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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI M. BALAGANESH & SHRI SANDEEP SINGH KARHAIL
PER SANDEEP SINGH KARHAIL, J.M.
The present appeal has been filed by the Revenue challenging the impugned order dated 22/12/2017, passed under section 250 of the Income Tax Act, 1961 (‘the Act‟) by the learned Commissioner of Income Tax (Appeals)–50, Mumbai [„learned CIT(A)‟], for the assessment year 2009–10.
ITA No.907/Mum./2018 Revenue’s Appeal – A.Y. 2009–10
In this appeal, the Revenue has raised the following grounds:
“a) Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition of Rs. 11,76,00,000/- made by the Assessing Officer ignoring the fact that the AO has rightly considered statement admitted by Shri Kamal Khetan and Shri Vikash Sankhlech u/s 131 was an credible and admissible evidence in the eyes of law? b) Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition of Rs. 11,76,00,000/- made by the Assessing Officer ignoring the fact that statement made u/s 131 given by Shri Kamal Khetan was retracted after long gap of more than 2 years, making inordinate delay of 2 years, thus deserves to be rejected as the same was an afterthought on the part of the Assessee? 1. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. 2. The appellant craves leave to amend or alter any ground and/or add new grounds which may be necessary.”
The only grievance of the Revenue in its appeal is against the deletion of addition of Rs. 11.76 crore made under section 68 of the Act on account of the share premium received by the assessee.
The brief facts of the case as emanating from the record are: The assessee is a private limited company and is engaged in investment activities Page | 2
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018 and trading in fabrics and cloths. For the year under consideration, the assessee filed its return of income on 01/08/2009, declaring a total loss of Rs. 24,643. The return of income was processed under section 143(1) of the Act. Thereafter, reassessment proceedings under section 147 of the Act were initiated in the case of the assessee based on information received from DIT(I&IC) by the ITO Ward–1(1), Kalyan and ITO Ward–1(3), Kalyan regarding the huge premium received by the assessee. It was alleged that the financial position of the company does not commensurate with the level of high share premium and thus there is a failure on the part of the assessee to disclose true and full facts required for the assessment. Hence, the income of Rs. 11.76 crore which is chargeable to tax has escaped assessment within the meaning of section 147 of the Act. During the reassessment proceedings, the assessee was asked to furnish the name, address, PAN of share applicant. The assessee was also asked to furnish the share allotment certificates, confirmation from the parties to whom shares are allotted and details of bank transaction showing the amount received on account of share allotments. Further, notices under section 133(6) of the Act were issued to various other parties with whom the assessee company has entered into transactions during the relevant year. However, most of these notices were returned by the postal authorities with the remark as ‘left‟ or ‘not known’. Notice under section 133(6) of the Act was also issued to the ICICI Bank to provide the bank account statement of the assessee from 01/04/2008 to 31/03/2015. However, the bank expressed its inability to provide the statement of the aforesaid period on the basis that the account numbers mentioned in the notice are in a
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018 different format than the ICICI Bank account numbers. Further, during the reassessment proceedings, the summons was issued to Mr. Kamal Khaitan, Promoter of Sunteck Group, whose one of the concerns acquired the shareholding of the holding company of 5 sister concerns including the assessee, in the financial year 2011–12, and his statement was recorded. The AO vide order dated 23/12/2014 passed under section 143(3) r/w section 147 of the Act held that the assessee has failed to provide any justification regarding the premium charged by it. The AO further held that the assessee has hardly shown any income in any of its returns and the transactions are not genuine and an organized activity through a maze of transactions and via various intermediaries like the assessee. The AO in support of its conclusion placed reliance upon the statements of Mr. Kamal Khaitan and one Mr. Vikas Sankhlecha, which were recorded during the course of survey under section 133A of the Act in the year 2013. Accordingly, the AO concluded that the assessee has taken accommodation entries and share premium received by the assessee is not genuine. Therefore, the AO by invoking the provisions of section 68 of the Act made the addition of the entire share premium of Rs. 11.76 crore received by the assessee.
In appeal before the learned CIT(A), the assessee challenged the invocation of proceedings under section 147 of the Act as well as the addition made by the AO under section 68 of the Act. The learned CIT(A) vide impugned order dated 22/12/2017, upheld the invocation of jurisdiction under section 147 of the Act in the case of the assessee. Further, on merits, the learned CIT(A) considered the fact that Sunteck Group took over the holding Page | 4
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018 company of 5 subsidiaries including the assessee in the assessment year 2012–13, while the addition made by the AO pertains to the assessment year 2009–10 and the statements of Mr. Kamal Khaitan and Mr. Vikas Sankhlecha, relied upon by the AO, were also recorded during the survey in 2013. Further, the learned CIT(A) observed that the various details filed by the assessee in order to prove the identity and creditworthiness of the investor and the genuineness of the transaction were not doubted by the AO, and no further verification/inquiries were conducted by the AO on the documentation so filed. The learned CIT(A) also noted that the bank statements of the assessee, which are not provided by ICICI Bank, were also furnished by the assessee during the assessment proceedings itself. Accordingly, learned CIT(A) deleted the addition made by the AO under section 68 of the Act in respect of the share premium received by the assessee. The relevant findings of learned CIT(A), in this regard, are as under:
“12.15 It has also been noted that the confessional statements of Shri Kamal Khetan are dated 15.10.2013&16.10.2013. The retraction affidavits are dated 18.10.2013 & 15.11.2013, which are immediately after the survey proceedings carried out u/s 133A of the Act and the statements recorded u/s 131 of the Act of Shri Kamal Khetan. 12.16 A perusal of the various statements of Shri Kamal Khetan, reveals that he has categorically denied any knowledge about the transaction of investments and share capital in the above mentioned five companies, which were taken over through the holding company namely M/s Akshunya Energy Private Limited. Shri Khetan in his statements has admitted that M/S Eskay Infrastructure Pvt. Ltd. had invested a sum of Rs.1 crore in M/s Akshunya Energy Private Limited. Moreover, in the statement he also confirms that as these companies were taken over in the F.Y. 2011-12 relevant to A.Y. 2012- 13, he does not know, as to what has happened in F.Y. 2008-09 relevant to 2009-10, when he was not even the shareholder of these companies. 12.17 A perusal of the various statements and material on record, clearly reveals the fact that all these 5 companies were taken over through M/s Akshunya Energy Private Limited by Shri Kamal Khetan of Sunteck Group in the A.Y. 2012-13. On the contrary, the entire addition u/s 68 of the Act for the Page | 5
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018 share premium has been made by the A.O. in A.Y. 2009-10 based on the above narrated statements of Shri Kamal Khetan & Shri Vikas Sankhlecha, which are with reference to subsequent events falling in A.Y. 2012-13. 12.18 It is pertinent to note that in relation to the current A.Y. 2009-10, Shri Kamal Khetan was in no way connected with any of the 5 companies viz. M/sPali Fabrics Pvt. Ltd., M/s Acro Exports Trade Pvt. Ltd., M/s Amazon Metal Pvt. Ltd., M/s Bell Fabrics Pvt. Ltd.& M/s Gandhar Yarn Pvt. Ltd. It is also a fact that in the A.Y. 2009-10, Shri Kamal Khetan was not connected / related even with the holding company namely, M/s Akshunya Energy Private Limited. Shri Kamal Khetan was neither a shareholder nor a director in the 5 companies or it's holding company in the A.Y. 2009-10. It was only in A.Y. 2012-13 that Shri Kamal Khetan of Sunteck Group has taken over M/s.Akshunya Energy Private Limited through M/s Eskay Infrastructure Private Limited (a concern of Sunteck Group). 12.19 In view of these circumstances, it is factually incorrect to adversely interpret the statements of Shri Kamal Khetan & Shri Vikas Sanklecha, which are not relevant for the current assessment year Le A.Y. 2009-10. It is pertinent to note that neither Shri Kamal Khetan nor Shri Vikas Sanklecha, had any locus standi in AY. 2009-10, in relation to the impugned 5 companies. In fact, in all the statements recorded of Shri Kamal Khetan & Shri Vikas Sanklecha are referring to events, which have happened after the current assessment year under consideration. 12.20 The above observations are further reinforced from the fact that Shri Kamal Khetan has not made any disclosure for the AY. 2009-10, the current assessment year, under consideration. At the cost of repetition, it is stated that Shri Kamal Khetan has made a disclosure of Rs. 47.6 Crore relevant to AY. 2010-11, A.Y. 2012-13 & AY. 2013-14. 12.21 Further, the A.O. has without bringing on record any material evidence held that the impugned 5 companies including the appellant are shell companies. During the course of the appellate proceedings, the appellant has filed the details of these companies downloaded from the site of Ministry of Corporate affairs showing that in the case of all the impugned 5 companies, accounts have been filed till 31.03.2017. Further, the status of all the companies in the ROC Data has been shown as "Active". On the basis of the information supplied by the Appellant, which is in public domain, I have noted that all the 5 companies are still active companies and are filing their returns with ROC on regular basis During the course of the appellate proceedings, it was also argued that none of these companies are shell companies, as their names don't find mention in the list of such companies maintained by SEBI, IT or any other Regulatory authority. 12.22 The Appellant has further submitted that during the course of the re- assessment proceedings, the Assessing Officer had asked the appellant company to furnish name, address. PAN of the persons from whom the share application and premium was received, share allotment certificates, confirmation from the parties to whom share were allotted and Bank statement etc. in order to verify the identity, genuineness and creditworthiness of the investor.
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018 12.23 I have noted that during the course of the assessment proceedings, the appellant has filed various details such as share application form, copy of declaration, Board resolution, Bank statement of investor company, PAN card, Acknowledgement of Return of income, Financial statement of investor company, Form No 2 for Allotment, Bank Statement reflecting the amount received through banking channel, etc in order to prove the identity, genuineness and creditworthiness of the investor. Such details were also filed before the undersigned, during the course of the appellate proceedings. It is a fact that the A.O. has not raised any doubt on any of the voluminous documentary evidence placed on record, by the Appellant. No further verification or enquiries were done by the A.O. on the documentation of shareholders/ investors provided by the Appellant. Thus, the Appellant Company has duly discharged the onus for proving the identity, genuineness and creditworthiness of the various investors. 12.24 As regards the valuation of the shares of the appellant company is concerned, it has been submitted that valuation is a consideration for the investor and not for the Revenue, especially in the light of the fact that the provisions of section 56(2)(viib) were introduced in the statue w.e.f. 01.04.2013 and have not been given retrospective effect. Thus, as per the Appellant, the provisions of section 56(2)(viib) are applicable from the A.Y. 2013-14 and onwards. Accordingly, it has been submitted that the A.O. ought to have considered the law as it was in force during A.Y.2009-10. It has also been emphasized, during the appellate proceedings that even the first proviso appended to section 68 of the Act, which requires the investor also, to satisfactory explain the nature and source of the credits was inserted w.e.f. 01.04.2013 i.e. from A.Y. 2013-14 and hence the same is not applicable for the present assessment year, viz. A.Y. 2009-10. 12.25 As regards the notices issued under section 133(6) of the Act are concerned, the Appellant Company has stated that due to time lag certain person's might have left the place and for this no responsibility can be fastened on the appellant. It has been stated that the appellant has furnished the following details to the A.O., regarding the receipt of share premium:- 1. Share application form 2. Copy of declaration 3. Board resolution 4. Bank statement of investor company 5. PAN card 6. Acknowledgement of Return of income 7. Financial statement of investor company 8. Form No 2 for Allotment 9. Bank Statement reflecting the amount received through banking channel 12.26 The appellant company has contended that by furnishing the above mentioned details regarding the investors, the appellant has duly discharged the initial onus cast on it. After this stage, the onus shifts on the A.O. to show as to how the explanation furnished by appellant is not satisfactory in his opinion. In this regard, the appellant has also relied on the judgment of jurisdictional High Court of Bombay in the case of CIT vs. Gagandeep Infrastructure Pvt. Ltd, 394 ITR 680, the relevant portion of which is reproduced hereunder:- Page | 7
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018
"Proviso to section 68 introduced by Finance Act 2012 with effect from 1-4-2013, would not have retrospective effect. Where assessee-company had established identity, genuineness and capacity of shareholders who had subscribed to its shares, Assessing Officer was not justified in adding amount of share capital subscription as unexplained credit. Where revenue urged that assessee had received share application money from bogus shareholders, it was for Income-tax Officers to proceed by reopening assessment of such shareholders and assessing them to tax in accordance with law and it did not entitle revenue to add same to assessee's income as unexplained cash credit." 12.27 The Appellant company has also relied upon the decision of Apex Court in the case of Lovely Exports Pvt. Ltd., 216 CTR 195, wherein it was held as under:- "The assessee had received certain amounts from various persons as share application money. No addition on account unexplained cash credits could be made to its income in the absence of any evidence to suggest that the subscribers were benamidars or any part of the share capital represented the assessee's own income from undisclosed sources, as the assessee had furnished relevant details of the subscribers and the shares were allotted as per the rules of stock exchange." 12.28 Apart from the above two decisions, the Appellant Company has also relied on many other decisions in support of its contention that no such addition could have been made by the assessing officer in the light of the fact that statue was amended with the proviso appended to section 68 w.e.f. A.Y.2013- 14 and it was not a retrospective amendment. 12.29 Another objection of the A.O. contained in the assessment order is that the bank of the appellant company has failed to provide the bank statement of the appellant company, which was requisitioned under section 133(6) of the Act. As far as the issue of bank statement is concerned, the appellant company has supplied the same to the A.O., during the course of assessment proceedings, itself. In fact the A.O. has made observations in the assessment order based on the bank statements provided by the appellant company. Hence, no adverse inference can be drawn by the A.O. on this issue. 12.30 The A.O. has erred in relying on the statements of Shri Kamal Khetan & Shri Vikas Sanklecha for making addition on account of share premium u/s 68 of the Act, for the current year under consideration. The A.O. has failed to appreciate that the statements of Shri Kamal Khetan & Shri Vikas Sanklecha relate to events, which have happened subsequent to the current assessment year under consideration. The A.O. has also ignored the fact that Shri Kamal Khetan has not made any disclosure of income for the current assessment year under consideration, in any of his statements recorded by the Department. In his statements recorded by the Department, Shri Kamal Khetan has stated that he is unaware about the introduction of the share premium, as it was handled by the old management. Even the statement recorded of Shri Vikas Sanklecha refers to events, which have happened in the subsequent assessment years. Thus, the reliance of the A.O. on the statements of Shri Kamal Khetan & Shri Vikas Sanklecha for making the addition in the current year under consideration, is misplaced and contrary to material facts on record.
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018
12.31 In fact, for making a case of addition u/s 68 of the Act for the current year under consideration, the A.O. should have examined & rebutted the voluminous details of shareholders furnished by the Appellant Company, during the course of the assessment proceedings. The A.O. has not placed any adverse material on record in relation to the actual shareholders, who have paid the share premium to the appellant company and instead erroneously relied on a subsequent change in shareholding in A.Y. 2012-13, of a holding company, namely M/s Akshunya Energy Private Limited. 12.32 I have also taken note of the fact that on similar facts and circumstances, my Ld. Predecessor CIT(A)-50, Mumbai has in a connected case of M/s Prime Developers for A.Y. 2012-13 in Appeal No. CIT(A) 50/IT- 186/2015-16, vide order dated 24.02.2017 deleted the addition made on the basis of statement of Shri Paras Porwal & Shri Vikas Sanklecha. In the present appeal at hand, instead of Shri Paras Porwal of "Om Shanti Group", Shri Kamal Khetan of "Sunteck Group" is involved. My Ld. Predecessor CIT(A)-50, Mumbai has deleted the addition in the case of M/s Prime Developers for A.Y. 2012-13 by holding as under:- "6.1 In the course of the appeal proceedings, the AR of the appellant submitted that the addition not sustainable for the following reasons: Statement of third party cannot be reasons for addition. Ld. A.O, did not investigate independently and he did make Inquiry. There was not cross verification with Paras Porwal. Ld. A.O. made addition without bringing material on records which is bad in law. Mr Paras Porwal was not partner and employee of this firm and hence the addition is bad in laws. There should sufficient and adequate material on records for making any addition. During the assessment year there was not purchases and sales of property and assessee profit & Loss account shows very clearly that there was not deal in immovable property during the year. The statement given by Paras Porwal is retreated by him on 26 July 2013 and he said retraction confirmed on 29-04-2014 vide affidavit. The Ld. A.O did not bring any calculation and supporting evidences on records that how to derived this amount and how to earn this income from assessee. Addition made on a statement which was retreated by party cannot concluded as reliable evidences. 6.2 I have gone through the assessment order and the submissions of the appellant. I find that the addition of Rs. 28,60,00,000/- was made solely on the basis of the statement of Shri Paras Porwal. The appellant has contested the addition on the ground that Shri Paras Porwal is not connected with the firm (appellant). As per the appellant, Shri Paras Parwal has no locus standi as far as the affairs of the appellant is concerned. The Assessing Officer on the other hand claimed that appellant is part of, what the AO called, the Om Shanti Group. The AO further contended that Shri Paras Porwal is CMD of "Om Shanti Group" and therefore, this statement made by Shri Paras Porwal was binding on the appellant. 6.3 The contention of the Assessing Officer is grossly wrong. The Income Tax Act does not recognise the concept of Group. Therefore, the contention of the AC that the appellant belongs to the Om Shanti Group is not a valid ground for making the addition. Consequently, the contention of the AO that this statement of Shri Paras Porwal is binding on the appellant is without any basis whatsoever. I agree with Page | 9
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018 the contention of the appellant that Shri Paras Porwal has no locus standi as far as it (the appellant) is concerned and, therefore, the addition made on the basis of the statement of Shri Paras Porwal is not sustainable. I, therefore, delete the addition of Rs. 28,60,00,000/- made by the AO. In the result, the first ground of appeal is allowed." 12.33 In view of the facts and circumstances, discussed in details in the above paras & in the light of various judicial pronouncements and following the order of my Ld. Predecessor CIT(A)-50, this ground of appeal of the appellant company is allowed. In the result, the Ground of Appeal No. 2 of the present appeal is allowed.”
Being aggrieved by the deletion of addition, the Revenue is in appeal before us. While, by way of cross-objection, the assessee has challenged the findings of learned CIT(A) affirming the invocation of jurisdiction under section 147 of the Act.
During the hearing, the learned Departmental Representative (‘learned DR’) vehemently relying upon the assessment order submitted that the assessee issued shares at a premium of Rs 470 per share, during the year under consideration. By referring to the assessment order, the learned DR submitted that the assessee neither has any reserve and surplus except the amount of share application and share premium received nor has debtors/creditors. Further, there is no financial or business activity carried out by the assessee during the year under consideration. The learned DR submitted that the notices issued under section 133(6) of the Act were also returned unserved and the ICICI Bank, with which the assessee had an account, expressed its inability to provide the bank statement. The learned DR referred to the statements recorded during the survey under section 133A on 15/10/2013, on the Sunteck Group of companies. The learned DR also placed
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018 reliance upon the decision of the coordinate bench of the Tribunal in DCIT vs Leena Power Tech Engineers Private Limited, in ITA No. 1313/Mum/2020.
On the other hand, the learned Authorised Representative (‘learned AR’) submitted that the assessee submitted all the documents in order to justify the identity and creditworthiness of the investor and the genuineness of the transaction, which were not doubted by the AO. Learned AR also submitted that in this year no income was offered for taxation, however in the financial years 2011–12 and 2012–13 income earned by the assessee was offered to tax. Further, the AO did not grant the opportunity to cross-examine the person on whose statement reliance was placed by the AO. The learned AR also submitted that the assessee has submitted the bank statement which was also acknowledged by the AO. Learned AR submitted that in the case of sister concerns similar addition based on a similar statement has been deleted by the coordinate bench of the Tribunal.
We have considered the rival submissions and perused the material available on record. Pursuant to the survey conducted under section 133A on the Sunteck Group of companies, the case of the assessee was centralised with DCIT, Central Circle, Mumbai. On the basis of information received from the office of DIT(I&CI) that a huge share payment has been received by the assessee, reassessment proceedings under section 147 of the Act were initiated in the case of the assessee. In the reasons recorded for reopening the assessment, it was noted that during the year, the assessee has issued 2,50,000 equity shares at a face value of Rs. 10 per share with a premium of
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018 Rs. 470 per share and the assessee does not have any other reserve and surplus available nor any debtors, creditors, or any fixed asset. Accordingly, it was alleged that the financial position of the company does not commensurate with the level of high share premium and thus there is a failure on the part of the assessee to disclose true and full facts required for the assessment. The reasons recorded, while reopening the assessment, are as under:
“In this case information was received from the office of the DIT(I&CI) by the ITO Ward -1(1), Kalyan and ITO Ward-1(3) Kalyan regarding the huge premium received by the assessee company. As the case were subsequently centralized with the DCIT-CC- 8(4), Mumbai after the survey conducted on the Sunteck group of companies, the information was forwarded to this office. As per the data forwarded it was noted that the assessee company has received huge share premium of Rs. 11,76,00,000/- during the F.Y. 2008-09 relevant to A.Y. 2009-10. The details of share premium received by the companies as per the data provided by the (I&CI) is tabulated as follows: M/s Gandhar Yarn Pvt. Ltd. - AADCG4021F - Rs. 11,76,00,000/-. On perusal of Balance Sheet as on 31.03.2009 it was noticed that during the year under consideration assessee has shown "Issued, Subscribed and paid-up" share capital of Rs. 25,00,000/-, During the year the assessee had issued 2,50,000 equity shares at a face value of Rs. 10 per share with a premium of Rs. 470/- per share. Further the assessee does not have any reserve and surplus available except the amount of share application and the share premium received. As per the Balance Sheet for A.Y. 2009-10, there are neither debtors nor creditors to the company. Further There is no financial or business activities carried out by the assessee during the year under consideration. The company does not have any Fixed" Assets. However, it has shown an investment of Rs. 12,00,60,000/- in the year under consideration which is made from share premium received. On perusal of the balance sheet it is found that the company has shown a reserve and surplus of Rs. 12,00,60,000/- which is completely because of the high share premium received during the year. The position of reserve during the previous year was zero. Thus the company has only source of income is of the high share premium for the share investment made by the company in the current year. Thus the company does not have commensurate financial position for receiving such a high share premium on shares. As the profit and Loss accounts the company has a current year loss of Rs. 24,643/–. On the basis of the assets and liabilities furnished by the assessee company in its Balance Sheet and computing the net worth of the company comes to less than Rs. 50,000/-. Thus per share valuation of the assessee company comes to 26-27 paise only. Hence the financial position of the company does not commensurate with level of high share premium. Hence there is failure on the part of the Assessee to disclose true and full facts required for the purpose for Page | 12
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018 the Assessment. Hence, I have reasons to believe that income of Rs. 11,76,00,000/- chargeable to tax has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961 in the hands of the assessee……”
During the course of assessment proceedings, notices under section 133(6) of the Act were sent to various other parties with whom the assessee has entered into transactions during the year under consideration. Further, the bank statement of the assessee for the period of 01/04/2008 to 31/03/2015 was sought from ICICI Bank Ltd., however, the bank expressed its inability to provide the same. In this regard, it is pertinent to note that the assessee’s account was maintained with Bank of Rajasthan, which was subsequently taken over by the ICICI Bank. In its reply to the notice issued under section 133(6) of the Act, forming part of the assessment order, the ICICI Bank expressed its inability to provide the bank statements only on the basis that the account numbers mentioned in the notice are in a different format. Further, the AO placed reliance upon the statements of Mr. Kamal Khaitan and Mr. Vikas Sankhlecha recorded during the course of survey under section 133A of the Act in the year 2013. The AO also referred to the financials of the assessee to emphasise on the point that the assessee has shown a loss of Rs. 24,643, and apart from the share capital and share premium received there is no reserve and surplus available. Further, the assessee has no financial or business activities during the year under consideration. The AO also alleged that all the transactions are not genuine and are calibrated transactions made through a maze of transactions via various intermediaries like the assessee. The AO also alleged that the assessee simply facilitates the transactions through entries for the benefit of ultimate beneficiaries and there are various
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018 links in the circuitous transactions having many layers of transactions through various intermediaries.
In the present case, it is undisputed that the assessee was incorporated on 05/03/2009. The aforesaid facts are important to take note of because much has been said by the AO regarding the financial position of the assessee for the year under consideration, which is the first year of operation. During the year under consideration, the assessee company issued 2,40,000 shares at a face value of Rs. 10 with a premium of Rs. 490 only. As a result, the assessee received total share capital of Rs 24 lakh and a share premium of Rs 11.76 crore. Based on the statement recorded during the course of the survey under section 133A of the Act in the year 2013, it was alleged that the following companies including the assessee, controlled by Sunteck Group, are engaged in issuing accommodation entries and none of the transactions entered into by these entities are genuine:
(a) Acro Exports Pvt Ltd. (b) Amazon Metals Pvt. Ltd. (c) Bell Fabrics Pvt. Ltd. (d) Ghandhar Yarn Pvt. Ltd. (e) Pali Fabrics Pvt. Ltd.
It is pertinent to note that in its statement recorded under section 131, Mr. Kamal Khetan, Promoter of Sunteck group, submitted that the holding company of the aforesaid subsidiaries i.e. M/s Akshunya Energy Pvt. Ltd. was acquired by M/s Eskay Infrastructure Development Pvt. Ltd., which is part of Sunteck Group of companies, in the financial year 2011–12. Further, it was submitted that all the transactions related to investments and share capital Page | 14
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018 were handled by the old management. The AO completely disregarded the statement recorded under section 131 of the Act, during the course of reassessment proceedings, and placed reliance upon the statement recorded during the course of survey under section 133A in the year 2013 on Sunteck Group of companies. In this regard, it is pertinent to note that the Revenue has not denied the fact that the statements recorded during the aforesaid survey were immediately retracted. It is also not the claim of the Revenue that the aforesaid subsidiary companies, prior to their acquisition, were in any way controlled by or related to Sunteck Group of companies. In any case, the subsequent change in shareholding in the financial year 2011–12 of the holding company of aforesaid subsidiary companies including the assessee and statement recorded during the course of survey in 2013 cannot have any relevance for the year under consideration. Further, from the party-wise details of shareholding of the assessee, forming part of the paper book on page 1, we find that out of the aforesaid 4 subsidiary companies only Pali Fabrics Pvt. Ltd. and Acro Exports Trade Private Ltd, had invested in shares of the assessee in the year under consideration. Apart from these 2 companies, 12 other shareholders had subscribed to shares of the assessee and paid the share premium at Rs 490 per share. From the record, it is evident that in respect of no other shareholder the AO has doubted the genuineness of the transaction, despite the fact that the assessee charged a similar share premium at Rs 490 per share from these shareholders.
As regards the identity and creditworthiness of the investors and genuineness of the transaction, though, the notices issued under section Page | 15
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018 133(6) were returned unserved, the assessee submitted the details such as share application form, copy of the declaration, board resolution, bank statement of investor company, PAN card, acknowledgment of return of income, financial statement of investor company, form No.2 for allotment and bank statement reflecting the amount received through banking channel. The aforesaid fact has neither been denied by the Revenue nor has anything been brought on record to negate the aforesaid claim. There is also nothing on record to show that after receipt of the aforesaid information the AO has raised any doubt regarding the aforesaid information. Further, it is also evident from the record that the non-service of notice under section 133(6) was not confronted to the assessee.
It is pertinent to note that though on one hand, the AO has raised doubts regarding the high share premium charged by the assessee and accordingly made the addition under section 68 of the Act of the entire amount of Rs 11.76 crores received by the assessee as share premium. On the other hand, the AO has accepted the face value of shares issued by the assessee and has made no addition in this regard. Thus, the AO doubted one limb of the transaction while accepting the other limb.
We find that in case of other subsidiary companies i.e. in DCIT vs Acro Exports Trade Private Limited and DCIT vs Amazon Metals Private Limited, in ITA No. 903 and 905/Mum/2019, vide order dated 28/08/2019 for the assessment year 2009–10, while dealing with similar addition made on basis of similar allegations and statements recorded during the course of the survey in
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018 case of Sunteck Group of companies, the coordinate bench of Tribunal decided the issue in favour of taxpayer by observing as under:
“13. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The facts borne out from record are that the assessee and other four companies are subsidiaries of M/s Akshunya Energy Pvt. Ltd,. In the F.Y. 2008-09 relevant A.Y.2009-10, the assessee had issued 2,00,000 equity shares at a premium of Rs. 490/- per share, amounting to Rs. 9,80,00,000/-. The holding company namely M/s Akshunya Energy Pvt.Ltd. was later on taken over by M/s Eskay infrastructure Development Pvt.Ltd., a Sunteck group company. On 15/10/2013 a survey u/s 133A of the I.T.Act, 1961 was conducted in Sunteck group of companies. During the course of survey, statement u/s 131 of the I.T.Act, 1961 was recorded from shri Kamal khetan, the main promoter of Sunteck group of company. In the statement, shri Kamal khetan, while replying to question No. 18 he had offered an amount of Rs. 46.6 crores as unaccounted income, in the name of five companies towards share capital and share premium received for the year under consideration. In the above statement, he further stated that his group concern M/s Eskay Infrastructure Development Pvt.Ltd. had acquired a controlling interest in M/s Akshunya Energy Pvt.Ltd. by investing a sum of Rs. 1 crore, as additional capital in the company, which has made him 99% owner of the company. Another statement of Shri Kamal Khetan was recorded on 16/10/2013. In response to question No.10, he confirmed that one of his group company M/s Eskay Infrastructure development Pvt.Ltd. had acquired holding company of five companies namely M/s Akshunya Energy Pvt.Ltd for a consideration of Rs. 1 crore. During the course of assessment proceedings, another statement of shri Kamal Khetan was recorded u/s 131 of the I.T.Act, 1961 on 08/11/2016. In the said statement, while replying to question No.9, he had denied any knowledge about all the transactions of investments and share capital in the above mentioned five companies. He, further stated that transactions of investments and share capital were handled by the old management and hence, he was not in a position to offer any comments on the admission made by the old management, in respect of share capital and share premium. In the said statement, in reply to question No.11, shri Kamal Khetan, once again stated that he was unaware as to the basis on which, shri Vikas Sankhlecha has stated that these five companies are Shell Company. He had also asked for cross-examination of shri Vikas Sankhlecha for the facts mentioned in his statement. 14. The Ld. AO has made additions towards share capital and share premium, on the ground that although, the assesee has filed various details to prove identity, genuineness of transactions and creditworthiness of the parties but, on perusal of details filed by the assessee, it was noticed that the assessee has failed to establish transactions between the parties are genuine in nature and also the subscriber to the share capital are having capacity to explain huge investments in assessee company. According to the AO, mere furnishing confirmation letters from the parties along with their PAN Number and ITR acknowledgement is not sufficient enough to discharge ,the onus cast upon u/s 68 of the I.T.Act, 1961 and what is relevant is to discharge the true identity of the investors. Although, the assessee has filed certain documents, including PAN number and ITR acknowledgement and financial statements along with Page | 17
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018 bank statement of subscribers, but when, it comes to genuineness of transactions and creditworthiness of the parties, except filing financial statements, no other evidences has been filed to prove that share capital received from subscribers is genuine in nature, which is supported by necessary evidences. The AO has also taken support from the findings recorded, during the course of survey and statement recorded from certain persons, including shri Kamal Khetan and shri Vikas Sanklecha to come to the conclusion that the assessee has entered into an arranged transactions with certain companies, in order to convert its own unaccounted income in the form of share capital, which is evident from the fact that the assessee has issued share capital with a huge premium of Rs. 480 per share, even though, the financial of those companies is not supporting such a huge valuation. Further, the AO has taken support from the admission of shri Kamal Khetan, during the course of survey where, he had admitted that share capital, including premium received for the year under consideration is an unexplained credit and accordingly, the same has been offered to tax. 15. The provision of section 68 of the Income Tax Act, 1961 deals with a cases, where any sum found credited in the books of accounts of an assesee, in any previous year, for which the assesee offered no explanation about the nature and source, thereof or the explanations offered by the assessee, in the opinion of the AO is not satisfactory, then sum so found credited may be charged to income tax, as income of the assesse of that previous year. In order to fix any credit within the ambit of section 68 of the I.T Act, 1961, the AO has to examine three ingredients ie., identity, genuineness of transactions and creditworthiness of the parties. In this factual and legal background, if you examine, the present case in the light of various evidences filed by the assessee, in order to prove credit found in the form of share capital and share premium, one has to see, whether the assessee has discharged its initial onus cast upon u/s 68 of the I.T. Act, 1961 or not. In this case, the assesee has filed various details, including share application form, copy of declaration, board resolution, bank statement of Investor Company, PAN card, acknowledgment of return of income, financial statement of Investor Company, form No. 2 for allotment of equity shares and bank statement reflecting, the amount received through banking channels. Once, the assessee has discharged its initial onus by filing various details, then the onus shift to the AO to carry out further verification, in the light of evidences filed by the assessee to ascertain true nature of transactions between the parties before, he come to the conclusion that the transactions between the parties are genuine or not. In this case although, the AO has issued 133(6) notices to the parties, no further enquiry has been conducted, including issue of summons u/s 131. No doubt, none of the investors companies have responded to 133(6) notices issued by the AO, but fact of the matter is when, assessee has filed complete set of documents, including name and address of the parties, it is for the AO to carry out further investigation by exercising all possible options available to him, but non attendance of parties in response to 133(6) cannot be attributed to the assessee, because due to time lag certain persons might have left the place and for this no responsibility can be fastened upon the assessee. In this case, the assessee done what best it could do and filed, whatever information available with it, in order to satisfy the AO. In case, the AO is not satisfied with documents furnished by the assessee, then he is free to carry out his own investigations by exercising powers conferred u/s 131 or u/s 133(6) of the I.T. Act, 1961. In this case, the AO, except issue of 133(6) notices nothing has Page | 18
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018 been done to find out, the nature of transactions between the parties. Therefore, we are of the considered view that when, assessee has filed complete details to prove identity, genuineness of transactions and creditworthiness of the parties, then there is no reason for the AO to came to the conclusion that share capital and share premium is unexplained only for the reason that during the survey proceedings, the director of the company had admitted that those five companies are shell companies ignoring the fact that such admission has been retracted by filing affidavit along with letter explaining reasons fro such admission during survey proceedings. Further, additions made by the AO cannot be sustained even on this count ,because the AO has relied upon statement of shri Vikas Sankhlecha, the erstwhile director of those five companies to make additions towards share capital, but when ,shri Kamal Khetan, the present director of the assessee company asked for copies of statement of shri Vikas Sankhlecha and also opportunity for cross examination of shri Vikas Sankhlecha, the AO has denied, the opportunity of cross examination and also not furnished copies of statement recorded from shri Vikas Sankhlecha. It is a settled position of law that once, any third party information/statements is relied upon to make additions, it is the obligation of the AO to provide copies of such statements/information and also to provide an opportunity of cross examination of the person, who gave the statement, when such opportunity has been availed by the person against whom, such statements are used. This legal proposition is supported by the decision of Hon‟ble Supreme Court in the case of Kishanchand Chellaram vs CIT 1980 125 ITR 713 (SC), where it was held that when, third party information is relied upon to draw an adverse inference against the assessee, the same needs to be provided and also opportunity of cross examination shall be given, if such opportunity is availed by the assessee. The Hon‟ble Supreme Court in the case of Andaman Timber Industries Ltd Vs CCE, Kolkata II in Appeal No 4228 of 2006 has vide order dated 02.09.2015 had also upheld a similar legal position and held that not allowing the assessee to cross-examine the witnesses by the adjudicating the authority, though the statements and those witnesses were made the basis of the impugned order is a serious flaw, which makes the order nullity in, as much as, it amount to violation of principle of natural justice, because of which, the assessee was adversely affected. Therefore, on this count also the additions made by the AO cannot be sustained. 16. Coming to the other aspect of the issue, the AO has invoked the provisions of section 56(2)(viib) of the I.T. Act, 1961. We find that the said provision has been inserted by Finance Act, 2012 w.e.f 10.04.2013, where it provides that where a closely held company issues its shares at a price which is more than its fair market value, then amount received in excess of fair market value will be charged to tax in the hands of the company as income from other sources. We, further noted that the provisions of section 56(2)(viib) was inserted by Finance Act, 2012 w.e.f. 1.04.2013 is applicable from A.Y. 2013-14 onwards. In fact, a similar amendment has been made in section 68 by insertion of a proviso by the Finance At 2012 w.e.f. 01.04.2013 as per which the assessee company (not being a company in which public are substantially interested) and sums 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 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 such explanation in the opinion of the AO aforesaid has been Page | 19
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018 found to be satisfactory. On perusal of amendments brought out by Finance Act 2012, w.e.f. 01.04.2013 to the provisions of section 56(2)(viib) and section 68 of the Act, it is very clear that where the assessee has issued shares at premium and also received share capital and if such company do not offer any explanation about the nature and source, then sum so received may be regarded as income of the assessee from undisclosed sources. In other words, the purpose of insertion of proviso is to examine the source of investment by subscriber to the share capital. This amendment has been examined by the Hon‟ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure (P) Ltd. (2017) 394 ITR 680, where the court observed that proviso inserted to section 68 w.e.f. 01.04.2013 is considered to be prospective in nature and is applicable from A.Y. 2013-14 onwards. From the above, it is very clear that similar amendment has been made to provisions of section 56(2) by insertion of clause (viib) so as to bring share premium within the ambit of section 56(2) of the I.T Act, 1961. Since, the proviso inserted to section 68 is considered to be prospective in nature, obviously sub clause (viib) inserted to section 56(2) is also considered to be prospective and cannot be applied to the assessment year in question. Even otherwise, assuming for a moment above provisions are applicable for the year under consideration, in order to apply said amended provisions, the AO has to prove that the assessee has not proved capacity of the investors and also not offered any justification for issue of shares at premium. In this case, from the facts on record, it is clear that the assessee has proved identity and genuineness of the transactions by filing necessary evidences. The assessee has filed valuation report from registered valuer as per which the share price of the company is over and above premium charged by the assessee. Therefore, we are of the considered view that provisions of section 56(2)(viib) has no application. 17. ……. 18. ……. 19. ……. 20. In this view of the matter and considering the facts and circumstances of this case and also taking into consideration various case laws as discussed hereinabove, we are of the considered view that the assessee has discharged its initial onus to prove identity, genuineness of transactions and creditworthiness of the parties by filing various documents. The AO, without carrying out further inquiries in order to ascertain the claim of the assessee, jumped into conclusion on the basis of financial statements of the subscribers that none of them had enough source of income to establish creditworthiness. Therefore, we are of the view that the AO was erred in making additions towards share capital u/s 68 of the Income Tax Act, 1961. The learned CIT(A) after considering relevant facts and also by relied upon various case laws has rightly deleted additions made by the AO towards share capital u/s 68 of the Income Tax Act, 1961. Hence, we are inclined to uphold order of the ld. CIT(A) and direct the AO to delete the additions made towards share capital u/s. 68 of the Act.”
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018 15. Similar findings were also rendered by the coordinate bench of Tribunal in case of another subsidiary in DCIT vs Pali Fabrics Private Limited, in ITA No. 904/Mum./ 2018, vide order dated 28/08/2019 for assessment and 2009–10.
As regards the reliance placed by the learned DR on the decision in the case of Leena Power Tech Engineers Private Limited (supra), we find that the coordinate bench of the Tribunal emphasized the onus on the assessee to prove the genuineness of the transaction. Further, the company from which the assessee, in the aforesaid case, has received share application money had no connection at all with the assessee. The various levels through which the money was transferred and invested in the assessee company were also found in the aforesaid decision. However, in the present case, apart from making bald allegations, the AO neither substantiate the same with any material available on record nor doubted various details filed by the assessee to prove the genuineness of the transaction. It is reiterated that in the present case share capital received by the assessee has been accepted and the AO has not doubted the genuineness of the transaction with non-subsidiary companies from whom a similar share premium was charged by the assessee. Thus, the decision relied upon by the learned DR is factually distinguishable.
Therefore, in view of our aforesaid findings and also respectfully following the decisions of the coordinate bench of the Tribunal rendered in the case of sister concerns, wherein similar peculiar facts of the case were involved, we find no infirmity in the impugned order passed by the learned CIT(A). As a result, the grounds raised by the Revenue are dismissed.
M/s. Gandhar Yarn Pvt. Ltd. ITA No.907/Mum./2018 18. In the result, the appeal by the Revenue is dismissed.
Cross Objection no.78/Mum./2019 – Assessee (Arising out of Revenue’s Appeal being ITA No.907/Mum./2018 – A.Y. 2009–10)
As we have dismissed the appeal filed by the Revenue, the cross- objection filed by the assessee challenging the invocation of jurisdiction under section 147 of the Act becomes infructuous and is accordingly dismissed.
In the result, the cross-objection by the assessee is dismissed as infructuous.
To sum up, the appeal by the Revenue and cross objection by the assessee are dismissed. Order pronounced in the open Court on 07/11/2022
Sd/- Sd/- M. BALAGANESH SANDEEP SINGH KARHAIL ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 07/11/2022 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai