TMI Blog2022 (1) TMI 637X X X X Extracts X X X X X X X X Extracts X X X X ..... we hold that the assessment made by the assessing officer under section 143(3) r.w.s 153A without any incriminating material is bad in law and accordingly no addition could be made thereon for the receipt of share capital and share premium. AYs 2013-14 and 2014-15 the assessee had submitted sufficient information before tax authorities that the sister companies have sufficient funds to make investments. The sister concerns having less or meagre income is of no relevance for the purpose of making investment in the assessee company. What is relevant is the availability of cash flow with the sister concerns to make investments in the assessee company. There is no requirement in the statute to make investment in another concern only out of income earned during the year. From the perusal of the audited financials of M/s. Patni Holdings Pvt. Ltd., it is found that the net owned funds as on 31.3.2013 and 31.3.2012 was ₹ 9.15 crores which is very much sufficient to make investment of ₹ 3.50 crores in assessee company in A.Y. 2013-14. Similarly from the perusal of the audited financials of M/s. SMDS Trading Pvt. Ltd., it is found that the net owned funds as on 31.3.2013 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur Agarwal For the Respondents : Rakesh Garg ORDER Per Bench 1. These appeals are filed by the assessee against different orders of the Learned Commissioner of Income Tax (Appeals)-52, Mumbai [hereinafter in short Ld. CIT(A) ] dated 23.02.2021 for the A.Ys. 2009-10 to 2015-16. 2. Brief facts relevant to the case are that, M/s. Uma Polymers Ltd., i.e. the Assessee herein, is an unlisted Public Company and is, inter alia, engaged in the business of manufacturing of laminated flexible packing material. Search and seizure action under section 132 of the Income-tax Act, 1961 (hereinafter referred to as the 'Act') was conducted on 8th of May 2014 on the premises of the Assessee, its directors and other group companies. The Assessing Officer issued notices under section 153A of the Act for assessment years 2009-10 to 2014-15. In response Assessee filed the return of income for various years on 26.02.2015 and 27.02.2015 and acknowledgements submitted on 8th of June 2015 for the assessment years 2009-10 to 2014-15. The Assessee also filed a return of income for the assessment year 2015-16 on 24.09.2015. The Assessing Officer passed the assessment order dated 30. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rthiness to invest in the share capital of the Assessee-Company because, the investee companies do not have sufficient profit as per the profit and loss account. 8. The Assessing Officer further alleged that multiple companies are running from the address where the investee companies are registered, for example, 389 companies are operating from 71 Canning Street, Kolkata; 157 companies are operating from 3, Mangolane, Kolkata, which shows that the investee companies are all allegedly shell companies. 9. Although the companies are registered in Kolkata, from the information available with the Assessing Officer, it come out that their return of income has been filed not from Kolkata, but from different places. The erstwhile directors in the companies through whom the Assessee had acquired the companies are acting as directors in multiple companies and, therefore, these factors indicates that investee companies are shell companies. 10. The Assessing Officer, accordingly, treated the whole amount of the share capital and premium received by the Assessee as the income of the Assessee under section 68 of the Act. 11. It is pertinent to mention that the Assessing Officer notes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial that was found during the course of the search, as has been held by the jurisdictional High Court in the case of Continental Warehousing Corporation Ltd. [58 taxmann.com 78]. After accepting the principles laid down by the High Court, the Commissioner of Income-tax (Appeals) held that the Assessee had received huge funds in the form of share capital/premium from various entities which have been found to be non-existent and whose financial capacities have been found to be limited. The investigation unit has conducted sufficient inquiries and there are substantial materials available to demonstrate the above findings. The CIT(A) held that the documents/statements and overall findings of the search action are sufficient incriminating material to proceed under section 153A of the Act. 16. The Commissioner of Income-tax (Appeals) further held that incriminating material would include any book of accounts or document or any information unearthed during the course of search and which is having a bearing on the determination of total income as of a person. The Commissioner of Income-tax (Appeals) accordingly, held that incriminating material has been found in the case of the Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made. Consequently, addition of ₹ 8,12,00,000/is in excess of jurisdiction contrary to the Statutory Provisions. 3. The learned lower authorities have grossly erred making an aggregated addition of ₹ 8,12,00,000/being the amount of share subscriptions received from two corporate entities, without bringing any material or evidence on record to support their assertions. 4. The learned lower authorities have grossly erred in holding that amended provisions of Sec. 68 were applicable in appellant's case, So it was the obligation of the appellant to prove genuineness source of source in support of Share Subscription money received at ₹ 8,12,00,000/from two corporate entities. The impugned addition is arbitrary, in contradiction of Statutory Provisions wholly untenable in Jaw. 5. Having regard to the facts of the case and provisions of law judicial propositions, the impugned addition of ₹ 8,12,00,000/is unsustainable in law, contrary to the settled legal position and in defiance of propositions laid down by the Hon'ble jurisdictional High Court. 6. The appellant may please be permitted to raise any additional or alternative g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... go Logistics Ltd. v ACIT 137 ITD 287 (Mum) (SB) and as affirmed by the jurisdictional High Court in the case of Continental Warehousing Corporation Ltd. (supra). The Ld. AR submitted that the decision of the Hon'ble Jurisdictional High Court has been consistently followed in subsequent case as below:- (i). Pr. CIT vs. Reynold Shirtings Ltd. (ITA No. 830 of 2017) (Bom) (ii). Pr. CIT vs. JWC Logistics Park Ltd. (ITA No. 465 of 2017) (Bom) (iii). JCIT vs. Benco Finance and Investments Pvt. Ltd. (ITA No. 2071/Mum/2018) (Mum) 23. The Ld. AR submitted that the jurisdictional High Court has held that incriminating material would be (i) books of account, other documents found in the course of search that were not produced in the course of the original assessment; and (ii) undisclosed income or property discovered in the course of search. The Assessee submits that in the facts of the present case, the books of account which recorded the transaction of receipt of share capital and share premium were already disclosed before the Assessing Officer and the same were also produced during the assessment proceedings, for the years when there were scrutiny assessment. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the Ld. AR submitted that the alleged two folders of tally data are certainly not an incriminating material which could justify any action for the years, for which the assessment proceedings have not abated. 26. The Ld. AR submitted that the investigation wing report from Kolkata also cannot be regarded as incriminating material because the same is not a material which was found during the course of search, but it refers to data collected from third parties post the completion of the search and, therefore, it cannot be regarded as incriminating material so as to justify the addition in the hands of the Assessee. 27. The Ld. AR submitted that the finding by the Commissioner of Income-tax (Appeals) that the material, as referred to above, will tantamount to incriminating material so as to justify the addition, is wholly erroneous and contrary to the decisions laid down by the Hon'ble Jurisdictional High Courts as well as other Courts. Therefore, the Assessee submits that the additions made under section 68 of the Act, for the A.Ys. 2009-10 to 2012 - 13 are liable to be deleted. 28. The Ld. AR submitted that the original assessment for the A.Y. 2009-10 was completed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uineness of the investments cannot be doubted on the basis of the following submissions: a) The Assessing Officer at page 19 of the assessment order has accepted that post such inquiries had revealed that there was no 'cash' transaction in the accounts of the investee Companies. b) He submitted that both M/s. SMDS Trading Pvt. Ltd. and M/s. Patni Holdings Pvt. Ltd. are admittedly Group Companies of the Assessee, for example, (page 77 of the paper-book for the assessment year 2013 - 14) shows that the majority of the shares of M/s. SMDS Trading Pvt. Ltd. are held by the Assessee and its shareholders. c) The investee companies are not mere paper companies and have investments in intangible assets and are also in the activity of transactions of trading in derivatives. Both these Companies have investments in land in excess of ₹ 50,00,000/-. (Page 93 of the paper-book for assessment year 2013-14) shows that M/s. Patni Holdings Pvt. Ltd. has investments in land in excess of ₹ 1,00,00,000/-. d) The premium of ₹ 40/- charged by the Assessee is completely justified, considering the net worth of the Assessee. The Assessee is a fully operating Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inspector, who was deputed to serve the summons to the investee companies. When seeking a copy of the inspector's report by the Assessee, the Assessing Officer has accepted at paragraph 15.1 of the assessment order that the report of the inspector is a verbal report and not a written report. Further he submitted that no cognizance can be taken of a verbal report claimed to have submitted by the inspector as there is no basis to verify the correctness or authenticity of the report, so submitted. Further, at paragraph 3 of the report, the ADIT (Investigation), Kolkata, notes that one entity M/s. Riddhi-Siddhi Tie Up Pvt. Ltd. was operational from 3 Mango Lane, 1st Floor, South Block, Kolkata. However, from paragraph 5 of the report, it is stated that summons to M/s. Riddhi-Siddhi Tie Up Pvt. Ltd. was sent to some other address. That other address was occupied by C.A. Firm. The Ld. AR submitted that from the aforesaid, it is clear that the investigation wing report cannot be relied upon to draw any adverse inference against the Assessee as there are contradictions in the report. Further, in paragraphs 2 and 8 of the report, DDIT (Investigation) Kolkata, notes that pursuant to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, the report was also submitted. Since the physical verification was done, the report of the inspector has to be taken on the face value. Further he relied in the case of DCIT vs Leena Power Tech Engineers Pvt. Ltd. - 130 taxmann.com 341(Mum) and he brought to our notice para 15.3 of the assessment order (AY 2009-10). He also submitted the profiling of earlier directors clearly displays the suspicion in the transaction and he also submitted that the inspectors have found that so many companies are in existence in the same address, hence these can be categorized as shell companies. 39. In rejoinder, Ld. AR submitted that during the course of the hearing, the departmental representative had relied on the decision of the Tribunal in the case of DCIT vs. Leena Power Tech Engineers Pvt. Ltd. - 130 taxmann.com 341. The Ld. AR submitted that this decision is completely distinguishable on the facts of the present case and submitted a detailed chart explaining difference in the facts of the Assessee's case with Leena Power Tech Engineers Pvt. Ltd. On the basis of the aforesaid chart, the Ld. AR submitted that the Assessee has clearly explained the identity, genuineness and credit wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search but AO relied completely on the information forwarded by the investigation wing post search and he refers to few slips of papers being alleged seized materials where the capital fund transfers are written and which are to be split and distributed into group companies. These alleged seized papers were not referred to anywhere in the assessment order and further we enquired with the Ld. DR, whether the above said seized papers exist in the assessment records. He, after verification submitted before us that no such papers exist. Considering the above facts on record, we do not see any reason to treat the assessment valid for the AY 2009-10 to 2012-13 since these were not abated at the time of search. By respectfully relying on the various decisions of the various courts on the subject of incriminating material, we hold that the assessment made by the assessing officer under section 143(3) r.w.s 153A without any incriminating material is bad in law and accordingly no addition could be made thereon for the receipt of share capital and share premium. 43. Coming to AYs 2013-14 and 2014-15, we observe from the records submitted before that there is no involvement of any cash tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the revenue authorities has acknowledged the fact that there is no cash deposits either by the assessee or the sister concerns or anywhere in the group. Further we observe that the investigation carried on by the investigation wing based on the few slips of papers being the alleged seized material where the capital transfer is written to be split and distributed into group companies were never part of the assessment record and this is mere suspicion and wishful interpretation rather than any relevance to facts. When the investments are made by the group companies and within group companies, it could be made based on the intrinsic value of the shares. In the given case, the assessee has submitted documents to prove that the net assets value of the shares of the assessee is ₹ 59.60 per share whereas assessee has issued the shares @ of ₹ 50 per share (including premium of ₹ 40 per share). It is no body's case that the source of source from which the concerned group company had received monies had made certain cash deposits in their bank account and issued cheque/draft to the sister concerns. In our view, the assessee had clearly proved even the source of source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the company therein. There is no idea about persons behind RVPL. The Tribunal held that making such huge investments without any management participation in the entities in which investments are made, is very unusual. The assessee is stated to be not connected with RVPL in any manner, which is unusual. [Page 20, 21; Paras 16, 17 18]. Whereas in the present case before us, the investment has been made in the assessee by group companies of the assessee. For example, a shareholding of SMDS Trading Pvt. Ltd. would show that [Page 77 of Paper Book] the majority of the shares is held by the assessee and its shareholders. Similarly, Patni Holdings (P) Ltd. was also a group company. Therefore, in the present case, the investee Company is a group Company of the assessee and has, accordingly, made investments in the assessee. c). The valuation of shares of the assessee at 900% premium is not justified and the Tribunal held that the valuation report submitted by the assessee cannot be relied upon on the basis of various reasons given by the Tribunal in paragraphs 19 to 22 thereon [page 21-22 of the Paper Book]. Whereas in the present case before us, the assessee has issued share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76 of 2018). The Ld. AR submitted that no other incriminating evidence or material was found to support the presumption of the assessing officer that in all transactions of scrap sales, the Assessee has earned additional cash consideration. He submitted that merely because the Assessee had accepted receipt of cash in a very few transactions, it cannot be presumed that cash could have been received in all other transactions undertaken by the Assessee. Therefore, he submitted that the addition made by the Assessing Officer ought to be deleted. 47. Without prejudice, the Ld. AR submitted that, if at all, the addition needs to be sustained, then the same should be sustained only with respect to the scrap sales made in the 'Abu Road Unit', as admittedly, loose papers reflecting cash receipt were only found at the Abu Road Unit and no such material was found in any of the other units of the Assessee. Therefore, if at all, the addition is made, it will only be reflected to the scrap sales on Abu Road Unit. The Assessee has already filed details of the scrap sales by all the units of the Assessee before tax authorities below. 48. On the other hand, Ld. DR submitted that he re ..... 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