter of Principal Commissioner of Income Tax (Central)-1 Vs. NRA Iron Steel Pvt. Ltd. (supra) is held to be distinguished, has no leg to stand as the Hon ble Delhi High Court in the matter of M/s. Vedanta Limited Vs. ACIT (supra.) and also in the matter of M/s. RDS Project Limited Vs. ACIT (supra.), has categorically relied on the ratio laid down by the Hon ble Supreme Court in the matter of Principal Commissioner of Income Tax (Central)-1 Vs. NRA Iron Steel Pvt. Ltd. (supra) and had examined the applicability of NRA Iron and Steel Pvt. Ltd. (supra.). 9.13 As mentioned herein above, the decision of the Ld.CIT(Appeals) was revolving around the applicability of the decisions in the matter of Lovely Exports Pvt. Ltd. Vs. CIT (supra.) and also in the matter of CIT Vs. Creative World Telefilms Ltd. (supra.) which are no more binding decision. 10. Therefore, in the light of the above discussion, we deem it appropriate to remand this matter to the file of Ld. CIT(Appeals) to decide the appeal in accordance with the decision of the Hon ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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