AI Drafter 
TaxTMI 
TaxTMI 
2022 (2) TMI 1398
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....d cash credits u/s. 68 of the I.T. Act, 1961. The 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 ....
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....e company except PCJ Finvest Pvt Ltd. and Divya secfin Pvt. Ltd. which are detailed as under: i. There were deposits in the bank accounts of all the shares subscribers as discussed above immediately before 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 nothin....
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....ncluding its shareholders engaged in the activity of accommodation entry. Similarly, it was nowhere mentioned in the statement furnished under section 131 of the Act of the entry providers stating that they were controlling/ managing the affairs of the 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 b....
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.... reasoning that none of the investor company was carrying out any business activity except receipt of share capital and investment in different companies out of such receipt of capital. As per the AO, all the companies, in the absence of any business activity, represents 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....
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....e above, the AO after making a reference to the various case laws concluded that identity of the investor companies cannot be accepted only on the basis of paper. It is for the reason that the identity/existence should be proven in real sense by demonstrating PAN, address, share application form, place of 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....
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....ndeed the AO held that observation about entry operators operating those companies are general observation. Thus no adverse inference can be drawn and evidentiary value can be placed on the statement of entry provider specially without providing opportunity of cross examination. 6.2 The AO relied heavily on inspector report that the investor companies 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 wit....
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.... of the IT. Act was issued by the then A.O vide letter No SRT/Wd.1(1)(3)/131(1)(d)/JCPU2015-16 dated 02.03.2016 (copy enclosed) to verify the genuineness of the investment made by the above mentioned eight investor companies- The DDIT (lnv)-Unit-3 (3). Kolkata vide his letter No. DDIT(lnv)/U-3(3)/Kol/Commission- 131(1)(d)/Jhawar/15-16/l13 dated . 11.04.2016 submitted 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-....
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....anies 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 Act. 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 creditworthiness of these companies or the genuineness of transactions. 3. The Id. CIT(A) has erred in law and facts 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 est....
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....at the above-mentioned eight \ entities are based in your territorial jurisdiction, you are requested to kindly \ inquire into the identity, genuineness and creditworthiness of these entities and \ give your report to this office for further necessary action at this end. You are \ requested to investigate the nature of investment also. (a) Confirm/deny the availability of the above parties of the stated addresses. (b) If present of any of the addressess i. 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 t....
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....1)(3)/Remand Report/JCPL/2015- 16 dated 15.02.2016 has requested for time for submitting the remand report. However, subsequently the case has been transferred to this office. In view of this and as per the personal directions given by Your Honor, the remand report in the above mentioned case is submitted by as under In this case the assessment was finalized by the then Assessing Officer at the total income of Rs. 9,77,97,7007- against the returned income of Rs. 6,97, TOO/- after making the addition of Rs. 9,05,00,000/- on account of bogus share application money u/s 68 of the I.T. Act. received from (he following companies. Sr. No 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 ....
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....vt. Ltd. and M/s Seema Holding Pvt. Ltd have been considered as Jamna Kharchi companies in the data base of investigation wing, Kolkata. Moreover, the investor company namely M/. Pearl Tracom Pvt. Ltd. Has not been found at the given address. 12.4 On perusal of the report of the commission appointed under section 131(1)(d) of the Act dated 11-04-2016 and remand report of the AO dated 27-04- 2017, we find that there is no adverse remark with respect to the 5 companies as discussed below: 1. Shri Narayan Mercantile Pvt. Ltd. 2. Pragya Commodities Pvt. Ltd. 3. Dewdrops Mercantile Pvt. Ltd. 4. Divya Secfin Pvt. Ltd. 5. Samrat Finvest Pvt. Ltd. 12.5 Now the controversy arises whether the transactions 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....
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....of notarized affidavit. 12.10 Further, the notice issued by the AO under section 133(6) was also duly replied by M/s Divya Secfin Pvt Ltd along with requisite details. Accordingly, we hold that no adverse inference can be drawn against the transaction carried out by the assessee with M/s Divya Secfin Pvt Ltd. in view of the fact that there was no question raised by the AO during the assessment proceedings. 12.11 In view of the above we hold that the assessee has discharged the onus imposed under section 68 of the Act by furnishing the necessary details about the source of share capital and premium received from above mentioned 5 investor companies. 13. Coming to the companies namely M/s. Pearl Tracom Pvt. Ltd., M/s PCJ Finvest Pvt Ltd. and Seema Holding (P) Ltd 13.1 With respect to above 3 companies the DDIT 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 ....
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....xman 585 (Raj.), it was held as under: ". . . Simply because the valuation report is of a higher amount, the books cannot be said to be unreliable unless by a deeper probe any defect is found in the maintenance of books of account...." (p. 589) 13.5 Coming to the case on hand, we note that the commission has been appointed under section 131(1)(d) for verification of genuineness of share capital and premium introduced by the 8 companies as discussed above where no adverse remark has been made with respect to 5 companies. Thus the learned CIT (A) based on commission report treated such transaction with those 5 companies as genuine whereas treated the transaction with remaining 3 companies as bogus. However, we note that no opportunity of being heard has been provided by the learned CIT (A) to the assessee before using the report 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....
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....VEST PVT. LTD. By their respective AOs for A.Y. 2012-13. This fact alone proves the Identity, existence and genuineness of these investors. Their AOs have assessed them u/s 143(3) of the Act on the basis of their audited financial statements and have accepted their net worth. Investments made by them in appellant were out of their net worth and have been duly reflected in their respective Balance- Sheets, on the basis of which they have been assessed by their respective AOs u/s 143(3) of the Act. Hence, their creditworthiness is also proved beyond any doubt. 13.10 Once the assessment has been framed under section 143(3) of the Act and held as genuine then in our considered view the question on the identity of the party cannot be arisen in the given facts and circumstances. Accordingly, there is no question of drawing any adverse inference against the 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 ....
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.... its hands and he's not supposed to justify the source of source in the hands of the investor companies. Indeed, there was an amendment under the provisions of section 68 of the Act requiring the assessee (not being a company in which public are substantially interest) to justify the source of source in case amount credited in the form of share application money/capital and premium. The said amended was brought by the Finance Act 2012 which is applicable from 01-04-2013 i.e. assessment 2013-14 as held Hon'ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure (P) Ltd. reported in 80 taxmann.com 272, the relevant finding extract as under: The proviso to section-68 has been introduced by the Finance Act, 2012 with effect from 1- 4-2013. Thus, it would be effective only from the assessment year 2013-14 onwards and not for the subject assessment year. 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 t....
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....s there should not be any default by them in repayment of loans or credit in past - The capital employed by the shareholders/promoters out of net own fund must have been taxed - All the compliance under law of the land has been duly complied with. 13.16 Once, a company registered as NBFC, then it has to make certain compliance on regular basis some of which are detailed as under: - Quarterly statement that lays down information related to the risk assets ratio, capital funds, risk-weighted asset. - Monthly- statement of short-term dynamic liquidity - Half Yearly- Statement of structural liquidity - Half Yearly- Statement of interest rate sensitivity - Quarterly return on the important financial parameters of non-deposit taking NBFC with assets of more than 50 crores rupees and above but less than 100 crores rupees. The requirement such as the name of the company, address, Net Owned Fund, profit/loss during last 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 w....
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....es have nowhere been doubted by the authorities below. Indeed the AO in final finding has stated that statement of entry provider has been used as general information and therefore these information should be taken in generalized manner. Hence, it is not required to prove the connection of the assessee company with the investor companies. The relevant finding of the AO reads as under: 6.6 As regards relation between investors companies and entries operators, the assessee company has submitted that in the statement of the entry operator there is no mentioned about our investors company. In this connection, the statement of entry operator has been used as general information. Considering the details of shell company floated by entries operators and its connection with the investors companies has been brought to the notice. Hence these information should be taken on generalized manner and there is no question of proving that there is direct connection of an entry mentioned the name of the 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....
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.... that notice u/s.133(6) were issued by your good office in our investor companies at their given address, and sent by speed post. Our Investor companies have received such statutory notice u/s.133(6), at the given address, and given address, and have duly replied to the same. 14.5 Thus, once the response has been made against the notice issued under section 133 (6) of the Act, it is implied the existence of the company. In holding so we draw support and guidance from the judgment of Hon'ble Delhi High Court in case of CIT vs. Winstral Petrochemicals (P.)Ltd. reported in 10 taxmann.com 137 the relevant extract of the order reads as under: If the Assessing Officer so desired, the genuineness of the PAN cards and PAN details could easily have been verified by him from the record available with the department. The assessee also furnished written confirmations from the applicant-companies. All the share applicants were duly served with the notices undersection 133(6). In those circumstances, the finding of the Commissioner (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 pe....
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....mount of premium were not specified by certain companies namely Super Finance Ltd. Kolkata, Ganga Builders Ltd. Kolkata. Furthermore, these companies had not enclosed the bank statement. (vi) In addition to above, ld. AO found that: a. Out of the four companies at Mumbai, two companies were found to be non-existent at the address furnished. b. With respect to the Kolkata companies, nobody appeared nor did they produce their bank statements to substantiate the alleged investments. c. Guwahati companies - Ispat Sheet Ltd. and Novelty Traders Ltd., were found non-existent at the given address. d. None of the investor-companies appeared before the A.O. 14.8 Based on the above it was held the by the Hon'ble Apex Court, that the Assessee-Company failed to discharge the onus required under Section 68 of the Act. Therefore, the Assessing Officer was justified in adding back the amounts to the Assessee's income. However in the case on hand, we find that the assessee has discharged its onus cast upon it under the provisions of section 68 of the Act which has been elaborated in the preceding paragraphs. 14.9 In our humble understandin....
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....py of bank accounts of the three creditors in which the share application money was deposited in order to prove genuineness of the transactions. In so far credit worthiness of the creditors were concerned, Tribunal recorded that bank accounts of the creditors showed that the creditors had funds to make payments for share application money and in this regard, resolutions were also passed by the Board of Directors of the three creditors. Though, assessee was not required to prove source of the source, nonetheless, Tribunal took the view that Assessing Officer had made inquiries through the investigation wing of the department at Kolkata and collected all the materials which proved source of the source. 22. In NRA Iron & Steel (P.) Ltd. (supra), the Assessing Officer had made independent and detailed inquiry including survey of the investor companies. The field report revealed that the shareholders were either non-existent or lacked credit-worthiness. It is in these circumstances, Supreme Court held that the onus to establish identity of the investor companies was not discharged by the assessee. The aforesaid decision is, therefore, clearly distinguishable on facts of the pre....