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Income Tax Appellate Tribunal, GUWAHATI BENCH AT KOLKATA
Before: SRI RAJPAL YADAV(KZ) & DR. MANISH BORAD
order
: March 3rd, 2023 ORDER
Per Manish Borad, Accountant Member:
This appeal filed by the Revenue pertaining to the Assessment Year (in short “AY”) 2010-11 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the I.T.A. No.: 247/GTY/2019 Assessment Year: 2010-11 M/s. Impala Industrial Enterprises Ltd. “Act”) by ld. Commissioner of Income-tax (Appeals)-1, Guwahati [in short ld. “CIT(A)”] dated 29.03.2019 arising out of the assessment order framed u/s 144/147 of the Act dated 29.12.2017.
The Revenue is in appeal before this Tribunal raising the following grounds:
Assessment Year: 2011-12:
1. On the facts and circumstances of the cases, the Ld. CIT(A) is not justified in facts as well in law quashing the assessment order passed u/s 144 of the Income Tax Act, 1961.
2. Order of the CIT(A) is perverse as it is inconsistent with the facts and inconsistent in itself and given without any grounds of appeal.
3. On the facts and circumstances of the cases, the Ld. CIT(A) is not justified in facts as well in law in deleting the addition/disallowance of Rs.2,31,35,000/- claimed by the assessee.
4. The Ld. CIT(A) was not justified in quashing the order and deleting the addition, while she herself is of the view that assessee is a bogus entity, without any actual assets, which implies that so called assets sold by the assessee and amount received itself is a paper transaction
5. The Ld. CIT(A) was not justified in quashing the order, despite the fact the assessee has received Es. 2.31 Crore, from S.S.Securities, and assessee failed to prove its identity, credit worthiness and genuineness and assessee has failed to submit details as called for like contract notes, share certificates, demat account etc for purported sale of shares.
6. The Ld. CIT(A) was not justified in considering the self-made bills of assessee for sale of shares, amount received in bank account and 2012 letter issued by Guwahati exchange to S.S>Securities for closure of operation as sufficient for proving identity, credit worthiness and genuineness despite the fact that S.S. Securities is a bogus entity as clear from the banking trails, non-existent at any address, non- production by assessee, no proof of sale of so-called shares.”
3. Brief facts as stated in the statement of facts are that the assessee being a reputed company filed his return of income on I.T.A. No.: 247/GTY/2019 Assessment Year: 2010-11 M/s. Impala Industrial Enterprises Ltd. 01.11.2017 showing total income of Rs. 56,637/-. As per information received from the DIT (Inv), Unit - 3(3), Kolkata, it was found that the assessee sold 76800 Nos. of shares (sale value of Rs. 1,92,00,000/-) of Dayal Power and Mining Ltd and 39,350 Nos. of shares (sale value of Rs. 39,35,000/-) of Om Energy Ltd to M/s S.S. Securities. On the basis of report from the Investigation Directorate, Mumbai M/s. S.S. Securities, is alleged to be a paper entity and the address of the proprietor shown in the KYC detail is not found to be genuine. 3.1. After taking approval from competent authority notice dated 30/03/2017 and 07/08/2017 u/s 148 of the I. T. Act, 1961 has been issued to the assessee and further notice u/s 143(3) and 142(2) with questionnaire also served upon the assessee. On 22/11/2017 authorized representative of the assessee appeared and requested certified copy of the reason recorded. After receiving recorded reason, the assessee raised objection on reason recorded and also furnished copy of Bills raised on sale of share holding, bank statement, Financial Statement of the company. On 14/12/2017 a notice u/s 133(6) of the I. T. Act, 1961 issued to M/s S.S. Securities which returned undelivered. Further vide letter dated 18/12/2017 objection of the assessee for issuing notice u/s 148 of the I. T. Act has been rejected by the A.O. On 18/12/2017, an inspector attached to this office was deputed for enquiry regarding the existence of given two addresses (as shown in his ITR) of the assessee company but failed to locate the assessee. 3.2. Subsequently, a show cause notice has been issued to the assessee on 20/12/2017 by speed post as well as by e-mail, But I.T.A. No.: 247/GTY/2019 Assessment Year: 2010-11 M/s. Impala Industrial Enterprises Ltd. no response has been received from the assessee. On the basis of findings and enquiry made by the DDIT (Inv) Unit -3(3), Kolkata and enquiry made by the A.O. during the assessment proceedings, in which the assessee company and the company from which the assessee company received money in lieu of selling share holding, failed to prove their existence. Ld. A.O. had reason to believe that S.S. Securities is a non existent/paper entity and the amount Rs.2,31,35,000/- received from M/s. S.S. Securities was an undisclosed income of the assessee company. On the basis of findings, enquiries made during the assessment proceeding, addition of Rs. 2,31,35,000/- was made to the total income of the assessee as accommodation entry. Accordingly, income of the assessee assessed at Rs. 2,31,35,000/-.
4. Aggrieved, the assessee preferred appeal before ld. CIT(A) and submitted various documentary evidences which included the letter posted by ld. AO to the appellant, bills of sale in respect of sale of M/s. S.S. Securities, the letter of the Guwahati Stock Exchange Ltd. addressed to Security and Exchange Board of India (in short ‘SEBI’) in respect of Mr. Sanjay Kumar Sarawgi, proprietor of M/s. S.S. Securities which is a broking firm through whom the equity shares held by the assessee were sold. It was also stated that the assessee held the equity shares for more than a year and they are duly reflected in the audited balance sheet, statement of preceding financial year. Reference was also made to the details showing the existence, identity and genuineness of the broker M/s. S.S. Securities and the payments having been received through banking channel. Considering the contentions of the assessee, ld. CIT(A) deleted the said addition. Page 4 of 13 I.T.A. No.: 247/GTY/2019 Assessment Year: 2010-11 M/s. Impala Industrial Enterprises Ltd.
Aggrieved, the Revenue is now in appeal before this Tribunal. Ld. D/R vehemently argued referring to the finding of ld. AO as well as the enquiry report of the Inspector duly captured in the assessment order stating that the alleged sum received by M/s. S.S. Securities is unexplained in view of provision of Section 68 of the Act since M/s. S.S. Securities is a paper entity.
On the other hand, ld. Counsel for the assessee vehemently argued referring heavily on the finding of ld. CIT(A) also stated that M/s. S.S. Securities is a broking firm which at that point of time was registered with the Guwahati Stock Exchange Ltd. which is a Govt. regulatory authority and it has vouched for its existence and has certified its authenticity and identity.
We have heard rival contentions and perused the records placed before us. The Revenue is aggrieved with the finding of ld. CIT(A) deleting the addition made by ld. AO towards unexplained credit for the amount received from M/s. S.S. Securities at Rs. 2,31,35,000/-. We notice that ld. AO, based on the report of Dy. Director (Inv.), Kolkata, observed that M/s. S.S. Securities is carrying out huge bank transactions vide RTGS and high value cheques and based on the pattern of the transactions, location of business, source of funds and further utilization of funds by these group of entities including M/s. S.S. Securities it was observed that these entities did not appear to commensurate with the activities of the said company.
As far as the case in hand is concerned, the assessee held equity shares in Dayal Power & Mining Ltd. and Om Energy Ltd. and the said investment is held by the assessee company from past Page 5 of 13 I.T.A. No.: 247/GTY/2019 Assessment Year: 2010-11 M/s. Impala Industrial Enterprises Ltd. many years duly reflected in the audited financial statement. During the year the assessee company sold 76,800 equity shares of Dayal Power & Mining Ltd. for a sale consideration of Rs. 1.92 Cr and also sole 39,350 equity shares of Om Energy Ltd. for a sale consideration of Rs. 39.35 lakh and the sum totals to Rs. 2,31,35,000/-. The said transactions of sale of equity shares was carried out through a broking firm M/s. S.S. Securities which is a sole proprietorship concern owned by Mr. Sanjay Kumar Sarawgi. We also find that at that point of time when the said transaction took place M/s. S.S. Securities was duly registered with the Guwahati Stock Exchange Ltd. which is a Govt. regulatory authority. Ld. CIT(A), considering the documents filed by the assessee, genuineness of the business carried out by M/s. S.S. Securities in the capacity of a broker, transactions being carried out through banking channel, the facts of the case and the documentary evidences filed by the assessee as well as lack of complete enquiry being conducted by ld. AO and also placing reliance on plethora of judicial pronouncements, decided in favour of the assessee deleting the alleged addition giving a detailed finding, of which the relevant extract is reproduced below: “According to the aforesaid report of the Deputy Director (Investigation), Unit 3(3), Kolkatta, the entity M/s. Ashoka Securities and related entities M/s. Bharati Traders, M/s. Haresh Enterprises, M/s. Maruti International and M/s. S.S. Securities were conducting huge bank transactions vide RTGS and high valued cheques in certain bank accounts in the Indusind Bank Limited. According to the report, the firms M/s. Bharati Traders, M/s. Haresh Enterprises and M/s. Maruti International were Mumbai based and huge funds were transferred by these Mumbai based proprietorship firms to the bank account of M/s. Ashoka Securities, where these funds were pooled and from where these funds were further transferred to the account I.T.A. No.: 247/GTY/2019 Assessment Year: 2010-11 M/s. Impala Industrial Enterprises Ltd. of M/s. S.S. Securities (i.e. the broker of the Appellant). In the said report, it was also reported that the pattern of transactions, location of business, source of funds and further utilization of funds by these entities did not appear to be commensurate with the activities of the said companies. As per the report, the proprietors of the entities M/s. Bharati Traders, M/s. Haresh Enterprises and M/s. Maruti International had given one common address in the KYC forms submitted to the bank i.e. "202, Amrit Pham, Nityanand Nagar, Bakultala, Danesh Sheikh Lane, Howrah - 711009". On the basis of the enquiries conducted in Mumbai, the physical existence of these entities could not be ascertained in Mumbai. Therefore, enquiries were conducted in Kolkatta at the above address i.e. "202, Amrit Dham, Nityanand Nagar, Bakultala, Danesh Sheikh Lane, Howrah - 711009" but the existence of these firms could not be ascertained at the above address even in Kolkatta. It was also stated in the report of the Deputy Director (Investigation), Unit 3(3), Kolkattathat M/s. S.S. Securities (i.e. the broker of the Appellant) also was only a paper entity as established from the report of the Investigation Wing, Mumbai. As per the report of the Deputy Director (Investigation), Unit 3(3), Kolkatta, M/s. S.S. Securities (i.e. the broker of the Appellant) also stated its address as "202, Amrit Dham, Nityanand Nagar, Bakultala, Danesh Sheikh Lane, Howrah - 711009". However, the enquiry by the Investigation Wing at Kolkatta could not prove the existence of M/s. S.S. Securities at Kolkatta. Finally, in the said report of Deputy Director (Investigation), Unit 3(3), Kolkatta, the amount transferred to the Appellant by the M/s. S.S. Securities (i.e. the broker of the Appellant) was stated as Rs. 2,31,35,000/- (i.e. the impugned addition amount). Thus, as per the report of the Deputy Director (Investigation), Unit 3(3), Kolkatta, the impugned amount of Rs. 2,31,35,000/- was purportedly routed from the Mumbai based entities M/s. Bharati Traders, M/s. Haresh Enterprises and M/s. Maruti International and pooled in the account of M/s. Ashoka Securities, from where it was further routed to the account of M/s. S.S. Securities (i.e. the broker of the Appellant) and finally the said amount was paid by M/s. S.S. Securities to the Appellant in the form of sale consideration of shares sold by the Appellant to M/s. S.S. Securities. It is also noted that, as per the contention of the Appellant, the Appellant company sold 76800 shares of Dayal Power & Mining Ltd. and 39350 shares of Om Energy Ltd. to M/s S.S. Securities (i.e. broker of the Appellant at the relevant time) for sale considerations of Rs.
I.T.A. No.: 247/GTY/2019 Assessment Year: 2010-11 M/s. Impala Industrial Enterprises Ltd. 1,92,00,000/- and Rs. 39,35,000/- respectively, both amounts aggregating to Rs. 2,31,35,000/- (Rs. 1,92,00,000/- + Rs. 39,35,000/-), which is the amount of the impugned addition. No Enquiries Conducted As stated supra, during the course of appellate proceedings, the Appellant submitted various documentary evidences (i.e. evidences - which, except for the postal receipts, were also submitted during the assessment proceedings) in the form of postal receipts of speed post pertaining to various notices and letters posted by the AO to the Appellant, bills of sale in respect of sale of aforesaid shares by the Appellant to M/s. S.S. Securities, a letter of the Guhati Stock Exchange Limited to SEBI in respect of Sh. Sh. Sanjay Kumar Sarawgi, Prop, of M/s. S.S. Securities, the broker to whom the aforesaid shares amounting to Rs. 2,31,35,000/- (impugned addition in the assessment order) were sold by the Appellant, bank statements of the Appellant, tax audit report of the Appellant etc. The order of the Ld. AO is however silent on these evidences submitted by the Appellant during the assessment proceedings. The AO, at the stage of the remand proceedings, again had an opportunity to verify the existence, identity and genuineness of the Appellant, the existence, identity and genuineness of the broker (M/s. S.S. Securities) from whom the aforesaid sale consideration of Rs. 2,31,35,000/- was received for sale of 76800 shares of Dayal Power & Mining Ltd. and 39350 shares of Om Energy Ltd., the genuineness of the payments aggregating to Rs. 2,31,35,000/- received by the Appellant vide banking channels from the broker, the genuineness of the sale bills raised by the Appellant on the broker (M/s. S.S. Securities), various figures verified by the Tax Auditor in the Tax Audit Report especially those pertaining to Schedule D (Investment at Cost) etc. The AO had the opportunity, even at the stage of remand proceedings, to undertake the following activities:
1. 1. The AO could have verified the existence, identity and genuineness of the Appellant company from the Registrar of Companies (ROC) from where relevant proof of the present addresses of the Appellant or the Balance Sheets filed by the Appellant or the details of Directors of the Appellant could have been easily discovered.
2. The AO could have verified the existence, identity and genuineness of the broker (M/s. S.S. Securities) from the Guhati Stock Exchange Page 8 of 13 I.T.A. No.: 247/GTY/2019 Assessment Year: 2010-11 M/s. Impala Industrial Enterprises Ltd. Limited of which the said broker was a member. Similarly, the AO could have verified the transactions of the Appellant in the shares of Dayal Power & Mining Ltd. and Om Energy Ltd. from the annual returns of the Appellant filed with ROC.
The AO could have verified the payments of Rs. 2,31,35,000/- received by the Appellant vide the banking channel from the concerned banks.
The AO could have verified whether the sale bills raised by the Appellant for the total sale consideration of Rs. 2,31,35,000/- were genuine or not from the Appellant itself or the broker of the Appellant by finding their current addresses.
5. The AO could have verified the genuineness of the tax audit report of the Tax Auditor or various figures of the Tax Audit Report especially those pertaining to Schedule D (Investment at Cost) from the Tax Auditor by finding his current address from the Institute of Chartered Accountants of India (ICAI). No enquiries at all were conducted by the AO during the long course of assessment proceedings, to repel or assail any of the documentary evidence furnished by the Appellant, except writing a letter to M/s. S.S. Securities (i.e. the broker of the Appellant) at his old address and the Tax Auditor at the Kolkatta address. There were no efforts on the part of the AO to conduct enquiries either from the Appellant or from the Registrar of Companies (ROC) or from the broker (M/s. S.S. Securities) or from SEBI or from the banks or from Guwahati Stock Exchange Limited or the ICAI, even during the remand proceedings. Thus, again during the remand proceedings, no enquiries were conducted. The aforesaid report of the Deputy Director (Investigation), Unit 3(3), Kolkatta, was available with the AO at the time of the assessment proceedings and it was on the basis of this report that the case of the Appellant has been reopened by issuance of notice under Section 148 of the Act. However, after the issue of the notice under Section 148 of the Act, not a single independent enquiry was conducted by the AO in respect of any of the aforesaid entities i.e. M/s. Bharati Traders, M/s. Haresh Enterprises, M/s. Maruti International, M/s. Ashoka Securities and M/s. S.S. Securities (i.e. the broker of the Appellant). The only enquiry which was conducted by the AO {through the Inspector} was about the existence of the Appellant at two addresses of the Appellant at Guwahati i.e. "205, Haribol Roy Market, 2nd Floor, I.T.A. No.: 247/GTY/2019 Assessment Year: 2010-11 M/s. Impala Industrial Enterprises Ltd. Near Saraf Building, A.T. Road, Guwahati - 781001" (given in return of income for AY 2011-12) and "Alok Niket, Kanaklata Road, Narayan Nagar, Kumarpara, Near Haryana Bhawan, Guwahati - 781009" (given in return of income for AY 2010-11). It is also noted that all the aforesaid transactions pertaining to the impugned amount of Rs. 2,31,35,000/- took place during the FY 2009-10 and enquiry by the Investigation Wing, Kolkatta took place long after that, i.e. in the year 2017. The enquiry by the Inspector of the AO about the existence of the Appellant at the aforesaid addresses of the Appellant were also conducted during the FY 2017. Thus, both enquiries i.e. by the Investigation Wing, Kolkatta and the Inspector of the AO were conducted more than 7 years after the impugned transactions took place. If an enquiry about the existence of a particular entity being located at a particular address is conducted 7-8 years after the relevant date, it is a very high probability that the entity may not be present on that address at the time of the enquiry. In that sense, the report of the enquiry, which took place long after the transactions had taken place, cannot be accepted as a clinching evidence to conclude and prove that the entity (i.e. the Appellant) was a bogus entity on the reason that the said entity (i.e. the Appellant) was not found to be present at the particular addresses on the date of enquiry. This kind of evidence does not inspire much confidence. In view of the above, the conclusions reached by the AO, leading to the addition of the impugned amount in the hands of the Appellant, are not supported by credible evidence against the Appellant after due enquiries. Hence, the addition of the amount of Rs. 2,31,35,000/- in the hands of the Appellant cannot be sustained.”
From perusal of the above finding and the details placed before us and also on going through the Schedule-D of investments appearing in the audited financial statements of the company, we notice that the equity shares in question sold by the assessee are duly reflected in the audited financial statements for FY 2008-09 and the said equity shares have been sold during the FY 2009-10. It is not the case of the Revenue that the alleged equity shares sold by the assessee falls under the category of penny stock companies.
I.T.A. No.: 247/GTY/2019 Assessment Year: 2010-11 M/s. Impala Industrial Enterprises Ltd. It is also discernible from the financial statements that the assessee company has investments in other equity shares also which have been held in the preceding financial year. Further, we notice that the transaction has been carried out through a broking firm M/s. S.S. Securities which is registered with the Guwahati Stock Exchange Ltd. and at page 38 to 39 of the impugned order the letter of the Guwahati Stock Exchange Ltd. is reproduced which is dated 25.01.2012 and the subject of the said letter issued by the Guwahati Stock Exchange Ltd. and is addressed to SEBI is regarding “surrender of registration certificate” and issue of “no due certificate” for Mr. Sanjay Kumar Sarawgi under Rule 4(c) of the SEBI (Brokers and sub-Brokers), 1992 and it also quotes the registration number of M/s. S.S. Securities as SEBI Reg. No. INB 131057714 and in various details confirmed by the Guwahati Stock Exchange Ltd. also includes that (a) broker is not connected with any of the defaulting broker of any exchange, (b) no complaint/arbitration/disciplinary proceedings is pending against the broker, no investigation enquiry by any exchange is pending against the broker. It is also noteworthy that the alleged transaction of sale of equity shares carried out by the assessee is during FY 2009-10 and at that point of time the registration of M/s. S.S. Securities with the Guwahati Stock Exchange Ltd. was active, however, when the enquiry was conducted by ld. AO during FY 2017-18, M/s. S.S. Securities had already surrendered the registration and not carrying out business activity. It is also not the case of the Revenue that the purchases of the assessee are bogus or non-genuine.
I.T.A. No.: 247/GTY/2019 Assessment Year: 2010-11 M/s. Impala Industrial Enterprises Ltd.
We, therefore, considering the facts and circumstances of the case and observing that the assessee made legitimate purchases in the preceding year and the said purchases were held as investments and their genuineness is not doubted by the Revenue authorities and during the year under consideration some of the investments have been sold through a broker registered with the Guwahati Stock Exchange Ltd. and the said transaction has been carried out through stock exchange and sale consideration has been received through banking channel via registered broker and, therefore, we do not find any reason to dispute the genuineness, identity and creditworthiness of the share broker at the point of time when transaction was carried out. Thus, no infirmity is called for in the finding of ld. CIT(A) deleting the alleged addition made u/s 68 of the Act. Therefore, all the grounds raised
by the Revenue are dismissed.
11. In the result, the appeal filed by the Revenue is dismissed. Kolkata, the 3rd March, 2023 Sd/- Sd/- [Rajpal Yadav] [Manish Borad] Vice President Accountant Member Dated: 03.03.2023 Bidhan (P.S.) Copy of the order forwarded to:
1. ITO, Ward-2(1), Guwahati.
2. M/s. Impala Industrial Enterprises Ltd., 21/7, Ground Floor, Sahapur Colony, Kolkata-700 053.
3. CIT(A)-1, Guwahati. 4. CIT- 5. CIT(DR), Guwahati Bench, Guwahati.