DY. CIT CENTRAL CIRCLE-1(4), KOLKATA, KOLKATA vs. FEMINA STOCK MANAGEMENT COMPANY LTD, KOLKATA

PER DR. MANISH BORAD, ACCOUNTANT MEMBER :

The above captioned appeal is directed at the instance of the revenue against the order of the Commissioner of Income Tax (Appeals), Kolkata – 21, (hereinafter the “ld. CIT(A)”) dt. 12/05/2023, passed u/s 250 of the Income Tax Act, 1961 (“the Act”) for the Assessment Year 2011-12. 2. The Registry has pointed out that there is a delay of 36 days in filing the present appeal by the revenue. Petition for condonation of delay is placed on record explaining the reasons. On perusing the same, we are convinced that the revenue was prevented by sufficient cause from filing this appeal in time. Accordingly, we condone the delay and proceed to admit the appeal for hearing.

2 Assessment Year: 2011-12 Femina Stock Management Company Ltd. “1. That on the facts and circumstances of the case the Ld. CIT(A) erred to delete the addition of Rs.33,19,33,000/- added by the AO as undisclosed income in the form of share capital and share premium.

3 Assessment Year: 2011-12 Femina Stock Management Company Ltd. the financial statements of the share subscribers noticed that they have no reasonable sources to purchase shares of the assessee company and in order to examine the said transactions it is the assessee who knows the intricacies of its account to prove its claim of share capital/application money. As there was no personal appearance, therefore, the ld. Assessing Officer concluded the assessment referring to various decisions and observing that the alleged transactions of receiving share capital and share premium are in the nature of accommodation entries and is mere rotation of funds and the share subscribing companies are paper/shell companies. He thus held that the assessee failed to explain the sum of Rs.33,19,33,000/- received towards share capital and share premium and added the said sum u/s 68 of the Act.

4 Assessment Year: 2011-12 Femina Stock Management Company Ltd. applicants and genuineness of the transactions. Various additional evidence were also filed to which remand report was called for. In the remand report, it has been categorically mentioned and observed by the ld. CIT(A) that the assessee has filed complete details including financial statements confirmation of accounts, proof of the directors. Even the directors of the share applicant companies appeared before the Assessing Officer. But since the other share applicants could not be brought by the revenue authorities for cross-objection, the ld. CIT(A) took note of the fact that the assessee has discharged the burden of proof casted on it. Creditworthiness of the share applicants were also examined. Consequently, being satisfied with the explanation of the assessee, the ld. CIT(A) deleted all the additions made u/s 68 of the Act as well as the addition for unexplained expenditure u/s 69C of the Act.

5 Assessment Year: 2011-12 Femina Stock Management Company Ltd. companies and, therefore, the ld. Assessing Officer has rightly added the sum in the hands of the assessee. The Ld. D/R has further relied upon the decision of the Hon’ble Supreme Court in the case of PCIT vs. NRA Iron & Steel (P) Ltd. reported in [2019] 103 taxmann.com 48(SC).

6 Assessment Year: 2011-12 Femina Stock Management Company Ltd. placed on the detailed finding of fact by the ld. CIT(A) and various decisions referred and relied by the ld. CIT(A).

7 Assessment Year: 2011-12 Femina Stock Management Company Ltd. for each of the share subscriber but the same can be summarized as filing of the copy of PAN card, share application form, allotment advices, relevant bank statements, ITRs for Assessment Year 2011-12, audited financial statement, source of funds i.e., the immediate source of fund which has been utilised by alleged share applicants to apply for the equity shares of the company. Assessee has also filed copy of the summons issued u/s 131 of the Act during the course of assessment proceedings and reply of each of the share subscribing companies sent directly to the Assessing Officer and again provided necessary details before the ld. CIT(A). The ld. Counsel for the assessee also referred to the assessment orders u/s 143(3) of the Act in the case of various share subscribing companies which have been passed through scrutiny proceedings for the very same Assessment Years and the alleged transactions have been examined by the concerned Assessing Officer. Perusal of these details which have been filed in the paper book containing 708 pages indicates that whatever documents which the assessee needs to file in order to explain the identity and creditworthiness of the share applicants and genuineness of the transactions have been filed and thereby the primary onus casted upon the assessee by virtue of Section 68 of the Act has been discharged and consequently the burden shifted over to the Assessing Officer to prove the contrary which the ld. Assessing Officer failed.

8 Assessment Year: 2011-12 Femina Stock Management Company Ltd. “Ground 3 In this ground the appellant has agitated against the action of the AO in treating the share capital raised by the assessee company including premium money from 14 investing companies, cumulatively amounting to Rs. 33,19,33,000/- on issue of equity shares to these 14 companies, as bogus and adding the same under sec. 68 of the Act. Facts are that during the year the appellant company raised share capital including share premium of Rs. 33,19,33,000/- from 14 share subscribers who are body corporate entities.

Name of the share applicant Application Money

Aadish Commercial Pvt. Ltd. 2,23,00,000

Anandsagar Tradelink Pvt. Ltd. 1,14,00,000

Arpit Vanijya Pvt. Ltd. 5,29,00,000

AvaniInfrahome Pvt. Ltd. 2,67,00,000

Cooper Commercial Pvt. Ltd 4,06,10,000

Jugantar Commercial P. Ltd 5,00,000

Jyotika Commercial Pvt. Ltd. 1,77,23,000

Natural Business Pvt. Ltd. 3,81,00,000

Parivartan Commercial Pvt. Ltd. 3,62,50,000

Riteshwari Trading &Investment Pvt. Ltd. 99,00,000

Ritz Agencies Pvt. Ltd. 96,00,000

Shreyas Distributors Pvt. Ltd. 89,00,000

Uphar Trade Enterprises Pvt. Ltd 3,46,50,000

Yugveri Marketing Pvt. Ltd. 2,24,00,000

Total 33,19,33,000

9 Assessment Year: 2011-12 Femina Stock Management Company Ltd.

In the course of the assessment proceedings AO has stated that the appellant could not ensure the personal appearance of the director of the share subscribing companies in response to notice u/s 131 of the Act. The appellant has submitted that he furnished the relevant details of share applicant companies which included the address and PAN of the allottees, the identity and address proof of the directors of he share applicant companies, share application forms, bank statements highlighting the transactions, PAN Cards of the applicants, financial statements with ITR acknowledgements for AY 2011-12, along with details of sources of funds, with supporting documentary evidences. In fact, these details were also submitted during appeal, from where they were once again sent to the AO, when the matter was sent to him in remand. Therefore there is no dispute as to the fact that all the evidence that was required to be produced in the form of documentary proofs of various kinds related to the ingredients of section 68 of the Act were duly produced before the AO - mostly at every stage, otherwise at one stage or the other. Later, the matter was examined in remand on two occasions. During these remand proceedings, once more, it is undisputed that the AO obtained these details, not only from this office, since all details, submissions, paperbooks and evidence received by this office were forwarded to the AO for him to conduct his verifications/investigations, but also directly from the investor companies when he issued them summons u/s 131 - but this last aspect of the controversy at hand will be discussed, at greater length, later in this order.

The assessment order has recorded that in order to test the genuineness of the impugned transaction, the Directors of the share subscribing companies were issued summons u/s 131 of the Act by post, on the addresses available in MCA database but the same had been returned back by postal authority with comments “ Address not known/Left”. The objective, explained in the subsequent paragraphs of assessment order, for the issue of these notices was to examine and verify the identity of the appellant company, and its share holders, genuineness of the transaction and the creditworthiness of share holders. The AO, on account of the fact that the summons u/s 131 could not be served and the Departmental Inspector being unable to trace the said share allottee companies, placed a question mark upon the entire transaction, including the identity and creditworthiness of share applicant companies along with the genuineness of the transaction, and found that the appellant companies did not have sufficient income to make the impugned investments in share capital/premium. In addition, the AO has also relied upon some statements given by certain alleged entry operators in some separate proceedings, in March 2015, that they had been providing accommodation entries against a fee through certain Shell companies controlled by them through dummy directors. The AO, finding that some of the share capital/premium received by the appellant came after being routed through some of these shell companies or that these shell companies appeared in the fund trail of some of the share capital/premium that led finally to the appellant, came to the conclusion that the share capital that had been received by the appellant during the year, that had these shell companies appearing in the fund trail leading to the appellant, was bogus. The AO has also argued that the share subscriber companies did not have sufficient creditworthiness nor did they show any profits to 10 Assessment Year: 2011-12 Femina Stock Management Company Ltd. warrant acceptance of the proposition that they could have subscribed to the large share capital/premium shown to have been received by the appellant. Hence, he concluded the assessment and made an addition of Rs. 33,19,33,000/- u/s 68 of the Act treating the entire amount of share capital/premium as bogus and the unexplained income of the appellant company.

In the course of appeal proceedings, the appellant submitted its written submissions with enclosures, including two detailed and comprehensive paperbooks of evidence of proceedings and those related to the evidence of the bonafides of the transactions. Of these, evidence related to the various facets of section 68, in relation to proving the identity, creditworthiness of the share applicants and the genuineness of the transaction, themselves numbered 507 pages. The submissions of the appellant are already reproduced above in this order. The matter was remanded to the AO for examination. All paper books/evidence/submissions received in this office were also forwarded to the AO. The first remand report dated 16.10.2019 was received in this office and a copy of this remand report was provided to the appellant. In his Remand Report, the AO accepted the fact that during the assessment proceedings, the statements of the directors/entry operators could not be supplied to the assessee. During the course of remand proceedings, copies of relevant portions of the statements of entry operators were provided to the assessee. The AO, during remand, also made efforts to provide the assessee opportunity of cross examination of the alleged entry operators whose statements were recorded earlier. For the purpose of cross examination summons u/s. 131 of the I.T. Act, were issued by the AO to the alleged entry operators/ dummy directors:

S.N. Name of the entry Addresses Date of Status operator/ dummy issuance of director summon u/s. 131

1 Shri Manoj 6A, Saklat Place, 17.07.2019 Returned back Kumar 4th Floor, Kolkata-700073 26.08.2019 Returned back

87C, Cossipore 17.07.2019 Returned back Road, Kolkata- 700002. 2 Sanjib Bhattacharjee 27, Gobra 17.07.2019 Returned back Gorasthan Road, Kolkata - 26.08.2019 Returned back 700046. 3 Ashok Jha 14/1A, Sambhu 17.09.2019, Returned back Chatterjee Street, Kolkata- 26.08.2019 Returned back 700007

9, Lal Bazar 17.07.2019 Returned back Street, Block A, Kolkata- 700001

All the Summons u/s. 131 of the I.T. Act, 1961, issued to the above entry operators through registered post to the addresses available, returned un-served. Further, the said Summons u/s.131 of the Act were issued through the office notice server who also could not serve the notices on the given addresses. Finally, the Inspector attached to the office of the AO was deputed by him to serve the notices but he also failed as he also could not trace out the entry operators. The director of the assessee company, however, appeared before the AO, but as the entry operators were not available and could not be produced by the AO, the process of cross-examination could not be made. At this point, in his remand report, the AO has made an interesting counter-argument, viz., that even though he admits to his failure to produce the said entry operators/dummy directors, he (the AO) has pointed out that even the appellant had failed to produce the directors of the share applicant companies. Without prejudice to the discussions and proceedings that will follow, the above observation by the AO is specious in nature and shows a lack of appreciation of the legal propositions involved. While it is beyond doubt, that the appellant, in order to discharge his onus with respect to this transaction, was legally obliged to produce the share applicants for their examination, this fact has nothing to do with the right of the assessee against whom certain statements are being used, to cross- examine the person making such a statement. Since the evidence, in the form of these statements, is being furthered by the AO, the onus for providing the appellant with an opportunity to cross-examine the person making this statement, lies upon the AO himself. A failure to discharge this 12 onus has the effect of diluting the evidentiary value of the said statements against the appellant. These remarks, of course, are without prejudice to the fact that the appellant, at a later date, has been able to produce before the AO, the directors of the share applicant companies. (This aspect will be discussed at length later in this order). As regards the statements of the alleged entry operators, an examination of these statements does not show that there was any specific mention of the appellant or the particular impugned transactions at all. These statements had been taken in March 2015. They had not been taken in any proceedings connected with the appellant. Since the impugned transactions pertain to a period of FY 2010-11, there has to be some correlation or mention of the fact that the accommodation entries were being provided in that period. No such mention is apparent from record. In the absence of any form of causal link, or some form of connection between the said statements and the impugned transactions, or even the appellant or even the period, it is difficult to see how these statements can be used to make additions u/s 68 of the Act, especially in view of the fact that the appellant has already discharged his onus u/s 68 as will be discussed in the following passages. Further, the appellant’s contention that without even going into the merits and substance of the these statements at all, it would be unlawful on the part of the AO to use these statements against the appellant, without at least providing him an opportunity for cross-examination, has merit in it. The denial of such an opportunity for cross-examination has the legal effect of diminishing any evidentiary value that may be associated with these statements. It must not be forgotten that the appellant was searched and no evidence was found that would go towards proving that the impugned transactions were bogus or that the appellant had injected his own undeclared income in the form of share capital/premium. It must be kept in mind that a Search upon the appellant was conducted on 02.11.2017. The statement of the alleged entry operators, Sri Ashok Jha, and Manoj Kumar, were recorded respectively on 02.03.2015 and 30.01.2014 respectively; while the statement of another alleged entry operator, Sanjib Bhattacharya was recorded on 01.11.2017. In the same context, it is also pertinent to note that the impugned transactions have, in almost every case, taken place in February, March 2011. Now, if the statements of the said entry operators are proposed to be used in connection with the impugned transactions, then at least some form of a nexus or link has to be shown to exist, of these statements with the impugned transactions which had been completed several years before the said statements were given. No such link or nexus has been shown to exist. The said statements undeniably existed at the time the appellant was searched. I do not find anything on record found during this search, which could be said to corroborate these statements with respect to the appellant. In the absence of any form of corroboration, either from the search, or from post search proceedings, or indeed from the assessment or remand proceedings, these statements cannot be relied upon to make huge additions. To these circumstances is the aforementioned fact that the appellant was not given any opportunity to cross-examine these alleged operators; in fact the AO himself admitted that he could not even trace these operators.

13

Coming to the issue of the onus that lay upon the appellant - that of providing the correct addresses and identities of the share applicants, I find that during the course of appeal proceedings before my predecessor, the appellant had explained that since a lot of time had elapsed between the subscription of the said share capital/premium and the present dates, in several cases the addresses of the share applicant companies had changed. He had therefore submitted new addresses of the share applicant companies and the then CIT(A) had directed the AO to depute an Inspector to verify whether these share applicant companies are existing at the new addresses. The enquiries conducted by the inspector deputed for this purpose by the AO, revealed that the share applicant companies did indeed exist at the addresses provided by the appellant. This confirmation of their physical existence, though, was qualified by the observations of the AO that the presence of the share appellant companies at the given addresses was surrounded by circumstances that cast doubts upon the credibility of the fact that there actually was s genuine company doing business from these premises. The AO in his remand report pointed out that in most places there was a single employee present, with tables and chairs and a signboard that appeared to have been newly painted. In the case of each company, the employee present at the company’s office was however different in each case, with a valid identification in the form of his driving licence, voter ID card or Adhar card and stating that he was an employee of the said company. Such persons, of course, were also carrying (as admitted by the remand report) documents and requirements related to section 68 of the Act, for the impugned transactions in relation to the particular company present on those premises. These documents have already been elaborately listed earlier in this order, and included the PAN Card, IT acknowledgement, audited balance sheets and so on. It was also pointed out in the 1st remand report that the inspector did not find the Directors/Principal officers of the share applicant companies on the premises at the time of his visit. As per the 1st Remand Report, the person present on the premises also did not know of their whereabouts nor much about the operations of the company. This last assertion of the Remand Report has been vehemently contested by the appellant. The AR of the appellant company has pointed out that the inspector report annexed to the remand report clearly indicates that the inspector during his visit to the office premises of the share applicants had made no such queries from the employees who were present on the premises. He has submitted that this incorrect assertion, that the employee did not know either about the business of the company or the whereabouts of the Directors, was being added by the AO of his own accord, without any factual basis. It may be stated at this juncture that an examination of the said inspector report attests to the truth of the appellant’s statement in this connection. The appellant has also added that, in any case, the absence of the Directors from the company office premises at the time of the visit of the inspector, by 14 itself could not be used as any form of adverse inference to conclude that the company itself was bogus. There could have been a number of reasons for his absence at that particular time. In addition, even though the various Directors/Principal Officers of the applicant companies complied with the requirements of the notices issued to them in respect of the requirements, u/s 68, for the share application moneys subscribed and allotted, in terms of all the supporting documents in support of the identity and creditworthiness of the share applicant companies, as well as the genuineness of the transactions, none of these Directors/ Principal Officers made a personal appearance before the AO, as had been requested by the latter.

Therefore even though the AO, at this stage of the first remand report, did indeed confirm that the share investment companies were very much present at the addresses provided and there was compliance to the requirements of the notice u/s 131 of the Act at these addresses, the fact that none of the directors of such share applicant companies were making a physical appearance and deposing before the AO, cast a serious doubt on the bona fides and genuineness of the transactions.

The appellant in its rejoinder to the remand report has explained its case with reference to enquiries conducted by the AO that the share capital along with share premium raised by it was explained through genuine evidences and that it has discharged the onus cast upon it u/s 68 of the Act. It has also distinguished its case with reference to the decision of Principal CIT vs. NRA Iron & Steel (P) Ltd reported at 412 ITR 161. In its rebuttal, the appellant has stated that it should be noted that the directions of the CIT(A) were to ascertain whether the share applicants existed at the new address supplied by the appellant. The appellant contends that the AO has himself admitted that the Inspector has reported that at the new address, the share applicant companies were found. Thus, the identity , as per the appellant, of the share applicant companies had been established without any doubt. The inspector’s report dated 12-08-2019 which was enclosed as Annexure to the remand report, stated that all the share applicant companies were found at the new address given by the appellant and the respective employees had also submitted documentary evidences like bank statements, copy of the ITR Acknowledgement, copy of the PAN, Copy of the Annual Accounts for the AY 2011-12, etc. As per the appellant, the aforesaid documents proved the genuineness of the transaction beyond any doubt.

The appellant has explained that the observations of the inspector regarding there being mostly only one employee at the premises at the new addresses supplied by the appellant ,as well as the fact that there

15 was only limited furniture and that the sign boards appeared newly paid, were observations that had not been corroborated and were in any case subjective as well as having no bearing upon the identities of the share applicants as present upon the said addresses. The appellant has reiterated that the basic issue involved was whether the said transactions were bonafide transactions or not, and whether the identity and creditworthiness of the share applicants as well as the genuineness of the transaction were under any form of doubt. The appellant has stated that it had been brought on record by the remand report that the field enquiries yielded the fact that the share applicant companies were indeed present upon the addresses provided by the appellant. In response to the AO’s observations with respect to the enquiry conducted by the inspector, wherein the latter has stated that the whereabouts of the business of the company, name of the directors, name of other employees could not be explained by the present person, the appellant has stated that the AO has deliberately misread the inspectors report. In the report, the Inspector has nowhere mentioned that he enquired about the whereabouts of business or directors of the company from the person present upon the premises, or that the latter expressed his lack of knowledge in respect of these subjects. At this juncture, it may be mentioned, purely as a matter of establishment of facts, I find, upon the examination of the inspector’s report appended to the 1st remand report, that this statement of the appellant is found to be factually correct. In continuation of his rejoinder, the appellant, vide its letter dated 22.04.2022, stated that the share applicant companies have made documentary compliances to the summons issued to them u/s 131 of the Act but that they could not appear personally before the AO as the time allowed was very short and the number of persons who were to attend was very large. Thereafter, during hearing, while explaining the facts and circumstances of the case, the AR of the appellant explained that as the time period that had elapsed between the time when the impugned investments had been made by the share applicants and now, when the enquiries were being conducted during remand, was very large - of the order of a decade - the effort required to marshal the Directors/Principal Officers of the share allottee companies would be very large and it was unrealistic on the part of the AO, during remand, to expect that all the share allottees could be rounded up and produced before him within the short period of time given to the appellant. During the hearing he also submitted that the investors and directors being non-Income tax people, had mistakenly been under the belief that submission of all necessary documentary details had been sufficient compliance to notices u/s 131. The AR said that the appellant had to personally explain to each and every such Director the significance and importance of making a personal appearance before the AO and to convince them that this was a legal requirement and in any case, was essential in order to go to the root of the impugned transaction and to prove it to be bona fide. The appellant also prayed that if an opportunity was provided to the 16 appellant it could produce the share applicants on a random basis to substantiate its claim. Considering the request of the appellant and the fact that it is important to provide substantive justice to an appellant who faces the prospect of paying a huge demand, in order to provide adequate opportunity and natural justice to the appellant to establish all the ingredients of the impugned transactions, the matter was once again remanded on 05.05.2022 to the AO for conducting enquiries by examining the directors of share applicant companies u/s 131 of the Act. Since the matter, at this juncture, was being examined in detail, it was considered prudent, lawful and in the interests of proper investigation of the impugned transactions, to make a thorough examination of the entire issue involved by having the principal officers/directors of the share applicant companies examined after having them produced before the AO physically. Accordingly, the AO, during remand, issued summons not only to the Director of the appellant company, who was asked to produce the directors/principal officers of the share applicant companies, but in fact also to the Principal officers/Directors of the share applicant companies, asking them for their personal appearance and for the production of all the supporting documents/evidences in relation to the impugned transactions, thus ensuring a more thorough examination of the issues at hand. The remand report was received in this office on 29.07.2022, and a copy was provided to the appellant for his rejoinder. The appellant has also submitted its rejoinder, which is placed on record as well as reproduced earlier in this order. In this remand report, the AO conducted independent enquiries and reported that the director of the appellant company along with the directors of share applicant companies on a random basis, a total of directors of ten (10) companies of which 9 had given share capital/premium money in the impugned assessment year, appeared before him in person, in compliance to summons u/s 131, carrying with them the requisite documentary details in relation to the impugned transaction. These enquiries by the AO were in addition to the field enquires already made by the AO at the time of the earlier remand proceedings discussed above, when he had deputed the departmental inspector to conduct field enquiries in order to ascertain the physical existence of the 14 share applicants at the addresses provided to the AO. This, it has already been discussed, had resulted in the confirmation of the physical existence of the 14 companies, albeit with some misgivings and suspicions expressed by the AO. The remand report has already earlier been made part of this order. However, since the findings of this report are a pertinent and essential part of the ensuing discussions, the main ingredients and results of the remand report are being reproduced once again for ready reference.

17 During this 2nd Remand proceedings, the appellant was asked by the AO to produce directors of most of the share applicant companies on various dates as mentioned in the notice u/s 131 dated 09/05/2022 In compliance to the summons issued to the appellant, the director of the appellant company, Shri Pawan Kumar Chandak, appeared and produced the directors of the allottee companies along with requisite documents before the AO on various dates. The details of the enquiries conducted by the AO in remand are as listed below: SL Name of Share Address PAN Remark applicants No 1 ANAND SAGAR 10, AAHCA8288N Director appeared before TRADELINK PVT MULLICK the under signed LTD STREET, on19.05.2022 along with the authorization from KOLKAT current director and his A- 700007 statements was recorded u/s 131 and submitted copy of Share Application form, Share Allotment Advice, Bank Statement is enclosed. The director also filed copy of letter dated 22.11.2019 that in compliance to summons issued u/s 131 earlier. This letter included copy of Source of fund, Share Allotment Advice, Bank Statement, IT Acknowledgement and Audited Financial Statement etc. 2 ARPIT VANIJYA 6A, AAICA0722A Director appeared before PVT LTD SAKLAT the under signed on PLACE, 12.05.2022 and his 4TH statements u/s 131 was FLOOR, recorded and submitted KOLKATA- copy of Share Application form and IT 700072 Acknowledgement for AY 2011-12 is enclosed. The director also filed copy of letter dated 13.09.2019 that in compliance to summons issued u/s 131 earlier. This letter included copy of PAN Card, Source of fund, Bank Statement, IT Acknowledgement and 18 Audited Financial Statement etc.

3 COOPER 71, AAECC2900N Director appeared before COMMERCIAL METCALF the under signed on PVT LTD STREET, 20.05.2022 along with the authorization from 2ND current director and his FLOOR, statements was recorded KOLKATA- u/s 131 and submitted copy of 700013 Share Application form, Share Allotment Advice, Bank Statement , Source of Fund and IT Acknowledgement of Source of fund and relevant Assessment order u/s 143(3) of the I.T. Act for AY 2011-12 is enclosed. The director also filed copy of letter dated 12.09.2019 that in compliance to summons issued u/s 131 earlier. This letter included copy of PAN Card, Source of fund, Bank Statement, IT Acknowledgement and Audited Financial Statement etc.

4 JUGANTAR 15 U N AAACJ6600J Director appeared before MERCANTILES BHRAMCHA the under signed on PVT LTD RI STREET, 11.05.2022 and his KOLKATA- statements u/s 131 was recorded and submitted 700017 copy of Bank Statement , and relevant Assessment order u/s 144/147 of the I. T. Act for AY 2011-12 is enclosed. The director also filed copy of letter dated 27.09.2019 that in compliance to summons issued u/s 131 earlier. This letter included copy of PAN Card, NBFC Certificate Share Application, Share Allotment Advice, Source of fund, Bank Statement, IT Acknowledgement and Audited Financial Statement etc. 5 JYOTIKA 18/1, AACCJ5042J Director appeared before COMMERCIAL MAHARS the under signed on PVT LTD HI 17.05.2022 along with the DEVEND authorization from RA ROAD, current director and his statements was recorded 3RD u/s FLOOR, 131 and submitted copy of KOLKATA- Share Application form, Bank Statement and 700007 relevant Assessment Order u/s 143(3) of the I.T. Act for AY 2011-12 is enclosed. The director also filed copy of letter dated 06.09.2019 that in compliance to summons issued u/s 131 earlier. This letter included copy of PAN Card, NBFC Certificate, Share Application form, Source of fund, Bank Statement etc.

6 RITESHWARI 7/1A, AABCR3519H Director appeared before TRADING & GRANT the under signed on INVESTMENT LANE, 10.05.2022 along with the PVT LTD authorization from 2ND FLOOR, current director and his statements was recorded KOLKAT u/s A- 700012 131 and submitted copy of Share Application form, Share Allotment Advice, Bank Statement is enclosed. The director also filed copy of letter dated 05.09.2019 that in compliance to summons issued u/s 131 earlier. This letter included copy of PAN Card, NBFC Certificate, Source of fund, Bank Statement, IT Acknowledgement etc. 7 RITZ AGENCIES 202, JESSORE AAECR5447F Director appeared before PVT LTD ROAD, the under signed on 11.05.2022and his 3RD FLOOR, statements u/s 131 was recorded and submitted BLOCK- copy of Share Application D, form, Share Application KOLKAT receipt,, Bank Statement is A- enclosed. The director also filed copy of letter dated 700089 16.09.2019 that in compliance to summons issued u/s 131 earlier. This letter included copy of PAN Card, Share Allotment Advice, Source of fund, Bank Statement, IT Acknowledgement. And Audited Financial Statement etc. 8 SHREYAS 18/1, AAPCS2099R Director appeared before DISTRIBUTORS MAHARS the under signed on PVT LTD HI 17.05.2022 and his DEVEND statements u/s 131 was RA ROAD, recorded and submitted copy of IT 3RD Acknowledgement, Share FLOOR, Application form, PAN KOLKATA- Card, Bank Statement, and relevant Assessment 700007 order u/s 143(3) of the I.T. Act for the A.Y. 2011-

21 12.The director also filed copy of letter dated 06.09.2019 that in compliance to summons issued u/s 131 earlier. This letter included copy of PAN Card, NBFC Certificate Share Application form, Source of fund, Bank Statement, IT Acknowledgement etc.

9 YUGVERI 5/1, CLIVE AAACY0994L Director appeared before MARKETING ROW, ROOM the under signed on PVT LTD 55, 17.05.2022 and his KOLKATA- statements u/s 131 was recorded and submitted 700 001 copy of Share Application receipt, , Bank Statement and relevant Assessment order u/s 143(3)/147 of the I.T. Act for 2011-12 is enclosed. The director also filed copy of letter dated 19.09.2019 that in compliance to summons issued u/s 131 earlier. This letter included copy of PAN Card, NBFC Certificate Source of fund, Bank Statement, IT Acknowledgement and financial Statement etc. 10 ECONOMY 98/4, D.R.S C AACCE4835G Director appeared before VINTRADE PVT BANERJEE the under signed on LTD ROAD, 10.05.2022 and his statements u/s 131 was KOLKAT recorded and submitted A- 700010 copy of Share Allotment Advice, Bank Statement and IT Acknowledgement for AY 2011-12 is enclosed. The director also filed copy of letter dated 30.09.2019 that in compliance to summons issued u/s 131 earlier. This letter included copy of PAN Card, Source of fund, Bank Statement, IT Acknowledgement and financial Statement etc. The AO, in addition to the above observations, however, also submitted that :

22 “ However, on enquiries conducted and on perusal of documentary evidences furnished by the share applicant companies vis-à-vis the assessee company it is found that these share applicant companies could not adduce any evidence to justify the huge premium of Rs. 990/- paid per share/ the companies do not have any revenue to justify payments of such huge share premium. . An analysis of few companies have been made to conclude that the profits of the share applicant companies did not justify payments of such huge share premium.

Sl. Name of share Capital Reserve Gross Expenditure Gross Revenue Net applicants Profit/Lo No. ss 1 JUGANTAR 87,54,170.00 16,67,68,664.00 1,06,25,808.64 94,86,765.57 11,39, MERCANTILES 04,307 PVT LTD

2 JYOTIKA 11,36,500.00 20,62,63,873.00 13,140.00 13,680.00

3 SHREYAS 11,16,500.00 20,22,83,861.00 13,118.00 13,640.00

4 YUGVERI 1,58,84,500.00 12,60,26,097.00 4,98,058.00 4,99,218.00 1,160.00 MARKETING PVT LTD

From the above chart it is depicted that the share premium paid by all the share applicants companies are not justified and therefore although the share capital may be treated as explained but the share premium charged by the assessee seems to be unjustified.” It is of particular note, as emerging from the findings of the above report as well as the previous remand report, that despite the fact that during assessment, notices u/s 131 were issued to directors of share subscribing companies on the addresses as per MCA database, in remand the appellant provided the correct updated addresses, on which summons were served by post. The reason why the conduct of this enquiry, not only by the production of documents through the issue of summons u/s 131 of the Act, but also through the physical production /examination of the concerned Directors, was considered essential is that it is difficult for a reasonable mind to accept that any person (including a company) who has invested in another company, moneys running into several lakhs of rupees, would, after making this investment, refuse to come before the proper authorities to own up and accept that they had made this investment and to explain why they had done so. This is especially true in the case of share capital/premium investments in private limited companies where, as discussed above,

23 such investments are made on personal basis rather than through public notices, therefore it is inconceivable that such investors would, after making the investments refuse to appear before the proper authorities to confirm and explain these investments. It has been held by judicial authority that mere production of huge paperwork in support of share capital investment, is not sufficient to accept the transaction as bona fide. If the assessee or the persons who have invested in the assessee show reluctance in the matter of making a personal appearance before the AO, and deposing before him in good faith, without sufficient cause for doing so, then it would be proper for the assessing authority to draw an adverse inference in relation to the genuineness and bona fides of the said transaction. This is on account of the fact that this behaviour rebels against principles human probabilities, as explained above.

The second important point of note in the remand report is that in response to the summons u/s 131, not only the Director of the appellant company, but in fact, ten out of fourteen of the directors of the share applicant companies , attended personally and produced all documents related to the transaction and also made depositions before the AO, u/s 131 of the Act. Out of the Directors who appeared before the AO during remand, in the case of 4 Directors of the share applicant companies, the old directors (whose statements would be relevant for explaining the impugned transactions), who were there at the time of the impugned transactions, appeared before the AO, carrying letters of authorisations from the current directors.

The third significant fact that emerges from the remand report is that not only did the AO conduct his enquiries through the issue of notices u/s 131 of the Act, but in the first remand stage, he went a step further and also deputed the departmental inspector to conduct field enquiries to ascertain and verify the physical presence of share allottee companies. As per the report of the Departmental inspector all the premises of the share applicant companies turned out to be physically present at the said premises. Though, as already stated earlier, the AO has expressed certain suspicions regarding the nature of the premises where the offices of the share applicant companies were situated.

Coming to the findings of the remand report, it is found that the directors of the majority the share applicant companies appeared before the AO u/s 131 and submitted their replies. In the case of all the share applicants, replies were filed. The AO examined these applicants, and recorded their statements. It is noted in the remand report that since this is a very old case, in the case of a few of share applicant companies, the directors had changed over the years; in such cases, the earlier directors who had been present at the time of the impugned transaction, appeared before the AO with authorisations from the current directors. The AO, it is noted, has expressed no dissatisfaction with the results of the enquiries or the depositions made before him. He, after conducting these enquires,

24 was ultimately satisfied about the genuineness of share capital subscribed by these companies in terms of the identity and creditworthiness of these share applicants as well as the genuineness of the transaction (vis a vis share application money only). However, in respect of premium paid by such companies, the AO has analysed the financials of four share applicant companies to conclude that the share premium charged by the appellant company was unexplained, meaning thereby that the said companies did not have the financial wherewithal to pay the claimed share premium.

It is further found that not only did the majority of directors of the share applicant companies appear and depose before the AO, but they also produced supporting evidences to prove the identity of the investing companies, their creditworthiness as well as the genuineness of transactions. In these cases, the directors also produced the copies of the earlier 131 notices that had been issued to them during the first remand proceedings. This was to show that they indeed had received these summons earlier, but had mistakenly complied only by producing evidence. This also showed that the investors indeed had been existing at all times and that they had received the earlier notices u/s 131 (sent during the 1st remand report), and had also complied with them. However, they had not made a physical appearance before the AO at that time. The details and documents so produced and filed with the AO included, inter alia, full details of each of the share applicants, who had subscribed to the share capital as well as share premium money raised by the appellant during the relevant assessment year. All these documents have also been submitted during appeal as part of a comprehensive paper book (which, as mentioned earlier, was also forwarded to the AO in remand). The table below summarizes the documents submitted by the appellant and the share applicants before the AO for proving the identity and creditworthiness of the share appellants as well as for proving the genuine of the impugned transactions. Needless to mention that these documents that have been produced by the appellant by way of the discharging of his onus u/s 68 in respect of the impugned transactions, have also been produced in the form of a comprehensive paper book running into over 500 pages. As per record, in order to establish the identity, creditworthiness and genuineness of share application received from the above parties, the appellant has furnished various documents, as listed below.

Name of Shareholders Documents Paper Book Page Sl No. submitted Nos.

1 M/s. Aadish Commercial Pvt. Ltd. Order u/s 143(3) for AY 1-5 2011-12

Share Application Form 6-8

PAN Card 9

Confirmation & source of 10 funds

ITR Acknowledgement 11

Audited 12-24 Financial Statement List of Investments 25

Bank statement 26-27

Reply to summons u/s 28-29 131

M/s. Anandsagar Tradelink Allotment advice 30 2 Pvt. Ltd. Share Application Form 31

Confirmation & source of 32 funds

ITR Acknowledgement 33, 49

Audited 34-46 Financial Statement List of Investments 47

Bank Statement 48, 50

3 M/s. Arpit Vanijya Pvt. Ltd. Share Application Form 51-54, 71

Confirmation & source of 55 funds

ITR Acknowledgements 56

Audited 57-67 Financial Statement

Bank Statement 68-70

Allotment Advice 72

Reply to summons u/s 73-74 131

4 M/s. Avani Infrahome Pvt. Ltd. PAN Card 75

Share application Form 76

Confirmation & source of 77 funds

Allotment Advice 78

Assessment Order for 79-82 AY 2011-12

ITR Acknowledgements 83

Audited 84-94 Financial Statement Bank Statement 95

5 M/s. Cooper Commercial Pvt. Ltd Share Application Form 96-98

Confirmation & source of 99 funds

Allotment Advice 100

Assessment Order for 101-106 AY 2011-12

ITR Acknowledgements 107-109

PAN Card 110

Audited 111-121 Financial Statement List of Investments 122

Reply to summons u/s 123-124 131

6 M/s. Jugantar Commercial P. Ltd. Share Application Form 125, 157

Confirmation & source of 126 funds

ITR Acknowledgements 127

PAN Card 128, 152

Bank Statement 129, 153, 155

Audited 130-151, 158-178 Financial Statement Allotment Advice 154

Reply to Summons u/s 156 131

Assessment Order for 179-182 AY 2011-12

7 M/s. Jyotika Commercial Pvt. Ltd. Share Application Form 183-185

Confirmation & source of 186 funds

PAN Card 187, 204, 210

ITR Acknowledgements 188, 205

Audited 189-198 Financial Statement List of Investments 199

200-203, 206-209, 211- Bank Statement 214

Reply to summons u/s 215-216 131

Allotment Advice 217

Assessment Order for 218-223 AY 2011-12

Assessment Order for 8 M/s. Natural Business Pvt. Ltd. 224-228 AY 2011-12

Share Application Form 230-234

Confirmation & source of 235 funds

PAN Card 236

Relevant Bank 237-240 Statement

ITR Acknowledgements 241

Audited 242-254 Financial Statement Reply to summons u/s 255-256 131

9 M/s. Parivartan Commercial Share Application Form 257-259 Pvt. Ltd.

Confirmation & source of 260 funds

PAN Card 261, 300

Relevant Bank 262-267, 299, 301 Statement

ITR Acknowledgements 268

Audited 269-282 Financial Statement Assessment Order for 283-298 AY 2011-12

10 M/s. Riteshwari Trading & Share Application Form 302-303 Investment Pvt. Ltd.

Confirmation & source of 304 funds

ITR Acknowledgements 305

PAN Card 306

Audited 307-322, 326-339, 343- Financial 355 Statement List of Investments 323-324, 340

Relevant Bank 325, 341-342 Statement

11 Ritz Agencies Pvt. Ltd. ITR Acknowledgements 356, 375. 441

Audited 357-367 Financial Statement Share Application Form 368

Confirmation & source of 369 funds

Relevant Bank 370-372, 374 Statement

Reply to summons u/s 373 131

Assessment Order for 12 Shreyas Distributors Pvt. Ltd. 376-380 AY 2011-12

Relevant Bank 381 397-398 Statement

Share Application Form 382

Confirmation & source of 383 funds

ITR Acknowledgements 384

Audited 385-394, 401-411 Financial Statement List of Investments 395

PAN Card 396

Reply to summons u/s 399-400 131

13 Uphar Trade Enterprises Pvt. Ltd PAN Card 412

Share Application Form 413-415

Allotment Advice 416

Assessment Order for 417-422 AY 2011-12

ITR Acknowledgements 423, 441, 109

Audited 424-434 Financial Statement List of Investments 435

Relevant Bank 436, 438, 442 Statement

Confirmation & source of 437, 439-440 funds

14 Yugveri Marketing Pvt. Ltd. Share Application Form 443-450, 469-476

Confirmation & source of 451 funds

ITR Acknowledgements 452, 495, 497, 499, 501

PAN Card 453, 492-493, 502

Audited 454-467 Financial Statement Certificate 468 of Registration Relevant Bank 477-486, 494, 496, 498, Statement 500, 507

Assessment Order for 487-491 AY 2011-12

Reply to summons u/s 503 131

Copy of summons 504-505

Allotment Advice 506

In making investigations in relation to authenticity of share capital/premium, it is imperative to keep the provisions of section 68 in mind. The initial onus for proving the identity and creditworthiness of the share applicants as well as the genuineness of the transaction lies upon the assessee who is claiming that such an investment was received by him. This can be done through the production of evidence in support of the identity and creditworthiness of such an applicant and also by providing sufficient evidence/ reasoning to establish that the said transaction was genuine and not bogus. This adducing of evidence and providing of cogent reasoning has to be such as to provide a satisfaction in the mind of the AO (a prudent person) regarding the bona fides of the transaction. Once this onus is discharged by the assessee, the burden shifts to the AO, who can either agree with the evidence /reasoning produced before him, or can disagree with it. In case of disagreement, the onus shifts to the assessing authority to provide cogent reasoning and/or concrete evidence for his reasons for doing so.

In the present case it is found that the corporate share applicants are registered under the companies Act, 1956 and are on the records of