TMI Blog2021 (11) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... essee for assailing the bonafides of share application money received from a sister concern holding a very high net worth. A reference was also made to PCIT vs. Himachal Fibers Ltd [ 2018 (8) TMI 873 - SC ORDER] to submit that where the identity of share applicant was fully revealed and the AO did not conduct any enquiry thereon, he was not justified in resting his conclusions on surmises. It is thus the case of assessee that the Revenue is neither justified on facts nor on the touchstone of law to embark upon the impugned additions under s.68. After a detailed and objective scrutiny of factual legal position, the CIT(A) has set aside and reversed the additions carried out without showing any iota of incriminating material to support the allegation of accommodation entries in the abated as well as unabated search assessments. The share application money was found to be returned. The action of CIT(A) is in consonance with the binding precedent of Jurisdictional High Court. Hence, we see no reason to depart from the rationale of the decision of the CIT(A) on reversal of additions under s.68 of the Act pertaining to A.Y. 2006-07; 2009-10; 2010-11 2011-12 in question. Dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also simultaneously supported the action of the CIT(A) in reversing the additions made by the AO while adjudicating on merits. 5. Briefly stated, the assessee is deriving income from rent, interest etc. A search was conducted on the residential/ business premises of the assessee group, namely, Mahamaya Group on 21.06.2011 including the assessee herein. A sum of ₹ 20,400/- was found in cash in main office at Tatibandh, Raipur. No seizure of cash found was made. Consequent upon search, notices under s.153A of the Act were issued on the assessee. Pursuant thereto, the assessee filed return of income under s.153A of the Act. The assessment was framed under s.143(3) r.w.s. 153A of the Act for A.Ys. 2006-07 to AY 2011-12 in question. A common combined assessment order for all the assessment years from AY 2006-07 to AY 2011-12 in question was passed having regard to common issues involved in all these assessment years. In the course of the search assessment noted above, the AO inter alia observed that credits in respect of share application money to the tune of ₹ 1,25,00,000(A.Y.2006-07); ₹ 3,75,00,000/- (A.Y. 2009-10); (3) ₹ 5,45,00,000/- (A.Y.2010-11) & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atements of all the persons recorded during the proceedings u/ s 132 on 21/ 22. 06. 2011. I am in agreement with the submissions of the appellant company that no statement of appellant company s representative was recorded during the search proceedings. The statements of other persons belonging to the aforesaid companies also does not, in any way, lead to an inference that the Group companies or the appellant company do not maintain Statutory records/Registers. It is also seen that the appellant company had made specific request before the A. O. vide its letter submitted on 14. 03. 2014 and 18. 03. 2014 to dispel the doubts of the A. O. regarding non- maintenance of statutory records and registers. From the assessment order, it appears that the A. O. did not take any cognizance of the assertion made by the appellant regarding maintenance of Statutory Records and registers in accordance with the provisions of Companies Act and without verifying the verifiable facts regarding maintenance or otherwise of Statutory records and registers, the A. O simply seems to have found it convenient to remain silent and sit back after making the allegation without any proper basis. I do find consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout probing into it. In the aforesaid facts and circumstances of the case, when the Tribunal has held that the matter is not required to be remanded as no other view would be possible, there was no reason to interfere with the impugned order passed by the Tribunal. I am convinced that there is no question of making any addition u/ s 68 given the fact that the share application money received from Devi Iron and Power Private Limited stood refunded, hence, there was no obligation on the appellant to even establish the identity or creditworthiness of said company or genuineness of the transaction, therefore, the addition cannot be sustained in the light of this undisputed fact. For academic purposes, the discharge or otherwise of the onus u/ s 68 has been independently evaluated and examined. The appellant has submitted that Devi Iron and Power Private Limited is a group company, the appellant has placed on record, copy of assessment order in the case of Escorts Finvest Private Limited for the assessment year 2006- 07 and 2007- 08. 5.3 It is seen that Escorts Finvest Private Limited was assessed u/ s 143(3) and the ITO, Ward- 1 (4), Kolkata recorded a specific finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to indicate that the appellant did make undisclosed income and such evidence came on the surface as a result of search proceedings. The A. O has not rebutted the details of tangible net worth submitted by the appellant to demonstrate that the subscribers had sufficient means to invest in the share application/ capital of the appellant company, I have perused the details of net worth of the subscribers with reference to the audited financial statements of the subscribers and found satisfactory. In this background, in my considered view, there is no scope and reason to take a contrary view than that taken by the then A. O without there being any documentary evidence against the appellant to demonstrate that the share application money was nothing but undisclosed income of the appellant. 5.6 Furthermore, I am in agreement with the submissions of the appellant that the same A. O has accepted the addition to Preference Share Capital in the case of Mahamaya Steel Industries Limited received from Escorts Finvest Private Limited and therefore, the identity and creditworthiness of Escorts Finvest Private Limited was undisputedly accepted and genuineness of addition was also duly acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment by way of affidavits which are duly notarized, the investors have also furnished the copies of share application forms, their audited financial statements, ITR, bank statement. In the backdrop of these facts and documentary evidences, in my considered opinion, the identity and creditworthiness of the subscribers has been established and cannot be doubted, it is not justified on the part of the A. O to simply reject the documentary evidences on record and take an adverse view and clothing the case of the appellant with the judicial pronouncements which have been rendered on absolutely different facts and circumstances. 5.9 The appellant has relied upon various judicial pronouncements and correlated the facts in those decisions with the facts in the case of the appellant. I am convinced that the decisions relied upon by the appellant are certainly applicable in the case of the appellant as the facts are not only similar but identical. The appellant has also relied upon the decision of the Hon ble Supreme Court and jurisdictional High Court which cannot be ignored. The A. O has referred to the notices issued under section 133(6) which have been returned un- served in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. 5.10 The Assessing Officer has disregarded the documentary evidences adduced by the appellant such as confirmation from the share applicants, their PAN, certificate of incorporation of subscriber companies, records of the Registrars of Companies (ROC) generated from the website, affidavits filed in support of the fact of advancing share applications monies etc. The subscription for the shares were received through cheques. The Investor- companies were active as per the website of the Ministry of Corporate Affairs and they were duly registered with ROC. Those companies were also having their income tax PAN numbers and regularly filed returns of income. No material was brought on record by the Assessing Officer to show that the affidavits filed by the Directors of the investor- companies were not genuine. No enquiries were conducted about the contents of the affidavits. The A. O did not make any attempt to discredit the affidavits. The result is that the contents of the affidavits have not been disproved. It also shows that the parties (deponents) were present at the given addresses against whom action could have been taken. No material was brought on record by the A. O in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and share holders' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec. 68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self- confessed accommodation entry providers , whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xmann. com 31 (Kar.); (k) Commissioner of Income- tax- III v. Nilchem Capital Ltd. [ 2012] 18 taxmann. com 350 (Guj.); (l) Commissioner of Income- tax v. Jay Dee Securities Finance Ltd. [ 2013] 32 taxmann. com 91 (Allahabad); (m) Commissioner of Income- tax, Delhi- II v. Kinetic Capital Finance Ltd. [ 2011] 14 taxmann. com 150 (Delhi); (n) Commissioner of Income- tax v. VLS Foods (P.) Ltd. [ 2011] 15 taxmann. com 225 (Delhi); (o) Commissioner of Income- tax v. Ambuja Ginning Pressing and Oil Co. (P.) Ltd. [ 2011] 15 taxmann. com 273 (Guj.); (p) Commissioner of Income- tax v. Rock Fort Metal Minerals Ltd. [ 2011] 198 TAXMAN 497 (Delhi); (q) Commissioner of Income- tax v. Siri Ram Syal Hydro Power (P.) Ltd.[ 2011] 196 TAXMAN 441(Delhi); (r) Commissioner of Income- tax v. Orbital Communication (P.) Ltd. [ 2010] 327 ITR 560 (DELHI); (s) Commissioner of Income- tax- I v. Himatsu Bimet Ltd. [ 2011] 12 taxmann. com 87 (Guj.); 5.15 I am convinced that the appellant has been able to establish the identity and creditworthiness of the subscribers as also the genuineness of the transactions. In my considered opinion, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as defended vociferously. It was contended by the Revenue that discovery of any incriminating document is not a condition precedent to make additions or disallowance under s.153A of the Act. It was thus contended that the AO and the CIT(A) rightly observed that the issue of warrant of search and seizure under s.132 of the Act sufficiently empowers the AO to initiate the proceedings under s.153A of the Act and to make all consequent additions regardless of presence of incriminating documents or otherwise. It was submitted that the only condition for initiation of proceedings under s.153A of the Act is occurrence of a valid search under s.132 of the Act. It was reiterated that Section 153A of the Act does not provide that assessment/re-assessment should be based on incriminating material alone and the AO is empowered to assess or re-assess the total income of the six financial years covered under the search regardless of presence of incriminating material. On merits, it was argued that the assessee has failed to discharge the onus placed upon it to prove the creditworthiness and genuineness of the transaction of share application money and consequently, in the absence of satisfac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssments for AYs 2006-07 to 2009-10 which stood concluded and remained unabated is barred by principles of finality and could not be disturbed by the AO in the absence of the incriminating material. 13.2 To buttress the legal position that presence of incriminating material discovered in the course of search as a sine qua non for additions/disallowances in respect of unabated assessment, the learned counsel relied upon the decision rendered in the case of Kabul Chawla (2016) 380 ITR 573 (Del); Pr.CIT vs. Meeta Gutgutia (2018) 96 taxmann.com 468 (SC) and a long series of decisions governing the field. In the light of judicial view, it was thus asserted that in the absence of any incriminating material found in the course of search, the action of the AO to make additions is a complete non-starter. The time limit for issuance of notice under s.143(2) of the Act is either expired at the time of search or the assessments were concluded under section 143(3), as the case may be, and hence could not be disturbed for making additions of regular routine nature merely on account of search. The learned counsel reiterated that in the light of judicial precedents, the legal position is cry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel adverted to page nos. 243-245 of the paper book and submitted that the assessee has made several pro-active requests before the AO during the assessment proceedings some of which are noted hereunder as referred; (a) To provide the assessee company with the copy of all the letters sent by the Ld. AO to the investors/share applicants regarding investment made in the shares of assessee company. (b) The assessee company may kindly be appraised with the cases i. e. the name of the company on whom letter sent by the Ld. AO remained un- served. (c) The assessee company may kindly be made known with the reason communicated by the Postal Department behind non- service of the letters sent by the Ld. AO. (d) The assessee company may also be confronted with the enquiry conducted by the Ld. AO regarding addition to share application/share capital. 13.5 It was next pointed out that assessment of the assessee was duly completed under s.143(3) of the Act for A.Y. 2006-07 A.Y. 2007-08 prior to search and the issue of receipt of share application money in AY 2006-07 had already been examined by several rounds of questionnaires in the scrutiny assessment c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment for those six assessment years stands reopened. Once the assessment is reopened, the A. O. has full powers to assess the income which has escaped, whether found as a result of search or otherwise. Accordingly, the additions made by the A. O are within the powers assigned to him u/ s 153A and for this reason, this ground of appeal is hereby dismissed. 14.3 We have examined the legal objection on jurisdiction to make additions dehors reference to any incriminating material found in the course of search. The issue is no longer res integra and answered in favour of the assessee by large number of judicial precedents. As consistently echoed by the Hon ble Courts of different jurisdiction, the scope of search assessments under s.153A of the Act in respect of concluded and unabated assessments is narrower in its sweep and restricts the right of the AO to examine the issue emanating from some incriminating material. 14.3.1 We shall first refer to the decision of Hon ble Delhi High court in the case of Pr.CIT vs. Meeta Gutgutia (2017) 395 ITR 526 (Del). The Hon ble Delhi High Court referred to the judgment in the case of CIT vs. Kabul Chawla (2016) 380 ITR 573 (Del); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53A of the Act only on the basis of some incriminating material unearthed during the course of search or requisition of documents etc. The Hon ble Gujarat High Court noted that the trigger point for exercise of powers under s.153A of the Act is a valid search under s.132 of the Act or a requisition under s.132A of the Act. Once a search or requisition is made, the mandate is cast upon the AO to issue notice under s.153A of the Act and complete the assessment of 6 assessment years. The Hon ble Gujarat High Court took note of the fact that object of scheme legislated for assessment in search cases is to bring to tax the undisclosed income which is found in the course of or pursuant to search or requisition and therefore additions/disallowances must be linked with search/requisition. It was noted by the Hon ble Court that additions made on the basis of some materials collected by the AO much subsequent to the search is not permissible. 14.3.4 Similar view has been expressed in catena of decisions viz; Pr.CIT vs. Deepak J. Panchal (Guj) 397 ITR 153 (Guj); Chetnaben J. shah vs. ITO Tax Appeal No. 1437 of 2007 judgment dated 14.07.2016; CIT vs. Continental Warehousing Corporation (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any connection with the incriminating material unearthed in search proceedings of assessee, additions in respect of concluded assessment i.e. AYs. 2006-07 2009-10 in instant appeals, are not permissible in law. The burden of proof towards existence of undisclosed income discovered as a result of search is on the Revenue. No evidence has been referred to by AO or brought on record as claimed to be found at search of assessee to suggest existence of undisclosed income as perceived by the AO. The Revenue has failed to rebut the factual assertions made on behalf of the assessee towards non-discovery of incriminating material at the time of drastic action of search on assessee and reference thereto in assessment order. There is nothing on record that information contained in seized documents as per list of inventory in panchnama, were not recorded or reflected in the books of accounts. Hence, the action of the AO towards making additions in respect of concluded assessments towards undisclosed income is contrary to the judicial dicta. In consonance, we are of the view that various additions/disallowances made by the AO are clearly beyond the scope of authority vested under s.153A of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and family members were made in most of the cases but no such view even to support his own passing remarks was offered. Detailed explanations were submitted with respect to the loose papers seized and not even a single document out of it relate to or suggest that any undisclosed income of these persons has been routed back in the form of share application money. (Para 4. 4 on page No. 7) The present action of the A. O is not culminating from any specific finding against the appellant that it was a beneficiary of any racket which has been unearthed as a result of search proceedings nor has the A. O brought on record any other evidence to indicate that the appellant did make undisclosed income and such evidence came on the surface as a result of search proceedings. In this background, in my considered view, there is no scope and reason to take a contrary view than that taken by the then A. O without there being any documentary evidence against the appellant to demonstrate that the share application money was nothing but undisclosed income of the appellant. (Para 5. 5 on page No. 13) In my considered opinion, apart from drawing presumptions, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erse inference drawn by the AO was found by the CIT(A) to be unsubstantiated and in the realm of suspicion, surmises and conjectures. On legal position, the CIT(A) has referred to large number of judicial pronouncements. 17.4 As pointed out, the share application money was refunded in A.Y. 2012-13 through banking channel. The Judicial precedents in CIT vs. Karaj Singh 203 Taxman 218 (P H); Smt. Panna Devi Chowdhary vs CIT (1994) 208 ITR 849 (Bom.) CIT vs. Ayachi Chandrashekhar Narsangji 42 Taxmann.com 251 (Guj.) have endorsed the view that where the amount stood repaid and accepted by the deptt., no addition under S. 68 is warranted. 18. It may also be pertinent to briefly deal with the arguments advanced on behalf of the Revenue in the light of decision of the Hon ble Supreme Court in PCIT vs. NRA Iron Steel P. Ltd. 412 ITR 161 (SC). The facts in NRA case were gross and peculiar and hardly bears any resemblance with the tell-tale facts of the share applicant herein. In the present case, the fact of payment received for proposed share subscription is fully substantiated by bank statement and other tax records of the subscribers and also the affidavit and confirmation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stating factum of investment. In short, it is asserted that the primary onus was discharged to explain the nature and source of the money received. Further, it is contended that no legal obligation is prescribed upon assessee in law to prove the source of source of such receipts in view of the prospective insertion of proviso to s.68 of the Act from AY 2013-14 foisting such obligations. A reference has been made to the decision of the Hon ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure Pvt. Ltd. 80 taxmann.com 272 (Bom.) in this regard. Besides, without prejudice to every attempt made before the AO to prove the bonafides to the hilt being a group company, a reference was also made to the decision of Lovely Exports Pvt. Ltd. 319 ITR 5 (SC) wherein it was held that in the case of alleged bogus share holders, the department is free to proceed to reopen the individual assessments of the subscribers in accordance with law. Reliance was placed on multiple decisions including the binding precedent rendered by the Hon ble Chhattisgarh High Court in ACIT Vs. Venkateshwar Ispat (P) Ltd. (2009) 319 ITR 393 b) CIT vs. Abdul Aziz (2012) 251 CTR (Chhattisgarh) 58 as ref ..... X X X X Extracts X X X X X X X X Extracts X X X X
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