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2020 (2) TMI 350
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....appreciating the fact that the shareholding companies are only paper companies not carrying out any substantial business activities. The entire transaction is nothing but make believe transaction and colourable devices are used to give colour of genuineness to non genuine transactions. 3. The Ld. CIT(A)-II, Nashik has erred by applying the decision of the Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd. Vs. CIT as this decision is not applicable in the facts and circumstances of the case. 4. The Ld. CIT(A)-II, Nashik has erred by not appreciating the fact that the decision of jurisdiction Bombay High Court in case of Major Metals 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 Rs. 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 surroun....
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....0 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. 190 17500 3325000 15 Blazer Venture Pvt. Ltd. 190 10000 1900000 16 Casper Entertainment Pvt. Ltd. 190 15000 2850000 17 Duke Business Pvt. Ltd. 190 17500 3325000 18 Grafton Merchant Pvt. Ltd. 190 30000 5700000 19 Kumar Engg. Co. Pvt. Ltd. 190 50000 9500000 20 Mahadev Vanjiya Pvt. Ltd. 190 25000 4750000 21 Matrix Systel Pvt. Ltd. 190 49500 9405000 22 Microchip Infotech Pvt. Ltd. 190 35000 6650000 23 Neha Cassets Pvt. Ltd. 190 35000 6650000 24 Octopus Infotell Pvt. Ltd. 190 17500 3325000 25 Olive Overseas Pvt. Ltd. 190 6250 1187500 26 Ostwal Trading (India) Pvt. Ltd. 190 5000 950000 27 Raghunandan Rajsons Ltd. 190 10000 1900000 28 Traingular Infocam Pvt. Ltd. 190 16250 3087500 29 Rigma Grapahite Investment Pvt. Ltd. Al-Proog Engg....
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....quired for business activity. It appears that no activity has been carried out from these office premises. The Inspectors have also contacted some Directors of these companies. 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 Rs. 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 ....
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.... 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 loss of Rs. 92,86,188/-. There can be some variations in the projected figures with the actual ones but it is not accepted that the projected figures do not match with the actual ones at any stage. This fact establishes that the projected figures are imaginary and hypothetical. The C.A has projected the figures as per his own whims and fancies and without any rational and fundamental basis. The entire exercise has been done deliberately and intentionally to justify the share premium of Rs. 190/- per share. This act of the assessee is self serving and intentionally manipulated. If the price of the share is calculated on the basis of actual fundamentals of the Co. the share price will be less than the face value of the shares as the assessee has shown losses. This fact itself proves that the projected earnings and valuation done by the Chartered....
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....me 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 bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law but it cannot be regarded as undisclosed income of Assessee Company." After careful consideration of the facts of the present case under appeal and the facts of the above mentioned cases, I am of the considered view that ratio of the said 3 are applicable to the facts of the instant case and therefore, they are to be followed. 22. In view of the above discussion as well as facts and circumstances of the case, I am of the considered opinion that the addition of Rs. 8,52,50,000/- made by the AO under section 68 of the Act is unjustified and the same is deleted. Thus, the main ground raised by the appellant is allowed." Pith and substance of the findings of the Ld. CIT(Appeals) is that on account of findings of the Hon'ble Jurisdictional High Court in the matt....
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....d 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 that these companies were paper companies and the assessee was not able to discharge his onus. It was also the contentions of the Ld. DR that out of the 35 companies, subject matter challenged before us, 4 companies were common as before the Hon'ble Supreme Court and for that purpose, our attention was drawn at Para 3.3 of the judgment of the Hon'ble Supreme Court in the matter of Principal Commissioner of Income Tax (Central)-1 Vs. NRA Iron & Steel Pvt. Ltd (supra.). 7.3 It was further contended by the Ld. DR that the Assessing Officer at Page 14 had examined the financial statements of the assessee for financial years 2007-08, 2008-09, 2009-10 and 2010-11 and submitted that a bare perusal of the financial statements it was clear that the assessee was not doing any business and turnover was mentioned as Nil for financial years 2007-08, 2008-09 and 2009-10 and turnover was negative for financial year 2010-11 i.e. (-18760884). It was also submitted by the Ld. DR on account of fin....
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....Honorable apex court ruling reveals following facts relating to credit-worthiness aspect a) All 11 Kolkata companies submitted information relating to investments in NRA (Para-3.8) b) All 11 Kolkata companies have meagre income, in the range of Rs. NIL to Rs. 50,000whereas, each of the 11 companies invested Rs. 90 lacs / Rs. 95 lacs into the assessee company (Para-3.8) c) Addition made by AO was deleted by CIT(A) considering discharge of primary onus, i.e. confirmations, tax return copies, PAN, bank statement showing investment in assessee through bank, etc. (Para-4) d) But AO's field reports revealed that, the Investor companies lacked credit-worthiness (Para-9) e) Insufficient data hence, onus not discharged (Para-13) 3. Observations -Following findings emerge from the said apex court order a) As per section 68 (prior to 2012 amendment), primary onus is on the assessee to substantiate a credit/credit entry (Para-8.2) b) Mere proving identity insufficient, its capacity or credit worthiness not established (Para-8.3) c) AO duty bound to investigate all aspects [Para - 11 (ii)] d) AO ought ....
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....d directly to the learned AO during the process of 133(6) enquiry. Further, appellant has placed on record, all available I-T scrutiny orders [143(1) as well as 143(3)] and in some of the scrutiny cases, issues of share premium was also referred. As such, present factual matrix is totally different compared to the facts in NRA's ruling. Further, though Lovely Export's case was referred to, the same was not dissented, and as such, even the Lovely Export's case too holds the field. Now, despite suspicious factual matrix of identity aspect and credit-worthiness aspect, there was no any further substantiation on these aspects. The said decision, does not air any negative view vis-a-vis the share premium aspect. Considering the Assessee's failure to explain suspicious facts of compliances, decision was reached finally to the effect that, onus (rather higher onus) remained to be discharged, permitting the AO to drawn an adverse view. As such, it is submitted, the said apex court ruling ought to be confined to it's own peculiar facts. It is reiterated, in the present case, much higher onus is discharged by the appellant and as such, the ratio of Lovely Export's cas....
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.... 4 Blazer Venture Pvt. Ltd. 28/07/2009 Received from Sital Mercantile & Credit Pvt. Ltd. against sale of investment 20,00,000 20,00,000 28/07/2009 20,00,000 20,00,000 5 Kapindra Multitrade Pvt. Ltd. 15/02/2008 Received from Realflag Trading Co Pvt. Ltd. against 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 Infotel Pvt Ltd. against sale of investment 25,00,000 25,00,000 07/12/2009 22/01/2010 Received from Highgrowth Vintrade Pvt. Ltd. against sale of investment 35,00,000 35,00,000 22/01/2010 60,00,000 60,....
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.... 50,00,000 50,00,000 29/03/2010 1,00,00,000 50,00,000 8.3 The Ld. AR had concluded that the order of the Assessing Officer is required to be upheld as the assessee has discharged the onus as required u/s.68 of the Act. 9. We have heard the rival contentions and perused the material available on record. We find that the Hon'ble Supreme Court in the matter of Principal Commissioner of Income Tax (Central)-1 Vs. NRA Iron & Steel Pvt. Ltd (supra.) has laid down certain tests in Para 11 (supra.) which required to be complied with by the assessee and legal obligation is required to be discharged by the assessee. We may also like to mention that 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....
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..... Nothing has been brought on record by the assessee either before us or before the lower authorities the basis of arriving at the projection by the Auditor. 9.5 The Assessing Officer has mentioned in paras 6.1, 6.1.5, 6.1.2 that the valuation of shares of the company done by the Auditors Shri Mukund Kokil was inappropriate and was not in accordance with facts and for that purpose, he has meticulously examined the basis of the projection used by the said Auditors. 9.6 In the present case, the Auditors have not done the valuation based on any scientific formula or basis. In fact, the assessee was not doing any business upto A.Y. 2009-10 even as per the mega 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 t....
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....er. The Ld. CIT(Appeals) had merely decided the appeal on the lines of findings recorded by the Hon'ble Supreme Court in the case of Lovely Exports. 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 Rs. 190/- per share or not. 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(....
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.... said decision in the cases of i) M/s. RDS Project Limited Vs. ACIT WP(C) No.11274/19 dated 23.10.2019 and ii) M/s. Vedanta Limited Vs. ACIT, WP(C) No.13036/2019 dated 20.12.2019. In view of the subsequent decisions by Delhi High Court, in the identical facts, it would be of no use for the Ld. AR to rely upon the findings given by the Co-ordinate Benches by filing chart giving the details of the 25 cases of the Tribunal. It needs no adjudication that once the facts of the case are squarely covered by the Hon'ble High Court or Supreme Court then the said decisions would have the presidency value rather than the decision of the Tribunal. 9.12. In our view, 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 ....