M/S ARIHANT TIMBERS PRIVATE LTD.,KOLKATA vs. I.T.O.,WARD-3(2), KOLKATA

आयकर अपीलीय अधिकरण कोलकाता 'ए' पीठ, कोलकाता में IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘A’ BENCH, KOLKATA श्री संजय गगग, न्याधयक सदस्य एवं डॉ. मनीष बोरड, लेखा सदस्य के समक्ष Before SRI SANJAY GARG, JUDICIAL MEMBER & DR. MANISH BORAD, ACCOUNTANT MEMBER I.T.A. No.: 687/KOL/2019 Assessment Year: 2012-13 M/s. Arihant Timbers Private Limited...….................Appellant [PAN: AAKCA 9396 E] Vs. ITO, Ward-3(2), Kolkata........................................Respondent Appearances by: Sh. J.N. Gupta, CA, appeared on behalf of the Assessee. Smt. Ranu Biswas, Addl. CIT D/R, appeared on behalf of the Revenue. Date of concluding the hearing : January 24th, 2023 Date of pronouncing the order : March 28th, 2023 ORDER Per Manish Borad, Accountant Member: This appeal filed by the assessee pertaining to the Assessment Year (in short “AY”) 2012-13 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the “Act”) by ld. Commissioner of Income Tax (Appeal)-10, Kolkata [in

I.T.A. No.: 687/KOL/2019 Assessment Year: 2012-13 M/s. Arihant Timbers Private Limited. short “ld. CIT(A)”] dated 28.02.2019 arising out of the Assessment Order framed u/s 143(3)/147 of the Act dated 09.12.2016. 2. The assessee is in appeal before this Tribunal raising the following grounds: “1. On the facts and in the circumstances of the case as per Annexure, the Ld. AO erred in making and Ld. CIT(A) erred in confirming the addition u/s. 68 for Rs.100 lakhs, being the amount of increase in share capital and share premium. (Annexure to Grounds of appeal attached) 2. The assessee craves leave to adduce further grounds on or before the hearing of the appeal.” 3. Brief facts of the case as culled out from the records are that the assessee is a private limited company. Return of income was not filed during the year. On the basis of information, ld. AO issued notice u/s 148 of the Act and carried out the proceedings u/s 147 r.w.s. 143(3) of the Act. In compliance to the notice u/s 148 of the Act the assessee filed the return on 16.02.2016. During the course of assessment proceedings ld. AO observed that the assessee has raised share capital of Rs. 1,00,000/- by issuing 10,000 shares at a face value of Rs. 10/- at a premium of Rs. 990/- per share. The year under appeal is the first year of incorporation. Ld. AO called for the information u/s 133(6) of the Act addressed to all the shareholders to which reply was received. However, no bank statement evidencing the payments were filed. ld. AO was thus, not satisfied with the submissions filed by the assessee and invoked the provision of u/s 68 of the Act and made addition of Rs. 1 Cr to the income of Rs. 290/- declared by the assessee and assessed the income at Rs. 1,00,00,290/-.

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I.T.A. No.: 687/KOL/2019 Assessment Year: 2012-13 M/s. Arihant Timbers Private Limited. 4. Aggrieved, the assessee preferred appeal before ld. CIT(A) and submitted that there was no bank transaction for the alleged issue of share capital. It was submitted that against making investment in equity shares of other companies the consideration was not paid in cash/cheque and shares were issued in lieu of the purchase of equity shares. However, ld. CIT(A) was not satisfied with these submissions and applying the ratio laid down by the Hon'ble Supreme Court of India in the case of Sumati Dayal vs. CIT (1995) 80 Taxman 89 (SC) and other decisions referred in the impugned order confirmed the action of ld. AO observing as follows: “1. I have carefully examined the action of the Ld. A.O in making the impugned addition of Rs.1,00,00,000/- in the hands of the Company on account of Share Application and share Premium monies. I find that in the year in question, the appellant-company has filed a return disclosing income of a paltry Rs.290/-, and paying Rs.90/- as tax. The appellant has given a fantastic story that the transactions were simply a takeover of some existing shares from another company [ companies have not been named, and no agreements etc placed on record] and instead of paying those companies by cheque, shares in the assessee company were allotted. It is the contention of the appellant that there was no cash transaction or rotation of money through bank, and that it was simply a commercial transaction. 2. However, even in such a transaction the onus is cast upon the appellant to explain as to why anybody would invest in or exchange Shares / Share Premiums worth Rs.1,00,00,000/- in an apparently worthless company with no intrinsic value. Even the companies which have bought / exchanged shares have not filed Returns of Income and have no intrinsic values. Therefore, I have to reach the inevitable conclusion that the transactions as discussed by the Ld.AO fall in the realm of "suspicious" and "dubious" transactions. The Ld. AO has therefore necessarily to consider the surrounding circumstances, which he indeed has done in a very meticulous and careful manner. In the case of Win Chadha Vs CIT (International Taxation) in ITA No.3088& 3107/Del/2005, the Hon'ble Delhi ITAT "B"-Bench has observed, on 31.12.2010 as under:

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I.T.A. No.: 687/KOL/2019 Assessment Year: 2012-13 M/s. Arihant Timbers Private Limited. "SUSPICIOUS AND DIBIOUS TRASANCTION HOW TO BE DEALT WITH: 6.11. The tax liability in the cases of suspicious transactions, is to be assessed on the basis of the material available on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of incriminating information/ evidence available with AO. 6.12. In the case of Sumati Dayal V. CIT (1995) 80 Taxman 89 (SC), the Hon'ble Supreme Court has dealt with the relevance of human conduct, preponderance of probabilities and surrounding circumstance, burden of proof and its shifting on the Department in cases of suspicious circumstances, by following observations: “……….It is, no doubt, true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. But in view of section 68, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is prima facie evidence against the assessee, viz., the receipt of money, and if he fails to rebut the same, the said evidence being unrebutted, can be used against him by holding that it is a receipt of an income nature. While considering the explanation of the assessee, the department cannot, however, act unreasonably. Having regard to the conduct of the appellant as disclosed in her sworn statement as well as other material on the record, an inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. The majority opinion after considering surrounding circumstances and applying the test of human probabilities had rightly concluded that the appellant's claim about the amount being her winning from races, was not genuine. It- could not be said that the explanation offered by the appellant in respect of the said amounts had been rejected unreasonably and that the finding that the said amounts were income of the appellant from other sources was not based on evidence.” CIRCUMSTANTIAL EVIDENCE HOW TO BE USED Page 4 of 11

I.T.A. No.: 687/KOL/2019 Assessment Year: 2012-13 M/s. Arihant Timbers Private Limited. 6.13. It would, at this stage, be relevant to consider the admissibility and use of circumstantial evidence in income tax proceedings. . Circumstantial evidence is evidence of the circumstances, as opposed to direct, evidence. It may consist of evidence afforded by the bearing on the fact to be proved, of other and subsidiary facts, which are relied on as inconsistent with any result other than the truth of the principal fact. It is evidence of various facts, other than the fact in issue which are so associated with the fact in issue, that taken together, they form a chain of circumstances leading to an inference or presumption of the existence of the principal fact. In the appreciation of circumstantial evidence, the relevant aspects, as laid down from time to time are — (1) the circumstances alleged must be established by such evidence, as in the case of other evidence (2) the circumstances proved must be of a conclusive nature and not totally inconsistent with the circumstances or contradictory to other evidence. (3) although there should be no missing links in the case, yet it is not essential that every one of the links must appear on the surface of the evidence adduced; some of these links may have to be inferred from the proved facts; (4) in drawing those inferences or presumptions, the Authorities must have regard to the common course of natural events, to human conduct and their relation to the facts of the particular case.» (5) The circumstantial evidence can, with equal facility, be resorted to in proof of a fact in issue which arises in proceedings for the assessment of taxes both direct and indirect, circumstantial evidence can be made use of in order to prove or disprove a fact alleged or in issue. In fact, in whatever proceedings or context inferences are required to be drawn from the evidence or materials available or lacking, circumstantial evidence has its place to assist the process of arriving at the truth." 6.14. It will also be worthwhile to consider the nature of burden of proof on the AO for proving a fact or circumstance in the income tax proceedings. The questions raised about the tax liability by the AO are to be answered by the assessee by furnishing reasonable and plausible explanations. If assessee is not forthcoming with proper or complete facts or his statement or explanation is contradictory, drawing of suitable inferences and estimation of facts is inevitable. Page 5 of 11

I.T.A. No.: 687/KOL/2019 Assessment Year: 2012-13 M/s. Arihant Timbers Private Limited. Courts generally will not interfere with such estimate of facts, unless the inferences or estimates are perverse or capricious. 6.15. The Assessee's technical contentions about admissibility and reliance on material available on the AO's record are in the nature of contentions challenging criminal or civil liabilities in a court of law. We are dealing with a process of adjudication of assesses tax liability i.e. assessment under Income Tax Act rather than conducting criminal or civil court proceedings. As held by the Hon'ble Supreme Court in the case of S.S. Gadgil (supra) no ‘lis' is involved in adjudication of tax liability. The Assessee's contention that there was no new material before the AO after the CIT(A)'s setting aside order cannot be accepted. New information and material did indeed come on record. In our view, in a sensitive matter like this, even a single due or revelation can be of great importance. To reverse the order of the AO on this technical plea will amount to taking a lopsided view of the proceedings. Besides, the JPC has underlined the importance of Reports of investigation agencies like CBI, DRI, ED whose were in the offing, as the relevant investigations were in process. In view of these observations, we do not accede to the assessee's pleas in this behalf. The Assessee's contentions and objections in this behalf that the material available on record was not admissible as evidence and that it cannot be relied on by the AO, are devoid of any merit and are rejected outright.” From the foregoing discussion, I find no reason to interfere in the findings of the Ld. A.O, which stand confirmed. The Grounds taken by the appellant stand dismissed. 07. Ground No. 3 relates to the claim of the appellant to add, alter or modify the grounds of appeal. As no such claim has been made by the appellant or the Ld A.R, there is no occasion to adjudicate in the matter. In the final result, appeal filed by the appellant is treated as "dismissed."” 5. Aggrieved, the assessee is now in appeal before this Tribunal. Ld. Counsel for the assessee submitted that the share premium was charged to avoid huge ROC fees required to be paid for increasing authorized share capital. There is no colourable device because shares have been allotted to pay off the creditor and to

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I.T.A. No.: 687/KOL/2019 Assessment Year: 2012-13 M/s. Arihant Timbers Private Limited. avoid ROC fees. Revenue has not brought any material on record about the existence of unaccounted money. All the shareholders have already replied to the notice u/s 133(6) of the Act. He further, submitted that since the transactions have not been carried out through banking channel provisions of Section 68 of the Act cannot be invoked. Our attention was also drawn towards the valuation certificates of various companies showing the fair market value of unquoted equity shares to justify the premium charged on the issue of shares. Financial statements of the share applicants were also submitted and prayer was made to delete the addition made u/s 68 of the Act. 6. On the other hand, ld. D/R vehemently argued supporting the orders of both the lower authorities and stated that the assessee as well as the investors are jama-kharchi and shell companies and engaged in rotation of funds and do not have regular means of income. 7. We have heard rival contentions and perused the records placed before us. The assessee is aggrieved with the addition of Rs. 1 Cr u/s 68 of the Act made by ld. AO and confirmed by ld. CIT(A) regarding share application money and share premium received by the assessee. We notice that the AY 2012-13 is the first year of the incorporation of the assessee company. Income tax return was not filed u/s 139 of the Act. Initially the company was registered with the share capital of Rs. 1 lakh. Thereafter, share capital was further increased from 1 lakh to 2 lakh by issuing 10,000 equity shares of face value of Rs. 10/- and premium at Rs. 990/- per share. Further, it is noticed that prior to issue of shares the

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I.T.A. No.: 687/KOL/2019 Assessment Year: 2012-13 M/s. Arihant Timbers Private Limited. assessee first initiated the transactions of acquiring the equity shares of the following companies: Date of Amount Name of Share Quantity Rate acquisition (Rs.) Dayanidhi Tradecom P Ltd 1000 1000 01.03.2022 10,00,000 Devadeva Merchants P Ltd 1000 1000 01.03.2022 10,00,000 Dynamo Barter P Ltd 1300 1000 01.03.2022 13,00,000 Gajkarna Merchandise P 1000 1000 01.03.2022 10,00,000 Ltd Gajvakra Trade P Ltd 1000 1000 01.03.2022 10,00,000 Ganadhiraj Trade P Ltd 1400 1000 01.03.2022 14,00,000 Ganadhyaksh Vyapar P 1000 1000 01.03.2022 10,00,000 Ltd Gaurinandan Pvt Ltd 1000 1000 01.03.2022 10,00,000 Gaurisuta Trade Pvt Ltd 1300 1000 01.03.2022 13,00,000 8. The equity shares of above stated nine companies were acquired by the assessee company from the following three companies; i) Agarwalla Udyog Pvt. Ltd., ii) Amarendra Financial Pvt. Ltd. & iii) Arnav Financial Services Pvt. Ltd. The purchase consideration payable to the above stated three sellers was settled by way of issuing share capital of the assessee company of 3300, 3400 & 3300 equity shares of face value of Rs. 10/- and premium of Rs. 990/-. 9. Further, on examining the balance sheet of the assessee company as well as the financials of the share applicants we notice the following issues that i) The assessee company is in its first year of incorporation and has no business activity, ii) The equity shares of the companies acquired by the assessee are also having similar type of transactions i.e. no business in real terms and only funds are appearing under security premium and loans and advances, iii) The same is the situation of the share applicants. So, overall, it

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I.T.A. No.: 687/KOL/2019 Assessment Year: 2012-13 M/s. Arihant Timbers Private Limited. looks to be a rotation of funds through journal entries and there is complete lack of genuineness of these transactions. 10. Before us, ld. Counsel for the assessee has referred to various documents showing the valuation certificate of the equity shares acquired by it which have thereafter increased the book value of the assessee company so as to justify the share premium charged over it. It is also brought to our notice that during the course of assessment proceedings certain details were called for by ld. AO regarding investment in the equity shares with the PAN and the hearing was fixed on 05.12.2016. It is stated by ld. Counsel for the assessee that on the appointed dated ld. AO was not available and therefore, it was filed with ld. AO vide letter dated 08.12.2016 which was received by the Department authorities on 15.12.2016. We notice that the assessment order is dated 09.12.2016 which means that ld. AO could not lay his hands on those details before concluding the assessment proceedings. We also notice that this transaction of paying the purchase consideration towards investment in equity shares of other companies through issuing of its own share capital was not clarified before ld. AO and he impressed more upon the providing of bank statement. It thus, means that ld. AO had no occasion to examine the facts of this case regarding payment of purchase consideration through issuing equity shares rather than making payment through banking channel. Ld. CIT(A) has also not taken note of this aspect. 11. We, therefore, under the given facts and circumstances of the case which on one hand indicates that all the transactions carried out by the assessee regarding purchase of equity shares of other

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I.T.A. No.: 687/KOL/2019 Assessment Year: 2012-13 M/s. Arihant Timbers Private Limited. companies and payment of consideration through issuing equity shares of its own company prima facie looks to be bogus/accommodation entry in nature but still since the facts placed before us were not before ld. AO in totality and some of the facts have been ignored by ld. CIT(A) also therefore, in the interest of justice and being fair to both the parties, we restore all the issues raised in the instant appeal to the file of ld. CIT(A) who shall carry out necessary examination of the facts and issue and also call for the remand report from ld. AO about various details which have been filed before us by the assessee and after giving reasonable opportunity of being heard, shall decide in accordance with law. 12. In the result, the appeal filed by the assessee is allowed for statistical purposes. Kolkata, the 28th March, 2023 Sd/- Sd/- [Sanjay Garg] [Manish Borad] Judicial Member Accountant Member Dated: 28.03.2023 Bidhan (P.S.)

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I.T.A. No.: 687/KOL/2019 Assessment Year: 2012-13 M/s. Arihant Timbers Private Limited. Copy of the order forwarded to: 1. M/s. Arihant Timbers Private Limited, P-7 Chowringhee Square, 4th Floor Kolkata-700 069. 2. ITO, Ward-3(2), Kolkata. 3. CIT(A)-10, Kolkata. 4. CIT- 5. CIT(D/R), Kolkata Benches, Kolkata. //True copy // By order

Assistant Registrar ITAT, Kolkata Benches Kolkata

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