2014-VIL-908-ITAT-JAI

Income Tax Appellate Tribunal JAIPUR

ITA No. 422/JP/2012, C.O. No.68/JP/2012

Date: 19.12.2014

THE DCIT CENTRAL CIRCLE NEW DELHI

Vs

M/s . MISTY MEADOWS (P) LTD.

For the Petitioner : Dr Rakesh Gupta
For the Respondent : Shri A.K.Khandelwal

BENCH

Shri R. P. Tolani And Shri T. R. Meena,JJ.

JUDGMENT

Per R. P. Tolani, JM

This is an appeal filed by the Revenue and cross objection filed by the assesse, against the order of the ld. CIT(A), Central Jaipur dated 28-02- 2012 for the assessment year 2003-04.

2.1 The Revenue has raised following grounds in its appeal.

‘’1. Whether on the facts and circumstances of the case, the ld. CIT(A), Central, Jaipur has erred in law as well as facts in deleting addition u/s 68 of Rs. 1,05,00,000/- out of the addition of Rs. 1,15,00,000/- made on account of unexplained share capital introduced in the names of various companies.

2. Whether on the facts and circumstances of the case, the ld. CIT(A), Central, Jaipur has erred in law as well as facts in deleting addition of Rs. 14,01,765/- made on account of unexplained cash credits.’’

3.1 The assessee has raised following grounds in its cross objection.

1. On the facts and circumstances of the case and in law, ld. CIT(A) Central (‘’herein referred to as CIT (A)’’) was not correct in confirming the additions made by the AO in respect of share application money deposited with the appellant company by M/s. A.K. Fabric (P) Ltd. , M/s. B.P. Buildtech (P) Ltd. and M/s. B.P. Infotech (P) Ltd. (hereinafter referred to as ‘Share Applicant Companies’.

2. on the facts and circumstances of the case and in law' ld. CIT(A) was not correct in confirming the additions made by the A.Os' in respect of share application money deposited with the appellant Company by the share applicant companies' merely on the ground that Permanent Account Numbers (PANs) of these share applicants were not available with the appellant Company at the time of assessment proceedings.

3. on the facts and circumstances of the case and' in law ld. CIT(A) was not correct in confirming the additions made by the A.Os' in respect of share application money deposited with the appellant Company by the share applicant companies , merely on the ground that the paid up share capital of these share applicant companies did not prove their adequate creditworthiness

4. on the facts and circumstances of the case and in law, Ld. CIT (A) was not correct in confirming the additions in respect of share application money deposited with the appellant company by the share applicant companies when the identity of share appellant, its credit worthiness and genuineness of transaction was proved before him and the appellant had discharged the onus case by law on it.

5. Without prejudice to above grounds of appeal, the ld. CIT(A) has erred in law and on facts in confirming the additions made by the AOs' in respect of share application money deposited by the aforesaid share applicant companies in the appellant company’s hands, whereas the additions, if any, should have been made in the hands of the aforesaid share appellant companies.’’

4.1 At the time of hearing, the ld. Counsel for the assessee filed an application to support the order of the ld. CIT(A) under Rule 27 of the Income-tax Appellate Tribunal Rules, 1963 by way of following ground. That in any case and in any view of the matter and having regard to the facts and circumstances of the case, Ld. CIT(A) ought to have deleted the addition of Rs. 1,15,00,000/-- on account of share capital and Rs. 14,01,765/- on account of unexplained cash credit inter alia on the ground that ‘’ no incriminating material has been found as a result of search" for making the impugned additions and therefore ld. CIT(A) ought to have deleted the same on this ground itself.’’

4.2 The ld. DR is heard on the issue of Rule 27 of the Income-tax Appellate Tribunal Rules, 1963.

4.3 We have heard the rival contentions and perused the materials available on record. The issue raised by the assessee in support of ld. CIT(A)’s order u/s 27 of the ITAT Rules, the same is admitted inasmuch as the issue is purely legal in nature and was raised by the assessee by way of Ground No. 2 and 3 in form No. 35 filed before the ld. CIT(A).

5.1 Brief facts of the case are - the assessee is regularly assessed to income tax and engaged in the business of development of real estate and share capital. A search operation was conducted on 17-09-2008 in assessee’s premises along with the searches conducted on Kamdhenu Group of cases. Notice u/s 153A of the Act was issued on 20-01-2010 to file the return of income. In compliance thereto, the assessee filed the return on 30-03-2010 declaring an income of Rs. 1,22,320/-, according to the AO, the assesses response to notices was general in nature and some very specific and crucial queries were not replied. Since the proper details were not filed by the assessee and reply to various queries remained materially un-complied with, the assessment was framed u/s 144 read with Section 153A of the Act i.e. best judgment assessment. The AO framed the assessment at Rs. 3,62,00,330/- which includes the amounts received by assesse towards share applications and are agitated before us.

5.2 The assessee preferred first appeal where the assessee raised following issues.

(i) Validity of Section 144 r.w.s. 153A assessment.

(ii) Additions made being not based on incriminating material or evidence found during the course of search.

(iii) Denial of adjournments and consequent framing of assessment u/s 144 Act.

(iv) Merits of the additions.

5.3 In first appeal, since the assessment was framed u/s 144, the assessee filed additional evidence; since on the similar facts and circumstances as in assessment year 2006-07 the additional evidence was admitted, it was admitted in this year also. The same was forwarded to the AO for remand report which was duly filed. Ld. CIT(A) inter alia granted substantial relief to assessee on various issues including part relief in respect of additions on account of share application money.

5.4 Both the parties are aggrieved in respect of order on share application moneys, Revenue is aggrieved on relief of Rs. 1,05,00,000/- and Rs. 14,01,765/- and assessee by way of C.O in respect of addition retained in respect of share application money received from M/s. A.K. Fabric (P) Ltd. , M/s. B.P. Buildtech (P) Ltd. and M/s. B.P. Infotech (P) Ltd.

5.5 The relevant observation of ld. CIT(A) while deciding the share application additions are as under:-

‘’10.5.7 In view of the foregoing, the addition of the share capital of various share applicant companies is hereby deleted except in the case of M/s. A.K. Fabrics (P) Ltd., M/s. B.P. Buildtech (P) Ltd. and M/s. B.P. Infotech (P) Ltd. who did not even have the PAN at the relevant point of time, is deleted. A.R. argued that in the case of aforesaid three companies, the PAN details were furnished that in respect of M/s. A.K. Fabrics (P) Ltd , PAN was not available while even submitting additional evidence before the undersigned. Moreover in the remaining two cases, the submission of the PAN at the time of appellate proceedings before me which was conducted in financial year 2011-12 only infers that the PAN have been allotted to these companies quite later on and accordingly these three companies did not have adequate creditworthiness in the relevant period of financial year 2002-03. The inference of non-adequate creditworthiness is further fortified from the fact that the paid up share capital of M/s. A.K. Fabrics (P) Ltd. is only Rs. 30,000/- and M/s. B.P. Buildtech (P) Ltd. and M/s. B.P. Infotech (P) Ltd. is only Rs. 1.00 lakhs each. In view of thee facts and circumstances, it is held that not only the appellant has failed to prove the creditworthiness of these 3 companies but even otherwise these companies did not have enough creditworthiness so as to justify the share capital investment amounting to Rs. 4 lakhs, Rs. 4 lakhs and Rs. 2 lakhs respectively. Therefore, addition to the extent of Rs. 10 lakhs is sustained and remaining addition of Rs. 1,05,00,000/- is deleted.

…………………………………………….

‘’13.4 I have considered the submission of ld. AR and have perused the remand report of AO and other material on record. It is seen that the then AO has not even mentioned in the assessment order as to which were the seven entries and thereafter which were the five entries which have already been deal in para 3.7 of the assessment order by the AO. Moreover, no any further details / supporting have been mentioned in the order before drawing adverse inference. On the other hand, A.R. has stated that any entry in respect of Smt. Shakuntala Devi is not anywhere finding place in the bank account of the appellant company. The present AO in the remand report has not commented adversely on the submission of A.R. Accordingly, addition of Rs. 5,0,850/- so made, treating the amount received from Smt.Shakuntala Devi as unexplained is hereby deleted. As regareds addition in respect of share application money of Rs. 9 lakhs (transaction shown as of Rs. 9,00,915/- including DD charges) of M/s. Nikhil Builders and Promoters (P) Ltd. is concerned, as the appellant has filed confirmation, complete details of the company including CIN, date of incorporation (3.6,1987) indicating the company being in existence for about 22 years etc. and company is having paid up capital of Rs. 25 lakhs and non-furnishing of the bank account of the share holding company being validly explained by the A.R. due to the fact that the appellant company has already lost touch with these share holdings companies 5-6 years back and in view of the discussion made in the earlier paragraphs in respect of various share holding applicant companies including this company, the addition so made by AO in respect of this amount is also hereby deleted.’’

5.6 The first observation deals with ground raised by assessee as well as Revenue and the second one is revenues 2nd ground . Adverting to assessee's appeal since the issue of jurisdiction is involved, the ld. Counsel for the assessee contends that the assessee's business premises was searched along with Kam Dhenu Group of cases on 17-09-2008. During the course of search neither any incriminating material was found nor any surrender of undisclosed income was made. Regular assessment having become final by the date of search i.e. 17-09-2008 was not abated. It has been held by various judicial pronouncements that no addition can be made in the search assessment u/s 153A which is unabeted unless the addition is supported by some incriminating materials found during the course of search. Reliance in this behalf is placed as under:-

(i) CIT vs. Murli Agro Products Ltd. in ITA No. 36 of 2009 , Date of order 29-10-2010. (Bombay High Court)

(ii) CIT vs. Jayaben Ratilal Sorathia 914 of 2012, Date of order 02-07-2013 (Gujarat High Court)

(iii) Jai steel India vs ACIT, 259 CTR 281 (Rajasthan High court)

In all these cases, it has been squarely held that in case of assessment remaining unabated becomes final and no addition can be made in search assessment unless some incriminating material in that behalf was found and is relied on by AO. Reliance is placed on plethora of other cases whose copies are furnished along with case law paper books.

5.7 The ld. DR on the other hand contends that original return for AY 2003-04 was processed u/s 143(1) which does not amount to an assessment. Since there was no assessment it cannot be held that original assessment has not abated. Besides a plain reading of Section 132 of the Act provides that consequent to issue of notice to file return u/s 153A, AO shall assess or reassess the total income of each six assessment years preceding the date of search. The use of word ‘Shall’’ makes it very clear that consequent upon search, the AO has plenary powers to reassess the entire assessment made in the case of the assessee whether incriminating material was found or not. From the plain language of Section 153A itself, as well as from the memorandum to Finance Act 2003, it is clear that the AO needs to issue notices u/s 153A of six years mandatorily once the search is conducted, as the word used everywhere is "shall". Subsequently, scope of an exception has been brought. The Finance Act 2012, has inserted third proviso to Section 153A (1) of the Act, empowering the Central Government to make rule in respect of the Assessment Year except in case where any assessment or reassessment has abated, specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to previous year in which search is conducted or requisition is made. If no incriminating material is gathered during the search, and the AO is barred to consider issues/ material not related to search, issuing notices u/s 153A of the I.T. Act would not serve any useful purpose as it would amount to mandatorily accepting returned income while making assessment or reassessment. Thus once the assessment / reassessment for all the AYs is required to be made irrespective of seized material relating to that year being recovered during the course of search or not, it automatically means that in assessment the AO is required to consider all the material. Having required to conduct mandatory assessment / reassessment proceedings u/s 153A of the I.T. Act and then not being able to assess the income for the years for which no incriminating material has been recovered during the search, cannot be the purpose of legislation as it will render the entire proceedings u/s 153A of the I.T. Act redundant for such years. Hon'ble Delhi High Court in Para 21 of the Shri Anil Bhatia judgment has observed that:-

‘’……'but in cases where the assessment or reassessment proceedings hove already even completed and assessment orders hove been passed determining the assessee's total income and such orders ore subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending. In this later situation, the Assessing officer will reopen the assessments or reassessment already made (without having the need to follow the strict provisions or complying with the strict conditions of sections 147, 148 and 151) and determine the total income of the assessee. Such determination in the orders passed u/s 153A would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income ………..’’

‘’…..Under section 153A, there is no room for multiple assessment orders in respect of any of the six assessment years under consideration that is because the AO has to determined not merely the undisclosed income of the assessee but also the ‘total income’ of the assessee in whose case a search or requisition has been initiated..’’ In this case the Hon'ble Delhi High Court has not addressed the issue that when no incriminating material relating to any year is found, whether the provision of section 153A can be invoked or not, as it was not raised before the Hon'ble Delhi High Court. However the ratio laid down by the Hon'ble Delhi High Court makes it very clear that in the assessment proceedings u/s 153A of the I.T. Act entire material can be considered. Regarding the issue whether notice u/s 1534 of the I.T. Act could have been issued in the absence of any incriminating material, not decided by the Hon'ble Delhi High Court . the clear cut language of the Act, the language of memorandum to Finance Act 2003 and position reiterated in memorandum explaining the 3rd proviso by way of Finance Act2012, made it very clear that issue of notice u/s 153A is mandatory, irrespective of any incriminating material gathered during the course of search once the search has been conducted in a case.

5.8 Ld DR thus pleads that:-

a) Once search is conducted in a case, the proceedings u/s 153A for all six assessment years are automatic and mandatory, irrespective of whether any incriminating material is gathered or not.

b) The scope of assessment/reassessment u/s 153A is wide enough to cover entire relevant material and not the material gathered during the course of search only.’

Further reliance is placed on the Karnataka High Court judgment in the case of Canara Housing Development Company vs. DCIT, (ITA No. 38/2014) dated 25-07-2014.

5.9 Apropos merit of the case, the ld. DR relied on the order of the AO for the proposition that assesse failed to duly discharge burden cast on it by sec. 68. The AO during 153A assessment in order to further verify the evidence filed by the assessee issued notices on the share applicants to file confirmations. It was found that these companies were not in existence at their given address. The confirmations filed by the assessee were old confirmations dated 31-03-2003. Since notices returned unserved, the identity and creditworthiness of the share applicants could not be verified which left a shadow also on the genuineness of the transactions. Consequently AO has rightly made the additions in question. AO’s order is relied on.

5.10 Ld. Counsel for the assessee Shri Rakesh Gupta contends that it has not been disputed that no incriminating material whatsoever was found during the course of search suggesting in any manner that share application moneys were doubtful. It has also not been disputed that confirmations in respect of share application money as originally received by the assessee were produced before the ld. AO. Ignoring the copious evidence filed by the assesse, ld. AO after a gap of 07 years wanted the assesse to file new confirmations and copies of the bank accounts from the share applicants. Looking at the long gap of 7 years it was humanly not possible for assesse to comply. In these circumstances ld. AO was required to consider the evidence available on record. It is very unjustified that ld. AO ignored the entire evidence only because assesse could not with the direction which was beyond its control after a gap of seven years. Thus the additions made were untenable in as much as the other material in the form of contemporaneous confirmations, I.T. record of share applicant, Share applications and allotment record, ROC record demonstrating the existence of companies and the fact that all the transactions were through banking channels demonstrated the discharge of initial onus by the assessee. The ld. CIT(A) has recorded clear findings of facts that all the relevant evidence in respect of share applicants is duly supported by valid contemporaneous confirmations along with material data of share applicants, GIR No. and various other evidences have been filed; copies thereof are placed on the paper book. All this put together establishes that initial onus as cast by sec. 68 on the assesse is duly discharged. Ld. CIT(A) while holding so has relied on various judicial precedents including:

(i) CIT v Ujala Dyeing and Printing Mills 328 ITR 437 (Guj.)

(ii) CIT vs. Dwarkadhish Investment (P) Ltd., 194 Taxman 43 (Del.)

(iii) CIT vs. Lovely Exports (P) Ltd. 216 CTR 195 (SC)

(iv) Barkha Synthetics Ltd. vs. ACIT, 197 CTR 432 (Raj.)

(v) CIT vs. SMC Global Share Borkers 288 ITR 345 (Del.)

It is pleaded that all the details of each and every share applicants are listed by the ld. CIT(A) in his detailed order as well as placed on the paper book. Section 68 of the Act, casts initial onus on the assessee to prove the identity and genuineness of the transactions coupled with creditworthiness. All the share applicants are the companies duly incorporated and found to be alive in the ROC record. The amounts were received through banking channels supported by valid contemporaneous confirmations and the allotment of shares are duly corroborated by applications. Therefore, there is no merit in the findings of the ld. AO that the assessee has failed to discharge the initial onus. The additions are not based on proper analysis of the evidence and material available on record but only on insistence that assessee failed to furnish the fresh confirmations and applicants bank statements of the relevant period after a long gap of 07 years. The law requires that assessee's initial discharge of onus can be questioned by rebutting the same by effective counter. In this case, the rebuttal of the AO is based only on hypothetical assumptions and presumptions. It has been ignored that many of the share applicants may have moved from the place, sold the shares may not be willing to come forward after such a long period of 7 years. This amounts to asking the assesse to surmount an impossibility which is not perceived by the law. In consideration of sufficient material available on record, supporting case laws, facts and circumstances ld. CIT(A) was right in deleting the addition.

6.1 Apropos the amount retained by the ld. CIT(A), raised in CO, in cases of following companies.

(i) M/s. A.K. Fabrics (P) Ltd.,

(ii) M/s. B.P. Buildtech (P) Ltd.

(iii) and M/s. B.P. Infotech (P) Ltd.

6.2 Ld. Counsel contends that it has been held by ld. CIT(A) that assesse failed to discharge its initial onus u/s 68 as the PAN nos. have been allotted to these companies subsequently and their paid up share capital was low. It is pleaded that ld. CIT(A)’s observations are self-contradictory and support assessee’s contentions. The fact that these companies were given PAN / GIR nos. subsequently rather proves their existence at later period which was the objection of AO. Besides in assesses confirmation relevant details are mentioned. Once they are found to be in existence; share applications are confirmed and the moneys are received through banking channels, assessee’s initial burden in terms of sec 68 stands discharged. Consequently, there is no justification in holding that assesse failed to discharge burden for this deficiency which cumulatively supports assessees discharge of burden Thus reasons given by the ld. CIT(A) in this behalf to sustain part of the addition in respect of above named 3 applicants is not tenable.

7.1 Apropos second issue that these companies had low paid up share capital, it is vehemently argued that it has no bearing on the assessee discharge of burden. As long as they are found to be in existence with PAN and they have confirmed the share applications by contemporaneous affirmation, low paid up share capital does not militate on the issue of discharge of burden. Besides assesse cannot ask the prospective share applicant about their paid up share capital.

7.2 We have heard the rival contentions and perused the materials available on record. The assesse claims to have discharged its onus in terms of sec. 68 by filing:

i. Contemporaneous confirmations from share applicants.

ii. Share applicants IT record.

iii. Application amounts are received by way of a/c payee cheques.

iv. Company record about share applications and allotments.

v. ROC record showing that companies are live.

This entire evidence has been discarded by ld. AO on the reasons that assesse could not produce new confirmations and the postal notices returned un served, this according to ld. AO amounted to conclusive proof that share applicants were not genuine. In our considered view the issues of initial discharge of assesses burden cannot be decided in such a clock and dagger manner with narrow perception. A quasi-judicial authority has to weigh the entire evidence available on record. The copious evidence cannot be summarily discarded merely because assesse could not fulfill the seemingly difficult if not impossible conditions. We find merit in the arguments of ld. Counsel for the assessee that after a period 7 years it was not possible to procure bank statements of earlier periods from the share applicants. We are of the view that the issue has rightly been considered by the ld. CIT(A) on the material available on record. Hon'ble Delhi High Court in the case of CIT vs. Dwarkadhish Investment (P) Ltd. (supra) has laid down the parameter to describe the scope of initial onus cast on the assesse in terms of sec 68. The material available on record by and large matches with the facts of Dwarkadhish judgment. Rebuttal of ld. AO in terms of Section 68 has to be effective and meaningful and not to call on the assesse to comply with difficult and nearly impossible compliance. Thus looking to the entirety of the facts and circumstances, we are of the view that the assessee has discharged its initial onus in terms of Section 68 of the Act which has not been effectively rebutted by ld. AO in meaningful terms. Respectfully following the jurisdictional High court judgment in the case of Barkha Synthetics, Hon’ble Delhi High Court judgment in the cases of Dwarkadheesh Investments and SMC Share brokers we hold that the assesse discharged its onus as cast by sec 68 qua these share applications. Therefore, the additions were rightly deleted by the ld. CIT(A).

8.1 Apropos addition retained by the ld. CIT(A) in respect of M/s. A.K. Fabrics (P) Ltd., M/s. B.P. Buildtech (P) Ltd. and M/s. B.P. Infotech (P) Ltd. The same evidence has been filed by the assesse. Ld. CIT(A) has drawn an adverse inference from the fact that in his view these applicant companies were given PAN subsequently and their paid up share capital is low. Following our order on revenue appeal, we are of the view that earlier confirmations, transactions being through banking channels, Company share record, ROC record etc. cumulatively demonstrate that the assessee had discharged its initial onus in terms of decision of Hon'ble Rajasthan High Court in Barkha Synthetics, Delhi High Court in the case of CIT vs. Dwarkadhish Investment (P) Ltd. (supra) and other case laws mentioned above. In view thereof, we hold that no addition can be made in respect of these three applicants also.

9.1 Since we have deleted entire addition in respect of share application money on merits, therefore, we do not advert to the legal issues raised by the assessee by relying on legal issue under Rule 27 of Income Tax Appellate Tribunal Rules.

10.0 In the result, the appeal of the revenue is dismissed and that of the C.O. of the assessee is allowed.

The order is pronounced in the open Court on 19 -12-2014.

 

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