TaxTMI 
TaxTMI 
TaxTMI 
2022 (2) TMI 1398
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....details of which are as under: - Name of Parties Amount in Rs. 1 Pearl Tradecom Pvt. Ltd. 1,20,00,000/- 2 PCJ Finvest Pvt. Ltd 50,00,000/- 3 Seema Holdings Pvt. Ltd 25,00,000/- 2. The learned Commissioner of Income Tax (Appeals) has erred in confirming the assessment made in violation of principles of natural justice and equity without granting Cross examination of the various persons including Rakesh Agarwal, Dinesh Dhandhania etc. on whose statements reliance had been placed while completing the assessment. 3. The learned Commissioner of Income Tax (Appeals) has erred in not appreciating the affidavits of the share applicants/shareholders furnished during the course of assessment proceedings wherein they have deposed on oath making of the investments in shares. 4. The learned Commissioner of Income Tax (Appeals) has erred in relying upon the Commission report u/s. 13(1)(d) of the Act dated 11/04/2016 while confirming the addition which is in contradiction to the letter dated. 27/02/2015 issued by the same DDIT(Inv) Unit- 3(3), Kolkata wherein he has admitted to the receipt of details called for from PCJ Finvest Pvt. Ltd.. Seema Holdings Pvt. Ltd. and Pe....
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....re the transfer of funds in the bank account of the assessee. In other words, there was the infusion of fund by way of share capital & premium in the books of accounts of the subscriber's companies from different sources/other companies, most of which, were controlled and managed by the entry providers namely Rakesh Agarwal, Dinesh Dhandhania, Dines Kumar Aggarwal/ Shantilal Lunia and Ankit Bagri. ii. All the entry providers have admitted in the statement furnished under section 131 of the Act to be engaged in providing accommodation entries in lieu of commission. iii. There was the investigation carried out by DDIT (Inv.) wing of Kolkata to verify the existence of above-mentioned investors as well as shareholding companies of investors. The Inspector of Income Tax in his report has submitted that none of the company was found at the given address. Therefore, it was concluded that the investor companies and shareholders of the investor companies are nothing but paper companies. iv. All the investor companies as discussed above have shown nil/nominal income in their respective returns of income. v. On examination of the bank statements of all the investor companies, it was f....
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....investor companies including the shareholders of the investor companies. Accordingly, there cannot be drawn any adverse inference against the assessee based on the statement of the entry providers under the provisions of section 131 of the Act. 4.6 The assessee with respect to PCJ Finvest Pvt Ltd submitted that there was no fund received from High Construction Private Ltd as alleged by the AO. As such, the amount was received by PCJ Finvest Pvt Ltd from the partnership firm namely Hi-tech Construction which has declared the return of income at Rs. 3,91,28,458/- and having the turnover of Rs. 52 crores, thus the observation of the AO is contrary to the facts available on record. 4.7 The assessee with respect to M/s Divya Secfin Pvt Ltd. submitted that there was no whisper in the show cause notice issued by the AO alleging that there was any accommodation entry received by the assessee in the form of share capital. Thus, it can be inferred that there was no doubt raised by the AO under the provisions of section 68 of the Act with respect to the impugned company. 4.8 It was also contended by the assessee that the shares were issued by it at a premium which is based on the valuation....
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.... the paper companies. In paper companies, the documents are prepared in such a way so as to give a true colour of the transactions which are not real but supported by all the necessary documents. According to the AO, all the investor companies are paper companies for the reasons as discussed below: i. The financial statements of these companies neither show any income by way of operation nor operating expenses such as rent, electricity, telephone, salary etc. Likewise, there was no fixed asset shown by these companies except the investments/loans & advances in other companies. ii. There is negligible balance in the bank account of the investor companies despite having so much share capital. As such, the amount received by the investor companies against the issue of shares have been utilized by acquiring the shares of other companies on the same date. In the present case, the investor companies have acquired the shares in the assessee company at high premium. In simple words, the investor companies are showing receipt of money in the form of share capital & premium which have been utilized for making the investment in the other companies at the same time. Thus, on perusal of the....
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....work of investor, their staff, actual business, their recognition in public eye and by producing the principle officer/director of the investors companies in person. Thus the assessee failed to prove the identity of the investor companies in real sense. 4.19 Similarly the genuineness of the transaction cannot be held to have proved merely on the basis of transaction carried out through banking channel and legal compliance has been fully done. Indeed, a genuine transaction must be proved genuine from all perspective not merely on papers. As such genuineness of transaction should pass the human probability test, commercial prudence and surrounding facts & circumstances and these test has not been passed or explained fully. Thus the assessee failed to prove the genuineness of transaction also. 4.20 Likewise, the credit worthiness of the investor companies cannot be held to have proved merely on the basis that these companies have huge amount of share capital and reserve. As such, the credit worthiness does not depend upon the facts of having capital and reserve in the books of account but same depends on: - Availability of sufficient cash at the time of investment at its disposal.....
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....mpanies were not found on the given address, however report of the inspector was not provided for the rebuttal whereas notices under section 133(6) of the Act, issued to all the investors have been duly served on the given address and duly complied with. Therefore, the fresh report should be sought for and provided for rebuttal. 6.3 Allegation that the investor companies are shell/ paper company are also contrary to facts, as all these companies are registered with RBI as NBFC and having high value of net worth. Further, the investment made by those companies in the share capital of the assessee company is very negligible in comparison to their net worth which ranges between 0.25% to 2% only. 7. The learned CIT(A) after considering the submission of the assessee accepted the additional evidences and sought detailed enquiry report with respect to identity, genuineness and credit worthiness of the investors from DDIT(Inv) Unit- 3(3) Kolkata. The learned CIT(A) on the basis of report form DDIT(Inv) Unit-3(3) Kolkata and after considering fact in totality was pleased to allow partial relief to the assessee by observing as under: "9. From the perusal of the facts of the above remand....
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....ted the detailed inquiries conducted by in the above mentioned eight investors. (Copy enclosed). As evident from the report it is crystal clear that out of the eight investor companies the two companies namely the M/s PCJ Finvest Pvt. Ltd and M/s Seema Holding Pvt. Ltd have been considered as Jama Kharchi companies in the data base of Investigation wing, Kolkata. Moreover, the investor company namely M/s. Pearl Tracom Pvt. Ltd. Has not been found at the given address." 10. In view of the above, report of the Investigation Wing, as well as the remand report given by the AO at Ahmedabad, the addition made on account of investment by the following companies is deleted. Sr. No Name and Address of Investors Amount (Rs.) 1 Shri Narayan Mercantiles Pvt. Ltd. 5/1, Clive Row, 4thFloor, Room No. 125, Kolkata-700001 2,75,00,000 2 Pragya Commodites Pvt. ltd. C-11, CIT Building, 30 C Mdan Chaterjee Lane, Kolkata-700007 1,30,00,000 3 Dewdrops Mecantiles Pvt. Ltd. C-11, CIT Building, 30 C Madan Chaterjee Lane, Kolkata- 700007 2,05,00,000 4 Divya Secfin Pvt. Ltd.C-11, CIT Building, 30 C Madan Chaterjee Lane, Kolkata-700007 25,00000 5 Smarat Finvest Pvt. Ltd.Room No. 125, 4th F....
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....cts on granting relief to the assessee by considering the facts of the reports of the DDIT(lnv). which were already available with the A.O. and same had been analyzed and discussed in the assessment order to show that these companies had shareholders as shell companies promoted by identified shell company operators, that these companies had no business operations and had used share capital and premium from such companies to invest in the assessee company, and that there was no justification to invest in the assessee company at a steep premium. 4. The Id. CIT(A) has erred in law and on facts in not appreciating that mere payment by cheque does not render a cash credit as genuine under the parameters of section 68 of the Act, without establishing the creditworthiness of the credits and the genuineness of the transaction 9. The learned AR before us submitted that the assessee has filed all the details with respect to the shareholders during the assessment proceedings. Furthermore, some of the shareholders were subject to the assessment under section 143(3) of the Act and therefore there cannot be raised any doubt with respect to such shareholders who subscribed the shares in the ....
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..... Duration of their functioning from that premise. ii. Nature of the business. iii. Scale of business (Copy of the IT return may be obtained alongwith audit report, balance sheet.). V iv. Brief description of the office premises v. Principal persons of the company details of directors and their contact addresses. vi. Mode and quantum of investment. vii. Source of investment(s). 12.2 In response to such commission, the DDIT (Inv.) Unit-3(3) Kolkata vide letter no. DDIT(Inv.)/U-3(3)/Kol/Commission-131(1)(1d)/Jhawar/15-16/113 dated 11-04- 2016 has made the submission as detailed below: The desire report in respect of the companies entered in to alleged bogus share application money/ share premium in the case of M/s Jhawar Comtrade Pvt. Ltd. (PAN - AADCS3553N) for the assessment year 2012-13, Is furnished in the table given below: Sr. No. Name of the Company PAN Address ; Remarks 1 Shri Narayan Mercantile (P) Ltd, N.A. 5/1, Clive Row, 4m Floor,;Room No 125, Kolkata- 700001'; Summon u/s 131 of Income Tax Act. 2 Pragya Commodities (P) Ltd. N.A. C-11, CIT Building, 30 C, Madan Chatterjee Lane, Kolkata 700007 1961 was served and in 3 Dewdrops Merc....
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....Name and Address of Investors Amount (Rs.) 1 Shri Narayan Mercantiles Pvt Ltd 5/1, Clive Row, 4'" Floor, Room No. 125, Kolkata- 70000 / 27500000 2 Pragya Commodities Pvt Ltd *C-11, CIT Building, 30 C Madan Chaterjee Lane, Kolkata-700007 13000000 3 Dewdrops Mecantites Pvt Ltd C-11, CIT Building, 30 C Madan Chaterjee Lane, Kolkata-700007 20500000 4 Divya Secfin Pvt Ltd C-11. CIT Building, 30 C Madan Chaterjee Lane, Kolkata-700007 2500000 5 PCJ Finvest Pvt Ltd J/J-4A, Room No -4, Neelkanth Appartment, Ashwinir.-nagar, Baquiati, Kolkata-700159 5000000 6 Seema Holding Pvt Ltd C-11, CIT Building, 30 C Madan Chaterjee Lane, Kolkata-700008 2500000 7 Sniarat Finvest Pvt Ltd Room No. 125, 4'" Floor, Room No. 125, Kolkata-700001 7500000 8 Pearl Tracom Pvt Ltd 20, Goenka Lane, Ground Floor, Kolkata-700007 12000000 Total 9,05,00,000 During the course of assessment proceedings the then A.O has established beyond doubt that the assessee has failed to give a satisfactory explanation with regard to the creditworthiness of all the above share subscribers and the assessee company has credited the funds in guise of share capit....
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....s carried out by the assessee with these 5 companies can be categorized as bogus? To our understanding, the answer stands in negative. It is for the reason that the commission appointed by the learned CIT-A was representing one of the wing of the Department which has not pointed out any adverse remark in its report about the genuineness of these companies. In other words, the transactions of shares capital from these companies was accepted by the Revenue with respect to the identity, creditworthiness of the parties and genuineness of the transactions. Accordingly, we are of the view that the documents filed by the assessee in support of the share capital issued to them as discussed above cannot be doubted with respect to the identity, creditworthiness of the parties and genuineness of the transactions. 12.6 We also note that out of the 5 companies listed above, there were scrutiny assessments under the provisions of section 143(3) of the Act with respect to the companies as mentioned below: 1. Pragya Commodities Pvt. Ltd. 2. Dewdrops Mercantile Pvt. Ltd. 3. Divya Secfin Pvt. Ltd. 12.7 The scrutiny assessment by the Income Tax department under the provisions of section 143(3....
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....in commission report under section 131(1)(d) has submitted that one company namely M/s Pearl Tracom Pvt Ltd was not found at given address whereas other two are identified as Jama/kharchi company in the record maintained by them to this effect. 13.2 We, first, proceed to understand the legal prospect of appointment of commission. The civil court under section 75 of CPC was empowered to appoint commission. The purpose of issuing commission by the court is to impart the complete justice to the parties of the suit and to find out and obtain evidences which would bring clarity and help the court in determining the case. Similar, power has been given under section 131(1)(d) of the Act to The Assessing Officer, Deputy Commissioner (Appeals), Joint Commissioner, Commissioner (Appeals) etc. However, these power cannot be exercised in each and every case. The Assessing Officer, before issue a commission under section 131(1)(d), must apply his judicial mind and derive satisfaction that such a commission, on the facts and circumstances of the case before him, is requisite and proper. Such satisfaction of the Assessing Officer must be supported by reasons which ought to be recorded by him so ....
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....port of DDIT against assessee. Further, the learned CIT(A) has also not applied his mind on other documentary evidences which have been provided by the assessee during assessment proceeding as well during appellate proceeding. Thus in our considered view action of the learned CIT(A) merely relying upon report of commission without applying own mind and without providing opportunity of rebuttal is unjustified. 13.6 Moving forward, with respect to M/s Pearl Tracom Pvt. Ltd, we note that its name was not appearing in the data base maintained by DDIT (Inv.) for the JAMA Kharchi Company. As per the report of the DDIT (Inv.) Unit-3 (3) Kolkata it was discovered that company was not found at the given address. It is quite often that the assessee for one or the other reason changes the address. Therefore, no adverse inference can be drawn against the assessee merely on the reasoning that the assessee was not found at the address given therein. The copy of the PAN was very much available with the Revenue and it is also a fact on records that intimation under section 143(1) of the Act was issued against the return filed by such investor company. This fact can be established from the submiss....
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....assessee based on the fact that the name of the investor company was appearing in the database maintained by DDIT (Inv) as Jama Kaharchi Company. We also note that the role of the DIT (Inv.) is limited to planning and execution of search and seizer and survey operation, statutory function, Grant of awards/rewards, administration of secret fund etc. Any adverse remark by the DTIT is of significant value but that cannot be the basis of making any addition in the hands of the assessee without bringing cogent supporting material on record. 13.11 With respect to M/s Seema Holding (P) Ltd., we note that the DDIT(Inv) unit- 3 (3) Kolkata has reported that its name is included in the data base maintained for Jama/Kahrchi Company. Thus, it was held as bogus. However we note all the necessary information was provided by the assessee, notice issued under section 133(6) was duly complied with where Seema Holding confirmed the investment made in assessee share capital which was further confirmed by furnishing the notarized affidavit. From the submission of the assessee, we also find that the investor company for the year under consideration has shown interest income of Rs. 86,89,155/- on which....
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.... 13.14 Moving further, we find that all the investor companies were the registered NBFC companies which implies that all these investor companies were approved by the Reserve Bank of India. The relevant contention of the assessee on this point reads as under: All the investors have been regularly doing their NBFC business at their given address and are subject to monitoring and supervision of the RBI XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX These investors are in NBFC business. Their income depends on the realizations' of the investments in a particular year. Investors, who are also engaged in \financing business, are having good interest income. TDS credit given in the lease of SRI NARAYAN MERCANTILE (P) LTD. in A.Y. 2014-15 is Rs. 37,22,793/-, which indicates it's gross interest income. Similarly, gross interest income of SEEMA HOLDINGS (P) LTD. for the year under appeal is Rs. 86,89,155/- and TDS deducted is Rs. 7,00,476/-. All other investors have been assessed u/s 143 (3) for the year under appeal and their net worth has been accepted/ assessed by their AOs. These investors being in NBFC business, their assets have to be mainly....
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....t three years should be furnished quarterly by the non-deposit taking NBFCs with an asset size between 50 crore rupees and 100 crores rupees. 13.17 Thus from the above, it is revealed that a company registered with the RBI as NBFC is under the monitoring of the Reserve Bank of India. However we find that, there is nothing available on record having any adverse remark pointed out by the RBI with the activities of the assessee. Thus, the impugned investor companies cannot be said as bogus/paper companies as alleged by the AO in the light of the above discussion. 13.18 We also note that the AO has alleged that all the subscriber companies/shareholder companies of the so-called eight investor companies were controlled and managed by the Entry-operators namely Rakesh Agarwal, Dinesh Dhandhania, Dines Kumar Aggarwal/Shantilal Lunia and Ankit Bagri. However, we find that the AO in his order has not referred all the shareholders of the investor companies being entry operators. In other words, it was alleged by the AO with respect to the investor company namely M/s Shri Narayan Mercantile that its shareholders were managed and controlled by the entry operators. However, we note that there....
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....he companies floated by him, as per his memory and there are more companies other than mentioned in the statement. They also admitted that there are several dummy directors of him in whose name several other companies have been floated but actually belongs to him. So far as three criteria that is identity, creditworthiness and genuineness of transaction, same will discussed at length in subsequent paras. 14.1 Accordingly a question arises, whether such statement referred by the AO can be relied upon for drawing any adverse inference against the assessee. It is the trite law that no credence can be attributed to the statement recorded under section 131 of the Act by a third party until and unless some connection established with the transaction carried out by the assessee. 14.2 Going ahead we also note that the assessee in support of its share capital has filed the confirmations and the affidavit of the respective shareholder companies which can be ascertained from the submission of the assessee before the authorities below. The relevant submission of the assessee is extracted as under: All of our investor companies have given affidavit, copies enclosed as annexure-C wherein th....
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....oner (Appeals) and Tribunal that the identity of the subscribers stood duly established from the documents produced by the assessee, could not be said to be perverse and did not call for interference. 14.6 It is also a fact on records that the assessee has issued shares at premium of his 990 which was based on the valuation report by independent valuer by using the method of discounted cash flow which has been recognized under the provision of law and the same has also not been controverted by the AO except stating that valuation has been made on basis of future expected profit. Furthermore, we also find that the basis of the valuation for determining the premium on the share has nowhere been doubted by the AO during the assessment proceedings. Based on the above, we note that the value of the premium cannot be doubted. 14.7 Now proceeding to examine whether the principles laid down by the Hon'ble Supreme Court in the case of Pr. CIT v. NRA Iron & Steel (P.) Ltd. [2019] 103 taxmann.com 48 (SC) are applicable to the present facts of the case. In that case, the assessee-company received share capital and premium of Rs. 17.60 crores in all from nineteen parties (six from Mumbai, el....
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.... has been elaborated in the preceding paragraphs. 14.9 In our humble understanding, we also note that the decision in the case of NRA Iron & Steel (P.) Ltd. (supra) is based on facts. Thus such case will become binding on those cases having similar facts and circumstances and not other cases having different facts and circumstances. In this regard, we draw support and guidance from the judgment of Hon'ble Calcutta High court in the case of CIT v. Peerless General Finance and Investment Co. Ltd. [2006] 154 Taxman 179/282 ITR 209- wherein it was observed that the binding nature of a decision is of two kinds-one is in relation to the facts and the other is in relation to the principles of law. A principle of law declared would be treated as precedent and binding on all. The finding of facts would bind only the parties to the decision itself and it is the ultimate decision that binds. Where facts are distinguishable, such as assessee has replied and clarified all the doubts like non-service of summons on the directors of the investing companies due to change of address, existence of the investing companies on the portals of MCA/ROC and with the Income Tax Department long after investm....
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....cision is, therefore, clearly distinguishable on facts of the present case. 14.12 In view of above and after detailed discussion and considering the case laws on record, we are of the view that the assessee company has sufficiently discharged its onus cast under section 68 of the Act with respect identity of the investor companies, credit worthiness and genuineness of the transaction. Therefore we direct the AO to delete the addition made by him. Hence ground of appeal raised by the assessee is allowed whereas ground of appeal raised by the Revenue is dismissed. 14.13 In the result appeal of the assessee is allowed. Coming to ITA No. 2034/Ahd/2017 an appeal by the Revenue. 15. The Revenue has raised following ground of appeal: 1. The Ld.CIT(A) has erred in law and on facts in deleting the addition to the extent of Rs. 7,10,00,000/- in respect of 5 companies out of total addition of Rs. 9,05,00,000/- made by A 0 on account of unexplained cash credits u/s 68 of the AcL 2. The Id. CIT(A) has erred in relying upon the report of DDIT(lnv.), Kolkata, regarding the 5 companies, for giving relief of Rs 7,10.00,000/- even though in the reports there is no comment on the creditwor....