ITO, WARD-12(2), KOLKATA, KOLKATA vs. M/S DREAMZ LIFE CARE NURSING & DIAGNOSTIC CENTRE PVT. LTD., KOLKATA

आयकर अपीलीय अधिकरण कोलकाता 'बी' पीठ, कोलकाता में IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘B’ BENCH, KOLKATA श्री राजपाल यादव, उपाध्यक्ष (कोलकाता क्षेत्र) एवं डॉ. मनीष बोरड, लेखा सदस्य के समक्ष Before SRI RAJPAL YADAV, VICE PRESIDENT & DR. MANISH BORAD, ACCOUNTANT MEMBER I.T.A. No.: 2038/KOL/2016 Assessment Year: 2012-13 ITO, Ward-12(2), Kolkata....………….........................Appellant Vs. M/s. Dreamz Life Care Nursing & Diagnostic Centre Pvt. Ltd………………………………………………………………Respondent [PAN: AADCD 6024 B] I.T.A. No.: 2569/KOL/2018 Assessment Year: 2012-13 ITO, Ward-3(2), Kolkata....…………...........................Appellant Vs. M/s. Dreamz Movies & Entertainment Pvt. Ltd………………………………………………………………Respondent [PAN: AADCD 7316 A] Appearances by: Sh. P.P. Barman, Addl. CIT, (D/R), appeared on behalf of the Revenue. None appeared on behalf of the Assessee. Date of concluding the hearing : February 8th, 2023 Date of pronouncing the order : May 3rd, 2023 I.T.A. No.: 2038/KOL/2016 I.T.A. No.: 2569/KOL/2018 Assessment Year: 2012-13 M/s. Dreamz Life Care Nursing & Diagnostic Centre Pvt. Ltd. M/s. Dreamz Movies & Entertainment Pvt. Ltd. ORDER Per Manish Borad, Accountant Member: Both these appeals filed by the Revenue are directed against separate orders passed u/s 250 of the Income Tax Act, 1961 (in short the “Act”) by ld. Commissioner of Income-tax (Appeals)-4, Kolkata [in short ld. “CIT(A)”] dated 04.08.2016 and by ld. CIT(A)- 7, Kolkata dated 14.09.2018, respectively.

I.T.A. No.: 2038/KOL/2016 I.T.A. No.: 2569/KOL/2018 Assessment Year: 2012-13 M/s. Dreamz Life Care Nursing & Diagnostic Centre Pvt. Ltd. M/s. Dreamz Movies & Entertainment Pvt. Ltd. Facts in I.T.A. No.: 2569/KOL/2018 M/s. Dreamz Movies & Entertainment Pvt. Ltd.: 4. Facts in brief are that the assessee is a private limited company engaged in production and distribution of movies. Income of Rs. 3,86,840/- declared in the return filed on 30.08.2012 for AY 2012-13. Case selected for scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Act. ld. AO examined the financial statements and noticed that during the year the assessee has received share capital and share premium of Rs. 2.79 Cr. Ld. AO further noticed that out of the said sum, Rs. 4 lakh was received from the sister concern and the balance amount was received from two share subscribers namely M/s. Blossom Vinimay Pvt. Ltd. and M/s. Baliraja Distributors Pvt. Ltd. at Rs. 2.25 Cr and Rs. 50 lakh, respectively against the issue of equity shares of face value of Rs. 10/- and share premium of Rs. 190/-. Ld. AO called for the details to examine the nature and source of the said sum. M/s. Blossom Vinimay Pvt. Ltd. did not comply to the office summons and the other allottees though complied but could not furnish details/information as required to establish the genuineness of the transaction and creditworthiness of the share subscribers. Though number of opportunities were given by ld. AO but the assessee failed to explain the alleged sum. Ld. AO accordingly accepted the share capital of Rs. 4 lakh received from the group companies but for the remaining sum of 2.75 Cr made the addition u/s 68 of the Act for unexplained cash credit and further, made an addition by disallowing the I.T.A. No.: 2038/KOL/2016 I.T.A. No.: 2569/KOL/2018 Assessment Year: 2012-13 M/s. Dreamz Life Care Nursing & Diagnostic Centre Pvt. Ltd. M/s. Dreamz Movies & Entertainment Pvt. Ltd. commission expense of Rs. 6 lakh allegedly paid by the assessee to arrange for the alleged bogus share capital. Income assessed at Rs. 2,84,86,840/-.

I.T.A. No.: 2038/KOL/2016, M/s. Dreamz Life Care Nursing & Diagnostic Centre Pvt. Ltd.: “1. On the facts and in circumstances of the case Ld. CIT(A) had erred to allow relief on this ground on the view that all the share applicants are existing assessees and no adverse finding have been found by the AO, without considering the failure from the part of the assessee to prove visual activity of business and creditworthiness to make investment of the subscribers.

2. The appellant craves leave to add, alter or modify the grounds of appeal before or at the time of hearing.” I.T.A. No.: 2569/KOL/2018, M/s. Dreamz Movies & Entertainment Pvt. Ltd: “1) The Ld. CIT(A) has failed to appreciate the fact and also erred in deleting the addition of Rs. 2,75,00,000/- u/s 68 as assessee itself failed to substantiate the genuineness of the share transaction and creditworthiness of the share allottee companies even in response to summon u/s 131 of the I.T. Act issued to the Directors of the assessee company as well as share holding companies.

I.T.A. No.: 2038/KOL/2016 I.T.A. No.: 2569/KOL/2018 Assessment Year: 2012-13 M/s. Dreamz Life Care Nursing & Diagnostic Centre Pvt. Ltd. M/s. Dreamz Movies & Entertainment Pvt. Ltd. 2) The Ld. CIT(A) has erred in deleting the addition of Rs. 6,00,000/- on account of commission paid as the assessee failed to explain the necessity of commission payment since there was no business activity of the company during the year. 3) The appellant craves the leave to make any addition, alteration, modification etc. Of the grounds either before the appellate proceedings or in the course of appellate proceedings.”

I.T.A. No.: 2038/KOL/2016 I.T.A. No.: 2569/KOL/2018 Assessment Year: 2012-13 M/s. Dreamz Life Care Nursing & Diagnostic Centre Pvt. Ltd. M/s. Dreamz Movies & Entertainment Pvt. Ltd. 4 Baliraja Distributors Pvt. Ltd. 50 lakh (share premium of Rs. 190/- per share) Total 2.61 Cr 9. In the case of another assessee i.e. M/s. Dreamz Movies & Entertainment Pvt. Ltd. in I.T.A. No.: 2569/KOL/2018, the addition for unexplained share capital and share premium was made by ld. AO towards the sum received from the following share subscribers: Sl. No. Name Share Premium 1 Baliraja Distributors Pvt. Ltd. 50 lakh (share premium of Rs. 190/- per share) 2 Blossom Vinimay Pvt. Ltd. 2.25 Cr (share premium of Rs. 190/- per share) Total 2.75 Cr 10. From above, we notice that equity shares have been allotted by both the assessee companies to four share subscribers of which two namely Dreamz Pbc Web Length Pvt. Ltd. and Dreamz Wealth & Consultancy Pvt. Ltd. which prima facie seems to be group companies, ld. AO made the addition for share capital of Rs. 18 lakh received from group concerns only in the case of I.T.A. No.: 2038/KOL/2016 since there was no proper representation by the assessee. Ld. CIT(A) has deleted the additions considering the replies filed by the assessee. Before moving further, since Rs. 9 lakh each has been received by M/s. Dreamz Life Care Nursing & Diagnostic Centre Pvt. Ltd. from its two sister concerns namely Dreamz Pbc Web Length Pvt. Ltd. and Dreamz Wealth & Consultancy Pvt. Ltd., we find no justification in the action of ld. AO making the said addition since they are group companies and the investments have been made at the face value of Rs. 10/- Page 7 of 18 I.T.A. No.: 2038/KOL/2016 I.T.A. No.: 2569/KOL/2018 Assessment Year: 2012-13 M/s. Dreamz Life Care Nursing & Diagnostic Centre Pvt. Ltd. M/s. Dreamz Movies & Entertainment Pvt. Ltd. without paying any premium and transactions carried out through banking channel and it can be safely concluded that the assessee has been able to explain the said sum of Rs. 18 lakh received from its two sister concerns for the business purposes which, thus, do not call for any addition u/s 68 of the Act and to this extent, we confirm the finding of ld. CIT(A).

“In course of hearing the assessee furnished details of fresh capital raised giving names of following four parties. Sl. Name of allottee Address No Of Face Value Premiun) Amount shares per share per % share 1 Deamz Pbc Web 10 Dr Sarat 10000 10 - 100000 Length Pvt Ltd Banerjee Road, Ground Floor Kol-29 2 Dreamz Wealth & -do- 30000 10 - 300000 Consultancy Pvt Ltd 3 Baliraja 1/1 Meridith 25000 10 190 5000000 Distributors Street, 4th Pvt Ltd Floor, Kolkata- 69 4 Blossom Vinimay 3 Parbati 112500 10 190 22500000 Pvt Chakraborty Ltd I.T.A. No.: 2038/KOL/2016 I.T.A. No.: 2569/KOL/2018 Assessment Year: 2012-13 M/s. Dreamz Life Care Nursing & Diagnostic Centre Pvt. Ltd. M/s. Dreamz Movies & Entertainment Pvt. Ltd. Lane, Kolkata- 26 Total 177500 2,7900000 It appears that assessee company issued shares to Dreamz Pbc Weblength Pvt. Ltd. & Dreamz Wealth & Consulting Pvt. Ltd. 10,000 and 30,000 respective at face value @ 10 without any premium. Whereas the assessee company issued shares to Baliraja Distributors Pvt. Ltd. and Blossom Vinimay Pvt. Ltd 25,000 and 112500 respectively face value @ 10 and premium @190. Notice u/s. 133(6) of the IT Act was issued on 25.7.2014 to aforesaid two parties to verify the transactions. It appears from the reply received in response to aforesaid notice u/s. 133(6) that Blossom Vinimay Pvt. Ltd. has been merged with Dreamz PBC Web Length Pvt. Ltd from 22.01.2014. It is seen from the reply that during the relevant year Blossom Vinimay had almost no business activity. It has shown other income service charge of Rs. 25,000 /-. Immediate source ^investment shown by the allotee company was made from sale of investment of unquoted shares. In order to verify the transactions, source of investment and creditworthiness of the party summons u/s. 131 of the I. T. Act was issued on 12.02.2015 giving opportunity of hearing on 27.02.2015. The-party has made no compliance. The assessee company was also requested through this office summons dated 17.02.2015 to produce the directors of share allottees for verification. The assessee did not comply with said summons/ notice till date. Notice u/s. 133(6) of the IT Act dated 25.7.2014 could not be served in the case of Baliraja Distributors Pvt. Ltd at the address given by the assessee. Later assessee filed a changed address of the party of Baliraja Distributors Pvt. Ltd as 3, Parbati Chakraborty Lane, Kolkata - 700026. Considering assessee's aforesaid submission notice u/s. 133(6) of the IT Act was reissued on 10.01.2015. But the party has not complied with said notice. Then summons u/s. 131 of the IT Act was issued on 28.01.2015 giving opportunity of hearing on 11.2.2015. In response to said summons, Sri Rabindra Soni one of the directors appeared on 11.02.2015 and gave his statement to be recorded. However he could not give any reply as regards to formation and activities of his company. Even he admitted that he has no idea whether the investment in assessee company was approved by any board meeting or not. As regards to source of investment it was stated that same was from sale of equity shares to Sunflower Vintrade and I.T.A. No.: 2038/KOL/2016 I.T.A. No.: 2569/KOL/2018 Assessment Year: 2012-13 M/s. Dreamz Life Care Nursing & Diagnostic Centre Pvt. Ltd. M/s. Dreamz Movies & Entertainment Pvt. Ltd. Racon Marketing. Though he promised to give details of sale of shares by 17.02.2015 but he could not furnish any details till date. As regards to reason for purchase of share of the assessee company with high value of premium he replied that can only be justified by the directors of that period. He could not produce books of accounts to substantiate the transaction. He could not even furnish/produce bank statement for whole relevant year i.e F.Y 11-12. Later the assessee was requested by this office summons dated 17.02.2015 to produce the director of other allottee company and director of Baliraja Distributors Pvt. Ltd for relevant period. The assessee by letter dated 27.12.2015 stated that, " Relevant portion of bank statement of the company Baliraja Distributors Pvt. Ltd, highlighting the transactions in which the share application money was given to our company. They had also produced before you the relevant part of bank statement, explaining the source of fund which was given to Dreamz movies towards share application money". Thus the assessee avoided it responsibility. On scrutiny of Balance Sheet, P & L A/c of Baliraja Distributors Pvt. Ltd & Blossom Vinimay Pvt Ltd it appears that these are paper/ shell company. It is already mentioned that the allottees have no business activities and investment was made from sale of unquoted shares. In order to examine genuineness of the fresh capital raised identity of the persons and creditworthiness was required to be established. The appearance of the director of the assessee company as well as the directors of the said allottee companies who had invested fresh share capital in the assessee company was necessary to authenticate the transaction of share capital and creditworthiness of the applicants. It is worth noting to mention that the necessary investigation /enquiries could have been carried out to come to the logical conclusion of authenticity of share capital raised. i) Personal appearance of the directors of the assessee company as well as the directors of the share holding companies who had fresh share application and premium in the said A.Y. ii) Detailed narration of all debit and credit entries found in the bank statement of F.Y. 2011-12. iii) Bank Statement for the said F.Y.2011-12 i.e. A.Y.2012-13 I.T.A. No.: 2038/KOL/2016 I.T.A. No.: 2569/KOL/2018 Assessment Year: 2012-13 M/s. Dreamz Life Care Nursing & Diagnostic Centre Pvt. Ltd. M/s. Dreamz Movies & Entertainment Pvt. Ltd. iv) All the books of account and supporting evidences for cross verification. M/s Blossom Vinimay Pvt Ltd has not complied with this office summons. The other allottee though complied but could not furnish details / information as required to establish genuineness of transactions and creditworthiness. The assessee has also failed to comply with the above referred notices/ summons by furnishing the above stated documents or producing the share allottees to discharge its burden of proof cast upon it. Following the principle of natural justice the assessee was given sufficient opportunities of hearing but has not complied with the said notices/summons with the right spirit. Now the burden of proof clearly has shifted on the assessee company to substantiate the said cash credit found in the assessee's book under the garb of fresh share capital by producing its own director as well as the director/ principal officer of the fresh share holding party before the undersigned. For the compliance, the assessee company has been given number of opportunities to produce the directors as stated above for the verification of the fresh cash credit purportedly In the form of fresh share capital introduced during the year in the light of the identity and creditworthiness of the share holding companies as well as the genuineness of the said transactions. It may be mentioned here that such introduction of share capital was shown in large number of cases on the basis of dummy companies which were created solely for the purpose of building up share capital. It is surprising that a company which have no track record of any worth- while business nor any reputation in terms of reliable management has attracted the subscribers to pay high premium per share. It is well settled principle of law as declared by the Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT (214 ITR 801) (SC) that the true nature of transaction have to be ascertained in the light of surrounding circumstances. It needs to be emphasized that standard of proof beyond reasonable doubt has no applicability in determination of matters under taxing statutes. It is also well settled that tax authorities are entitled to look into surrounding circumstances to find out the reality of the transaction by applying the test of human probability. This was the principle laid down by the Hon'ble Supreme Court in the case of CIT Vs. Durga Prasad More 82 ITR 540 (SC).

I.T.A. No.: 2038/KOL/2016 I.T.A. No.: 2569/KOL/2018 Assessment Year: 2012-13 M/s. Dreamz Life Care Nursing & Diagnostic Centre Pvt. Ltd. M/s. Dreamz Movies & Entertainment Pvt. Ltd. In this connection reliance is placed in decision of Hon'ble ITAT, Kolkata in the case of M/s. Bisakha Sales Pvt. Ltd. vs. CIT. In its judgment hon'ble ITAT has discussed the issue elaborately regarding activities of tax escapement and to channelize the black money through issuing share premium. Reference is also invited to the decision of the Hon'ble ITAT in the cases of: M/s Star Griha Pvt. So it was highly required to investigate what was the actual motive in the mind of the share holders who invested their funds in this assessee company to come to the logical conclusion about the true nature of the said transactions involved in the course of share transfers between the assessee company and the purported investors. In the light of the ratio of the decisions as discussed earlier in the cases mentioned judicial pronouncements vis-a-vis the facts and circumstances in the instant case as well as the assessee's inability to discharge its own burden of proof to substantiate its claim of introduction of fresh share capital even after given several number of opportunities, it is held that the purported fresh capital along with the premium aggregating to Rs. 2,75,00,000 /- is nothing but the assessee's own money conducted under the garb of fresh share capital into the assessee's business. Therefore, Rs. 2,75,00,000 /- is hereby treated as unexplained cash credit found in the books of the assessee during the A.Y.2012-13 and subsequently added back to the total income of the assessee. Penalty proceedings u/s 271 (1)(c) of the IT Act is also initiated on this score for concealment of income by way of furnishing inaccurate particulars of its income. Commission: In this year the assessee has shown commission paid of Rs.600000/-. In course of hearing the assessee furnished name and address of the two persons Prasun Mukherjee & Soumya Ghosh to whom commission paid of Rs.4,00,000/- & 2,00,000/- respectively. Notice u/s 133(6) of the IT Act could not be served in the case of Soumya Ghosh at the address given by the assessee. Later the assessee furnished the detail of address. Reply of both parties has been perused. Both of them stated that there was no written agreement and they were given commission for providing services of arranging inter corporate deposits. Apart from raising share capital the assessee has given loan to a single party Rahee Infratech Ltd. It Page 12 of 18 I.T.A. No.: 2038/KOL/2016 I.T.A. No.: 2569/KOL/2018 Assessment Year: 2012-13 M/s. Dreamz Life Care Nursing & Diagnostic Centre Pvt. Ltd. M/s. Dreamz Movies & Entertainment Pvt. Ltd. has already been mentioned that during this year the assessee has no business activities. The assessee could not substantiate the necessity of the services as claimed by the aforesaid party. There was no justification of commission paid. As such commission paid of Rs.6,00,000/- is disallowed and added back as not expended for purpose of business. Subject to above total income is computed as below: Net profit as per P& L account Rs.403462/- Add: Depreciation to be considered Rs. 26102/- separately Share capital as discussed Rs.27500000/- Bogus commission Rs. 600000/- Rs.28126102/- Gross total income RS.28529564/- Less: Depreciation allowable Rs.42721/- Income from business Rs.28486843/- Total Income Rs. 28486840/- Tax payable as per computation enclosed. Proceedings u/s 271(1)(c) of the IT Act has been initiated for concealment of particulars of income. Assessed u/s 143(3) of the IT Act as above. Issue D.N, computation & copy of the order to the assessee.”

Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, I.T.A. No.: 2038/KOL/2016 I.T.A. No.: 2569/KOL/2018 Assessment Year: 2012-13 M/s. Dreamz Life Care Nursing & Diagnostic Centre Pvt. Ltd. M/s. Dreamz Movies & Entertainment Pvt. Ltd. satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year: [Provided that] where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: [Provided further] that nothing contained in the first proviso [or second proviso] shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.

I.T.A. No.: 2038/KOL/2016 I.T.A. No.: 2569/KOL/2018 Assessment Year: 2012-13 M/s. Dreamz Life Care Nursing & Diagnostic Centre Pvt. Ltd. M/s. Dreamz Movies & Entertainment Pvt. Ltd. Prima facie both these companies look to be jama-kharchi/shell companies/accommodation entry providers and in absence of any representation on behalf of the assessee which may have helped the assessee to discharge the primary onus casted upon it under the provisions of Section 68 of the Act to explain the nature and source of the alleged sum, we fail to find any merit in the finding of ld. CIT(A) giving relief to the assessee without discussing the financials of both the share subscriber companies. Ld. CIT(A) has also not dealt the issue as to what prompted the alleged share subscribers to invest in the equity shares of the assessee company at a whopping premium of Rs. 190/- per share without there being any regular business activity of the assessee company. Before us the assessee has even not filed the audited financial statement of the assessee company. Merely proving the identity of the share subscribers and to some extent creditworthiness by making the investment from accumulated reserve and surplus cannot suffice the purpose. To cross the hurdle of provisions of Section 68 of the Act which requires that the explanation if any filed by the assessee regarding nature and source should be sufficient to satisfy ld. AO and since the Tribunal is the last fact-finding body, the assessee had sufficient opportunity to place the facts and also to explain the nature and source of alleged share capital and share premium by placing material evidence on record. However, the assessee miserably failed on this count.