ACIT, CHENNAI vs. KAMACHI STEELS LTD., CHENNAI

आदेश / O R D E R Per Bench:

ASST Date of Date of Date of issue Date of Abated / YEAR filing of processing of notice u/s. completion of not original ROI U/s. 143(1) 143(2) assessment Abated u/s. 143(3)/147 2007-08 26.10.2007 11.02.2009 -- -- -- 2008-09 30.09.2008 29.01.2010 13.08.2009 28.12.2010 - 2009-10 30.09.2009 19.11.2010 -- 30.12.2011 -- 2010-11 14.10.2010 27.04.2011 -- -- --

“The learned assessing officer in case of search assessment u/s. 153A of the Act erred in making an addition under section 68 of the to 1133/Chny/2017 :- 3 -: Income Tax Act on account of share capital from corporate without any indiscriminating documents found during the course of search.”

4. The Ld. counsel for the assessee stated that exactly identical grounds were raised in other three A.Ys i.e., 2008-09, 2009-10 & 2010-11. The Ld. Counsel for the assessee stated that the A.O in these four A.Ys. brought out that no incriminating material was found during the course of search and the documents found are not relating to these A.Ys rather, the assessments were framed u/s 153A r.w.s 143(3) of the Act on the basis of information already filed by the assessee during the course of original assessment proceedings or in the returns of income i.e., from the balance sheets and audited accounts of the assessee. The CIT(A) has recorded this fact in para 4.1 of his order, the assessments which are unabated for all these four A.Ys and the relevant portion reads as under:

“4.1. I have gone through the assessment order, grounds of appeal, written submissions and case laws relied upon by the appellant. After a careful consideration of the same, the issue is decided as under: As can be seen from the assessment order the AO observed that there is capital infusion through issue of 60,03, 200 shares of face value of Rs. 10/ at a premium of Rs. 15/- per share from various Kamachi group individuals, investment companies which were taken over by the Kamachi group and certain companies registered in ROC, Mumbai and ROC, Kolkatta. In this regard the A0 had taken support from the sworn statement of one Mr.Praveen Jain, who is said to be one of the leading entry providers, based on which the former had sent notices u/s. 133(6) to various companies. Most of the companies have replied to the above said notices along with necessary documentary evidences. After going through the same the AO was not convinced that the identity, capacity and genuineness of transactions involving the alleged receipts of share application money has been proved and held that the money had come to the appellant from the aforesaid bogus companies directly to 1133/Chny/2017 :- 4 -: or indirectly in the garb of share application money observing as above the AO added the same under section 68 to the appellant's total income. On going through the materials on record, I am of the view that the various documentary evidences produced by the appellant during assessment proceedings, such as details of registered office address, PAN & assessment particulars, financial statements, copies of annual return filed by the above said companies in the office of the Registrar of Companies, share application forms, copies of minutes of board meeting for allotment of shares in favour of the above said companies, confirmation letters from parties and the copy of bank accounts wherein the said entries are reflected were not taken into account in the proper perspective by the A0. Above all, all the transactions were carried out under normal banking channels. Further the AO himself has concluded that these are bogus companies. Admitting for a while as observed by the AO that these are bogus companies, the right thing AO should have done was to proceed against the said bogus companies, as held in the case of Lovely Exports Pvt. Ltd. (supra) and he should not have considered the said sum under section 68 and added it to the appellant's total income. Hence adding the said amount under section 68 in the hands of the appellant is legally not correct. Accordingly it is held that the action of the AO is in correct as it is against the decision of the Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd. As can be seen from the assessment orders, the AO has not discussed about any incriminating materials, the reason being, that no such materials were found during the course of search proceedings and post search proceedings. This means there were no seized materials at all. Hence it is to be concluded that the additions made by the AO are not backed by any incriminating material, except the sworn statement of third party. On the contrary, the appellant had explained cogently with documentary evidences as to the basis on which his claim is to be accepted.”

5. When these facts were confronted to Ld. CIT-DR, he could not answer whether there is any incriminating material available in seized documents or not in relation to these four A.Ys and he also could not controvert the fact that the additions of share capital made by A.O in those four A.Ys u/s. 68 of the Act is on account of share capital / share premium based on documents filed by the assessee in original to 1133/Chny/2017 :- 5 -: assessments or the transactions recorded in the books of accounts, which are already been declared by the assessee in the returns of income file before search. When it was pointed out that this case is squarely covered in favour of the assessee and against Revenue by the decision of Hon’ble Supreme Court in the case of PCIT vs. Abishar Buildwell P. Ltd. in Civil Appeal No.6580 of 2021 dated 24.04.2023 (SC), he could not controvert the same.

“14. In view of the above and for the reasons stated above, it is concluded as under: i) that in case of search under Section 132 or requisition under Section 132A, the AO assumes the jurisdiction for block assessment under section 153A; ii) all pending assessments/reassessments shall stand abated; iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material unearthed to 1133/Chny/2017 :- 6 -: during the search and the other material available with the AO including the income declared in the returns; and iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs.”

4.1. I have gone through the assessment order, grounds of appeal, written submissions and case laws relied upon by the appellant. After a careful consideration of the same, the issue is decided as under: As can be seen from the assessment order the A0 observed to 1133/Chny/2017 :- 7 -: that there is capital infusion from various Kamachi group individuals, investment companies which were taken over by the Kamachi group and certain companies registered in ROC, Mumbai and ROC, Kolkatta. In this regard the AO had taken support from the sworn statement of one Mr. Praveen Jain, who is said to be one of the leading entry providers, based on which the former had sent notices u/s. 133(6) to various companies. Most of the companies have replied to the above said notices along with necessary documentary evidences. After going through the same the AO was not convinced that the identity, capacity and genuineness of transactions involving the alleged receipts of share application money has been proved and held that the money had come to the appellant from the aforesaid bogus companies directly or indirectly in the garb of share application money. Observing as above the AO added the same under section 68 to the appellant's total income. On going through the materials on record, I am of the view that the various documentary evidences produced by the appellant during assessment proceedings, such as details of registered office address, PAN & assessment particulars, financial statements, copies of annual return filed by the above said companies in the office of the Registrar of Companies, share application forms, copies of minutes of board meeting for allotment of shares in favour of the above said companies, confirmation letters from parties and the copy of bank accounts wherein the said entries are reflected were not taken into account in the proper perspective by the AO. Above all, all the transactions were carried out under normal banking channels.

Further the AO himself has concluded that these are bogus companies. Admitting for a while as observed by the AO that these are bogus companies, the right thing AO should have done was to proceed against the said bogus companies, as held in the case of Lovely Exports Pvt. Ltd. (supra) and he should not have considered the said sum under section 68 and added it to the appellant's total income. Hence adding the said amount under section 68 in the hands of the appellant is legally not correct. Accordingly It is held that the action of the AO is incorrect as it is against the decision of the Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd.

As can be seen from the assessment orders, the AO has not discussed about any incriminating materials, the reason being, that no such materials were found during the course of search proceedings and post search proceedings. This means there were no seized materials at all. Hence it is to be concluded that the additions made by the A0 are not backed by any incriminating material, except the sworn statement of third party. On the contrary, the appellant had explained cogently with documentary evidences as to the basis on which his claim is to be accepted.” to 1133/Chny/2017 :- 8 -: 9. Since, the issue is squarely covered by the decision of Hon’ble Supreme Court in the case of Abishar Buildwell P. Ltd., supra, we dismiss this appeal of Revenue.

“2. The learned CIT(A) erred in deleting the addition of Rs.1,00,04,00,000/- made by the Assessing Officer u/s 68 of the Income Tax Act, 1961, in the assessment for A.Y 2011-12 passed u/s 143(3) r.w.s 153A of the IT Act, 1961 in the case of the assessee. 2.1 The ld. CIT(A) ought to have appreciated that the documentary evidence brought on record by the Assessing Officer during the assessment proceedings clearly showed that the alleged share holders were only paper companies whose credit worthiness and the genuineness of the transactions were not established. 2.2 The ld.CIT(A) ought to have appreciated the decision of Hon'ble Calcutta High Court in the case of Rajmandir Estates Pvt. Ltd. Vs Pr. CIT, Kolkatta III(2016) 70 taxmann.com 124, which, though rendered in the context of application of section 263 with respect to introduction of Share capital/Share Premium, squarely applies to the facts of the case of the assessee.”

KAMACHI SPONGE AND POWER COPORATION LIMITED S. Name of the party FY 2010-11 FV Amount Total No. No. Of Prem shares 1. Kamachi Investments Private Limited 4,00,000 40,00,000 60,00,000 1,00,00,000 2. Solanki Texcomm Pvt Ltd. 4,00,000 40,00,000 60,00,000 1,00,00,000 3. Devshree saving & Investment Co Pvt. 46,42,000 4,64,20,000 6,96,30,000 11,60,50,000 Ltd.

“7.7 Notices u/s 133(6) were issued to 29 such companies which have provided fund to investment companies of Kamachi group in lieu of purchase of investments. Out of these 29 companies, notices have been received back un-served in 21 cases, 5 parties have furnished incomplete reply, and 3 parties have not responded. Received back notices mostly have remarks 'not known'. 7.8 Notices u/s 133(6) have been issued to 30 companies whose shares were sold. To ultimately funding M/s Kamachi Sponge & Power Corporation Limited. Out of these, 17 notices have been received un-served, 4 parties have sent replies and 9 cases no reply has been received. Received back notices mostly have remarks 'not known'.”

“4.1. I have gone through the assessment order, grounds of appeal, written submissions and case laws relied upon by the appellant. After a careful consideration of the same, the issue is decided as under: As can be seen from the assessment order the AO observed that there is capital infusion through issue of 60,03,200 shares of face value of Rs. 10/- at a premium of Rs.15/- per share from various Kamachi group individuals, investment companies which were taken over by the Kamachi group and certain companies registered in ROC, Mumbai and ROC, Kolkatta. In this regard the A0 had taken support from the sworn statement of one Mr.Praveen Jain, who is said to be one of the leading entry providers, basedon which the former had sent notices u/s. 133(6) to various companies. Most of the companies have replied to the above said notices along with necessary documentary evidences. After going through the same the AO was not convinced that the identity, capacity and genuineness of transactions involving the alleged receipts of share application money has been proved and held that the money had come to the appellant from the aforesaid bogus companies directly or indirectly in the garb of share application money. Observing as above the 40 added the same under section 68 to the appellant's total income. On going through the materials on record, I am or the view that the various documentary evidences produced by the appellant during assessment proceedings, such as details of registered office address, PAN & assessment particulars, financial statements, copies of annual return filed by the above said companies in the office of the Registrar of Companies, share application forms, copies of minutes of board meeting for allotment of shares in favour of the above said companies, confirmation letters from parties and the copy of bank accounts wherein the said entries are reflected were not: taken into account in the proper perspective by the AO. Above all, all the transactions were carried out under normal banking channels. to 1133/Chny/2017 :- 12 -: Further the AO himself has concluded that these are bogus companies. Admitting for a while as observed by the AO that these are bogus companies, the right thing AO should have done was to proceed against the said bogus companies, as held in the case of Lovely Exports Pvt. Ltd. (supra) and he should not have considered the said sum under section 68 and added it to the appellant's total income. Hence adding the said amount under section 68 in the hands of the appellant is legally not correct. Accordingly it is held that the action of the AO is incorrect as it is against the decision of the Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd. As can be seen from the assessment orders, the AO has not discussed about any incriminating materials, the reason being, that no such materials were found during the course of search proceedings and post search proceedings. This means there were no seized materials at all. Hence it is to be concluded that the additions made by the AO are not backed by any incriminating material, except the sworn statement of third party. On the contrary, the appellant had explained cogently with documentary evidences as to the basis on which his claim is to be accepted.”

Since, the CIT(A) has deleted the addition, the Revenue came in appeal before the Tribunal.

Order pronounced on 30th August, 2023.