TMI Blog2021 (4) TMI 1009X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter of the assessee for the year under consideration against the search proceedings is pending before the learned CIT (A). Accordingly the learned DR contended that the matter on hand can also be restored to the file of the learned CIT (A) for fresh adjudication along with the search proceedings. However, we are not convinced with the argument of the learned DR for the reason that both the proceedings are separate and independent to each other. The assessments in the search proceedings are special assessments to be carried out under the provisions of section 153A of the Act which begins with non-obstante clause. As a result of search, the proceedings under section 153A of the Act have already begun which are based on the search materials. Furthermore, the issue before us is arising against the assessment order framed under section 143(3) of the Act and we are not adjudicating the appeal/matter arising against the assessment framed under section 153A of the Act. It might be quite possible that search material has a bearing on the income to be determined for the year under consideration but for that purpose the proceedings have already been initiated and the same will be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00,00,000/- 40,00,00,000/- 3.1 The assessee, besides the above, has also received share application money pending for allotment of shares amounting to ₹ 25,23,27,371/- only from the companies as detailed under: (1) Sangam Infratech Ltd. ₹ 13,95,00,000.00 (2) Swift Ventures Private Limited ₹ 2,95,00,000.00 (3) Dhanlaxmi Re-rolling Mills. ₹ 5,21,78,717.00 (4) Shri Ramkishan Mantri Rs. 50,000.00 (5) Shri Sanjay mantra ₹ 1,05,98,654.00 (6) Shri Nilesh Chechani Rs. 5,00,000.00 (7) Kalyan Sangam Infratech Ltd. ₹ 2,00,00,000.00 Total ₹ 25,23,27,371.00 3.2 Out of the above amount of ₹ 65,23,27,371/-( i.e. share capital of ₹ 4 cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Market Value 1. Two 40 MT Induction furnance 11 crores 9 crores 2. Casting machine 5.23 crores 4 Crores 3. 20 M. Ton Crane 22.65 lakhs 18.5 lakhs 4. 30 M. Ton Crane 34.65 lakhs 32.5 lakhs 3.7 Accordingly, the AO to verify the genuineness of the capital cost shown by the assessee under the project with respect to certain items issued notices to the suppliers of the capital goods but none of them replied. Thus the AO was of the view that the assessee has inflated the project cost of the capital goods in order to avail higher funds from the banks. In other words the assessee claimed the high project cost so that it could take the money back from the supplier which could be reinvested in the guise of share capital/share premium in the name of the companies as discussed above. 3.8 Likewise, the AO found that the companies, namely Sangam Infratech L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit worthiness of creditor/investor. The assessee further submitted that during the assessment proceeding to prove identity, genuineness and credit worthiness of the parties, it has furnished name, address, PAN, CIN, company master data, MOA, AOA, balance sheet, bank statement, copy of share certificate, copy of allotment of shares filed with MCA in form-2 etc of investors companies. In view of the above document, the assessee claimed that identity of the investors get established by the fact that the they are income tax assessee and assessed under the provision of the Act. The genuineness of transaction is established by the fact that the subscribers of share confirmed the investment and reflected the same in their respective balance sheet and all the payments were made through banking channel. Similarly the credit worthiness is also proved beyond doubt that they have available funds in their bank account for making investment. The assessee also submitted that the duty of assessee is only to explain the sources of money in its own hand and not to explain the sources of source. Therefore doubting the impugned transaction of share subscription was not justified, specially, in the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction and credit worthiness of the investors. The learned CIT (A) in this regard observed as under: (a) The investor companies namely M/s Sangam Infratech Ltd, M/s Swift Venture Pvt Ltd. M/s Kalyan Sangam Infratech Ltd and M/s Dhanlaxmi Re- Rolling Mills are regularly filing returns of income. The assesse has furnished the copy of PAN, audited balance sheet and confirmation from the investors. Further all the above parties were subject to assessments under section 143(3) of the Act for the year under consideration and for the subsequent years. (b) The impugned companies/parties have shown investment in the shares of the assessee company in their audited financial statements. (c) The investors namely M/s Sangam Infratech Ltd, M/s Swift Venture Pvt Ltd during the year under consideration has received share capital and premium amounting to ₹ 67 crore and 22.39 crore respectively. But the AO of the respective parties in the assessment proceeding has not doubted the same. Hence it is proved that that they were having adequate fund in their hands for the impugned investments. (d) Similarly, M/s Dhanlaxmi Re-Rolling Mills has shown taxable income of ₹ 3,57,98,017/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and premium ₹ 90) which is less than the book value. Likewise the PE ratio of the company based on the projections gives the valuation of the shares at ₹ 105 only whereas Board of Directors have issued shares at 100 only. (k) The statements of Shri Rampal Soni, director of M/s Sangam Infrastructure Limited and Shri Jagdish P. Purohit and Shri Eknath N. Mandavkar do not give rise to the doubt that the assessee has received share application money on premium after connivance with the subscribers. (l) There is no clarity with respect to the notices issued under section 133(6) of the Act to the suppliers the machineries/expenses and various contractors about the date of notices and when the response from them was due. Furthermore if the suppliers have not responded to the notices issued under section 133(6) of the Act then the AO does not get the authority to draw any adverse inference against the assessee until and unless such fact is brought to the notice of the assessee for its rebuttal. But what appears from the order of the AO that such opportunity has not been afforded to the assessee. (m) Likewise, the allegation of the AO that the assessee has accepted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare application money from M/s Sangam Infratech Pvt Limited during various assessment years. In the assessment order u/s 143(3) r.w.s. 153A of the Act, this amount has been added in the hands of Sangam Infratech on protective basis and in the hands of assessee company on substantive basis, (para 9.16 of assessment order u/s 153A, page 110 of paper book filed by the department) (iii) M/s Swift Ventures Pvt Limited was also covered under search/survey operations. It was admitted by the director of the assessee company that the shares of Swift Ventures were purchased by the promoter group @ ₹ 3 per share in FY 2009-10 (page 156 of paper book of the department).The said shares were purchased from the companies controlled by Mr. Jagdish Purohiti as admitted by the director of assessee company in his statement recorded on 3.05.2013.At the time of such purchase, Swift Venture was a shell/paper company of accommodation entry operator Mr.Jagdish Purohit. (iv) Shri Jagdish Purohit in a statement on oath u/s 132(4) acknowledged multilayering of funds and providing accommodation entries. A list of companies through which accommodation entries were provided is at page 162 to 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Software who admitted that a number of companies were^ floated on the direction of Mr. Jagdish Prasad Purohit. These facts have been discussed in the assessment order u/s 153A of the Act of the assessee company (page 82-83 of department's paper book) 16. It may also be submitted that the Ld. CIT(A) has accepted themake believe paper evidences submitted by the assessee and deleted the addition by largely following the decision of Hon'ble Supreme Court in the case of M/s Lovely Exports Limited. However, the issue of introducing unaccounted income in the garb of share application money through paper companies have been a subject matter of discussion by various courts wherein the make-believe paper work regarding such transactions has not been accepted by the Hon'ble Courts. It may be submitted that in a recent case of Pr. CIT v. NDR Promoters (P.) Ltd. [2019] 102 taxmann.com 182/261 Taxman 270/410 ITR 379 (Delhi), Hon'ble Delhi High Court has held that a case involving make-believe paper work to camouflage the bogus nature of the transactions is to be treated as unexplained credit u/s 68 of the Act. The said decision of Hon'ble Delhi High Court has been uphe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable at page 162-165 of department's paperbook, it can be seen that the names of M/s Eternity Multi Trade Private Limited, M/s Neha Cassettes Private Limited and M/s Natraj Vinimay Pvt Limitedare appearing in both the lists. These common names clearly indicate that the investor companies involved in the present case are shell/paper companies because some of the associated companies of investor companies in present case have already been held as shell companies by the Hon'ble Supreme Court. 20. Kind attention is also drawn to the decision of Hon'ble ITAT (Pune Bench) in the case of M/s Prathamesh Ceremics Pvt Limited (ITA No. 2260- 2262/PUN/2014) dated 04.02.2020. In this case, the Ld. CIT(A) had deleted the addition by accepting the make-believe documentation and following the decision in the case of Lovely Exports. After considering the decision in the case of NRA Iron Steels Private Limited and M/s NDR Promoters (P) Limited, the Hon'ble ITAT held that the decision in the case of M/s Lovely Exports is no more a binding decision, The Hon'ble ITAT accordingly remanded the matter back to file of Ld. CIT(A) for deciding the matter in accordance to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment framed under section 153A of the Act post search proceedings. 9.1 The learned AR further submitted that the assessee is in the process of setting up of its plant and for this purpose it has incurred an expense of ₹ 101,44,88,596 only. The assessee to incur such huge expenses has already taken loan from the Union Bank of India. The learned AR in support of his contention drew our attention on the financial statements of the assessee which are placed on pages 1 to 10 of the paper book and sanctions letters issued by the bank which are placed on pages 154 to 232 of the paper book. The learned AR also drew our attention on the techno economic feasibility report of assessee s project which was placed on pages 233 to 266 of the paper book. 9.2 The learned AR further submitted that the assessee has not inflated its project cost as alleged by the AO in his order. In fact the AO has grossly erred in comparing the cost incurred by the assessee with the data available on the Internet which has no relevance. As per the learned AR, the capacity of the product acquired by the assessee were different with the product compared by the AO on the basis of the data obtained from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tworthiness of the creditor is also established by the documentary evidences. If the assessee presents all these details during the assessment proceeding before the AO, the responsibility shifts to the AO to prove it wrong. If the AO accepts such evidences without proving it wrong, it can be said that assessee has discharged its onus. If the AO presents some contrary evidences, the responsibility again shifts upon the assessee to rebut such contrary evidences. 11.2 Admittedly, in the case on hand, the assessee has discharged its onus by furnishing the necessary details such as a confirmation of the parties, copy of ITR- V, copy of bank statement of parties along with their balance sheet, share certificate, MOA, AOA etc. in support of identity of the parties and genuineness of transaction and credit worthiness of the parties. These details of the parties are available on pages 16 to 161 of the paper book. Similarly, there is also no dispute to the fact that all the transactions were carried out through the banking channel. What is the inference that flows from a cumulative consideration of all the aforesaid contending facts is that the assessee has discharged its onus imposed und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position of the company i.e. SIL and was satisfied with the same. III) It was noticed that the assessee received a sum of ₹ 2 crores in the earlier assessment year from SIL which was accepted by the Revenue. In other words there was no doubt raised by the Revenue of whatsoever in the earlier assessment year for the amount of ₹ 2 crores received by the assessee. Thus a question arises whether the creditworthiness can be doubted in the year under consideration towards the amount received by the assessee in the year in dispute. To our mind, the answer stands in negative. It is for the reason that once the revenue has accepted the creditworthiness of the company in the earlier year, the same cannot be disturbed in the subsequent year until and unless the corroborative evidences require otherwise. But no such evidences were brought on record. IV) It is also pertinent to note that the commission under section 131(1)(d) of the Act was issued upon the company SIL which submitted its report but there was no negative remark about the financial position of the company i.e. SIL. V) It is also important to note that the assessee besides the share capital of ₹ 17.85 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the paper book. III) There was also an assessment framed by the AO in the case of KSIL for the year under consideration under section 143(3) r.w.s. 147 of the Act vide order dated 21-03-2016 wherein the financial position of the company was accepted. The copy of the assessment order is placed on pages 3 to 8 of the paper which was received separately dated 22-2- 2021. 11.5 Swift Venture Pvt. Ltd. share capital of ₹ 8,10,00,000/- I) On perusal of the balance sheet of SVPL, placed on pages 95 of the paper book, it was noticed that its position of the fund stands at ₹ 22.50 crores approximately as on 31-3-2010 and 31-3-2009. Thus what is transpired is this that the fund in the hands of the company i.e. SVPL was not generated in the year under consideration for making the investments in the assessee company. Similarly, the company i.e. SVPL has made investment in various other companies in the year under consideration as well as in the earlier assessment year which can be verified from the financial statement of the company. Thus, it is not the case that the entire capital of the SVPL was invested in the shares of the assessee company. II) It was also no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly, the company i.e. DRM has shown the turnover more than of ₹ 100 crores as evident from the audited profit and loss account, placed on page 124 of the paper book. Thus, it is the case that the firm i.e. DRM is not a paper entity which was used as conduit for converting the unaccounted money of the assessee as alleged by the AO. III) It is also important to note that the firm i.e. DRM is a proprietary concern owned by Shri Sanjay Mantri HUF and KARTA of the HUF has also made investments in the share application money in the individual capacity which has been accepted by the revenue. Thus what is transpired that the revenue has not believed on the creditworthiness of the HUF but did not doubt on the creditworthiness of the KARTA of the HUF in his individual capacity. IV) Likewise, there was an assessment under section 143(3) of the Act in the case of the firm i.e. DRM wherein the financial position of the firm was not doubted. The copy of the assessment order for the year under consideration is placed on pages 152 to 153 of the paper book. V) It was also noticed that the assessee received a sum of ₹ 5,14,53,717/- in the earlier assessment year from DRM which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) The notice could not be served on two investor-companies, namely Hema Trading Co. Pvt. Ltd.-Mumbai, Eternity Multi Trade Pvt. Ltd.-Mumbai. (iv) Submissions from nine companies were received (Neha Cassetes Pvt. Ltd.- Kolkata, Warner Multimedia Ltd. Kolkata, Gopikar Supply Pvt. Ltd. Kolkata, Gromore Fund Management Ltd. Kolkata, Bayanwala Brothers Pvt. Ltd. Kolkata, Shivlaxmi Export Ltd. Kolkata, Natraj Vinimay Pvt. Ltd. Kolkata, Neelkanth Commodities Pvt. Ltd. Kolkata, Prominent Vyappar Pvt. Ltd. Kolkata), however, they had not given any reasons for paying such a huge premium. Furthermore, they had declared very low income in their respective returns of income. (v) The details of share purchased and the amount of premium were not specified by certain companies namely Super Finance Ltd. Kolkata, Ganga Builders Ltd. Kolkata. Furthermore, these companies had not enclosed the bank statement. (vi) In addition to above, ld. AO found that: a. Out of the four companies at Mumbai, two companies were found to be non-existent at the address furnished. b. With respect to the Kolkata companies, nobody appeared nor did they produce their bank statements to substantiate the al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of NRA steels (supra) are not applicable to the facts of the case. 12.4 It is also pertinent to note that various Hon ble court after considering the judgment of Hon ble Supreme Court in the case of NRA Steel (supra) has deleted the addition made by the AO under the provisions of section 68 of the Act. In this connection we draw support and guidance form the judgment of Hon ble Bombay High Court in case of PCIT vs. Ami Industries (India) (P.) Ltd. reported in 424 ITR 219 where it was held as under: 21. From the above, it is seen that identity of the creditors were not in doubt. Assessee had furnished PAN, copies of the income tax returns of the creditors as well as copy of bank accounts of the three creditors in which the share application money was deposited in order to prove genuineness of the transactions. In so far credit worthiness of the creditors were concerned, Tribunal recorded that bank accounts of the creditors showed that the creditors had funds to make payments for share application money and in this regard, resolutions were also passed by the Board of Directors of the three creditors. Though, assessee was not required to prove source of the source, nonethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt equity ratio of 2.96 and internal rate of return at 37% was estimated. iv. It was also estimated that it will start its operation in the capacity of 70% which will increase gradually to the tune of 95%. v. It was also estimated that the sales realisation in the 1st year of its operation shall be at ₹ 16,825 Lacs which will increase gradually to ₹ 30,439 lakhs over a period of time. vi. The details of the cash flow statements. 12.8 Based on the above documents, it cannot be said that there was no business activity carried out by the assessee in the year under consideration as it has not shown any profit in the books of accounts. As such the assessee was in the process of setting up of the plant in the year under consideration and its commercial activity did not start. Accordingly, we are not convinced with the allegation of the AO that the assessee did not carry out any business activity in the year under consideration. 12.9 On perusal of the financial statement of the assessee we also note that it has shown reserve and surplus for the year ending 31st March 2009 at ₹ 25,12,448/- against the share capital of ₹ 1 lakh which was divided int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent proceedings has furnished the necessary details of the fixed assets, placed on pages 267 to 288 of the paper book, along with the name of the suppliers and the breakup of the assets. But the AO has not pointed out any infirmity in such details furnished by the assessee. In fact the assessee has duly discharged its onus by furnishing the requisite details and therefore the onus was shifted upon the AO to reject the contention of the assessee based on the cogent materials. As such the assessee cannot be penalised for non-response of the suppliers, particularly in a situation, where the notices to the suppliers were issued by the AO at the fag end of the assessment. 12.13 It is also significant to note that the entire thrust of the learned DR was based on the documents/informations collected in the course of search proceedings under section 132 of the Act which was conducted on 2 May 2013. As per the learned DR the information gathered during the search proceedings should also be considered while adjudicating the issue on hand. The learned DR further submitted that the matter of the assessee for the year under consideration against the search proceedings is pending before the l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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