D.b. Income Tax Appeal v. M/S Supertech Diamond Tools Pvt. Ltd

D.B. INCOME TAX APPEAL NO. 74/2012. Commissioner of Income Tax, Central, JaipurVs. M/s Supertech Diamond Tools Pvt. Ltd. // 1 // D.B. INCOME TAX APPEAL NO. 74/2012. Commissioner of Income Tax-Central, Jaipur Vs. M/s Supertech Diamond Tools Pvt. Ltd. .. Date of Order :: 12[th] December 2013. HON'BLE MR. JUSTICE DINESH MAHESHWARIHON'BLE MR. JUSTICE V.K. MATHUR Mr. K.K. Bissa, for the appellant. <<>> BY THE COURT: By way of this appeal under Section 260A of the IncomeTax Act, 1961 ('the Act'), the Revenue seeks to question theorder dated 19.01.2012 passed by the Income Tax AppellateTribunal, Jodhpur Bench, Jodhpur ('ITAT') in ITA No.211/Jodh/2009 for the Assessment Year 2004-05 whereby, the ITAT hasaffirmed the order dated 09.02.2009 passed by theCommissioner of Income Tax (Appeals), Central, Jaipur ['CIT(A)']partly allowing the appeal preferred by the assessee and deletingthe additions made by the Assessing Officer ('AO’) in theassessment order dated 28.12.2007 to the tune of Rs.79,80,000/- on account of unexplained share capital contributionand Rs. 19,950/- on account of unexplained expenditure oncommission for getting accommodation entries. Put in brief, the relevant background aspects of the matterare as follows : The respondent Company is engaged inmanufacturing of the segments used in the marble sawing. The D.B. INCOME TAX APPEAL NO. 74/2012. Commissioner of Income Tax, Central, JaipurVs. M/s Supertech Diamond Tools Pvt. Ltd. // 2 // Company came into existence on 16.06.2003. Thus, the previousyear related with the Assessment Year 2004-05 had been the firstyear of the business of the assessee Company. In the originalreturn filed on 01.11.2004 under Section 139 of the Act, theassessee Company declared a loss of Rs.3,88,740/- . It appearsthat search and seizure operation under Section 132 of the Actwere carried out on 23.01.2006 at the business premises of theassessee alongwith the residential as well as other businesspremises of Choudhary Group of Cases; and pursuant thereto,notices under Section 153A were issued. In the return filed on06.12.2006 in response to the notice under Section 153A, theassessee Company declared a loss of Rs.3,38,740/- On the return so filed, the assessment was completed on28.12.2007 at the total income of Rs. 76,61,210/- wherein, theAssessing Officer proceeded to make an addition of Rs.79,80,000/- on account of share capital and share premiumalleged to have been received from five Delhi based companies.Another amount of Rs. 19,950/- was also added as being thecommission paid for arranging entries for share capital and sharepremium. In this regard, the AO relied upon the statementsmade by the persons related with the said Delhi basedcompanies, including one Shri Pradeep Kumar Jindal. The AOobserved that though they had confirmed about the companieshaving purchased the shares of the assessee Company andsuch companies being assessed to tax but it was admitted intheir statements that they were engaged in the business of sale D.B. INCOME TAX APPEAL NO. 74/2012. Commissioner of Income Tax, Central, JaipurVs. M/s Supertech Diamond Tools Pvt. Ltd. // 3 // and purchase of shares and providing accommodation entries inlieu of commission. The AO concluded that the assessee hadrouted its undisclosed funds through the banking channels of theaccommodation entry providers and hence proceeded to makethe addition. D.B. INCOME TAX APPEAL NO. 74/2012. Commissioner of Income Tax, Central, JaipurVs. M/s Supertech Diamond Tools Pvt. Ltd. // 3 // and purchase of shares and providing accommodation entries inlieu of commission. The AO concluded that the assessee hadrouted its undisclosed funds through the banking channels of theaccommodation entry providers and hence proceeded to makethe addition. Aggrieved against the assessment order dated28.12.2007, the respondent assessee filed an appeal which waspartly allowed by the CIT(A) in the order dated 09.02.2009. It isnoticed that the CIT(A) considered the matter in thorough detailand even discussed the matter with the learned AssessingOfficer threadbare. The CIT(A) found that the statement madeby a third party at the back of assessee could not have beenutilized against the assessee without providing an opportunity ofcross-examination, which was not afforded by the AO. The CIT(A) also found that the AO could not bring any material todisapprove the genuineness of confirmations and affidavits; andfollowing the decision of the Hon'ble Supreme Court in the caseof CIT Lovely Exports Pvt. Ltd. (2008) 6 DJR SC 308, found theadditions unsustainable; and proceeded to delete the same. The CIT(A), inter alia, observed and held as under: - “However, the assessee filed confirmations along with the affidavitof the directors of the 5 purchasing companies who had confirmedthat they have purchased the regular share and premium sharestotal at Rs.79,80,000/- from the assessee company and made thepayment through account payee draft. It is also fact that the ld.A.O. made direct independent inquiry from the directors of thepurchaser company by issuing a letter u/s 133(6) of the I.T. Act1961. The ld. A.O. Sh. V.K. Chakarvarty was heard and the casewas discussed with him. On perusal of letter u/s 133(6) I find thatno confirmations or comment was asked from the directors of thepurchaser company about their statement in the search andseizure operation in their case. The ld. A.O’s only reason forrejecting the confirmations and affidavits filed by aforesaiddirectors of the purchaser companies was that the directors didof the directors of the 5 purchasing companies who had confirmedthat they have purchased the regular share and premium sharestotal at Rs.79,80,000/- from the assessee company and made thepayment through account payee draft. It is also fact that the ld.A.O. made direct independent inquiry from the directors of thepurchaser company by issuing a letter u/s 133(6) of the I.T. Act1961. The ld. A.O. Sh. V.K. Chakarvarty was heard and the casewas discussed with him. On perusal of letter u/s 133(6) I find thatno confirmations or comment was asked from the directors of thepurchaser company about their statement in the search andseizure operation in their case. The ld. A.O’s only reason forrejecting the confirmations and affidavits filed by aforesaiddirectors of the purchaser companies was that the directors did D.B. INCOME TAX APPEAL NO. 74/2012. Commissioner of Income Tax, Central, JaipurVs. M/s Supertech Diamond Tools Pvt. Ltd. // 4 // D.B. INCOME TAX APPEAL NO. 74/2012. Commissioner of Income Tax, Central, JaipurVs. M/s Supertech Diamond Tools Pvt. Ltd. // 4 // not retracted their statement in such confirmations or affidavits.The ld. A/R’s contention is that the directors of the purchasercompanies have fully replied against the ld. A.O’s letter u/s 133(6).There is no question to retract against anything which is notmentioned in the letter u/s 133(6). Therefore, the rejection ofconfirmations and affidavits filed by the directors of the purchasingcompanies was not justified and the various case laws relied byhim is still applicable in this case and binding on the department.Moreover the ld. A/R also submits that the statement made bythird party on the back of the assessee can not be utilized againsthim without giving him opportunity of confrontation or crossexamination of such persons making such statement. Thisopportunity was not provided by the ld. A.O. Under suchcircumstances the addition on account of receipt of money forregular and premium sales of shares can not be sustained.Considering the facts and circumstances of the case, particularlythat the ld. A.O could not bring any material to disprove thegenuineness of the confirmations and affidavits and following thecase laws mentioned supra, particularly the recent decision ofSupreme Court in the case of CIT V/s Lovely Exports Pvt. Ltd(2008) 6 DJR SC 308 and other decisions of jurisdictional HighCourt and Jurisdictional ITAT, I hold that addition ofRs.79,80,000/- on account of receipt for sales of regularshares and premium shares of the company as unexplainedshare capital is not justified and the same is deleted. TheA.O. is directed to take necessary action against thepurchaser companies for such investment in purchase ofshares. Consequently the A.O’s addition on account of commissionpayment for such transaction to the purchaser companies ata rate of 0.25% amounting to Rs 19,950/- also can not sustainand the same is deleted.” Aggrieved by the order dated 09.02.2009 so passed by theCIT(A), the Revenue preferred an appeal before the ITAT. TheITAT dismissed the Revenue's appeal by the impugned orderdated 19.01.2012 finding no justification for the additions towardsthe share capital, share premium and alleged commission in thehands of the assessee Company. The ITAT has, inter alia, heldand observed as under:- “We have gone through written submissions of Ld. CIT D/Rand also gone through various case laws relied upon andfound that there is no evidence that assessee had paid anycommission and has refunded the amount received under thegrab of share application money. Various case laws reliedupon by ld. D/R are in respect of cash credits added undersection 68. After considering the submissions and variouscase laws, it is seen that the submission of ld. CIT D/R is notand also gone through various case laws relied upon andfound that there is no evidence that assessee had paid anycommission and has refunded the amount received under thegrab of share application money. Various case laws reliedupon by ld. D/R are in respect of cash credits added undersection 68. After considering the submissions and variouscase laws, it is seen that the submission of ld. CIT D/R is not D.B. INCOME TAX APPEAL NO. 74/2012. Commissioner of Income Tax, Central, JaipurVs. M/s Supertech Diamond Tools Pvt. Ltd. // 5 // D.B. INCOME TAX APPEAL NO. 74/2012. Commissioner of Income Tax, Central, JaipurVs. M/s Supertech Diamond Tools Pvt. Ltd. // 5 // helpful to the case of revenue. The Hon'ble Supreme Courtin case of Lovely Exports Pvt. Ltd. had clearly held that evenif the shareholders are bogus in that case no addition can bemade in the hands of the company but AO can reopen thecases of shareholders. The contention of ld. CIT D/R that incase of Lovely Exports Pvt. Ltd. only bogus share applicationwas found but the investors were genuine. However, in thepresent case even there are no genuine investors as all thecompanies are fabricated just to provide accommodationentries only as admitted by one of the Directors i.e. ShriPradeep Jindal. Whether those companies were fictitious orbogus, the moot question here is that whether the assesseecompany had received share application money or not. It isseen that share capital was received through account payeecheques along with premium amount totaling toRs.79,80,000/- from five private limited companies i.e. M/s.Sanraj Associates Pvt Ltd., M/s. Fortress Impex Pvt. Ltd.,M/s. Sumit Overseas Pvt. Ltd., M/s. Pushpanjali Caps Pvt.Ltd. and M/s. B.P. Builtech Pvt. Ltd. all these companies aresituated at Delhi. All these companies are assessed to taxand they are registered under the Companies Act. Return ofallotment of shares in prescribed form no.2 to the Registrar ofCompanies was also filed before Assessing Officer as well asbefore ld. CIT (A). It is further seen that the addition is basedon alleged statement of Shri Pradeep Jindal recorded undersection 131 behind the back of the assessee on 15.4.2004.The assessee was not even afforded any opportunity of crossexamination nor Shri Pradeep Jindal was examined in thecourse of assessment proceedings in case of assessee norhe was examined in presence of assessee company nor hewas confronted with the documents of contemporary periodshowing investment in shares made by those five companiesthrough regular banking channel. Therefore, in our view, theinference drawn by Assessing Officer was not correct. Evenand otherwise, the issue is squarely covered by the decisionof Hon'ble Supreme Court in case of M/s. Lovely Exports Pvt.Ltd., 6 DTR 308 wherein it has been held that- “If the share application money is received bythe assessee company from alleged bogusshareholders, whose names are given to theAssessing Officer, then the Department is freeto proceed to reopen their individualassessments in accordance with law, but itcannot be regarded as undisclosed income ofassessee company.” Similar view has been expressed by Hon'ble DelhiHigh Court in case of Divine Leasing and Finance Ltd., 299ITR 268 (Del). The Hon'ble Rajasthan High Court has takensimilar view in case of Shree Barkha Synthetics Ltd, 1982CTR 175 and again reported in 197 CTR 432. Earlier, theHon'ble Delhi High Court in case of Steller Investment Ltd.,192 ITR 287 has taken similar view and this decision ofHon'ble Delhi High Court has been affirmed by Hon'bleSupreme Court in 251 ITR 263 wherein it is held that- “It is evident that even if it be assumed thatthe subscribers to the increase share capitalwere not genuine, nevertheless, under nocircumstances can the amount of share capital D.B. INCOME TAX APPEAL NO. 74/2012. Commissioner of Income Tax, Central, JaipurVs. M/s Supertech Diamond Tools Pvt. Ltd. // 6 // be regarded as undisclosed income of theassessee. It may be that there are somebogus shareholders in whose names theshares had been issued and money may havebeen provided by some other persons. If theassessment of the persons who were allegedto have really advanced the money is sought tobe reopened, that would have made somesense but we fail to understand as to how thisamount of increased share capital could beassessed in the hands of the company itself.” D.B. INCOME TAX APPEAL NO. 74/2012. Commissioner of Income Tax, Central, JaipurVs. M/s Supertech Diamond Tools Pvt. Ltd. // 6 // be regarded as undisclosed income of theassessee. It may be that there are somebogus shareholders in whose names theshares had been issued and money may havebeen provided by some other persons. If theassessment of the persons who were allegedto have really advanced the money is sought tobe reopened, that would have made somesense but we fail to understand as to how thisamount of increased share capital could beassessed in the hands of the company itself.” The findings in these cases are squarely applicable onthe facts of the present case and we noted that ld. CIT (A)has already taken a recourse for taking action against therespective shareholders as the Assessing Officer wasdirected to take necessary action against the purchasercompany for such investment in purchase of shares. 10.We have also considered the contention of ld. D/Rthat the share application money which remained unprovedcan be added under section 68. We would like to observehere that there is a difference between cash creditor andshareholder. In case of cash creditor, the cash creditor hasright to demand the money back from the assessee.However, in case of shareholder, there is no liability of thecompany to refund the amount as the shares can be sold inthe market. Therefore, in case of cash creditor, heavy onuslies on the assessee to prove whether cash creditor wasgenuine or not. However, in case of shareholder, it is held byvarious High Courts and Hon'ble Supreme Court that ifshareholders are not genuine, then in that case no additioncan be made in the hands of the company but the case canbe reopened of the shareholders for enquiring about theirsource of buying the shares in the company. 10.1.The contention of ld. CIT D/R that cash was depositedin the account of the respective five companies before issuingcheque to the assessee company for allotting the shares.Therefore, there is every likelihood that cash deposited in theaccount of those companies was belonging to assesseecompany for issuing cheque under the garb of issuing shares.In our view, this contention is without any evidence and if thecash deposited in the account of those companies then onuslies on those companies to prove that from which source thecash has been deposited in their account. Therefore, the AOshould examine the case of those five companies instead ofmaking addition in the hands of the assessee company. Theld. CIT (A) has already directed, as stated above, to takeaction against the respective shareholders and, therefore, inour view, the ld. CIT(A) was justified in allowing the issue infavour of the assessee. Accordingly, without going into detailfurther, we are of the considered view that ld. CIT (A) wasjustified in allowing the claim of the assessee as the issue issquarely covered by the decision of Hon'ble JurisdictionalHigh Court as well as by the decisions of Hon'ble SupremeCourt mentioned above. Accordingly, we confirm the findingsof ld. CIT (A) on this issue. D.B. INCOME TAX APPEAL NO. 74/2012. Commissioner of Income Tax, Central, JaipurVs. M/s Supertech Diamond Tools Pvt. Ltd. // 7 // D.B. INCOME TAX APPEAL NO. 74/2012. Commissioner of Income Tax, Central, JaipurVs. M/s Supertech Diamond Tools Pvt. Ltd. // 7 // Seeking to question the order so passed by the ITAT, it issubmitted that the approach of the ITAT has been from analtogether wrong angle where it has failed to consider that thecompanies in whose names investments were shown, had noexplainable source of the funds for investment in the assesseecompany; and the source of the funds was the cash deposits. Itis submitted that all the referred companies were being managedby Shri Pradeep Jindal, who was engaged in the business ofproviding accommodation entries to various companies in lieu ofcommission; and who had admitted the facts in his statementsrecorded under Section 131 of the Act. It is also submitted that inthe given status of record and the statement of the personsrelated with the assessee company, the additions made by theAO had been justified and there was no reason for the CIT(A) indeleting the same. Having given thoughtful consideration to the submissionsmade and having perused the material on the record, we areunable to find any reason to consider interference; and areclearly of the opinion that no substantial question of law isinvolved in this appeal. The reference to the statements made by some of thepersons related with the said investing companies is of no effectbecause such statements could not have been utilized againstthe assessee Company when the assessee company had notbeen afforded an opportunity of confronting and cross-examiningthe persons concerned. There does not appear anything D.B. INCOME TAX APPEAL NO. 74/2012. Commissioner of Income Tax, Central, JaipurVs. M/s Supertech Diamond Tools Pvt. Ltd. // 8 // occurring in the statements of the persons relating with theassessee Company so as to provide a basis for the findingsrecorded by the AO. In any case, the points as sought to be raised by theappellant in the present case are all the matters relating toappreciation of evidence. The relevant factors have been takeninto account and considered by the appellate authorities beforereturning the findings in favour of the assessee. As regards thereferred share capital contributors, it is noticed that they areexisting assessees having PA numbers; and are being regularlyassessed to tax. The appellate authorities cannot be said to haveerred in deleting the additions in their regard at the hands ofassessee-company. Ultimately, the question as to whether the source of invest-ment or of credit has been satisfactorily explained or not remainswithin the realm of appreciation of evidence; and the Courts haveconsistently held that such a matter does not give rise to anysubstantial question of law. In the case of Commissioner of In-come Tax Vs. Orissa Corporation (P) Ltd.: (1986) 159 ITR 78 (SC), the Hon'ble Supreme Court held as under:- Ultimately, the question as to whether the source of invest-ment or of credit has been satisfactorily explained or not remainswithin the realm of appreciation of evidence; and the Courts haveconsistently held that such a matter does not give rise to anysubstantial question of law. In the case of Commissioner of In-come Tax Vs. Orissa Corporation (P) Ltd.: (1986) 159 ITR 78 (SC), the Hon'ble Supreme Court held as under:- “13. In this case, the assessee had given the names and ad-dresses of the alleged creditors. It was in the knowledge of theRevenue that the said creditors were income-tax assessees.Their index numbers were in the file of the Revenue. The Rev-enue, apart from issuing notices under s. 131 at the instance ofthe assessee, did not pursue the matter further. The Revenuedid not examine the source of income of the said alleged credi-tors to find out whether they were credit-worthy or were suchwho could advance the alleged loans. There was no effort madeto pursue the socalled alleged creditors. In those circumstances,the assessee could not do any thing further. In the premises, ifthe Tribunal came to the conclusion that the assessee has dis-charged the burden that lay on him, then it could not be said thatsuch a conclusion was unreasonable or perverse or based ondresses of the alleged creditors. It was in the knowledge of theRevenue that the said creditors were income-tax assessees.Their index numbers were in the file of the Revenue. The Rev-enue, apart from issuing notices under s. 131 at the instance ofthe assessee, did not pursue the matter further. The Revenuedid not examine the source of income of the said alleged credi-tors to find out whether they were credit-worthy or were suchwho could advance the alleged loans. There was no effort madeto pursue the socalled alleged creditors. In those circumstances,the assessee could not do any thing further. In the premises, ifthe Tribunal came to the conclusion that the assessee has dis-charged the burden that lay on him, then it could not be said thatsuch a conclusion was unreasonable or perverse or based on D.B. INCOME TAX APPEAL NO. 74/2012. Commissioner of Income Tax, Central, JaipurVs. M/s Supertech Diamond Tools Pvt. Ltd. // 9 // no evidence. If the conclusion is based on some evidence onwhich a conclusion could be arrived at, no question of law assuch arises.” In CIT Vs. Shree Barkha Synthetics Ltd.: 182 CTR (Raj.)175, in a similar nature matter, this Court observed that the Tri-bunal having found that the companies from which the share ap-plication money had been received by the assessee-companywere genuinely existing and the identity of the individual in-vestors were also established and they had confirmed the fact ofmaking investment, the finding that assessee had discharged ini-tial burden and addition under Section 68 could not be sustained, was essentially a finding of fact. This Court said,- “19. A perusal of the aforesaid finding goes to show that deletionhas been made on appreciation of evidence, which was on recordFinding that there was existence of investors and their confirma-tion has been obtained, were found to be satisfactory. All theseconclusions are conclusions of fact based on material on recordand, therefore, cannot be said to be perverse so as to give rise toquestion of law, which may be required to be considered in thisappeal under s.260A of the IT Act.” The ratio of the decisions aforesaid directly applies to thepresent case too. Herein, as noticed, the appellate authoritieshave returned the findings of fact in favour of the assessee afterdue appreciation of the evidence on record, on relevant consider-ations, and on sound reasonings. These findings have neitherbeen shown suffering from any perversity nor appear absurd norare of such nature that cannot be reached at all. Needless to reiterate the law laid down by the Courtsconsistently that the department is free to proceed in relation tothe individual investor in accordance with law but the amount of /Mohan/ The ratio of the decisions aforesaid directly applies to thepresent case too. Herein, as noticed, the appellate authoritieshave returned the findings of fact in favour of the assessee afterdue appreciation of the evidence on record, on relevant consider-ations, and on sound reasonings. These findings have neitherbeen shown suffering from any perversity nor appear absurd norare of such nature that cannot be reached at all. Needless to reiterate the law laid down by the Courtsconsistently that the department is free to proceed in relation tothe individual investor in accordance with law but the amount of /Mohan/ D.B. INCOME TAX APPEAL NO. 74/2012. Commissioner of Income Tax, Central, JaipurVs. M/s Supertech Diamond Tools Pvt. Ltd. // 10 // increased share capital cannot be assessed at the hands of the assessee Company itself. In the result, the appeal fails and is, therefore, dismissed. (V.K. MATHUR), J. (DINESH MAHESHWARI), J.