AKSHAJ MULTITRADE PRIVATE LIMITED,MUMBAI vs. ITO WARD 6(1)(1), MUMBAI

The brief facts of the case are that the assessee, Akshaj Multitrade Pvt. Ltd., filed its return of income for A.Y. 2012-13 on 12.03.2013 declaring total income of ₹411/-. The return was processed under section 143(1) of the Income- tax Act, 1961. Subsequently, the Assessing Officer reopened the assessment under section 147 of the Act on the basis of information received from the Investigation Wing, Kolkata. The information was that the assessee had received ₹75,30,000/- from M/s Sunrise Dealmark Pvt. Ltd., ₹9,00,000/- from M/s

The Investigation Wing had examined the bank accounts and other details of a number of Kolkata based concerns. According to the Investigation Wing, these concerns had common directors had disclosed negligible or no substantial income and were being used for providing accommodation entries. The pattern noticed by the Investigation Wing was that funds would first enter the bank accounts of these concerns from other entities and would thereafter be transferred, either immediately or within a short period, to the accounts of the ultimate beneficiaries. According to the Revenue, such layering of funds was used for giving the appearance of genuine transactions in the form of share capital, share premium, unsecured loans, capital gains or other receipts. In the assessee's case, the Investigation Wing identified the above three companies as the concerns from whose bank accounts the amount of ₹94,30,000/- ultimately reached the assessee.

During the reassessment proceedings, the assessee did not dispute the receipt of ₹94,30,000/-. Its case, however, was entirely different. The assessee explained that buying and selling shares of unlisted companies was one of its regular business activities and that it was holding investments in shares of various unlisted companies amounting to about ₹348 lakhs as on 31.03.2011. According to the assessee, during the year it sold certain shares held in its portfolio to M/s Sunrise Dealmark Pvt. Ltd., M/s Shyam Dealtrade Pvt. Ltd. and M/s Midway Commercial Pvt. Ltd. and the amounts received from these three companies were the sale consideration for those shares. The assessee relied upon ledger accounts and the balance sheets of the purchasing companies and contended that these companies had sufficient net worth to purchase the shares.

The Assessing Officer did not accept this explanation. He relied upon the material received from the Investigation Wing and the movement of funds reflected in the relevant bank accounts. The Assessing Officer referred to instances where amounts were credited in the bank account of M/s Sunrise Dealmark Pvt. Ltd. and substantially corresponding amounts were thereafter transferred to the assessee. Similar movement of funds was noticed in the accounts of M/s Shyam Dealtrade Pvt. Ltd. and M/s Midway Commercial Pvt. Ltd. The Assessing Officer therefore considered the three concerns to be accommodation-entry providers and held that the assessee was the ultimate beneficiary of the funds routed through them. He further observed that the assessee had not furnished sufficient evidence to establish the creditworthiness of the three concerns and the genuineness of the transactions. The Assessing Officer accordingly treated the entire amount of ₹94,30,000/- as unexplained cash credit under section 68 of the Act and assessed the total income at ₹94,30,410/-.

The assessee also took an alternative plea before the Assessing Officer and thereafter before the learned CIT(Appeals). It submitted that even if the Department were to treat the transactions as accommodation-entry transactions or layering of funds, the entire amount of ₹94,30,000/- could not automatically be taxed as its income. According to the assessee, at the highest, only the commission element arising from such activity could be considered for taxation. This plea was without prejudice to its primary contention that the amounts represented genuine consideration for sale of shares held by it.

The assessee carried the matter in appeal before the learned CIT(Appeals). The assessee reiterated that it had sold shares of unlisted companies held as part of its portfolio and the three concerns had purchased such shares from it. It also relied upon the books of account, bank statements, ledger accounts and the financial statements of the parties. The learned CIT(Appeals), however, upheld the addition. He observed that the assessee had failed to prove that the receipt of ₹94,30,000/- were genuine sale proceeds and held that the transactions were part of a mechanism for introducing unaccounted income through accommodation-entry providers.

While sustaining the addition, however, the learned CIT(Appeals) recorded certain facts which require reconsideration. First, he recorded that the assessee had sold shares amounting to ₹94,30,000/- “of the companies namely M/s Sunrise DealmarkPvt. Ltd., M/s Shyam DealtradePvt. Ltd. and M/s Midway Commercial Pvt. Ltd.” The record shows that this is not the assessee's case. The assessee's consistent explanation was that these three companies were the purchasers to whom it had sold shares of other unlisted companies held in its portfolio. The identity of the actual companies whose shares were stated to have been sold is therefore an important factual matter which has not been properly examined.

Secondly, the learned CIT(Appeals) recorded that during the assessment proceedings the Assessing Officer had issued summons under section 131 to the companies with whom the assessee had transacted but no statement could be recorded. This observation also does not appear to be in accordance with the assessment record. The material reproduced in the assessment order shows that the summons under section 131 of the Act were issued by the Investigation Wing, Kolkata during its investigation, before the reassessment proceedings were initiated. The Investigation Wing had issued summons to the principal officers of the concerned Kolkata companies and to Shri Binod Kumar Bihani. The record states that the summons could not be served upon the companies as they were not found at the stated addresses and that Shri Bihani did not respond. There is nothing in the assessment order placed before us to show that the Assessing Officer himself issued those summons under section 131 during the reassessment proceedings.

Thirdly, the learned CIT(Appeals) observed that the assessee had failed to produce the transacting parties before the Assessing Officer. However, the assessment order, as reproduced in the appellate order, does not clearly show that the Assessing Officer had specifically asked the assessee to produce the principal officers or directors of these three companies and the assessee failed to comply with such a direction. This factual aspect also requires verification from the assessment record.

The assessee is in appeal before us against the order passed by the learned CIT(Appeals) dismissing the appeal of the assessee.

There is also delay of 176 days in filing the present appeal. The assessee has filed an application for condonation of delay supported by an affidavit of its Director. The Director has explained that the company had very little business activity, the registered e-mail account was not regularly monitored and there was a death in his family during the relevant period. According to him, he came to know about the disposal of the appeal when the Department contacted him regarding recovery and thereafter took steps to approach the Tribunal. Considering the explanation contained in the affidavit and the fact that the dispute involves a substantial addition which requires examination on facts, we condone the delay and admit the appeal.

We have heard the rival submissions and perused the material available on record.

In our view, the dispute cannot be properly decided without first examining the basic commercial transaction claimed by the assessee. The assessee has submitted that it held a substantial portfolio of shares of unlisted companies and sold some of those shares to the three concerns from whom ₹94,30,000/- was received. On the other hand, the Revenue alleges that no genuine share transaction took place and that the three concerns merely acted as conduits through which funds were layered before reaching the assessee.

The first requirement, therefore, is to identify precisely what shares were sold. Merely showing receipt of money from the three purchasing concerns does not by itself establish that a genuine sale of shares took place. Equally, the mere fact that the Investigation Wing suspected the purchasers to be accommodation- entry providers cannot, without examining the actual shares claimed to have been transferred, conclude the factual enquiry.

We therefore consider it appropriate, in the interest of justice, to restore the matter to the file of the learned CIT(Appeals) for de novo consideration.

The assessee shall furnish before the learned CIT(Appeals) a complete scrip-wise statement of all shares of unlisted companies held by it at the beginning of the year, shares purchased during the year, shares sold during the year and the closing holding. In respect of the shares claimed to have been sold

The assessee shall also furnish the financial statements and details of the principal business and other activities of the companies whose shares were sold. The assessee shall explain the financial worth and commercial basis of those companies and the basis on which the sale price of the shares was arrived at. Where valuation reports or any other material supporting the value of the shares were available at the relevant time, the assessee shall place the same on record. The assessee shall further produce the relevant purchase invoices, sale invoices, share certificates, share-transfer forms, board resolutions, register of investments, ledger accounts, bank statements and other documents showing acquisition, holding and transfer of the shares. The learned CIT(Appeals) may also examine whether the transfer of the shares was duly reflected in the statutory records of the concerned companies and whether the purchasers were subsequently shown as shareholders in their records.

The learned CIT(Appeals) shall also examine the financial statements, bank accounts and business profile of M/s Sunrise Dealmark Pvt. Ltd., M/s Shyam Dealtrade Pvt. Ltd. and M/s Midway Commercial Pvt. Ltd. to see whether they had the financial capacity to purchase the shares and whether there was any commercial reason for making such investments. He shall also examine the source and immediate movement of funds in their bank accounts and confront the assessee with the material relied upon by the Revenue before drawing any adverse inference.

The learned CIT(Appeals) shall also verify from the original assessment and investigation records the correct position regarding the summons under section 131 of the Act. The CIT(Appeals) shall keep in mind that, on the material presently before us, the summons referred to in the assessment order appear to have been issued by the Investigation Wing, Kolkata and not by the Assessing Officer during the reassessment proceedings. He shall also verify whether the Assessing Officer had at any stage specifically directed the assessee to produce the three purchasing companies or their directors and whether there was any failure by the assessee to comply with such a direction.

After examining the above material, the learned CIT(Appeals) shall decide whether the amount of ₹94,30,000/- was genuine consideration for sale of shares held by the assessee or were funds routed through accommodation- entry providers. He shall decide the issue afresh on the basis of the evidence brought on record and in accordance with law after granting reasonable opportunity of hearing to the assessee. We have not expressed any opinion on the merits of the addition.

In the result, the appeal of the assessee is allowed for statistical purposes.

Since the facts and issue for consideration are similar to assessment year 2012-13, the appeal of the assessee for assessment year 2013-14 is also restored to file of CIT(Appeals) for carrying out similar verification as directed in the preceding paragraphs.

In the result, the appeal of the assessee is allowed for statistical purposes.

In the combined result, both the appeals of the assessee is allowed for statistical purposes.