TaxTMI 
TaxTMI 
2021 (8) TMI 851
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....nt. 2. Whether On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred, in appreciating that the modus operandi detected during Search/Survey clearly established colourable transaction by the assessee under the grab of share premium. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) erred in applying the ratio of the decision of Vodafone India Services(P) Ltd. and Appeak Infotech [2017] 88 taxmann.com 695(Bombay) in the case of assessee who entered into accommodation entries in the name of share premium. 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred, in placing extensive reliance on the retraction affidavit of Shri Kiritkumar Suba, Shri Navin Nishar and Shri Naresh Sodhani without appreciating that the affidavits were not reliable & had no evidentiary value. 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred, in not appreciating that the statement recorded u/s 131 had evidentiary value and contents thereof were presumed to be true. 5. Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) was justified in....
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....ii). statement of Shri. Navin Nishar, chartered accountant, who was associated with Shri. Kirit Kumar Dharishbhai Suba for last 8 years and was stated to have arranged four high net worth companies for him to facilitate the aforesaid arrangement recorded u/s 131 of the Act on 11.01.2018 during the course of the survey proceedings carried out u/s 133A in the case of M/s Suba & Company at 102, Olive Apartment, Devidas Lane Corner, Link Road, Borivali (West), Mumbai 400103; and (iii). statement of Shri. Naresh Kumar Sodani, chartered accountant who is stated to have played a pivotal role for facilitating the aforesaid arrangement of siphoning the receipts of trusts/charitable institutions of Podar Group by way of bogus donations to such other trusts/charitable institutions that would be identified by him alongwith Shri. Kirit Kumar Dharishbhai Suba, which thereafter would be received back in cash from the said trusts/charitable institutions through angadias/money handlers, recorded u/s 131 of the Act on 11.01.2018 during the course of the survey proceedings carried out u/s 133A at 245-246, Vardhman Sunrise Plaza, Vasundhra Enclave, New Delhi - 110 096. 4. On the basis of the aforesai....
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....premium during the year under consideration, i.e the first year of the company, the A.O reopened its case u/s 147 of the Act. Notice under Sec. 148 of the Act was issued to the assessee company on 27.03.2018. In compliance, the assessee company filed its return of income on 30.08.2018. On request by the assessee a copy of the 'reasons to believe' on the basis of which the case was reopened were made available by the A.O on 17.11.2018. Objections filed by the assessee company to the validity of the jurisdiction assumed by the A.O for reopening its case u/s 147 of the Act were thereafter disposed off by the A.O vide his letter dated 12.12.2018. Subsequently, the A.O issued notices under Sec. 143(2) and 142(1) of the Act. 4. During the course of the assessment proceedings, the assessee in order to substantiate the authenticity of the share premium received during the year under consideration from the aforementioned 19 companies, therein placed on record supporting documentary evidence as were called for by the A.O vide his notice under Sec. 142(1), dated 19.12.2018, viz. Copies of the Board's resolution, Application form for Shares, Copy of Form No. 2, Share Valuation certificate dat....
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....llegation of the department that the donations given by charitable institutions/trusts of Podar group to other charitable institution/trusts were bogus and the donee trusts had thereafter withdrawn cash from their bank accounts and given it back to Podar Group, which thereafter was ploughed into the companies of the said group through a maze of bogus companies, was an incorrect and a baseless allegation. The assessee further placed on the assessment record the complete details of the 19 shares subscribers who were existing tax payers alongwith their complete addresses and income tax credentials. It was, thus, in the backdrop of the aforesaid facts submitted by the assessee that now when the complete details of the share subscribers along with their income tax credentials had been furnished with the department, the share application money received from them could not be regarded as its undisclosed income within the meaning of Sec. 68 of the Act. In support of his aforesaid contention the assessee had relied on the judgments of the Hon'ble Supreme Court in the case of CIT vs. Lovely Exports Pvt. Ltd. (2008) 216 CTR 195 (SC) and CIT Vs. Divine Leasing & Finance Ltd. (2008) 299 ITR 268....
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....iz. mode of donations i.e cheques, name of the recipient trusts/institutions alongwith the correspondence to the said effect with them, coupled with the fact that neither any cash was seized nor any money trail had therein surfaced in the course of the search proceedings supported the authenticity of the said transactions, it was observed by the A.O that the modus operandi adopted i.e cheque for cash and layered transactions to cover the money trail that was brought back in the form of share application money, loan, share premium etc. was an age old practice adopted to camouflage the true nature of transactions and to give them a colour of genuine transactions. It was rather observed by the A.O that the confessions of the aforementioned persons, viz. Shri Kirit kumar Dharshibhai Suba, Shri Navin Nishar and Shri Naresh Kumar Sodani formed the cardinal circumstantial evidence qua the nefarious activities carried out by Podar group. Observing that such nefarious activities are always carried out in the darkness of secrecy and it is always not possible to have clinching evidence to establish such surreptitious activities, the A.O relied on the principles of the preponderance of human p....
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....), we find, that he had after deliberating at length on the different facets forming the basis and/or having a bearing qua the addition of Rs. 2.25 crores made by the A.O under Sec. 68 of the Act, deleted the same. It was observed by the CIT(A) that the view taken by the A.O that the trusts/charitable institutions of Podar Group were involved in siphoning of their receipts by making bogus donations to other charitable/educational institutions, which thereafter was received back in cash and ploughed in the garb of share application money, share premium, loans etc. into companies and other entities controlled by the said group was primarily based on the statements recorded during the course of the survey proceedings under Sec. 133A of certain persons who were stated to have facilitated the aforesaid arrangement, viz. (i). Statement of Shri. Kirit Kumar Dharishbhai Suba, a key person of the group who was working as a consultant chartered accountant and retainer for financial advisory and statutory compliances with Podar group of Educational Institutes since the year 1982 that was recorded u/s 131 of the Act on 11.01.2018; (ii). Statement of Shri. Navin Nishar, chartered accountant, wh....
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....persons, viz. Shri. Kirit Kumar Dharishbhai Suba, Shri. Navin Nishar and Shri. Naresh Kumar Sodani, wherein they had retracted from their respective statements recorded in the course of the survey proceedings conducted u/s 133A on 11.01.2018, as additional evidence U/rule 46A of the Income-tax Rules, 1962, and had also sought their cross-examination, therefore, the CIT(A) called for a remand report from the A.O. Also, the CIT(A) taking cognizance of the assessee's claim that no incriminating material was found during the course of the search proceedings which would evidence that it had received funds out of those which were allegedly stated to have been siphoned from the charitable/educations trusts of Podar group, therefore, he directed the A.O to provide copies of the relevant incriminating material, if any, that were found during the course of the search proceedings evidencing the said fact. After lots of persuasion, the A.O filed his 'remand report', dated 06.11.2019 with the CIT(A), wherein he objected to the admission of the 'affidavits' of the aforementioned persons as an additional evidence. Although, the A.O had in the course of the remand proceedings facilitated a cross-e....
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....of Shri. Naresh Kumar Sodani. However, the CIT(A) did not find favour with the summarily brushing aside of the retraction affidavits of the aforementioned persons by the A.O i.e without carrying out any independent enquiries and investigations of his own. It was observed by the CIT(A) that though all the aforementioned persons, viz. Shri. Kirit Kumar Dharishbhai Suba, Shri. Navin Nishar and Shri. Naresh Kumar Sodani had clearly stated in their respective statements recorded in the course of their cross-examination that they have retracted from their earlier statements that were recorded u/s 131 of the Act in the course of the survey proceedings on 11/12.01.2018, however, the A.O had failed to re-examine the said witnesses on the said crucial issue. As regards the merits of the addition qua treating of the share premium as an unexplained cash credit u/s 68 of the Act by the A.O, it was observed by the CIT(A) that the assessee had furnished sufficient documentary evidence to substantiate the authenticity of the share capital/share premium that was received by it from all the 19 share subscribers, viz. (i). statement showing the details of share capital and share premium received duri....
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.... Sec. 68 of the Act was not sustainable in the eyes of law. Referring to the view taken by him while disposing off the appeal in the case of M/s Goodluck Apparels Pvt. Ltd for A.Y 2011-12 in Appeal No. CIT(A)-47, Mumbai/10126/2018-19 for A.Y 2011-12, the CIT(A) after relying on a host of judicial pronouncements observed, that when the transactions are duly supported and evidenced by documentary evidence, the same, thus, could not be treated as bogus simply on the basis of the report of the Investigation wing or the statement of third parties. Apart from that, it was observed by the CIT(A) that qua the genuineness of the donations given by the charitable/educational trusts of Podar group to other charitable/educational trusts or institutions, the A.O had received replies from all the donee trusts to whom notices were issued u/s 133(6) of the Act and there were no shortcomings in the documents submitted by them. Also, it was observed by the CIT(A) that the A.O had failed to bring on record any such case where the exemption certificate of any of the donee trust was cancelled on the ground of it having allegedly acted as a facilitator for siphoning off the receipts of charitable/educat....
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....sumptions and presumptions of the A.O. In support of his observation that no addition could be made merely on the basis of presumptions the CIT(A) had relied on a host of judicial pronouncements. Further, it was observed by the CIT(A) that all the statements relied upon by the A.O were recorded u/s 131 of the Act during the course of the survey operation conducted under Sec. 133A of the Act, viz. (i). statement of Shri. Kirit Kumar Dharishbhai Suba that was recorded on 11.01.2018 and 12.01.2018 during the course of the survey proceedings carried out u/s 133A in the case of M/s Suba & Company at 102, Olive Apartment, Devidas Lane Corner, Link Road, Borivali (West), Mumbai - 400 103; (ii). statement of Shri. Navin Nishar that was recorded on 11.01.2018 during the course of the survey proceedings carried out u/s 133A in the case of M/s Suba & Company at 102, Olive Apartment, Devidas Lane Corner, Link Road, Borivali (West), Mumbai 400103; and (iii). statement of Shri. Naresh Kumar Sodani that was recorded on 12.01.2018 during the course of the survey proceedings carried out u/s 133A at 245-246, Vardhman Sunrise Plaza, Vasundhra Enclave, New Delhi - 110 096. Relying on the judgments of ....
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....f his aforesaid observation reliance was placed by the CIT(A) on the CBDT Instruction F.No. 286/2/20003-IT(Inv-II), dated 10th March, 2003. It was observed by the CIT(A) that in its aforesaid Instruction the CBDT had emphasised that during the course of search and survey proceedings no attempt should be made by the tax officials to obtain confessions regarding the undisclosed income and the focus should be on collection of credible evidence. Again, the aforesaid directions were reiterated by the CBDT in its Circular No. F.No. 286/98/2013-IT,dated 18.12.2014. It was further noticed by the CIT(A) that though the A.O in the course of the remand proceedings was specifically directed to provide copies of the incriminating material, if any, found during the course of the search operation in relation to the additions made in the assessment order i.e incriminating material which would evidence siphoning off the trust funds and introduction of the same as share premium in the books of account of the assessee company, however, the A.O in his remand report had only placed reliance on the assessment order and no incriminating documents whatsoever were furnished by him. It was observed by the C....
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....s the A.O had neither placed on record any incriminating material supporting the aforesaid addition nor brought on record any material which would establish that the assessee was in collusion with the donee trusts, therefore, there was no justification in holding the share premium as an unexplained cash credit within the meaning of Sec. 68 of the Act. Apart from that, it was observed by the CIT(A) that now when the A.O had held the share capital received by the assessee company from the share applicants as genuine, therefore, it could safely be concluded that the identity, creditworthiness and genuineness of the share subscribers qua the transactions in question had been accepted by him. It was, thus, observed by the CIT(A) that after holding the share capital received by the assessee from the share applicants as genuine, it was incorrect on the part of the A.O to adopt an inconsistent approach and treat the share premium received from the same shareholders as bogus. Qua the share premium charged by the assessee company, it was observed by the CIT(A) that the same was duly supported by the valuation report of the registered valuer, viz. D.N Shetty & Co. As regards the 'proviso' to ....
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....he CIT(A) on the basis of his aforesaid observations vacated the addition of Rs. 2.25 crores that was made by the A.O by treating the share premium received by the assessee as an unexplained cash credit u/s 68 of the Act. 8. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We have heard the ld. Authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. As observed by us hereinabove, the ld. CIT(A) had on the basis of an exhaustive order vacated the stamping of the share premium of Rs. 2.25 crore as an unexplained cash credit u/s 68 of the Act by the A.O. We shall, thus, deal with the sustainability of the multiple observations of the CIT(A) qua the issue in question i.e treating of the share premium of Rs. 2.25 crore as an unexplained cash credit by the A.O. On a perusal of the assessment order, we find that information was received by the A.O from the Investigation Wing, Mumbai that that the trusts/charitable institutions ....
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.... 13,50,000 09.10.2010 18. Artillegence Bio Innovation Ltd. 2,25,000 13.10.2010 19. Terry Towel Industries Ld. 13,50,000 22.10.2010 Total 2,25,00,000 Backed by the aforesaid information, the A.O carried out further verifications and perused the financials of the assessee company for A.Y 2011-12 to 2016-17, which revealed that it had not shown any business whatsoever in its profit & loss account for any of the said year. On the basis of his aforesaid observations, the A.O held a conviction that the assessee company, viz. M/s Hemadri Machine Tools Pvt. Ltd. in the garb of share premium had merely received accommodation entries. Holding a conviction that as the assessee had neither carried out any activities nor there was any justifiable reason which would go to suggest that its shares could command such high premium during the year under consideration, i.e the first year of the company, the A.O reopened the case of the assessee company u/s 147 of the Act. 9. As observed by us hereinabove, the primary reason that had weighed with the A.O for holding that the Share premium of Rs. 2.25 crore received by the assessee company was sourced out of the si....
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....at the aforesaid 'affidavits' had a material bearing on the adjudication of the issues before him, as well as in all fairness taking cognizance of the fact that as it was only after the receipt of the assessment order that it had came to the knowledge of the assessee company that the A.O had relied upon the statements of Shri. Navin Nishar and Shri. N.K Sodani for making the additions u/s 68 of the Act, had rightly concluded that the retraction affidavits of the said persons were clearly admissible under Rule 46A(1)(c) and Rule 46A(1)(d) of the Income-tax Rules, 1962. Accordingly, we find that the aforementioned persons had clearly by way of their retraction 'affidavits' resiled from their averments made in their respective statements that were recorded u/s 131 of the Act in the course of the survey proceedings. Apart from that, the fact that the aforementioned persons had in the course of their cross-examination relied on their retraction 'affidavits' and had further supplemented the same by filing fresh 'affidavits' dated 26.09.2019, 27.09.2019 & 27.09.2019, proves to the hilt that their earlier averments made in their respective statements recorded u/s 131 of the Act did no more....
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....ceedings the officials should abstain from laying undue emphasis on recording statements or obtaining confessions regarding undisclosed income, but focus should be on collection of evidence of undisclosed income. Further, the aforesaid directions were once again reiterated by the CBDT in its Circular F.No. 286/98/2013-IT, dated 18.12.2014. We, thus, in terms our aforesaid observations concur with the view taken by the CIT(A) that as the A.O pursuant to the retraction of their respective statements by the aforementioned persons, viz. Shri. Kirit Kumar Dharishbhai, Shri. Navin Nishar and Shri. Naresh Kumar Sodani, had failed to place on record any corroborative material which would substantiate that the averments made by them in their original statements recorded u/s 131 of the Act on 11/12.01.2018 i.e during the course of the survey proceedings revealed the correct facts, therefore, his hollow claim that the retraction of the aforementioned persons being a result of an afterthought be not admitted, does not merit acceptance. Alternatively, we also concur with the view taken by the CIT(A) that as the statements of the aforementioned persons, viz. Shri. Kirit Kumar Dharishbhai, Shri. ....
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....ackdrop of the aforesaid facts, we concur with the observation of the CIT(A) that no incriminating material was found in the course of the search proceedings which would evidence that the receipts of Podar trusts were routed to the assessee company in the garb of share premium during the year under consideration. Although it is a matter of fact that no incriminating material had surfaced in the course of the search proceedings which would irrefutably evidence that the Share premium of Rs. 2.25 crore received by the assessee company during the year under consideration wassourced out of the receipts of charitable/educational institutions of Podar group, however, even otherwise as the so called 'digital evidence' i.e text message retrieved from the mobile phone of Shri. Navin Nishar dated 29th & 30th June, 2016, was not found from the possession of the assessee, therefore the presumption contemplated in Sec. 132(4A) and Sec. 292C could also by no means be invoked and used against the assessee for drawing of adverse inferences qua the transaction of receipt of share premium of Rs. 2.25 crore by the assessee from duly identified 19 share subscribers. We find that the CIT(A) had observed....
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....s, copies of letters of the applicant companies seeking allotment of equity shares, copies of the letters confirming the allotment of equity shares to the applicant companies, copy of share valuation report issued by registered valuer, viz. D.N Shetty & Co, dated 22.04.2010 under DCF method, copy of bank statement evidencing that the application money was received from the share applicants through banking channel, copy of certificate of incorporation, certificate of commencement of business, copy of PAN card, memorandum of association, articles of association, resolution passed by applicants of shares in the board meeting, application for shares and confirmations from all the 19 share applicants. In the backdrop of the aforesaid facts, we concur with the view taken by the CIT(A) that as the assessee had placed on record substantial material evidencing the identity and creditworthiness of the share applicants, as well the genuineness of the transactions in question, therefore, the primary onus that was cast upon it was duly discharged and stood shifted upon the revenue. On a perusal of the records, we find that the A.O had at no stage doubted or dislodged the authenticity and veraci....
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....on record substantial documentary evidence, viz. name, PAN, address, copies of share application forms, board resolution, acknowledgement of income-tax returns, Form No. 2 for allotment of equity shares, financial statements, form of allotment of shares etc. had duly discharged the onus that was cast upon it and proved the identity, genuineness and creditworthiness of the share applicants, which had not been dislodged or disproved by the A.O by carrying out any independent enquiries, therefore, the CIT(A) had rightly concluded that the A.O bypassing such clinching documentary evidences filed by the assessee could not have held the share premium of Rs. 2.25 crore as an unexplained cash credit within the meaning of Sec. 68 of the Act. 11. We shall now deal with the observation of the CIT(A) that as the 'Proviso' to Sec. 68 had been made available on the statute vide the Finance Act, 2012 w.e.f 01.04.2013, which therein provides that in a case where any sum credited in the books of account of an assessee company consists of share application money, share capital, share premium or any such amount by whatever name called, it is obligatory for the person, being a resident in whose name ....
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.... then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit." Further, we concur with the view taken by the CIT(A) that now when the assessee had filed with the A.O the complete details of the 19 share subscribers, viz. names, address, PAN nos., confirmations etc., and still if the A.O was of the view that the share premium was received by the assessee from bogus shareholders, then, it was open for him to proceed against such share subscribers and could not have assessed the said amount as an unexplained cash credit in the hands of the assessee company. Our aforesaid view is supported by the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Lovely Export Pvt. Ltd. (2008) 216 CTR 195 (SC). Also a similar view qua the pre-amended Sec. 68 of the Act i.e the assessee can be asked to prove the source of credit in books, but cannot be asked to prove the source of the source has been taken in the following judicial pronouncements : (i). Murlidhar Lahorimal Vs. CIT (2006) 280 ITR 512 (G....