SANGUINE MEDIA LIMITED,CHENNAI vs. ITO,NCW-20(5), CHENNAI

1. 1. Under the facts and circumstances of the case, reassessment order passed by the Ld.AO is illegal and bad in law.

That the reassessment order passed by Ld. AO u/s 148 of the Act is illegal and not tenable under the law because reasons recorded are not bonafide, based on borrowed information, and recorded in a mechanical manner.

That the reassessment order passed by Ld. AO is void-ab-initio as the assessing officer has not taken approval as required u/s 151 and CIT has given the same if any in a mechanical manner without applying his mind. 5. That the addition made under Section 68 of the Act to the income of the assessee company is not tenable under the law. 6. That the Ld. AO grossly erred in law and to the facts of the case in making addition under section 68 of the income tax act to the returned income of the appellant company despite the undisputed finding that the assessee company was merely a conduit company operated and maintained for providing accommodation entries. 7. That the Ld. AO as well as Ld. CIT(A) grossly erred in law and to the facts of the case by passing a non-speaking order and holding that the assessment and appellate orders passed In cases of group companies are unrelated and differentiable on the facts of the case.

The Registry has noted delay of 167 days in the appeal, the condonation of which has been sought by Ld. AR. Considering the fact that the time available to prefer appeal against impugned order fall within lockdown situation arising out of Covid-19 pandemic, we condone the delay and admit the appeal for adjudication on merits. Assessment Proceedings 3.1 The assessee’s return of income was scrutinized u/s 143(3) on 29.03.2014. However, pursuant to search action u/s 132 on entry operator of shell companies Shri Shirish C. Shah on 09.04.2013, the assessee’s case was reopened and notice u/s 148 was issued on 27.03.2018. This was in view of the finding that Shri Shirish C. Shah used more than 200 Companies through which he provided entries of Share Capital with huge premium and entries of Long-Term Capital Gains etc. against cash. The assessee was alleged to be one such 3 - conduit entity which was used by Shri Shirish C. Shah to provide such accommodation entries. 3.2 During the course of search action, statement of assessee director Shri Kumar Raichan Madan was recorded u/s 131(1A) wherein he, inter-alia, admitted that he brought family members and employees etc. as director of various companies operated by Shri Shirish C. Shah against commission. These persons became director in companies run by Shri Shirish C. Shah. The statement of Shri Chandrank Padmashi Kamani, who was director of 5 such companies being run by Shri Shirish C. Shah, was also recorded wherein he confirmed the fact as stated by Shri Kumar Raichan Madan. Both these statements were not controverted by Shri Shirish C. Shah in his recorded statement. 3.3 It transpired that during this year, the share capital of the assessee was increased by Rs.105 Crores and accordingly, the assessee was directed to provide requisite details of share allottees. The assessee furnished list of shareholders and submitted that the share subscribers were corporate entities being controlled and managed by Shri Shirish C. Shah and the money was infused through him only and therefore, the same could not be considered as assessee’s own income. The assessee also attached copy of order passed by first appellate authority in one of the group companies being managed by Shri Shirish C. Shah wherein the similar additions were deleted. Duirng the course of hearing, directions were sought by Ld. AO from Ld. Addl. CIT who, vide letter dated 18.12.2018, stated that the assessee received funds in the form of share capital and deployed it in various assets. The onus as casted u/s 68 was not discharged by 4 - the assessee. Considering the same, Ld. AO added the amount of Rs.105 Crores to the income of the assessee. Appellate proceedings 4. The assessee assailed the impugned additions by way of elaborate written submissions which have been extracted in the impugned order. The assessee, inter-alia, submitted that it was being used as a conduit entity by Shri Shirish C. Shah and therefore, no such additions could be made u/s 68 in the hands of the assessee. Reliance was placed on various decisions in support of the submission that no addition u/s 68 could be made on conduit companies. However, Ld. CIT(A) upheld the observation of Ld. AO that the assessee could not discharge the onus as casted u/s 68 i.e., to establish identity of the share subscribers, their creditworthiness and genuineness of the transactions. Accordingly, the impugned additions were confirmed. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 5. From the fact, the undisputed position that emerges is that the assessee company is found to be one of the conduit companies being operated and controlled by Shri Shirish C. Shah through name-sake directors. The statement made by assessee-director clearly confirm the fact that the assessee is merely a conduit company and do not run any business of its own. The perusal of financial statements would reveal that the assessee has actually received Share Capital of Rs.100 Crores from 27 corporate entities (placed on page nos. 45 & 46 of paper book) as follows:-

It is trite law that only real income is to be assessed. For the same very reason, in the case of various such entities, the co-ordinate benches of Tribunal has consistently held that the amounts so received and further advanced by such conduit companies could not be held to be their undisclosed income. Few of these decisions could be tabulated as under: - i. CIT vs. Vijay Conductors India Pvt. Ltd., 2015-TIOL-2337-HC-Del-IT ii). Omni Farms Pvt. Ltd. vs. DCIT, (2016) 46 ITR (Trib) 0505 (Delhi) iii) AGM Holdings Ltd. vs. DCIT, (2016) 46 CCH (Trib) 0200 (Delhi) iv) Nishottam Traders Pvt. Ltd. vs. ITO, v) T. C. Software Consultancy Pvt. Ltd. vs. ITO, ITA No. 6142/Mum/2016 7. In the following case laws, it has been held that only real income has to be assessed and revenue authorities are debarred from indulging in artificial assessments of the assessee: - (i) CIT vs Shoorji Vallabhdas & Co., 46 ITR 144 (SC) (1962) (ii) CIT vs Birla Gwalior (P) Ltd, 89 ITR 266 (SC) (1973) (iii) HM Kashiparekh & Co. Ltd vs CIT, 39 ITR 706 (BOM) (1960) (iv) Poona Electric Supply Co. Ltd vs CIT, 57 ITR 521 (SC) (1965) (v) CIT vs Birla Gwalior (P) Ltd, 78 ITR 788 (CAL), 1970 (vi) Sanjeev Woollen Mills vs CIT, (2005) 279 ITR 434 (SC) 8. The Mumbai Bench of Tribunal in the case of one such entities i.e., DCIT vs. M/s Empower India Ltd. (ITA Nos. 3205/Mum/2019 & ors. order dated 23.10.2019 for AY 2011-12) confirmed the first appellate order in estimating commission against such receipts. The Ld. CIT(A), while adjudicating the issue, relied on the decision of Hon’ble Delhi High Court in the case of CIT vs. Vijay Conductors 9 - India (P.) Ltd. (2015-TIOL-2337-HC-Del-IT) while deleting similar additions made by Ld. AO u/s 68 of the Act. The Hon’ble Delhi High Court in the cited case of CIT vs. Vijay Conductors India (P.) Ltd. (supra) confirmed the adjudication of Tribunal as under: - 8. It is not in dispute that the Respondent Assesses are the conduit entities and not the beneficiaries. Consequently, the order of the ITAT deleting the addition under Section 68 of the Act in their hands does not suffer from any legal infirmity.

Similar is the decision of Mumbai Tribunal in M/s Nishottam Traders Pvt. Ltd. vs. ITO (ITA No.6874/Mum/2014 dated 05.05.2017) wherein the bench observed that the assessee company was merely a conduit company and did not derive any real income. Thus, the order of Ld. AO passed u/s 143(3) of the Act making additions u/s 68 was set-aside for denovo assessment. The Ld. AR pointed out that no additions were made by Ld. AO in that case in consequential order passed u/s 143(3) r.w.s. 254 of the Act. This decision has subsequently been followed by another bench of Mumbai Tribunal in M/s T. C. Software Consultancy Pvt. Ltd. vs. ITO (ITA No.6142/M/2016 dated 28.11.2018) and the bench similarly held that the assessee did not derive any real income and accordingly, the matter has been restored back for de novo adjudication wherein no such additions have been made by Ld. AO in the consequential order. In the case of one more such entities i.e., M/s Acme Realty Developers Pvt. Ltd., Ld. first appellate authority, relying upon the decision of Hon’ble Delhi High Court in CIT vs. Vijay Conductors 10 - India (P.) Ltd. (2015-TIOL-2337-HC-Del-IT), deleted similar additions made u/s 68 of the Act and the revenue did not prefer any further appeal against the same. Similar is the first appellate order in the case of M/s Vakratunda Ventures Pvt. Ltd. (copy placed on record) which has also not been challenged any further by the revenue. Similar view has been taken by other benches of various Tribunals, the copies of which have been placed on record. All these decision supports the case of the assessee that the funds so infused into the assessee company could not be held to be its undisclosed income u/s 68 of the Act.

The revenue has relied on the decision of Hon’ble High Court of Madras in the case of B. R. Petrochem (P) Ltd., (2017) 81 Taxmann.com 424 (Mad). However, upon study, we find that the facts in that case are quite different. In that case the assessee could not establish creditworthiness of the subscribers and also could not prove the genuineness of the transaction. It was noted that the detailed investigations carried out by Ld. AO established the position that the contributors to share capital were of insignificant means and their creditworthiness could not be established. The assessee also failed to establish the same. Accordingly, the additions made u/s 68 were confirmed by Tribunal. This case law is clearly distinguishable on facts since in the present case, it has undisputedly been found that the assessee is merely a conduit company being run by Sri Shirish C. Shah. The entire funds have been received by him that has been routed through web of companies to ultimate beneficiaries. For the same very reasons, the commission against all such entries has been assessed by the revenue in the hands of Shri Shirish C. Shah.

Considering the facts and circumstances of the case as well as respectfully following the consistent stand of the Tribunal in the case of group concerns, the impugned additions as sustained by Ld. CIT(A) u/s 68 are not sustainable in law. We order so. The Ld. AO is directed to re-compute the income of the assessee. The Ld. AR, during the course of hearing, did not press for adjudication of legal grounds and therefore, all the legal grounds are dismissed as not pressed.

In the result, the appeal stand partly allowed in terms of our above order. Order pronounced on 31st January, 2023.