INCOME-TAX OFFICER vs. PRATHAMESH CERAMICS PVT. LTD.,, NASHIK

आदेश / ORDER PER LALIET KUMAR, JM :

ITA No.2261/PUN/2014 A.Y.2010-11

3. For the assessment year 2010-11, the Revenue has raised following grounds in effect:

“1. The Ld. CIT(A)-II, Nashik has erred in deleting the addition made u/s.68 on account of share premium of Rs.8,09,87,500/- and share capital of Rs.42,62,500/- during the assessment year under consideration.

2. The Ld. CIT(A)-II, Nashik has erred by not appreciating the fact that the shareholding companies are only paper companies not carrying out any substantial business activities. The entire transaction is nothing but make believe transaction and colourable devices are used to give colour of genuineness to non genuine transactions.

3. The Ld. CIT(A)-II, Nashik has erred by applying the decision of the Hon’ble Supreme Court in the case of Lovely Exports Pvt. Ltd. Vs. CIT as this decision is not applicable in the facts and circumstances of the case.

4. The Ld. CIT(A)-II, Nashik has erred by not appreciating the fact that the decision of jurisdiction Bombay High Court in case of Major Metals Limited Vs UOI in writ petition No. 397 of 2011 and decision of Delhi High Court in case of Nova Promoters and Finlease Pvt. Ltd. (ITA No.342 of 2011) are applicable in the facts and circumstances of the case.

5. The Ld. CIT(A)-II, Nashik has erred in holding that the transaction of subscribing share premium at the rate of Rs.190/- per share is genuine because the transaction is routed through banking channel and the share holding companies have filed the income tax returns. The CIT(A) has not considered the surrounding circumstances of the transaction.

6. The Ld. CIT(A)-II, Nashik has erred by not considering a report received from Investigation Wing, Mumbai which shows that the assessee has obtained accommodation entries from Shri Pramod Jain who has accepted in his statement given during the search conducted u/s. 132 of the I.T. Act that he has given accommodation entries to various beneficiaries.

7. The Ld. CIT(A)-II, Nashik has erred by not giving an opportunity to represent the case by JCIT, Range 2 Nashik on behalf of Department inspite of the request made to represent the cases of Range 2, Nashik for the same. This has violated the principle of natural justice.

8. Under the facts and circumstances of the case, it is prayed that the order of the Ld. CIT(A)-II, Nashik may be set aside.”

Sr. Shareholder Name Share No of Share Premium No. Premium Shares Held Amount (Rs.) value (Rs.) 1 New Planet Trading 190 20000 3800000 Pvt. Ltd. 2 Kush Hinduatan Pvt. 190 375000 7125000 Ltd. 3 Lexus Infotech Ltd. 190 25000 4750000 4 Faststone Trading 190 25000 4750000 Co. Pvt. Ltd. 5 Anchan Properties 190 11250 2137500 Pvt. Ltd. 6 Capetown mercantile 190 25000 4750000 Co. Ltd. 7 Prarambh Multitrade 190 25000 4750000 Pvt. Ltd. 190 8 Fairmount Venture 10000 1900000 Pvt. Ltd. 190 9 Jaimambe Cassets 20000 3800000 Pvt. Ltd. 190 10 Kapindra Multitrade 47500 9025000 Pvt. Ltd. 190 11 Mendow Venture Pvt. 175000 3325000 Ltd. 190 12 Coral Venture Pvt. 15000 2850000 Ltd. 190 13 Doldrum Investment 12250 2327500 & Financial Ltd.

14 Oshin Investment & 190 17500 3325000 Financial Ltd. 190 15 Blazer Venture Pvt. 10000 1900000 Ltd. 190 16 Casper 15000 2850000 Entertainment Pvt. Ltd. 190 17 Duke Business Pvt. 17500 3325000 Ltd. 190 18 Grafton Merchant Pvt. 30000 5700000 Ltd. 190 19 Kumar Engg. Co. Pvt. 50000 9500000 Ltd. 190 20 Mahadev Vanjiya Pvt. 25000 4750000 Ltd. 190 21 Matrix Systel Pvt. Ltd. 49500 9405000 190 22 Microchip Infotech 35000 6650000 Pvt. Ltd. 190 23 Neha Cassets Pvt. 35000 6650000 Ltd. 190 24 Octopus Infotell Pvt. 17500 3325000 Ltd. 190 25 Olive Overseas Pvt. 6250 1187500 Ltd. 26 Ostwal Trading 190 5000 950000 (India) Pvt. Ltd. 190 27 Raghunandan 10000 1900000 Rajsons Ltd. 190 28 Traingular Infocam 16250 3087500 Pvt. Ltd. 190 29 Rigma Grapahite 25000 4750000 Investment Pvt. Ltd. Al-Proog Engg. 190 30 Al-Proog Engg. 4250 807500 190 31 Al-Bright Electrical 50000 9500000 Pvt. Ltd. 190 32 Nakshtra Business 27500 5225000 Pvt. Ltd. 190 33 Eternity Multitrade 34500 6555000 Pvt. Ltd. 34 Realgold Trading Co. 190 37500 7125000 190 35 Hema Trading Co. 25000 4750000 Pvt. Ltd. Total 834250 158507500 Total 834250 15,85,07,500 4.1 The Assessing Officer with a view to verify the genuineness, creditworthiness and identity of these 35 entities had issued letter to the assessee on 10th January, 2013 asking the assessee to submit the following seven points: i) Names and Addresses of the shareholders who had purchased shares on premium. ii) Confirmation of these share holders who have purchased shares on premium iii) Copy of income tax returns, copies of balance sheet and statement of bank account of these shareholders which show the above mentioned transactions. iv) The copies of Minute Book, Attendance Register of Annual General Meetings, Dispatch Registers etc. v) The share certificate register and copies of counter files of shares certificates issued by the company to these shareholders. vi) The documentary evidence of justification of determining the premium of Rs.190/- per share. vii) The details of Financial Advisor/ CA who has determined the value of share premium along with the documentary evidence for determining amount of share premium per share.

4.2 Thereafter, the Assessing Officer had also deputed Inspectors to verify the business activities of these 35 companies. The Assessing Officer in Para 5.2 mentioned as follows:

“5.2 To verify the addresses and business activities carried out by these companies, the Inspectors of this office, Shri Mahipal Singh and Shri Bhaskarrao Deore were deputed. They have visited the addresses of these companies on 15.01.2013 which are located at Mumbai. It is found during the enquiry that most of the companies are located at common addresses. One person is looking after 7 to 8 companies. It appears that this person is deputed only for the purpose of receiving letters and other correspondence. There is no infrastructure in the office premises which is normally required for business activity. It appears that no activity has been carried out from these office premises. The Inspectors have also contacted some Directors of these companies. It is noticed that the directors are not aware about the Co and about the financial transactions. The financial transactions have actually been handled by some other person. A copy of this report is annexed herewith as Annexure-A.”

4.3 The Assessing Officer also recorded statement of Managing Director, Shri Nitin Prakash Wagaskar u/s.131 of the Act. The sum and substance of the statement recorded by the Assessing Officer was mentioned in Para 5.4 to the following effect:

“5.4………..His statement revealed that the Managing Director and promoter of the company do not know their shareholder companies. Neither the director nor these shareholders have made any contact after the subscription of share capital. The shareholder companies who have purchased the shares of the assessee at the premium of Rs.190/- per share have not even enquired any details of their investments or any details regarding the business transactions and profitability of the assessee company.”

4.4 The Assessing Officer issued show cause notice to the assessee on 14.02.2013 and in response thereto, the assessee filed detailed reply and the Assessing Officer has considered the reply of the assessee.

4.5 The Assessing Officer had also examined the Auditor who had prepared the valuation report by valuing the share at Rs.200/- and had also discussed the fallacy and contradiction in the report. The Paragraph 6.1 to which deals with the basis of arriving at the share premium of Rs.190/- per share is to the following effect in the assessment order:

“6.12 The Managing Director, Shri Nitin Wagaskar has submitted that the share premium was decided on the basis of valuation done by the Auditor Shri Mukund Kokil. The statement of Shri Mukund Kokil was recorded u/s.131 on 12.02.2013. He was asked to explain the procedure and the basis for deriving share premium price of Rs.190/- share. He has also submitted the details of working done by him which reproduced as under: Prathamesh Ceramics Private Limited Projected Earning Value Method

Year Projected Nos. of EPS PE Price as Profit Shares Per PE Before In Crores (Rs.) Tax Rs. (Rs. in Crores) 2009-10 23.37 0.62 38.00 4.50 171.00 2010-11 25.92 0.62 42.15 4.50 189.66

2011-12 29.02 0.62 47.19 4.50 212.34 2012-13 32.33 0.62 52.57 4.50 236.56 2013-14 34.79 0.62 56.57 4.50 254.56 1,064.12 Average of 5 year 212.82 Rounded Off to say 200

Thus, the valuation of share price of the company is determined at Rs.200/- per share on the basis of projected earning value method. As already stated above this company was incorporated in the FY 2006-07 and has started business activities only in the FY 2012-13. The entire projections done by the Chartered Accountant is without any rationale and without any application of mind. This calculation is done on hypothetical basis and by applying this method on hypothetical basis any one can justify any value of share. How can a company which has started business activities in the FY 2012- 13 only can project its profit of Rs.32.33 Crs in the FY 2012-13. If this projected profit and turnover is compared with the actual transactions of the assessee company then there is no comparison of these projected figures with the actual. The projected profit for the FY 2009-10 was 23.37 Crores whereas the assessee has not started any business activity in the FY 2009- 10. Similarly the projected profits for the FY 2010-11 was 25.97 crs whereas the company has shown loss of Rs.92,86,188/-. There can be some variations in the projected figures with the actual ones but it is not accepted that the projected figures do not match with the actual ones at any stage. This fact establishes that the projected figures are imaginary and hypothetical. The C.A has projected the figures as per his own whims and fancies and without any rational and fundamental basis. The entire exercise has been done deliberately and intentionally to justify the share premium of Rs.190/- per share. This act of the assessee is self serving and intentionally manipulated. If the price of the share is calculated on the basis of actual fundamentals of the Co. the share price will be less than the face value of the shares as the assessee has shown losses. This fact itself proves that the projected earnings and valuation done by the Chartered Accountant is fabricated, misleading and flawed. It appears that the entire exercise of valuation has been done to justify the already determined price of Rs.190/- per share. The assessee in connivance with the Chartered Accountant has intentionally fabricated the facts to justify their action. Thus, share premium of Rs.190/- per share is not justifiable on the basis of any fundamentals of the assessee.”

4.6 After considering the reply of the assessee and the statement recorded u/s.131 of the Act of the Managing Director and of the Auditor, going through the financial and affairs of the company and report of the Inspector deputed for verifying the existence of the company, the Assessing Officer made addition of Rs.8,52,50,000/- for the assessment year 2010-11 to the following effect in Para 13 :

“13. In view of the pointed listed above, it is established beyond doubt that the object was not to attract genuine investors by pegging the premium at unrealistic level but to bring in large amount of unaccounted funds in the guise of share premium. Thus, the entire share capital, share application and share premium shown in the name of the bogus companies is bogus and unexplained. Therefore, the amount of share capital of Rs.42,62,500/- and share premium of Rs.8,09,87,500/- introduced in the current assessment year is treated as unexplained cash credit under section 68 of the I.T. Act and added to the total income. Thus, the total of Rs.8,52,50,000/- is added to the total income. The assessee has furnished inaccurate particulars about his income and concealed his taxable income on these issues. Therefore, I am satisfied that penalty is leviable on these issues and accordingly penalty proceedings u/s.271(1)(c) is initiated.”

5. Feeling aggrieved by the order of the Assessing Officer, the assessee preferred appeal before the Ld. CIT(Appeals) and the Ld. CIT(Appeals) relying on the decision of the Hon’ble Jurisdictional High Court in the matter of CIT Vs. Creative World Telefilms Ltd., (2011) 333 ITR 100 ( Bom.) and the decision of Tribunal in the matter of M/s. Orchid Industries Pvt. Ltd. Vs. DCIT, CC-22, Mumbai, dated 07.02.2014 granted relief to the assessee as per Para 21 and 22 to the following effect:

“21. In the above cited cases, the Bombay High Court, the Tribunals in Mumbai and Pune have followed the Hon’ble Supreme Court decision in the case of CIT Vs. Lovely Exports (P) Ltd. (supra.) which has dealt with the issue of cash credit/share application money and has held as under:- “If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law but it cannot be regarded as undisclosed income of Assessee Company.” After careful consideration of the facts of the present case under appeal and the facts of the above mentioned cases, I am of the considered view that ratio of the said 3 are applicable to the facts of the instant case and therefore, they are to be followed.

Pith and substance of the findings of the Ld. CIT(Appeals) is that on account of findings of the Hon’ble Jurisdictional High Court in the matter of CIT Vs. Creative World Telefilms Ltd. (supra.) and in the case of CIT Vs. Lovely Exports (P) Ltd. (supra. Of the Hon’ble Supreme Court, the assessee was able to establish the obligation as required u/s.68 of the Act and therefore, the Assessing Officer was not justified in making the addition of the share premium received by the assessee..

“11. The principles which emerge where sums of money are credited as Share Capital/Premium are: i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit- worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act.”

7.1 It was further submitted by the Ld. DR that the Assessing Officer in the present case in effect had meticulously examined the financial statements and affairs of the assessee as well as of the investor companies and thereafter had come to the conclusion that these 35 share investing companies are paper companies. It was also submitted that these companies are not doing any business and having common key person namely Praveen Kumar Jain and are also operating from same address in small cubicles. It was submitted by the Ld. DR that assessee was not able to discharge his onus as contemplated u/s.68 of the Act.

7.2 In effect, the Assessing Officer has given a detailed reasoned order while coming to the conclusion that these companies were paper companies and the assessee was not able to discharge his onus. It was also the contentions of the Ld. DR that out of the 35 companies, subject matter challenged before us, 4 companies were common as before the Hon’ble Supreme Court and for that purpose, our attention was drawn at Para 3.3 of the judgment of the Hon’ble Supreme Court in the matter of Principal Commissioner of Income Tax (Central)-1 Vs. NRA Iron & Steel Pvt. Ltd (supra.).

7.3 It was further contended by the Ld. DR that the Assessing Officer at Page 14 had examined the financial statements of the assessee for financial years 2007-08, 2008-09, 2009-10 and 2010-11 and submitted that a bare perusal of the financial statements it was clear that the assessee was not doing any business and turnover was mentioned as Nil for financial years 2007-08, 2008-09 and 2009-10 and turnover was negative for financial year 2010-11 i.e. (-18760884). It was also submitted by the Ld. DR on account of financial statement that net value of the share at the rate of Rs.190/- was grossly inappropriate and not correct and no prudent men will invest in a company which is not functional and which is not doing any business. The Ld. DR also submitted that even valuation report prepared by the Chartered Accountant was not correct and for that purposes our attention was drawn to finding recorded by the Assessing Officer reproduced herein above. The Ld DR has also submitted that the Assessing Officer had examined the Chartered Accountant who had done the valuation of the share and our attention was drawn to page 287 (cross examination of the Chartered Accountant). On the basis of the cross examination it was submitted that the CA was not able to justify the valuation of the share. He had also relied upon the decision of Hon’ble Delhi High Court in the matter of M/s. RDS Projects Ltd. Vs. ACIT, WPC No. 11274/2019 dated 23.10.2019, Vedanta Limited WPC No. 13036/2019 and NDR Promoters (P.) Ltd. [2019] 109 taxmann.com 53 (SC) .

8. Per contra, the Ld. AR of the assessee submitted that the decision of the Hon’ble Supreme Court in the matter of Principal Commissioner of Income Tax (Central)-1 Vs. NRA Iron & Steel Pvt. Ltd (supra.) was not available before the Ld.CIT(Appeals) and therefore, this decision was not dealt with by the Ld. CIT(Appeals). Further, the Ld. AR had sought to distinguish facts of the said case and the ratio laid down by the Hon’ble Supreme Court by filing supplementary synopsis dated 10.04.2019 to the following effect:

“1. Facts related to identity of Investors-Perusal of the above referred recent apex court decision reveals following facts relating to identity aspect – a) There were 19 investor companies who made investment @ Rs. 10 (face value) + Rs.190 (Premium) in the share capital of NRA Iron & Steel P Limited. b) After getting primary information from assessee, AO made enquiries with these 19companies c) Summons were issued to the 19 companies d) 2 investors of Mumbai and 2 investors of Gauhati were non-existent on given address e) 4 investors of Mumbai received summons but did not reply f) 11 investors of Kolkata made submissions in DAK g) (None of the investors appeared, which created doubts...)

2. Facts relating to Credit-worthiness of Investors - Perusal of the Honorable apex court ruling reveals following facts relating to credit- worthiness aspect a) All 11 Kolkata companies submitted information relating to investments in NRA (Para-3.8) b) All 11 Kolkata companies have meagre income, in the range of Rs. NIL to Rs. 50,000whereas, each of the 11 companies invested Rs. 90 lacs / Rs. 95 lacs into the assessee company (Para-3.8) c) Addition made by AO was deleted by CIT(A) considering discharge of primary onus, i.e. confirmations, tax return copies, PAN, bank statement showing investment in assessee through bank, etc. (Para-4) d) But AO's field reports revealed that, the Investor companies lacked credit-worthiness (Para-9) e) Insufficient data hence, onus not discharged (Para-13)

f) If receiver of such credit / amount is a private company, then the degree of onus of substantiation is higher (Para-14) g) Credit-worthiness and genuineness of transaction depends on i. Whether AE parties ii. Whether Investor is ANGEL investor or not iii. Quantum of money invested iv. Credit-worthiness of receiver, ..............and so on [Para-9(vi)] h) Year 2012 section referred to (and not amended section thereafter) [Para-8.1]

4. Ratio - Following points emerge from the Honorable apex court ruling a) Crucial reference made to Kate-Khanis case holding that, once Assessee provides details for Identity-Genuineness-creditworthiness, AO must conduct enquiry, as burden passes to him. But, if Assessee fails to discharge his burden, no further burden on Department (Para - 8.2) b) Crucial reference made to ratio of Lovely Export's case wherein, it was held that Department is duty-bound to investigate into credit-worthiness aspect once primary onus is discharged by the assessee (Para-4) c) Crucial observation w.r.t. Kamdhenu's decision for the proposition that, efforts to fasten racket of bogus investment companies go in vein due to lack of steps by revenue [Para-8.4] d) Crucial observation w.r.t. Mohankala's decision for the proposition that an assessee, despite his explanations are not acceptable to the revenue, can still contend that sums credited in his books is not his income (Para- 9) e) Practice of conversion of unaccounted money through cloak of Share Capital/ Premium must be subjected to careful scrutiny (Para - 14)

suspicious factual matrix of identity aspect and credit-worthiness aspect, there was no any further substantiation on these aspects. The said decision, does not air any negative view vis-a-vis the share premium aspect. Considering the Assessee's failure to explain suspicious facts of compliances, decision was reached finally to the effect that, onus (rather higher onus) remained to be discharged, permitting the AO to drawn an adverse view. As such, it is submitted, the said apex court ruling ought to be confined to it's own peculiar facts. It is reiterated, in the present case, much higher onus is discharged by the appellant and as such, the ratio of Lovely Export's case ought to apply herein, rather than the ratio of the NRA's case as stated above. For M/s Prathamesh Cermaics Private Limited.

8.1 It was further submitted by the Ld. AR that the various Co ordinate Benches in idenctical facts are granting relief to the similarly situated assessee even after the decision of the Hon’ble Supreme Court in the matter Principal Commissioner of Income Tax (Central)-1 Vs. NRA Iron & Steel Pvt. Ltd (supra.) and one chart has been filed mentioning 25 such cases.

8.2 On merits it was submitted that the company invested were having robust financial and economic status and for that our attention was drawn to the following chart:

Sr. Name of Date Source details Source Investment No. amount in PCPL Investor (Rs.) (Rs.) 1 Matrix Systel 21/10/2009 Received from 62,00,000 17,00,000 Pvt. Ltd. 21/10/2009 Natraj Vinimay Pvt. Ltd. Against sale of investment 18/01/2010 Received from 50,00,000 35,00,000 18/01/2010 Grafton Merchant Pvt. Ltd. against sale of investment 08/02/2010 Received from 10,00,000 10,00,000 08/02/2010 Sital Mercantile & Credit Pvt. Ltd. against sale of investment 15/02/2010 37,00,000 37,00,000 15/02/2010 Received from Kripasagar Commercial Pvt. Ltd. towards Share Application 1,59,00,000 99,00,000 money 2 Microchip Intotel Received from 25,00,000 Pvt. Ltd. 19/01/2010 Venkatesh Sales Pvt. Ltd. against sale of investment 19/01/2010 Received from 10,00,000 35,00,000 19/01/2010 High growth Vintrade Pvt. Ltd. against sale of investment 02/02/2010 52,55,000 35,00,000 Received from 03/02/2010 Trimax IT infrastructure & Services Ltd. against sale of investment. 32,00,000 03/02/2010 Received from Chandramukhi Vanjiya Pvt. Ltd. against sake of 1,19,55,000 70,00,000 investment. 3 Octopus Intotel 27/01/2010 Received from 20,00,000 35,00,000 Pvt. Ltd. Matrix Systel Pvt. Ltd. towards Amount not 29/01/2010 share application mentioned money Received from Utkarsh Goods 29/01/2010 Pvt. Ltd. against sale of 20,00,000 35,00,000 investment. 4 Blazer Venture 28/07/2009 Received from 20,00,000 20,00,000 Pvt. Ltd. 28/07/2009 Sital Mercantile & Credit Pvt. Ltd. against sale of investment 20,00,000 20,00,000 5 Kapindra 15/02/2008 Received from 12,00,000 Multitrade Pvt. Realflag Trading Ltd. Co Pvt. Ltd. against sale of 15/02/2008 investment 15/02/2008 38,00,000 50,00,000 Received from Bhuwania Vinimay Pvt. Ltd. against sale of investment 25,00,000 25,00,000 21/04/2008 21/04/2008 Received from Suvidha Securities Pvt Ltd. against sale of 20,00,000 20,00,000 investment 28/07/2009 28/07/2009 Received from Sital mercantile & Credit Pvt. Ltd. against sale of investment 95,00,000 95,00,000 6 Grafton 07/12/2009 Received from 25,00,000 25,00,000 Merchant Pvt. 07/12/2009 Octopus Infotel Ltd. Pvt Ltd. against sale of investment Received from 35,00,000 35,00,000 Highgrowth 22/01/2010 Vintrade Pvt. Ltd. 22/01/2010 against sale of investment 60,00,000 60,00,000 7 Albright 26/03/2010 Received from 9,00,000 Electricals Pvt. Matrix Systel Pvt. Ltd. Ltd. towards 26/03/2010 share application money 30,00,000 Received from 26/03/2010 Meadow Venture 26/03/2010 Pvt. Ltd against sale of investment 12,00,000 50,00,000 Received from 29/03/2010 Highgrowth Vintrade Pvt. Ltd. against sale of 29/03/2010 investment 1,26,00,000 50,00,000 Received from Amritgiri Sales Pvt. Ltd. against sale of investment 1,77,00,000 1,00,00,000

25/03/2010 share application 25/03/2010 money Received from 7,00,000 50,00,000 Crown Commtrade Pvt. Ltd. towards share application money Received from Grafton Merchant Pvt. Ltd. towards share application money 61,00,000 50,00,000 10. Madhav Vanjiya 23/09/2009 Received from 12,00,000 Pvt. Ltd. Manoj Kumar Jaiswal against 24/09/2009 advance 24/09/2009 38,00,000 Received from Matrix Systel Pvt. 50,00,000 Ltd. against sale of investment. 50,00,000 50,00,000 11 Neha Cassettes 29/10/2009 Received from 35,00,000 35,00,000 Pvt. Ltd. 29/10/2009 Natraj Vinimay Pvt. Ltd. towards share application money 01/02/2010 Received from 35,00,000 35,00,000 01/02/2010 Natraj Vinimay Pvt. Ltd. towards share application money 70,00,000 70,00,000 12 Kumaon 05/10/2009 Received from 50,00,000 Engineering Co. 05/10/2009 Deccan Vanjiya Pvt. Ltd. Pvt. Ltd. against 50,00,000 sale of investment. 29/03/2010 50,00,000 29/03/2010 Received from Gulistan Vanjiya 50,00,000 Pvt. Ltd. against sale of investment. 1,00,00,000 50,00,000 8.3 The Ld. AR had concluded that the order of the Assessing Officer is required to be upheld as the assessee has discharged the onus as required u/s.68 of the Act.

“13. As we perceive, there are two sets of judgments and cases, but these judgments and cases proceed on their own facts. In one set of cases, the assessee produced necessary documents/evidence to show and establish identity of the shareholders, bank account from which payment was made, the fact that payments were received thorough banking channels, filed necessary affidavits of the shareholders or confirmations of the directors of the shareholder companies, but thereafter no further inquiries were conducted. The second set of cases are those where there was evidence and material to show that the shareholder company was only a paper company having no source of income, but had made substantial and huge investments in the form of share application money. The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and surrounding circumstances. The primary requirements, which should be satisfied in such cases is, identification of the creditors/shareholder, creditworthiness of creditors/shareholder and genuineness of the transaction. These three requirements have to be tested not superficially but in depth having regard to the human probabilities and normal course of human conduct.”

9.1 The decision of the Hon’ble Delhi High Court was challenged by the assessee in the matter of NDR Promoters Pvt. Ltd. before the Hon’ble Supreme Court. However, the Hon’ble Supreme Court had dismissed the SLP filed by the assessee.

9.2 If we look into the facts of the present case the decision of the Hon’ble Supreme Court (Supra.) in the matter of NRA Iron & Steel and also in the matter of NDR Promoters Pvt. Ltd. were not available to the Ld. CIT(Appeals) for complying and deciding the issue based on the ratio laid down in the said two decisions.

9.3 It may be useful to mention here that the Assessing Officer had also examined in detailed the basis of arriving at the share premium of Rs.190/- per share which was discussed by him in Paragraph 6.12 of the assessment order and had also examined the Auditors on oath.

9.4 From perusal of the order of the Assessing Officer and the statement of the Auditor, we are of the opinion that valuation done by the Auditor of the company was not in accordance with law and is contrary to the facts as no business was carried out by the assessee for F.Y.2009-10 and there was loss in F.Y. 2010-11 and further, business activities of the assessee were commenced in the F.Y.2012-13. The basis of projection given by the Chartered Accountant as reproduced herein above ( Para 6.12 of the AO’s order) should have scientific basis or based industry projection or should be some set of comparables and material available with the Auditor to arrive at the valuation. Nothing has been brought on record by the assessee either before us or before the lower authorities the basis of arriving at the projection by the Auditor.

9.5 The Assessing Officer has mentioned in paras 6.1, 6.1.5, 6.1.2 that the valuation of shares of the company done by the Auditors Shri Mukund Kokil was inappropriate and was not in accordance with facts and for that purpose, he has meticulously examined the basis of the projection used by the said Auditors.

9.6 In the present case, the Auditors have not done the valuation based on any scientific formula or basis. In fact, the assessee was not doing any business upto A.Y. 2009-10 even as per the mega project certificate issued to the assessee by Designated Authority on 18-2-2009 and thereafter only credit facilities were provided by the S.B.I. to the assessee, meaning thereby upto 18-2-2009 there was no business activity of the assessee and the assessee- company was merely a paper company. For setting up of the project clearance certificate was issued on 18-2-2009 by the Industries and Labour Department, Government of Maharashtra. In view of the above, we can safely conclude that the projection made by the Auditors for the assessee was not based on cogent and scientific method as there was no history of business activities upto F.Y.2012-13 . In our opinion, it would be difficult to comprehend and project the value of the shares based on project report only. For the purposes of valuation of shares, the valuation is required to be done on the basis of the book value in the balance sheet of the assessee, liabilities of the assessee, paid up equity shares, capital paid up value on such equity shares. In the present case the valuation was done by the Auditor without any basis on the projections, without there being any clearance of setting up of the project by the Govt. or commencement of industry or the sanction of the credit limit. We are of the opinion that the report of the auditor was without any basis and the observations of the Assessing Officer was correct in rejecting the valuation report.

9.7 Further, we may also point out that the Inspectors were deputed by the Assessing Officer after coming to know about the receipt of shares premium by the assessee, for the purposes of verifying credit worthiness, identity and genuineness of the company. The report was submitted on 4-2-2013 by the Inspector and in the report it was categorically mentioned that these companies were the paper companies and were not having office infra- structure. Various companies were working from the same address with only one peon as their employee. Further, it was also noticed that Mr. Pravin kumar Jain is the key person behind most of these companies as is clear from the report of the Inspector. The report of the Inspector is part and parcel of the assessment order.

In our opinion, the assessee company has not commenced its business activity at the time of preparation of valuation report by the Auditor and subscription of share by 35 companies, as the clearance for mega project was accorded by the Competent Authority on 18-2-2009. It is preposterous and against the human probability that the third party company would buy shares with such huge share premium of a paper company which has no business background and track record, without looking into the assets, business, model and strong fundamentals of the company. All these aspects have been meticulously examined by the Assessing Officer in the assessment order. Ironically the CIT(A) has glossed over the findings recorded by the Assessing Officer. The Ld. CIT(Appeals) had merely decided the appeal on the lines of findings recorded by the Hon’ble Supreme Court in the case of Lovely Exports. We do not concur with the view adopted by the CIT(A) while allowing the appeal of the assessee. No exercise was carried out by the learned CIT(A) to go into the root of the matter and find out the actual business carried out by the assessee and the investing companies and he had also not examined the issues from the prospective of a prudent businessman , i.e. whether the prudent business man would like to invest and buy shares of a paper company having a negative NAV at a premium of Rs.190/- per share or not.

9.8 We have also perused the order of the Ld. CIT(Appeals). In fact, Ld. CIT(Appeals) has not dealt with any of the findings recorded by the Assessing Officer on merit whereby he had brought on record the financial status of these companies, the working of these companies from the same premises through the key person. The Ld. CIT(Appeals) has not discussed anything with respect to the report of the Inspector and operation of these companies being carried out by Shri Praveen Kumar Jain. In fact, the entire focus of the Ld. CIT(Appeals) was on the decision in the matter of CIT v. Lovely Exports Pvt. Ltd. (supra.) and also CIT Vs. Creative World Telefilms Ltd. (supra.).

9.9 IN our view, both these judgments, which were relied upon by the Ld. CIT(Appeals) were discussed and deliberate by the Hon’ble Supreme Court in the matter of Principal Commissioner of Income Tax (Central)-1 Vs. NRA Iron & Steel Pvt. Ltd (supra.) and also in the matter of PCIT Vs. NDR Promoters Pvt. Ltd. dated 17.01.2019 by the Hon’ble Delhi High Court against which appeal filed by the assessee was dismissed by the Hon’ble Supreme Court. Therefore, we are of the opinion that once the Hon’ble Supreme Court in the matter of Principal Commissioner of Income Tax (Central)-1 Vs. NRA Iron & Steel Pvt. Ltd (supra.) has considered and discussed the decision of the Hon’ble Delhi High Court then relief of the Co- ordinate Bench of the Tribunal is of no use. Higher wisdom is required to be given away and the matter should be decided on the basis of the decision of the Hon’ble Supreme Court in the matter of NRA Iron & Steel Pvt. Ltd. 9.10 We also find that the facts of the present case are similar to the case of Principal Commissioner of Income Tax (Central)-1 Vs. NRA Iron & Steel Pvt. Ltd (supra.) as well as PCIT Vs. NDR Promoters Pvt. Ltd. (supra.) as mentioned by the Assessing Officer which were not controverted by the Ld. AR during the course of argument. In fact in the enquiry report submitted by the Inspector, it is clearly mentioned that 11 companies are functioning from the same office. There was a board of Advocate Shri Jagdish Prasad Purohit was displayed outside the Chamber No.105. There were no office activities. Barring one PC and Printer, no files/folders were kept in the office. Further, when the Inspector asked one staff who work for these companies, he told that he alone manages not only these eight companies but also many companies and at present he is the Director of one company i.e. Kumao Engineering Company Ltd and he is the key person in all these companies. It was further reported that the Shri Praveen Kumar Jain is a person behind all these companies.

9.11 Further, we find that after passing the decision of Hon’ble Supreme Court in the matter of Principal Commissioner of Income Tax (Central)-1 Vs. NRA Iron & Steel Pvt. Ltd (supra.), the Hon’ble Delhi High Court relied upon on the said decision in the cases of i) M/s. RDS Project Limited Vs. ACIT WP(C) No.11274/19 dated 23.10.2019 and ii) M/s. Vedanta Limited Vs. ACIT, WP(C) No.13036/2019 dated 20.12.2019. In view of the subsequent decisions by Delhi High Court, in the identical facts, it would be of no use for the Ld. AR to rely upon the findings given by the Co-ordinate Benches by filing chart giving the details of the 25 cases of the Tribunal. It needs no adjudication that once the facts of the case are squarely covered by the Hon’ble High Court or Supreme Court then the said decisions would have the presidency value rather than the decision of the Tribunal.

9.12. In our view, objection pointed out by the Ld. AR of the assessee in support of his contention that the decision of the Hon’ble Supreme Court in the matter of Principal Commissioner of Income Tax (Central)-1 Vs. NRA Iron & Steel Pvt. Ltd. (supra) is held to be distinguished, has no leg to stand as the Hon’ble Delhi High Court in the matter of M/s. Vedanta Limited Vs. ACIT (supra.) and also in the matter of M/s. RDS Project Limited Vs. ACIT (supra.), has categorically relied on the ratio laid down by the Hon’ble Supreme Court in the matter of Principal Commissioner of Income Tax (Central)-1 Vs. NRA Iron & Steel Pvt. Ltd. (supra) and had examined the applicability of NRA Iron and Steel Pvt. Ltd. (supra.).

9.13 As mentioned herein above, the decision of the Ld.CIT(Appeals) was revolving around the applicability of the decisions in the matter of Lovely Exports Pvt. Ltd. Vs. CIT (supra.) and also in the matter of CIT Vs. Creative World Telefilms Ltd. (supra.) which are no more binding decision.

Delhi High Court). The assessee is required to discharge the same. In the light of above, we direct the Ld. CIT(Appeals) to decide the issue afresh after following the law laid down by the Hon’ble Supreme Court (supra.) in Para 11 and also in accordance with the ratio laid down by the Hon’ble Delhi High Court in the matters of M/s. Vedanta Limited Vs. ACIT (supra.) and M/s. RDS Project Limited Vs. ACIT (supra.). The Ld. CIT(Appeals) is also directed to decide the matter expeditiously with a period of six months after providing reasonable opportunity of hearing to the assessee and also to the Assessing Officer, as the case may be. Needless to say, principles of natural justice should be maintained and opportunity of hearing shall be granted to the assessee by the Ld. CIT(Appeals).

Order pronounced on 04th day of February, 2020.

Sd/- Sd/- D. KARUNAKARA RAO LALIET KUMAR ACCOUNTANT MEMBER JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 04th February, 2020. SB आदेश की प्रनिलऱपप अग्रेपषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2.

3. The CIT(Appeals)-2, Nashik.