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Income Tax Appellate Tribunal, BENCH, NAGPUR
Before: SHRI D. KARUNAKARA RAO, AM & SHRI PARTHA SARATHI CHAUDHURY, JM
आदेश / ORDER PER BENCH :
There are 8 appeals (four appeals filed by the Revenue and four Cross Objections filed by the assessee) under consideration involving different
2 Gupta International Industries Ltd. assessment years i.e. A.Y. 2006-07, 2007-08, 2008-09 and 2009-10. All the four appeals of the Revenue are directed against the common orders of the CIT(A)-III, Nagpur dated 03.09.2014. All the four Cross Objections filed by the assessee in relation to the above captioned appeals of the Revenue. Since, the identical issues are involved in all the above captioned appeals of the Revenue as well as the Cross Objections of the assessee, therefore, for the sake of convenience, they are clubbed, heard together and being disposed of by this composite order.
As stated above, the issues are common in all the appeals of the Revenue and its Cross Objections of the assessee, we shall take up the appeal of the Revenue in for the assessment year 2007-08 and its Cross Objection of the assessee in C.O. No.14/NAG/2015 as the lead case for deciding the disputed issues. – A.Y. 2007-08 – By Revenue C.O. No.14/NAG/2015 – A.Y. 2007-08 – By Assessee
Brief Facts : Referring to the facts of the case, ld. Counsel for the assessee mentioned that the assessee is engaged in the business of trading of coal and steel etc. The assessee filed the return of income declaring total income of Rs.27,33,610/- for the year under consideration. A search and seizure action took place at the business premises of Gupta International Industries Ltd. at Nagpur on 29.07.2009. There was also a search and seizure action at the premises of Mr. Durga Prasad Sarda at Nagpur. Mr. Sarda is admittedly engaged in the business of providing accommodation entries for introduction of the capital share/share premium etc. As a result of the said search action on these two premises, the Department seized
3 Gupta International Industries Ltd. certain papers such as a document pertaining to Aim Merchants Pvt. Ltd. wherein there are certain entries reflecting the transactions between the assessee and the Aim Merchants Pvt. Ltd.. As per the Revenue, Aim Merchants Pvt. Ltd. paid the money i.e. share capital/share premium to the assessee when the assessee raised the share capital. The Department also seized certain other papers such as copies of the share certificate (other documents page nos.10 to 15 of the assessment order). Based on these papers which are incriminating in nature, the Assessing Officer issued notice u/s 143(2) of the Act to the assessee. Further, the Assessing Officer, after detailed discussion of his order, completed the assessment u/s 143(3) r.w.s. 153A of the Act and made the additions of (i) Rs.66,30,177/- on account of disallowance of expenses; (ii) Rs.90,00,000/- on account of share application & share premium money; and, (iii) Rs.3,78,25,000/- on account of undisclosed income and added the same to the total income of the assessee for the assessment year under consideration.
Aggrieved with the above action of the Assessing Officer, the assessee filed the appeal before the CIT(A). The CIT(A), after considering the submissions of the assessee and following the binding decisions on the issues under consideration, allowed the appeal of the assessee both on legal grounds as well as grounds on merits.
Aggrieved with the said decision of the CIT(A), the Revenue is in appeal before the Tribunal and the assessee is in Cross Objections against the appeals of the Revenue with the following respective grounds as well as cross objections :-
4 Gupta International Industries Ltd.
– A.Y. 2007-08 (Revenue)
“1. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in deleting the addition of Rs.66,30,177/- on account of disallowance of expenses under various heads, ignoring the fact that these were not genuine and incurred for the purpose of paper transactions, and not for the purpose of business? 2. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in deleting the addition of Rs.90,00,000/- as undisclosed income, holding that the Share Premium and Share Application money is explained, as the explanation with evidence is duly mentioned in the Assessment Order and the action of the Ld. CIT(A) in rejecting such explanation is unjustified? 3. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in deleting Rs.90,00,000/- towards unexplained Share application money, without appreciating the fact that the A.O. had elaborately discussed and clearly brought out the nexus between paper companies floated by Shri D.P. Sarda and amounts received by the Gupta Groups, through money laundering, which had been invested in the assessee company, in the form of Share Capital/Share application money? 4. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in deleting the addition towards unexplained share application money, even though the assessee failed to prove the genuineness of the transactions and the credit-worthiness of the investors, during the assessment proceedings? 5. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in deleting the addition of Rs.3,78,25,000/- towards undisclosed income, ignoring the fact that the A.O. made the addition, based on the incriminating evidence found during the course of search? 6. The appellant craves leave to add, alter, modify, delete, any amend any of the grounds, as per the circumstances of the case.
7. The appellant prays leave to adduce such further evidence to substantiate its case, as the occasion may demand.”
C.O. No.14/NAG/2015 – A.Y. 2007-08 (Assessee)
“(1) That the order of the Assessing Officer is bad in law and wrong on facts and the learned CIT(A) erred in confirming the action of the AO. (2) That the learned Assessing Officer erred in law and on facts in issuing notice u/s. 153A of the Income Tax Act and the learned C.I.T.(A) has erred in confirming the action of the AO. On the facts and circumstances of the case and in law the action is illegal and the assessment u/s. 153A is bad in law. (3) That the AO erred in law and on facts in disallowing expenses under various heads totalling to Rs.66,30,177/- and making the addition of same by holding that the same are non genuine and not required for paper transactions and the learned CIT(A) was justified in allowing the expenses and deleting the addition. On the facts and circumstances of the case, the action of the AO was 5 Gupta International Industries Ltd. bad in law and wrong on facts and the learned CIT(A) was justified in setting aside the same. (4) That the AO erred in law and on facts in making the addition of Rs. 90 Lakhs as unexplained Share Application Money and CIT(A) was justified in holding that proper explanation and evidence were submitted and in deleting the addition. On the facts and circumstances of the case, the action of the AO is wrong on facts and highly unjustified and the learned CIT(A) was justified in setting aside the same. (5) That the AO erred in law and on facts in making the addition of Rs.3,78,25,000/- as unexplained income and CIT(A) was justified in holding that proper explanation and evidence were submitted so as to support and justify the source of money utilized for making the investment in shares and in deleting the addition. On the facts and circumstances of the case, the action of the AO is wrong on facts and highly unjustified and the learned CIT(A) was justified in setting aside the same. (6) That the Assessing Officer erred in law and on facts in charging interest u/s.234A and 234B of the Income Tax Act and the learned CIT(A) erred in confirming the action of AO. On the facts and circumstances of the case the interest charged is improper. (7) That for any other cross-objection with kind permission of Hon’ble Members at the time of hearing of cross objection.”
Before the Tribunal
Before us, at the outset, ld. Counsel for the assessee submitted that ground no.1 of the Revenue‟s appeals is covered by the order of the Tribunal in assessee‟s own case vide for the assessment year 2011-12 dated 24.04.2019. He mentioned that the same decision will apply to the present appeal of the Revenue. Accordingly, the said ground no.1 is required to be dismissed.
On hearing both the sides, we are of the opinion that the Assessing Officer should examine the applicability of the said order of the Tribunal in assessee‟s own case (supra) and then decide the issue after hearing the assessee. We order accordingly.
Regarding grounds no.2 to 4 of the Revenue‟s appeals, ld. DR for the Revenue submitted that this issue needs to be re-adjudicated in the light of 6 Gupta International Industries Ltd.
the various decisions pronounced subsequent to the order of the CIT(A). In this regard, ld. DR for the Revenue filed the written submission and prayed for reversal of the order of CIT(A) on this issue relating to the share application money and share premium.
Referring to ground no.5, ld. DR for the Revenue mentioned that the CIT(A) erred in deleting the addition of Rs.3,78,25,000/- ignoring the fact that incriminating material exists in support of the same and the CIT(A)‟s order is not a speaking order on this issue. Summarily, the ld. DR for the Revenue submitted that all the issues raised in the Revenue‟s appeal are required to be remanded and fresh adjudication is required by passing a speaking order by the lower authorities.
In connection with the Cross Objections filed by the assessee, ld. AR for the assessee submitted the moot issue raising in grounds no.1 and 2 relates to the illegality of the assessment u/s 153A of the Act when there is no incriminating material. It is the submission of the assessee‟s counsel that the notice should not have been issued when there is no incriminating material. Other cross objections/grounds raised by the assessee in Cross Objections relates to the merits of the additions and disallowances.
Arguments of ld. DR : Before us, the ld. DR for the Revenue filed a written note on the legal issue stating that there is plethora of documents seized by the Department in support of the incrimination and the escapement of income and the relevant written note are extracted hereunder :- . Ground of Appeal
Assessing Officer’s findings in the Year Assessment Order. 490/Nag/2014 2007
08. Share premium The share application money and share Rs.81,00,000/- premium is shown as received from Aim
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Share application Merchant Pvt. Ltd. The name of this paper Money company appears in several seized Rs.9,00,000/- documents as mentioned in paras 7.4, 7.5, 7.6, 7.11 and 7.14 of the assessment order including the seized document at page 42, Item no. 1, Annexure A-2. (Nagad lena Nagad Dena) Undisclosed The assessee purchased shares of Grace Income Industries shown to be sourced from Rs.3,78,25,000/- Amber associates Rs.15,00,000/- S. N. Coal & Coke Rs.1,24,25,000/- Kisan Bedi Rs.40,00,000/- R. Subramaniyam Rs.30,00,000/- Virgo Textiles Pvt. Ltd. Rs.1,17,50,000/- Ravi Steel Rs.51,50,000/- Rs.3,78,25,000/- The genuineness, creditworthiness and identity of the sources of this investment was not proved by the assessee. The assessment order discusses at paras 7.6 to 7.16 the seized documents relying on which these entities are treated as bogus paper companies of the D P Sarda group which the assessee used for routing assessee's unaccounted cash 491/Nag/2014 2009-10 Unsecured Loans The assessee’s balance sheet reveals Rs.10,54,24,250/- unsecured loans of Rs.10,54,24,250/- From Lambkaran Commercial Pvt. Ltd. Rs.2,18,02,000/- M. B. Mines Pvt. Ltd. Rs.3,62,85,500/- Vignesh Mines Pvt. Ltd. Rs.4,73,18,750/- Which are added to total income as undisclosed income. As discussed in para 7.2 of the assessment order these bogus companies of D P Sarda group are used to route assessee's unaccounted cash. LTCG on transfer Para 8.12 of the assessment order. The of GIL shares addition is based on page no. 62 and 67 of Rs.4,92,65,265/- Item no. 19 of annexure A-2 of the seized documents Declaration of Declaration offered by the assessee u/s. Rs.10,00,000/- 132(4) of the 1. T. Act was based on the seized incriminating material. 502/Nag/2014 2006-07 Share Premium The assessment order discusses the seized Rs.43,50,000/- documents on this issue at paras 7.10 to Share application 7.14. The share application money and the money share premium is shown to be received from Rs.21,91,50,000/- 40 different bogus entities. The assessment order mentions few such names at para 7.14, viz., Dogma Exim, Advent Commercial, Harmit Garments, Alto Vision Pvt. Ltd, Champion Traders which are proved to be paper companies from the seized documents. 503/Nag/2014 2008-09 Undisclosed The addition is made on account of bogus Income unsecured loans reflected in the balance Rs.2,79,00,000/- sheet. The assessment order discusses at paras 7.9 to 7.18 the seized documents
8 Gupta International Industries Ltd. relying on which these entries are treated as bogus paper companies of the D P Sarda group which the assessee used for routing assessee's unaccounted cash.
On the legal issue raised by the assessee in Cross Objection, ld. DR submitted that the AO has rightly issued notice u/s 153A of the Act and additions were done in the light of the incriminating material. Ld. DR relied on the judgment in the case of the Jai Steel India vs. ACIT vide Income Tax Appeal No.53/2011 dated 24.05.2013 and others.
Arguments of ld. AR : On the other hand, ld. AR for the assessee submitted that the documents seized by the Department relates to advance given by the assessee to Aim Merchants Pvt. Ltd.. Further, ld. AR for the assessee filed a written submission on the merits of the additions in response to the grounds raised by the Revenue. For the sake of completeness, the said written submission filed by the ld. AR for the assessee are extracted hereunder :-
“ITA No.490/Nag/2014 – A.Y. 2007-08 During the assessment proceedings the assessing officer observed that the assessee had shown credits on account of Share application money of Rs. 9,00,000/- and share premium of Rs. 81,00,000/-. The share application money and share premium is shown as received from Aim Merchant Pvt. Ltd. The name of this paper company appears in several seized documents as mentioned in paras 7.4, 7.5, 7.6, 7.11 and 7.14 of the assessment order including the seized document at page 42, Item no. 1, Annexure A-2. ( Cheque lena Nagad Dena). These incriminating documents are seized in course of the search action in the assesee's premises. The assessment order clearly mentions this fact at 7.4 of the assessment order. The assessing officer has reproduced the scanned copies of the seized incriminating documents at pages 10 to 15 of the assessment order based on which the conclusion is drawn that the share application money and share premium is unexplained. Ld. CIT (A) has held that "Since no evidence was found as a result of Search adverse to what has been submitted, I have no hesitation in holding that no addition can be made treating share application money and premium as non genuine." (page 20 of the CIT (A) order). Ld. CIT (A)'s decision is contrary to the facts mentioned in the assessment order. The entries in the incriminating documents seized during the search and copied in the assessment order are not discussed by Ld. CIT (A).”
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Referring to the above appeal of the Revenue and the Cross Objection filed by the assessee, ld. Counsel for the assessee mentioned that the issues are required to be decided before travelling into the merits of the case. In this regard, ld. Counsel for the assessee brought our attention to the Cross Objection No.14/NAG/2015 (objection no.2) and mentioned that in the absence of seized material incriminating one, the Assessing Officer is not justified in making the assessment u/s 153A of the Act. Further ld. AR submitted that in this kind of completed assessments, AO is prevented from making general additions unsupported in the seized material.
Decision of the Tribunal
We have heard both the sides on this legal issue as well as on merits regarding the additions made by the Assessing Officer. We have also perused the orders of the Revenue authorities. Further, we find the contents of pages 19 to 24 of the CIT(A)‟s order are relevant in this regard. We find appropriate to extract the relevant lines of page 20 of the CIT(A)‟s order wherein the reasoning given by the CIT(A) by holding that there is no “incriminating material” on the record. For the sake of completeness, the said relevant lines of page 20 of the order of the CIT(A) are extracted hereunder :- “........... The A.R. of the appellant has argued vehemently. The investigation wing did not bring on record any adverse finding to what the assessee had placed on record. On further perusal of the record, I find that there is no document or record which was found as a result of the search action or even otherwise, to implicate the appellant company that any unaccounted money was brought in the books of accounts in the form of share application money/premium. The A.O. has simply held in para 7.21 that the share application money and share premium in the Balance Sheet is unaccounted money routed through the impugned applicants without bringing on record any evidence with respect to the appellant company. Thus the conclusion drawn by the A.O. is without any evidence and in absence of any positive evidence, the addition made cannot be sustained. Since no evidence was found as a result of search adverse to what has been submitted, I have no hesitation in holding that no addition can be made treating share application money and premium as non-genuine. ..........”
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On Legal Issue
Considering the above reasoning of the CIT(A), we find that the said observation of the CIT(A) is very general in nature and not specific on the documents cited by the Assessing Officer in the assessment order. In our considered opinion where there is an existence of contract agreement between the assessee and Mr. Sarda, who is an “accommodation entry provider” and there is a direct nexus between the assessee and Mr. Sarda and also the assessee and Aim Merchants Pvt. Ltd., considering the same, we are of the opinion that the objection raised by the ld. AR for the assessee is not sustainable in law.
The legal proposition which comes out from various judicial pronouncements and the decisions of the Higher Forum, it is crystal clear that in case of section 153A of the Act whenever action is taken u/s 132 of the Act, the Assessing Officer is under statutory obligation to issue notice for earlier six years entirely even when there is no incriminating material. Therefore, in case of section 153A of the Act, the legal scenario is that the reopening can be done by the Assessing Officer and the warrant is issued even without having any incriminating material. The Hon‟ble Rajasthan High Court in the case of Jai Steel India vs. ACIT vide Income Tax Appeal No.53/2011 dated 24.05.2013 has categorically held that the reassessment of the total income of the completed assessments have to be made taking note of the undisclosed income, if any, unearthed during the search and the income that escaped assessments are required to be clubbed together with the total income determined in the original assessment and assessed as the total income. The observations made in the judgment contrasting the provisions of determination of undisclosed income under Chapter XIVB with determination
11 Gupta International Industries Ltd. of total income under Sections 153A to 153C of the Act have to be read in the context of second proviso only, which deals with the pending assessment/reassessment proceedings. The further observations made in the context of de novo assessment proceedings also have to be read in context that irrespective of the fact whether any incriminating material is found during the course of search, the Assessing Officer is empowered to issue warrant and consequential assessment under Section 153A of the Act have to be undertaken. Therefore, we are of the considered opinion that section 153A of the Act proceedings were validly undertaken by the revenue authorities and the objection raised by the assessee in Cross Objection 2 is dismissed.
On Merits
Regarding the merits also, the Assessing Officer has given a categorical finding. The AO has brought on record several incriminating materials in his order on record against the assessee and this has not been specifically dealt with in the order passed by the CIT(A). He has given relief to the assessee without dealing with these documents specifically and has not reasoned his opinion. We find one name as Shri Sarda who is engaged in the business of providing accommodation entries and another entity as Aim Merchants Pvt. Ltd. to which share premium and share application money were routed through and deposited. As demonstrated in facts in for the assessment year 2007-08, the assessee shown credits on account of share application money of Rs.9,00,000/- and share premium of Rs.81,00,000/, the seized document therein one document is marked as party no.1 - page 42, Item no.1, Annexure A-2, titled „Cash lena cheque dena‟, which means cash is to be taken and cheques are to be given. The seized document contains names of several paper companies which on deeper
12 Gupta International Industries Ltd. investigation were found to be bogus entities used for accommodation entries. The assessment order in para 7 and its sub-paras clearly spells out the modus operendi used for routing of cash through these bogus entities showing the trail of funds through bank accounts opened specifically for this purpose. One such company mentioned in this seized document is the said Aim Merchants Pvt. Ltd. The details of share premium and application money were called from Gupta group. Most of amount has come through IDBI bank account, Civil Lines, Nagpur in the month of March 2006. From this account, it is seen that an amount of Rs. 1 crore is deposited by way of transfer from IDBI Bank, Brabourne Branch, Mumbai. This amount was given to Aim Merchants Pvt. Ltd. on 06/03/2006. That further an amount of Rs. 4.5 crore as mentioned in the seized document appears in the bank account in the IDBI bank of Aim Merchants Pvt. Ltd. All the deposits in bank account are through transfer entries. On examination of the bank account it is seen that the address of Aim Merchants Pvt. Ltd. is at Kolkata. However, one of the directors is Krishna Bedi whose address is at Nagpur and he is involved in giving bogus contract bills to the assesses. Another Director Arunkumar Behera is a person of no means.
That another relevant nexus of assessee was with one Mr. D.P. Sarda. This Mr. D.P. Sarda was in control of several companies. He is in close association with Gupta group of companies. In fact the name of Aim Merchants Pvt. Ltd. is also found in the seized documents of D P Sarda group amongst the companies used for money laundering. The Gupta Group has received share application monies from these companies. The documents seized in Gupta Group are copies of two share certificates dated 15/01/2007 which is the irrefutable evidence of investment of Rs.9,00,000/- share
13 Gupta International Industries Ltd. application money by Aim Merchants Pvt. Ltd. in Gupta International Industries Ltd. in the previous year pertaining to A.Y. 2007-08. These facts are clearly brought out in the assessment order in paras 7.4, 7.5, 7,6, 7.11 and 7.14 relying along with the evidences of the seized documents scanned and printed in the assessment order in support of the fact that the said Gupta group was routing their unaccounted funds using such paper companies.
Ld. CIT (A) has not taken cognizance of these facts noted in respect of the seized documents mentioned in the assessment order. Ld CIT (A) has held that “Since no evidence was found as a result of Search adverse to what has been submitted, I have no hesitation in holding that no addition can be made treating share application money and premium as non genuine”. Therefore the ld. CIT(A)‟s decision is contrary to the core facts of the case as mentioned in the assessment order. The entries in the incriminating documents seized during the search and mentioned in the assessment order are not specifically adjudicated by the Ld. CIT (A). Furthermore, the observations of ld. CIT (A) that the assessee has furnished all the confirmations and details regarding share capital / share premium are not adjudicated in the light of incriminating materials appearing / mentioned in the assessment order. The assessment order clearly states at para 7.19 that the assessee failed to prove the identity, genuineness and creditworthiness of the investors. In view of the above discrepancies found in the order of the CIT(A), we deem it fit and proper to set-aside such incomplete and cryptic order of the ld. CIT(A) and restore the matter back to his file to take due cognizance of all the specific evidences mentioned in the assessment order and pass a reasoned and speaking order. Accordingly, the grounds in Cross
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Objection by the assessee on merits are therefore restored to the file of the ld. CIT(A) as indicated hereinabove and the appeal of the Revenue is allowed for statistical purposes.
That accordingly the CO by the assessee, legal grounds are dismissed and grounds on merits are allowed for statistical purposes. Therefore, Cross Objection is partly allowed for statistical purposes. The appeal of the Revenue is allowed for statistical purposes.
In the result, the appeal filed by the Revenue in for the assessment year 2007-08 is allowed for statistical purpose and the Cross Objection filed by the assessee in C.O. No.14/NAG/2015 for the assessment year 2007-08 is partly allowed for statistical purposes. , 502 & 503/NAG/2014 – (A.Y. 2009-10, 2006-07 & 2008-09 – By Revenue ) C.O. Nos.15, 16 & 17/NAG/2015 – (A.Y. 2009-10, 2006-07 & 2008-09 – By Assessee)
Remaining appeals of the Revenue as well as Cross Objections of the assessee : As stated in earlier paragraphs of this order, the identical issues are involved in all the appeals of the Revenue and its Cross Objections of the assessee, therefore, our decision in and its C.O. No.14/NAG/2015 for the assessment year 2007-08 shall apply mutatis mutandis to these remaining appeals of the Revenue as well as Cross Objections of the assessee. Accordingly, the remaining appeals of the Revenue in ITA Nos.491, 502 & 503/NAG/2014 for the assessment years 2009-10, 2006-07 & 2008-09 are allowed for statistical purposes and the remaining Cross Objections of the assessee in C.O. Nos.15, 16 &
15 Gupta International Industries Ltd.
17/NAG/2015 for the assessment years 2009-10, 2006-07 & 2008-09 are partly allowed for statistical purposes.
To sum up, all the above captioned appeals of the Revenue are allowed for statistical purposes and all the Cross Objections of the assessee are partly allowed for statistical purposes.
Order pronounced on this 28th day of February, 2020.