AI Drafter 
TaxTMI 
TaxTMI 
2018 (1) TMI 1652
X X X X Extracts X X X X
X X X X Extracts X X X X
....rch and seizure proceedings the search team searched for documents in the form of statutory records of this Company like Minutes of meeting Register, Share-holders register, Counter-foils of issued share-certificates etc. which are required to be maintained at the registered office of the company. However, no such documents were found. The persons present in the house also could not provide satisfactory explanation in this regard in their statements on oath. Further, the duly filled-in share application forms, supposed to be received from the share-applicants along with the share-application money were not found to be present at the registered office of the company or even at other premises of the group. The AO noted that during the course of assessment proceedings, in order to verify the identity, credit worthiness and genuineness of the transactions related to share application money, notices u/s 133(6) dated 06.11.2013 were issued to the following share applicants :- Name Shreevar Overseas Nandan Merchantiles Pvt. Ltd. Kamroop Vinimay Pvt. Adishwar Nirman P. Ltd. Mansarovar Dealers P. Ltd. Daha Engg. & Credit Pvt. Ltd. Display Commercial Pvt. Ltd. Shre....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... transactions were routed through banks, copy of resolution of board were also filed, thereby proving the creditworthiness, identify and genuineness of the transaction. The AO also noted these arguments have been tested time and again in the ensuing years at various appellate levels in various cases. The issues are discussed in the following paragraphs and a conclusion drawn that these transactions are covered by section 68. In the light of above discussion, the AO observed that the identity, creditworthiness or genuineness of the transactions is not established by merely showing that the transaction was through banking channels or by account payee instrument. It would be incorrect to state that the onus to prove the genuineness of the transaction and creditworthiness of the creditor stands discharged in all cases if payment is made through banking channels. Certificate of incorporation of company, payment by banking channels, etc. cannot in all cases tantamount to satisfactory discharge of onus. It has been elaborately established in the preceding paras that the assessee had failed to discharge its onus in proving the identity, creditworthiness and genuineness of the share applica....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hare Application Form, PAN of share applicant, Memorandum & Articles of Association wherever applicable, bank accounts, statements of applicants, final accounts, Certificate of Registration from ROC, details of investment made by the share applicants, etc. Summary of this has been filed for A.Y. 2006-07 at Page No. 63 to 86 and for A.Y. 2007-08 at Page No. 87 to 97 of the paper books. It was further submitted that the AO has not applied his mind and rejected the explanation summarily. The learned AR further objected the observation of the AO about keeping of share records by the assessee. It is submitted that it is not correct for the AO to say that. It is submitted that no question was raised to the director namely Shri Rajendra Agrawal about share records. Another Director, Shri Amar Agrawal was not present at the time of search operation. He was at Chennai to negotiate deal with Govt. of Tamil Nadu for sale of power by the assessee company. It was submitted that Shri Vijay Agrawal, who is Manager (Finance & Accounts) of the assessee company was present at the time of search operation. He has categorically replied to the question asked about share records. He has replied that sha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion- Money received 13,51,15,000/- 7,33,55,000/- Not accepted by the AO in original Assessment Order 2,00,00,000/- 42,50,000/- Relief allowed by ITAT/CIT (A) 2,00,00,000/- 42,50,000/- Addition made by the AO in Order U/S 153A 12,71,00,000/- 6,51,50,000/- The AO accepted share applications received from group companies and directors. I find that the evidences filed by the learned ARs include Share Application Form, Acknowledgement of Income Tax Return, audited final accounts, bank statement from where the amount was withdrawn to invest into appellant company, PAN, Incorporation Certificate issued by the ROC, Memorandum & Articles of Association etc. After considering the above evidences in the original Assessment Order for these two years i.e. A.Y. 2006-07 & 2007-08, the AO made addition of Rs. 2 crores in A.Y. 2006-07. The AO made addition of Rs. 42,50,000/- for A.Y. 2007-08. I also find that operation u/s.132 of the Act took place in the case of the appellant company, other group companies, directors and relatives. However, there is no mention in the Assessment Order about any incriminating document found suggesting that the receipt of sha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nizance 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 observation without any pro-per basis. 13. The discharge or otherwise of the onus u/s 68 has been independently evaluated and examined. 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.0 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. The A.O has not rebutted the evidences 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 evaluated the creditworthiness of the subscribers with reference to the audited financial statements of the su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e case of the appellant with the judicial pronouncements which have been rendered on absolutely different facts and circumstances. 16. 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 some of the cases. I have carefully perused the explanation submitted by the appellant in respect of cases where the notices remained unserved, the submissions of the appellant are found to be convincing. It is further observed that no further enquiry or investigation has been conducted by the AO to corroborate or support the conclusions drawn in the assessment order so as to assess the share capital money as the undisclosed income of the appellant company. In my considered opinion, apart from dr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Delhi High Court in Divine Leasing and Finance Limited, (2008) 299 ITR 268 have held that in the case of money received towards share capital only the identity of the share holders needs to be proved and once that is established and it is also shown that the money did in fact come from them, it is not for the assessee to prove as to how the share applicants came to be in possession of the money. In the light of the above discussion, I am inclined to agree with the arguments and evidences provided by the appellant to substantiate that the transaction regarding Share Application Money received by it were genuine transactions and the same were not accommodation entries. I also do not find any evidence collected by the A.O which could prove otherwise. Accordingly, the AO was not justified in treating the amount of share application money received by the appellant as its undisclosed income. 19. The case of the appellant finds support from the decision in: 1. CIT vs. Kamdhenu Steel & Alloys Limited & Ors. (2012) 68 DTR (Del) 38. 2. In the case of Commissioner of Income-tax v. HLT Finance (P.) Ltd. [2011] 12 taxmann.com 247 (Delhi) 3. In the-case of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre- meditated plan - a smokescreen -conceived and executed with the connivance or involvement of the assesses excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the asssssee has discharged the burden placed upon him under sec.68 to-prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary." 21. The case of the appellant also finds support from the following judicial pronouncements:- (a) Commissioner of Income-tax-III v. Namast....
X X X X Extracts X X X X
X X X X Extracts X X X X
....C.G). 22. 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 ratio of the aforesaid judgements of the Hon'ble Supreme Court in Lovely Exports and that of jurisdictional High Court are certainly binding in nature on all the revenue authority and courts etc. and further, the judgement of the jurisdictional High Court as well as that of the Hon'ble Supreme Court in Lovely Exports has been rendered on identical facts. Hence it is impermissible to deviate from the ratio laid down therein and against the law of judicial precedents. In view of the above and respectfully following the ratio of the binding judgements, the addition of share application/capital money of Rs. 12,71,00,000/- in A.Y 2006-07 and Rs. 6,51,50,000/- in A.Y 2007-08 as unexplained cash credits under section 68 are uncalled for and hence, deleted. The appellant gets relief of Rs. 12,71,00,000/- in A.Y 2006-07 and Rs. 6,51,50,000/- in A.Y 2007-08 23. 10. Ground Nos.3 to 5 in appeals of Revenue for the assessment years 2006-07 and 2007-08 and ground Nos.1 to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erved on them as they were not at the given address. The AO also stated that to add to these facts during the search proceedings a blank bill book of M/s Mittal Traders, a supplier of rice husk was found at the residential premises of Shree Amar Agrawal, one of the directors of the company. This further adds credence to the argument that the purchase of rice husk has been inflated by various means by people in the company. In light of these arguments and the facts and circumstances of the case, the AO disallowed an amount of Rs. 10,00,000/- and added the same to the income of the assessee for each of the assessment years from 2006-07 to 2012-13 on account of inflation of purchases of rice husk. 13. The assessee carried the matter before the CIT(A) and submitted that the addition of Rs. 10,00,000/- on account of so called bogus purchase of husk made by the AO in each of the years i.e., A.Y. 2006-07 to 2012-13 was without any basis, under presumption & surmises and arbitrary. The AO suspected that the appellant who was enjoying biomass status used to inflate purchase of husk. In regard to Show Cause Notice dated 12/03/2014 issued by the AO and enclosed at Page No. 210 of Paper Boo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it has Biomass status from 13/01/2007 to 31/10/2008 and thereafter from 01/06/2011 to 31/03/2012. Thus Biomass status was availed for 31 ½ months and it was not availed for 31 months and the Biomass status does not play any role to presume bogus purchases of husk in absence of any cogent material. The assessee objected the observation of the AO that assessee introduced bogus bill of purchase of husk to show production of electricity. No supporting for such belief was found during operation u/s 132 by the department or during assessment proceeding. It was explained by the assessee that M/s Mittal Enterprises left a bill book by mistake in the premises of the assessee. None of the pages of the Bill Book were used. It was also explained by the assessee that no adverse presumption can be drawn. The above M/s Mittal Enterprises was assessed to commercial tax vide Tin 22984942328. The assessee further submitted that a compilation of purchases of husk above Rs. 25 Lakh in a year at Page No. 102 to 105 of Paper Book for all the years were filed as directed by the AO, giving details of Name of supplier, total purchase from the party, addresses of supplier, TIN, PAN and amount of purc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ourt disapproved the practice of making additions in the assessment on mere suspicion and surmises or by taking note of the ''notorious practice" prevailing in trade circles. 27. It is not the case of the A.O that the husk purchases debited to Profit & Loss A/c remained unsubstantiated. There must be some cogent evidence suggesting that purchases have been inflated. I find that no margin for estimation of suppressed income or inflation of expenses has been allowed even in those cases where instances of suppression of income or inflation of expenses have been found on the basis of incriminating material except for the period for which suppression of income or inflation of expenses has been unearthed based on cogent and documentary evidence, undisputedly, in the case of the appellant, nothing incriminating has been found, therefore, as held in Deputy Commissioner Of Income Tax Vs. Royal Marwar Tobacco Product (P) Ltd. (2009) 120 TTJ (Ahd) 387 : (2008) 16 DTK 129. The Hon'bie ITAT CHANDIGARH BENCH in Assistant Commissioner Of Income Tax Vs. A.K. Alloys P. Ltd. vide order dated 29th February, 2012 (2012) 17 ITR (Trib) 424 (Chandigarh) has decided in favour of asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1.15 1.37 1.21 1.19 1.23 (*) Plant run for 1½ months only. Production started from A.Y. 2007-08. In my considered view, there does not appear any anomaly in the above trading results. I am convinced that the addition on account of inflated purchases has been made by the A.O on estimate basis in all years, however, the A.O has not brought on record any evidence support of his contention. The books of accounts with supporting were produced on two occasions before the AO. It was produced for assessment year 2006-07, 2007-08 & 2008-09 during original assessment proceedings before the AO as referred supra and subsequently during present proceedings u/s 153A before the AO. No inflation in purchase was observed by AO during original assessment proceeding. The accounts are audited, there is no adverse remark regarding correctness of accounts in the audit report. The A.O. has also not pointed out any defects in the books of accounts nor has any incriminating document been unearthed during operation u/s 132. If any defect in the system and record exists then the A.O. must record a clear finding as held in CITvs Margadarshi Chit Fund Pvt. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in dispute that assessment for the assessment years 2006-07, 2007-08 and 2008-09 were completed prior to the date of search. In other words, the assessments for these assessment years were not abated. 19. In the present appeals the Revenue has challenged the deletion of addition in assessment year 2006-07, Rs. 12,81,57,130/- on account of share application u/s.68 of the Act and Rs. 10,00,000/- on account of bogus purchase of husk. 20. In the assessment year 2007-08, Rs. 6,61,50,000/- on account of share application money u/s.68 of the Act and Rs. 10,00,000/- on account of bogus purchase of husk. 21. In the assessment year 2008-09, Rs. 10,00,000/- on account of bogus purchase of husk. 22. We find that the above additions made by the AO in the impugned assessment years were not based on any incriminating material found during the course of the search. 23. The Revenue could not show any incriminating material, which was found during the course of the search on the basis of which above additions could have been made. It is a settled position of law that in an assessment made in pursuance to search in respective assessment years for which assessment proceedings were not a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... husk and obtained bogus bill of husk. No such material has been found during operation u/s 132 of the Act which even remotely suggests suppression of purchase of coal. The CIT(A), therefore, observed that he was convinced that addition on account of inflated purchases has been made by the A.O on estimate basis in all the years without bringing any evidence on record in support of his contention. These findings of CIT(A) has not been rebutted by the Revenue by brining any positive material on record. In absence of the same, we find no good reason to interfere with the findings of the CIT(A), which are confirmed and the grounds of appeal of the Revenue for assessment years 2009-10, 2010-11, 2011-12 and 2012-13 are dismissed. 29. Ground No.6 in appeals for assessment year 2006-07 and 2007-08 is general in nature hence, requires no separate adjudication by us. 30. In the result, appeals of Revenue for all the assessment years under consideration are dismissed. 31. In the cross objections filed by the assessee, in Ground No.1 for assessment year 2006-07 and in ground No.1 for assessment year 2007-08 and in ground No.1 for assessment year 2008-09, the assessee has challenged th....