AI Drafter 
TaxTMI 
TaxTMI 
2018 (6) TMI 471
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....ured from Coca Cola in the capacity of bottler and distributor of Coca Cola procure in India. In addition, the MMG group has business interests in several segments like chartering and leasing of vessels to ONGC and other companies, real estate, education and hospitality etc.. A search & seizure operation u/s 132 of the I.T. Act, 1961 was carried out on 28.03.2015 in the case of M.M. Aggarwal Group of cases. The case of the assessee was also covered in the said search. During the course of search carried out at the different premise located in India in M.M. Aggarwal Group of cases, documents and data storage devices, etc. belonging to the assessee were found and seized. In response to notice u/s 153A of the I.T. Act, 1961 issued to the assessee on 10.05.2016, the assessee filed the return of income on 29.06.2016 declaring a total income of Rs. 7,42,51,690/-. 2.1 During the course of assessment proceedings, the Assessing Officer observed that the assessee has raised share capital of Rs. 11,85,00,000/- from Superior Industrial Enterprises Ltd. on account of issue of 3,16,000 shares of Rs. 10/- each with premium of Rs. 365/-. He observed that during the course of pre-search enquirie....
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....rectors of the non-descript companies u/s 131 of the I.T. Act which were either returned back or delivered but there was no response or only part compliance. Ultimately the Assessing Officer came to the conclusion that the assessee failed to establish the identity, creditworthiness and genuineness of the parties wherefrom funds were received by the investor of the assessee who are also group companies of the assessee group. Since the assessee has received an amount of Rs. 11,85,00,000/- towards share capital and share premium and the assessee could not discharge the burden cast on it to the satisfaction of the Assessing Officer, he treated the same as unexplained cash credit u/s 68 of the I.T. Act as the income of the assessee for the relevant period under consideration. 3. Before the ld. CIT(A), the assessee apart from challenging the addition on merit challenged the assumption of jurisdiction u/s 153A of the I.T. Act. It was submitted that the original return was filed on 29.08.2013 declaring an income of Rs. 7,42,51,690/- which was processed u/s 143(1) on 18.04.2014. The search u/s 132 was conducted in this case on 28.03.2015 and notice u/s 153A was issued on 10.05.2016. It w....
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....s surrendered an amount of Rs. 88.52 crore out of which a sum of Rs. 30.78 crores were referred to for the assessment year 2008-09 and rest of amount was non descriptive and vague and was surrendered subject to cross checking of the facts and to explain after access to the books of accounts. The said statement was retracted by said Shri Sanjeev Agarwal on 18.05.2015 within two months from the date of original statement. Though the appellant has stated to have recorded all the transactions under appeal in its books of account and offered all the necessary and relevant proof thereof as such. Since the assessment proceedings were pending at the time of search and was abated, the legal ground objected as such by the appellant was not valid as such the same is bound to be rejected. These being primary and basic the legal ground going to the root of the assessment, it is necessary to examine the nature of incrimination material conferring upon the AO necessary jurisdiction u/s 153A to utilize such material arising consequent to the search operation. The material so found and seized and thereafter relied upon and utilized thereon in the assessment of the assessee leading the AO to conclud....
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....ion. Hon'ble Delhi High court has also reiterated in many rulings that action u/s 153A is bound to be initiated in such situations. Therefore, this action of the AO is in tune with judgment of Hon'ble Delhi High Court in CIT (C)-III vs. Kabul Chawla (Delhi) [2015] 61 taxman.com 412 (Delhi), 234 Taxman 30. The same is further strengthened by the judgment of Hon'ble Delhi High Court in the case of Dayawanti Gupta vs CIT in 'ITA Nos 357,358.359/2015 and other' dated 27/10/2016. Having considered the detailed and belaboured submissions of the Ld AR and the material on record, I am drawn to the conclusion that the action of the AO does not go at variance with the provisions of law and the available jurisprudence in this matter in so far as invoking the proceedings per section 153A is concerned. The AO was well within his powers to invoke section 153A of the Act on prima facie finding about information that surfaced during the search. Basis above discussions, these grounds of appeal are not sustainable. The ground no. 4 (a) and 4 (b) are therefore dismissed. 6. So far as the addition on merit is concerned, ld. CIT(A) also dismissed the said ground by observing as u....
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....ch company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:" The appellant has neither produced the investor nor arranged to provide the requisite information and documents directly from it as such failed to substantiate its contention. The onus to prove its contentions has not been discharged by the assessee appellant. Concept of Onus is dynamic no doubt, but the assessee is required to first discharge the onus cast upon by way of information in possession of the department based on the seizure of such documents that create prima facie basis for the AO to arrive at his conclusions. The assessee has presented a whole series of jurisprudence without substantively discharging its onus. Such onus does not shift back by the mere act of the assessee in plainly denying the imputations without really offering corroborative data or any substantive contentions to establish its case to rebut the imputation. The appellant fails on this count as the primary onus is yet not discharged. I find no substantive basis to accept the contentions....
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....d on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher; (b) "venture capital company", "venture capital fund" and "venture capital undertaking" shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of 94[Explanation] to clause (23FB) of section 1O;]" [emphasis supplied] C1. The share premium charged by the appellant clearly falls within the mischief of this section in absence of assessee furnishing a reliable and robust basis of valuation of such equity. The relevant rule in this regard is rule 11 A(1) cb. The assessee is in clear mischief of the same, hence the premium charged by the assessee is to be subjected to the provisions of section 56 (2) viib read with rule 11UA (1)cb. It is bounden on the assessee to furnish reliable valuation determining such share premium as in its case for the AY 2013-14, from a qualified valuer. The assessee has not done the same, nor has any submission filed before me in this regard. The share premium so c....
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....ly overlooked that there was no adverse material brought on record by the learned Assessing Officer to assume that credits by way of share capital represents unexplained cash credit and, burden which lay upon the assessee in terms of section 68 of the Act had not been discharged. 2.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that once the aforesaid share holder had duly confirmed the investment made, he could not have upheld the addition on arbitrary grounds and that too without bringing any evidence or even alleging that aforesaid credits by way of share capital emanated from the source of funds provided by the appellant company. 2.3 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the shareholder was a corporate entity, duly assessed to tax and, had subscribed to share-capital through banking channels and supported by necessary documents, share capital received could not in law or on fact be brought to tax u/s 68 of the Act. 2.4 That the learned Commissioner of Income Tax (Appeals) has also failed to appreciate that appellant had placed on record voluminous evidences to discharge th....
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.... has retracted from his statement regarding surrender of income to the extent of 30.78 crores pertaining to assessment year 2008-09 which is evident from pages 30 to 35 of the Paper Book. 9.1 Referring to the decision of the Delhi Bench of the Tribunal in the case of Brahmaputra Finlease (P) Ltd. vs. DCIT vide ITA No.332/Del/2017 order dated 29.12.2017 for assessment year 2007-08, the decision of the Hon'ble Delhi High Court in the case of CIT vs. Best Infrastructure (India) (P) Ltd. reported in 397 ITR 82 and the decision of the Hon'ble Delhi High Court in the case of CIT vs. Harjeev Aggarwal reported in 290 CTR 263, he submitted that the statements recorded u/s 133(4) do not by themselves constitute incriminating material. 10. Referring to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla reported in 380 ITR 573, the decision in the case of Pr.CIT vs. Meeta Gutgutia reported in 395 ITR 526 and various other decisions, he submitted that in absence of any incriminating material found as a result of search, assumption of jurisdiction u/s 153A is not in accordance with law. He also relied on the following decisions :- (i) Pr.CIT vs. Lata ....
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.... made on account issue of share capital by that company, addition cannot be made in the hands of the assessee company on account of purchase of shares by M/s Superior Industrial Enterprises Ltd. in the assessee company. Relying on various decisions, he submitted that source of source cannot be a basis to make the addition. 13. He submitted that the burden of the assessee was discharged since the investor is a listed group company and copy of audited financial statement, acknowledgement of return of income, confirmations of investor, bank statements, memorandum of article or association were filed. Further, assessment was completed u/s 143(3) in the case of the said investor company. There is no evidence on record to suggest that the money received as share capital and share premium has originated from the coffers of the assessee company. 14. Referring to various decisions, he submitted that non-production of shareholder/director by the assessee cannot be a ground for making addition u/s 68 if assessee discharged the initial onus cast on it. He submitted that the Assessing Officer has not established that the particulars furnished by the assessee are false especially when no e....
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.... identity and capacity of the investor company and genuineness of the transaction. Since the investor company has been assessed u/s 143(3) and since the investment of the assessee in the investor company has also not been doubted by the Assessing Officer, therefore, under the facts and circumstances of the case no addition is sustainable legally and factually. 18. Ld. DR on the other hand heavily relied on the order of the ld. CIT(A). She submitted that the A.O. has extensively and exhaustively proved that identities and creditworthiness of such parties & genuineness of transactions regarding amount of Rs. 11.85 crores as share capital & share application money paid to the Assessee company by several entities/firms/companies are bogus, non-existent paper entities having no worthy business to advance such share capital & share application money. Thus said assessee company has miserably failed to prove all three ingredients required for provision of section 68 of I.T. Act, 1961. 19. Referring to the decision in the case of CIT vs. MAF Academy (P.) Ltd. reported in 361 ITR 258, she submitted that the Hon'ble Delhi High Court in the said case has held that where assessee, a p....
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....ble Delhi High Court has held that where assessee failed to prove identity and capacity of subscriber companies to pay share application money, amount so received was liable to be taxed under section 68. 24. Referring to the decision in the case of CIT vs. Nova Promoters & Finlease (P) Ltd. reported in 342 ITR 169, she submitted that the Hon'ble Delhi High Court has held that amount received by assessee from accommodation entry providers in garb of share application money, was to be added to its taxable income under section 68. 25. Referring to the decision in the case of CIT vs. Ultra Modern Exports (P.) Ltd. reported in 40 taxmann.com 458, she submitted Hon'ble Delhi High Court has held that where in order to ascertain genuineness of assessee's claim relating to receipt of share application money, Assessing Officer sent notices to share applicants which were returned unserved, however, assessee still managed to secure documents such as their income tax returns as well as bank account particulars, in such circumstances, Assessing Officer was justified in drawing adverse inference and adding amount in question to assessee's taxable income under section 68. ....
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....iling of Income Tax returns etc. , thus doing only non-genuine transaction / bogus transaction vi. Significant deficiencies/discrepancies have been established by said A.O. to prove identity as non-existent/bogus only paper entities / Creditworthiness is Absent due to negligible/loss Income of such Entities / Genuineness of Transaction is only Sham/non-genuine. 31. Referring to the order of the ld. CIT(A), she submitted that the ld. CIT(A) has correctly in fact & in Law has dismissed the appeal of assessee holding that Assessee has failed to prove Identity, Creditworthiness & genuineness of Transaction & burden of proving such ingredients of provision of section 68 of I.T. Act was never discharged from Assessee due to utter failure to produce substantive corroborative evidence to prove such. He has categorically held that Assessee has not done a reliable & robust valuation of share premium charges strictly as per Rule 11 UA(l)cb r.w.s. 56(2)(viib) & Ld. CIT(A) has dismissed the Appeal of the Assessee which is justified under the facts and circumstances of the case. 32. So far as assessee company's grounds of Appeal regarding "no incriminating material is availabl....
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....y/investigation by A.O. during assessment proceedings on such seized materials, unaccounted/undisclosed income has been found & established for said assessment. The A.O. in the said case relied on seized documents/information on prima-facie bogus share capital & share premium (valuation of which NOT as per provision of Income Tax Act 1961 as stated by Ld CIT(A) in Appeal order) and after conducting further inquiry/investigation on said seized materials/information the A.O. finally established bogus/ accommodation entries in terms of share capital & share premium as assessee miserably failed to prove identity of such Entities , genuineness of transaction found to be NONGENUINE & creditworthiness which was never proved as such Entities were only existing on paper without any physical presence as none of such entities were produced before said A.O. for examination being bogus/paper in existence. iv. In legal parlance, Incriminating material means materials which are used for wrongful / illegal act in violation of any law in existence. In this case the assessee company indulged in practice of avoiding genuine tax by routing undisclosed/unaccounted taxable income through bogus ....
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....u/s 153A of LT. Act 1961. 33. She accordingly submitted that considering all facts and the cited case laws, the Appeal of assessee deserves to be dismissed since the grounds of appeal are devoid of any merit. 34. We have considered the rival arguments made by both the sides, perused the orders of the authorities below and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer on the basis of various enquiries conducted and statement recorded of various persons u/s 132(4) and 131 made addition of Rs. 11,85,00,000/- in the hands of the assessee u/s 68 of the I.T. Act on the ground that the assessee failed to substantiate with cogent evidence to his satisfaction regarding the identity and creditworthiness of the investor and the genuineness of the transaction. According to the Assessing Officer, since the assessee could not produce the investor company and since its returned income is meager considering the huge investment made by it in the shares of the assessee company with huge premium, therefore, the provisions of section 68 are clearly attracted. We find, in appeal, ld. CIT(A) upheld the a....
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....led on 12.09.2013 which was accepted u/s 143(1) vide intimation dated 18.04.2014. The period for issue of notice u/s 143(2) expires on 30.09.2014 i.e. the notice u/s 143(2) could not have been served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished. Therefore, in absence of issue of any notice u/s 143(2) and since no other proceedings are pending, therefore, it had attained the finality much prior to the date of search on 28.03.2015. Under these circumstances, the finding of the ld. CIT(A) that the assessment proceedings were pending at the time of search and was abated is factually incorrect. 36. We find the ld. CIT(A) at para 5 page 11 of his order has observed as under :- "The basis of addition as taken by the A.O. was statement recorded of Shri Sanjeev Agarwal during the course of search wherein he has surrendered an amount of Rs. 88.52 crore out of which a sum of Rs. 30.78 crores were referred to for the assessment year 2008-09 and rest of amount was non descriptive and vague and was surrendered subject to cross checking of the facts and to explain after access to the books of accounts. The said stat....
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....the aforementioned reasons, the Court is of the view that the ITAT was fully justified in concluding that the assumption of jurisdiction under Section 153A of the Act qua the Assessees herein was not justified in law." 39. We find the Hon'ble Delhi High Court in the case of CIT vs. Harjeev Aggarwal reported in 290 CTR 263 has observed as under :- "23. It is also necessary to mention that the aforesaid interpretation of Section 132(4) of the Act must be read with the explanation to Section 132(4) of the Act which expressly provides that the scope of examination under Section 132(4) of the Act is not limited only to the books of accounts or other assets or material found during the search. However, in the context of Section 158BB(1) of the Act which expressly restricts the computation of undisclosed income to the evidence found during search, the statement recorded under Section 132(4) of the Act can form a basis for a block assessment only if such statement relates to any incriminating evidence of undisclosed income unearthed during search and cannot be the sole basis for making a block assessment." 40. The Co-ordinate Bench of the Tribunal in the case of Brahmaputra ....
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....ilar view and has held that once the assessment has attained finality for a particular year i.e. it is not pending then the same cannot be subject to tax in proceedings u/s 153A of the I.T. Act. This of course would not apply if incriminating materials are gathered in the course of search or during the proceedings u/s 153A which are contrary to and/or nor disclosed during the regular assessment proceedings. 44. The Hon'ble Delhi High Court again in the case of Pr.CIT vs. Lata Jain reported in 384 ITR 543 has held that in absence of any incriminating material found as a result of search, assumption of jurisdiction u/s 153A was not in accordance with law. The various other decisions relied on by the ld. counsel for the assessee also supports his case. The Hon'ble Supreme Court in the case of CIT vs. Sinhgad Technical Education Society reported in 397 ITR 344 has upheld the decision of Hon'ble Bombay High Court wherein the Hon'ble High Court had upheld the decision of the Tribunal holding that the incriminating material which was seized has to pertain to the assessment years in question and it is an undisputed fact that the documents which were seized did not establish any co-r....
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....rior Industrial Enterprises Ltd. as share capital and share premium and erroneously held as unexplained cash credits under section 68 of the Act particularly when no incriminating material either in the shape of unexplained cash or investment or document had been detected as a result of search on the appellant company or even gathered in the instant assessment proceedings. 2.1 That while sustaining the aforesaid addition the learned Commissioner of Income Tax (Appeals) has completely overlooked that there was no adverse material brought on record by the learned Assessing Officer to assume that credits by way of share capital represents unexplained cash credit and, burden which lay upon the assessee in terms of section 68 of the Act had not been discharged. 2.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that once the aforesaid share holder had duly confirmed the investment made, he could not have upheld the addition on arbitrary grounds and that too without bringing any evidence or even alleging that aforesaid credits by way of share capital emanated from the source of funds provided by the appellant company. 2.3 That th....