D.C.I.T. CENTRAL CRICLE, RAIPUR vs. SHREE SHYAM SPONGE & POWER P.LTD, RAIPUR

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ITA 245/BIL/2014Status: DisposedITAT Raipur21 October 2021AY 2008-0961 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee had provided sufficient documentary evidence to establish the identity and creditworthiness of share applicants, and the AO had not brought forth clinching material to prove the share capital was the assessee's undisclosed income. The CIT(A) had correctly reversed the AO's additions.

What were the facts?

The Revenue challenged additions made by the Assessing Officer (AO) concerning share application money and suppressed yield of sponge iron. The assessee argued that the AO lacked jurisdiction under Section 153A for unabated assessments and that the additions were not supported by incriminating material.

What were the issues?

Whether additions under Section 68 for share application money were justified without incriminating material, and if the AO had jurisdiction under Section 153A for unabated assessments.

Which sections of the Income-tax Act were involved?

Section 68,Section 153A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “RAIPUR” BENCH, RAIPUR

Before: SHRI PRADIP KUMAR KEDIA & SHRI PAWAN SINGH

For Respondent: Shri Veekaas S Sharma, A.R

PER PRADIP KUMAR KEDIA - AM:

The captioned appeals are directed at the instance of Revenue in respect of the assessee captioned above, arising from the common and combined orders of the Commissioner of Income Tax (Appeals) [‘CIT(A)’] for all assessment years. In counter, the assessee has Sponge & Power Ltd. & Ors.) - 2 – also filed cross objections in all Revenue’s appeals as tabulated hereunder:

ITA Nos. Name of AY Combined Combined Assessment assessee order of order of order passed CIT(A) AO dated under Section dated 243 to 249 Shree 2006-07 18.07.14 27.03.14 153A r.w.s. /RPR/14 Shyam to 2012- 143(3) of the a/w. CO Sponge And 13 Income Tax Nos. 18 to Power Pvt. Act, 1961 (in 24/RPR/2015 Ltd. short ‘the Act’)

2.

The issues being common, interlinked and similar, all the captioned Revenue’s appeals in respect of the captioned assessee have been heard together and are being disposed of by this common order.

3.

The Revenue has raised several grounds in its appeals some which transcends in various assessments from A.Y. 2006-07 to 2012-13. The grounds are thus consolidated for various years for the sake of convenience of adjudication.

4.

As per its grounds of appeal, the Revenue has broadly challenged the relief granted by the CIT(A) three counts; (1) additions of Rs.5,08,90,000/- in A.Y. 2006-07 invoking the provisions of Section 68 of the Act in respect of receipt of share application/share capital; (2) additions of different amounts on account of suppression of yield and unaccounted productions/sales in each assessment year from A.Ys. 2006-07 to 2012-13; & (3) additions of Rs.71,76,306/- on account of excess stock on finished goods/ raw material in A.Y. 2012-13. 5. As per its cross objections for the various assessment years in question spanning over A.Ys. 2006-07 to 2012-13, the assessee has Sponge & Power Ltd. & Ors.) - 3 – primarily raised a legal objection that in the absence of incriminating document qua the additions/disallowances made, the juri iction of the AO gets ousted under s.153A of the Act for making the addition/disallowances unconnected to the incriminating material in respect of unabated and concluded assessments concerning A.Ys. 2006-07 to 2009-10. The assessee has however supported the action of the CIT(A) in reversing the additions/disallowances made by the AO on merits while assailing his opinion in favour of Revenue on legal objections.

6.

Briefly stated, the assessee is engaged in the business of production of sponge iron from iron ore, for which, the company was incorporated on 26.02.2003. A search was conducted on the residential/ business premises of the assessee group, namely, Mahamaya Group on 21.06.2011 including the assessee herein. A sum of Rs.20400/- was found in cash in main office at Tatibandh, Raipur and another Rs.89,475/- was found kept in factory premises. Consequent upon search, notices under s.153A of the Act were issued on the assessee. Pursuant thereto, the assessee filed return of income under s.153A of the Act. The assessment was framed under s.143(3) r.w.s. 153A of the Act for A.Ys. 2006-07 to 2011-12, whereas the assessment for A.Y. 2012-13 was passed under normal provisions under s.143(3) of the Act. A common assessment order for A.Ys. 2006-07 to 2012-13 was passed having regard to common issues are involved in all these assessment years.

7.

In the course of the search assessment noted above, the AO inter alia observed that credits in respect of share application money to the tune of Rs.5,08,90,000/- in the books concerning AY 2006-07 does not satisfy the requirements of Section 68 of the Act. It was observed that the assessee had failed to prove the Sponge & Power Ltd. & Ors.) - 4 – genuineness and creditworthiness of the share applicants (subscribers). The AO also observed that the assessee has suppressed the yield of sponge iron qua the consumption of iron ore and coal and has thus indulged into unaccounted sales in the all these years under appeals. The books of accounts were rejected and additions were made on account of low yield and consequent alleged suppression of production/ sales of varied amounts were made after comparison of actual yield with a benchmark yield of 60% expected by the AO. Thus, an addition of Rs.1,05,81,079/- was made on account of difference in production while framing the assessment order for AY 2006-07. The directions of the superior authority under s.144A of the Act were taken into account. The income of the assessee was accordingly assessed at Rs.7,01,82,112/- as against loss of Rs.87,11,033/- (AO wrongly treated Rs.87,11,033/- as income) under s.153A of the Act for AY 2006-07 in question. Similar additions towards low yields were made towards low yields in other assessment years also.

8.

Aggrieved, the assessee preferred appeal before the CIT(A) challenging the aforesaid additions in all these years.

9.

The assessee filed detailed submissions before the CIT(A) and the documentary evidences to substantiate its claim on both issues; namely, (i) additions under s.68 of the Act on account of share application money & (ii) additions on account of low yield of finished product. A legal objection was also raised on juri iction under S. 153A in respect of assessments unabated and concluded prior to search. The CIT(A) took note of factual and legal submissions so made and found merit in the plea of the assessee on both issues involved.

Sponge & Power Ltd. & Ors.) - 5 –

10.

The CIT(A) addressed the first issue on additions made by the AO under S.68 of the Act on merits in favour of the assessee for which the relevant operative para reads as under:

“5. I have carefully gone through the assessment order and submissions of the appellant. As regards allegation of the A.O. regarding non-maintenance of Statutory Records, the appellant was asked to furnish the copy of statements recorded during the course of proceedings u/s 132, it has been submitted by the appellant that the statement of none of the appellant company’s representative was recorded at the registered office premises and it has also been submitted by the appellant that none of the Officer of Search Team ever visited the Registered Office premises of the appellant company. With a view to ascertain the facts, during the course of appellate proceedings of other companies covered in the Mahamaya Group of cases and in appeal before the undersigned, namely (1) Mahamaya Steel Industries Limited, (2) Abhishek Steel Industries Limited, (3) Mahalaxmi Technocast Private Limited (4) Devi Iron & Power Private Limited, were asked to furnish copy of statements of all the persons recorded by the Search Team during the proceedings u/s 132. The statements were furnished by the said companies. I have carefully gone through all the statements of all the persons recorded during the proceedings u/s 132 on 21/22.06.2011. I am in agreement with the submissions of the appellant company that no statement of appellant company’s representative was recorded during the search proceedings. The statements of other persons belonging to the aforesaid companies also does not, in any way, lead to an inference that the Group companies or the appellant company do not maintain statutory records / Registers. It is also seen that the appellant company had made specific request before the A.O. vide its letter submitted on 14.03.2014 and 18.03.2014 to dispel the doubts of the A.O. regarding non-maintenance of statutory records and registers. From the assessment order, it appears that the A.O. did not take any cognizance of the assertion made by the appellant regarding maintenance of Statutory Records and registers in accordance with the provisions of Companies Act and without verifying the verifiable facts regarding maintenance or otherwise of Statutory records and registers, the A.O simply seems to have found it convenient to remain silent and sit back after making the allegation without any proper basis. I do find considerable force in the submissions of the appellant that the A.O. merely made the allegation, however, the A.O. has not brought on record any basis for such allegation. It is not the case of the A.O. that the search team did visit the Registered Office premises of the appellant company and had asked a specific query to the appellant company’s representative with regard to maintenance of statutory records and that the appellant company’s representative failed to produce the Statutory Records or registers or expressed their inability to produce the same or had admitted that no such records are being maintained. I find that on one hand, the A.O made the allegation, however, without bringing on records its basis and on the other hand, the A.O. did not also adhere to the appellant company’s specific request to verify the statutory records that are being maintained by the appellant company, such an action of the A.O. has made the assessment Sponge & Power Ltd. & Ors.) - 6 – order vitiated by one sided conclusion by the A.O. I have carefully perused the statement of Ms. Jaswinder Kaur Mission recorded on 21.6.2011, from the perusal of said statement, I find that the said employee of group company did show Members Register, share certificates and counterfoils of the appellant company and therefore, the allegation of the A.O appears to be baseless. Neither from the assessment order nor from the statements recorded during search proceedings, it is emerging that there was any attempt to locate such statutory records.

5.

2 The discharge or otherwise of the onus u/s 68 has been independently evaluated and examined. The appellant has submitted that Escorts Finvest Private Limited is a group company, the appellant has placed on record, copy of assessment order in the case of Escorts Finvest Private Limited for the assessment year 2006-07 and 2007-08. 5.3 It is seen that Escorts Finvest Private Limited was assessed u/s 143(3) and the ITO, Ward-1(4), Kolkata recorded a specific finding that the said company had share capital and share premium reserve of Rs.5,64,50,200/- and Rs.44,37,90,000/- as on 31.3.2006 and that the ITO, Ward-1(4), Kolkata had conducted enquiries with the various shareholders of Escorts Finvest Private Limited by issuing notices u/s 133(6) and verifying their responses. I find that ITO, Ward-1(4), Kolkata was satisfied with the genuineness of addition to share capital and reserves of Escorts Finvest Private Limited inasmuch as no adverse inference was drawn by ITO, Ward-1(4), Kolkata with regard to said addition to share capital and reserves of Escorts Finvest Private Limited. Apart from the audited financial statements in support of credit worthiness of the said company, I am convinced that no adverse view can be taken regarding identity or credit worthiness of the said company when the said company has been duly assessed and the share capital and reserves i.e. the net worth of the said company was duly accepted in scrutiny assessment proceedings, in the factual matrix of this case, I am convinced that the appellant has not only explained the source of receipt of share application / capital money, the appellant has also explained the source of source by placing on record assessment order in the case of its subscriber company namely Escorts Finvest Private Limited. Furthermore, I find that the said investor company was in existence even prior to the period covered under the present search assessment proceedings, therefore, even assuming without accepting the contention of the A.O., no undisclosed income can be added in the present search assessment proceedings as the same are beyond the period covered under the present search assessment proceedings.

5.

4 The appellant has submitted that Antariksh Commerce Private Limited is a group company, the appellant has placed on record, copy of assessment order in the case of Antariksh Commerce Private Limited for the assessment year 2005-06 and 2008-09. 5.5 It is seen that Antariksh Commerce Private Limited was assessed u/s 143(3) r.w.s 147 and even as on 31.3.2005, the said company had share capital and reserves of Rs.23.62 crores. Apart from the audited financial statements in support of credit worthiness of the said company, I am convinced that no adverse view can be taken regarding Sponge & Power Ltd. & Ors.) - 7 – identity or credit worthiness of the said company when the said company has been duly assessed and the share capital and reserves i.e. the net worth of the said company was duly accepted in scrutiny assessment proceedings and the said company had sufficient means to invest even prior to the period covered under present search proceedings, in the factual matrix of this case, I am convinced that the appellant has not only explained the source of receipt of share application / capital money, the appellant has also explained the source of source by placing on record assessment order in the case of its subscriber company namely Antariksh Commerce Private Limited. Furthermore, I find that the said investor company was in existence even prior to the period covered under the present search assessment proceedings, therefore, even assuming without accepting the contention of the A.O., no undisclosed income can be added in the present search assessment proceedings as the same are beyond the period covered under the present search assessment proceedings.

5.

6 It is seen that the addition to share application and capital was duly accepted in the scrutiny assessment proceedings of the appellant u/s 143(3) for A.Y 2006-07 and 2007-08, the present action of the A.O is not culminating from any specific finding against the appellant that it was a beneficiary of any racket which has been unearthed as a result of search proceedings nor has the A.O brought on record any other evidence to indicate that the appellant did make undisclosed income and such evidence came on the surface as a result of search proceedings. The A.O has not rebutted the details of tangible net worth submitted by the appellant to demonstrate that the subscribers had sufficient means to invest in the share application/capital of the appellant company, I have perused the details of net worth of the subscribers with reference to the audited financial statements of the subscribers and found satisfactory. In this background, in my considered view, there is no scope and reason to take a contrary view than that taken by the then A.O without there being any documentary evidence against the appellant to demonstrate that the share application money was nothing but undisclosed income of the appellant.

5.

7 Furthermore, I am in agreement with the submissions of the appellant that the same A.O has accepted the addition to Preference Share Capital in the case of Mahamaya Steel Industries Limited received from Escorts Finvest Private Limited & Antariksh Commerce Private Limited and therefore, the identity and creditworthiness of Escorts Finvest Private Limited & Antariksh Commerce Private Limited were undisputedly accepted and genuineness of addition was also duly accepted, hence, there cannot be any reason to take a contrary view in the case of appellant. The A.O cannot be permitted to take two divergent views on same set of facts and on same set of evidences, when the same A.O undisputedly accepted the genuineness of addition to share capital of Mahamaya Steel Industries Limited, there was no reason for him to take a contrary view in the case of the appellant.

5.

8 It is an undisputed fact that the names, addresses and assessment particulars of the investors, their active status as per the website of Ministry of Corporate Affairs and bank statement of the applicants had been furnished by the appellant before the AO. It is further observed that the share application/capital money has been received by way of Sponge & Power Ltd. & Ors.) - 8 – account payee cheques from the investors most of whom are companies and is duly reflected in the bank account of the appellant. I have perused the bank statements of the investors, their audited financial statements and confirmation for making such investments, which clearly establishes the factum of making investments. These facts are clearly establishing the identity of the investors and the genuineness of the impugned transactions.

5.

9 It is observed from the records and assessment order that for the purpose of making addition as unexplained cash credits, the AO has heavily relied upon the judicial pronouncements, however, the appellant has made elaborate submissions distinguishing the facts, I am convinced with the explanation of the appellant that the decisions relied upon by the A.O are not applicable in the facts of the present case as there is nothing on record which can indicate that the receipt of share application money was by way of accommodation entries only. It is also not the case of the A.O that the investors have accepted by way of statement that the sums paid to the appellant was in fact received from the appellant and investors merely routed the undisclosed income of the appellant through money laundering process in the form of share application money. On the contrary, the A.O himself has stated in the assessment order that the investors have sent confirmatory letters, I have gone through the confirmatory letters, it is seen that the letters were sent through registered/speed post which cannot be said to be unauthentic mode, secondly, the investors have confirmed having made the investment by way of affidavits which are duly notarized, the investors have also furnished the copies of share application forms, their audited financial statements, ITR, bank statement. In the backdrop of these facts and documentary evidences, in my considered opinion, the identity and creditworthiness of the subscribers has been established and cannot be doubted, it is not justified on the part of the A.O to simply reject the documentary evidences on record and take an adverse view and clothing the case of the appellant with the judicial pronouncements which have been rendered on absolutely different facts and circumstances.

5.

10 The appellant has relied upon various judicial pronouncements and correlated the facts in those decisions with the facts in the case of the appellant. I am convinced that the decisions relied upon by the appellant are certainly applicable in the case of the appellant as the facts are not only similar but identical. The appellant has also relied upon the decision of the Hon’ble Supreme Court and juri ictional High Court which cannot be ignored. The A.O has referred to the notices issued under section 133(6) which have been returned un-served in some of the cases. It is seen that in the subsequent paragraph, the A.O himself has given the particulars of receipt of replies from the investors, therefore, in my considered view, no adverse inference can be drawn against the appellant for mere non service of notices initially, I have carefully perused the explanation submitted by the appellant in respect of cases where the notices remained unserved, the submissions of the appellant are found to be convincing. It is further observed that no further enquiry or investigation has been conducted by the AO to corroborate or support the conclusions drawn in the assessment order so as to assess the share capital money as the undisclosed income of the appellant company. In my considered opinion, apart from drawing Sponge & Power Ltd. & Ors.) - 9 – presumptions, the AO has not brought any clinching material or evidence on record to prove that the said share capital money belongs to the appellant since no nexus has been established that the money for augmenting the investment in the business has flown from appellant’s own money which is an essential pre-requisite for making addition in such cases. I am convinced that the case of the appellant is squarely covered by the the decisions rendered by the Hon’ble Apex Court in the case of the CIT vs. Lovely Exports (P) Ltd. reported in 216 CTR 195 ITR 393 for the reason that the facts in such cases are entirely same, particularly, when no differentiation could be effectively demonstrated and brought on to the record by the A.O. The submissions of the AO that the decision of the Hon’ble Supreme Court in the case of Lovely Exports (P) Limited was rendered in the light of different facts inasmuch as the said judgement was rendered by the Hon’ble Supreme Court in the context of public issue, is devoid of merit because the decision was rendered by the Hon’ble Supreme Court in the case of Lovely Exports (P) Ltd. which is a Private Limited Company and which cannot bring public issue of shares. I find that the investments made by the share applicants were duly reflected in the audited financial statements of the corporate investors. It is a settled principle of law that reason for suspicion, however grave it may be, cannot be a basis for holding adversity against appellant.

5.

11 The Assessing Officer has disregarded the documentary evidences adduced by the appellant such as confirmation from the share applicants, their PAN, certificate of incorporation of subscriber companies, records of the

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