SHIVAM SECURITIES P.LTD,NEW DELHI vs. DCIT, CIRCLE-23(2), NEW DELHI

ORDER Per Shri A. T. Varkey, JM:

This is an appeal preferred by the assessee against the order of the Ld. CIT(A)-30, New Delhi dated 26.11.2018 for AY 2014-15.

2. At the outset the Ld. A.R of the assessee Shri Soumitra Choudhury drew our attention to the Ld. CIT(A)’s impugned order and pointed out that out of total 34 pages order upto page no. 33 are reproduction of the certain selected parts of the assessment order and Ld. CIT(A) has decided the issue by endorsing the view of the AO by a cryptic order without giving his own reason for upholding the addition/action of AO in respect of share capital and premium infused into the assessee company for AY 2014-15 to the tune of Rs. 25,54,50,000/-. According to the Ld. AR, the share subscribers were sixteen (16) corporate entities out of which six (6) are from Kolkata and ten (10) are located at New Delhi. According to Ld. A.R, though the AO acknowledges that notice u/s 133(6) has been complied with by the investor companies, the AO found fault with them by taking note of few trivial spelling mistakes and was of the opinion that the replies were stereo types and gives an impression that it was all made by one person and, therefore, he cannot act upon it.

M/s Shivam Securities Pvt. Ltd. A.Y. 2014-15 According to Ld. AR, the AO accepted in his assessment order that the assessee has furnished the following relevant documents to prove the identity, creditworthiness and the genuineness of the share transaction by furnishing the investor companies (i) copies of confirmations that they have all subscribed to the share capital/premium, (ii) their respective financial statements, (iii) bank statement to prove that investments were made in assessee company was through banking channel and that there was no cash deposit (iv) their respective ITR’s etc. But despite that according to AO, the assessee has failed to prove the creditworthiness and genuineness of sixteen (16) investor companies. The main reason for drawing adverse inference against the assessee, according to AO, was the failure of the investor companies /assessee to produce their directors before him pursuant to his summons u/s 131 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’). Thus, according to AO, the failure to produce the directors of investor companies and that of the assessee goes on to show that the assessee has failed to discharge its burden on it casted upon by Section 68 of the Act. According to Ld. A.R. due to ill health and other unforeseeable problems faced by the assessee, it could not produce the directors of the investor companies and submitted that assessee’s director has filed an affidavit giving all the reasons for his inability to act or coordinate to ensure the appearance of the directors of the investor companies before AO and given an opportunity, the assessee would be able to produce the directors of the investor companies before the AO. By doing so, according to Ld. A.R. even if there is any lingering doubts still subsisting in AO’s mind in respect of share capital it can be repelled. Further the Ld. AR also pointed out from the assessment order that AO had based his adverse inference by heavily relying on certain third party’s statement namely viz. Shri Subash Agarwal to disbelieve the confirmation and other documents filed by the assessee /investor companies pursuant to section 133(6) notice. Therefore, according to Ld. AR, the AO has saddled the addition based on suspicion (spelling mistakes, font of letter head, no dates etc.) and by relying on third party statement which was recorded behind the back of the assessee and without providing any opportunity to cross-examine, which according to Ld. AR, the AO should not have done in the first place. According to Ld. AR, the main fault/reason for AO to have made the addition was the failure of directors of investor companies non-appearance before him; and in this respect the Ld. A.R. submitted this omission was not deliberate on the part of assessee and the reason for non-appearance

M/s Shivam Securities Pvt. Ltd. A.Y. 2014-15 has been explained in the affidavit and, therefore, in the light of the admitted fact that assessee/investor companies have responded to sec. 133(6) notice directly to AO, and had furnished all documents to discharge the onus u/s 68 of the Act, addition only on the basis of non-appearance of directors of investor companies should not have been resorted to without giving proper opportunity during assessment proceedings. According to Ld. AR, due to the reasons given in the affidavit, the assessee did not get proper opportunity for producing the directors of investment companies before the AO, so given an opportunity assessee undertakes to produce the directors of investor companies before the AO to his satisfaction and for which cited the decision of the Hon’ble Supreme Court in the case of Tin Box Company vs. CIT reported in (2001) 249 ITR 216 (SC) and prayed that the assessee may be given an opportunity to produce the directors before the AO.

4. Having heard both the parties we note that the assessee company was incorporated at New Delhi and assessment was done for relevant assessment year at New Delhi. However, recently it has shifted its Principal Office to Kolkata and that is how the appeal decided by the Ld. CIT(A)-Delhi has been transferred to Kolkata jurisdiction and thus this appeal is before us. According to Ld. AR, the AO while making the enquiry has found fault with the confirmations filed by the investor companies due to similarity in the mistakes found in it, which prompted him (the AO) to opine that all the confirmations appeared to have prepared by one person on behalf of all the investor companies irrespective of fact that some companies are located at Delhi and some in Kolkata. The AO acknowledges that the M/s Shivam Securities Pvt. Ltd. A.Y. 2014-15 assessee company is an NBFC registered with RBI and the main activity of the company was dealing in business of shares. The AO notes that the assessee has received share capital and premium to the tune of Rs. 25,54,50,000/- in this relevant assessment year. And, therefore, as per the limited scrutiny i.e. purpose of selection “Introduction of Capital & Receipt of large share premium”, the AO asked the assessee to prove the identity, creditworthiness and genuineness of the sixteen (16) investor companies, out of them Ten (10) were from Delhi and six (6) from Kolkata. The AO acknowledges that the assessee had filed copies of ITRs, confirmation, and bank statement of the investor companies. However, he found certain glaring discrepancies [similar spelling mistakes in all the confirmation letter]. According to AO, the notice issued u/s.133(6) of the Act to the six (6) Kolkata based companies were returned back un-served with the remarks such as “no such firm/left.” Thereafter AO notes that he has issued a commission u/s 131(1)(d) of the Act at Kolkata, however, none of them presented themselves before the authorities. Thereafter he noted that one of the investors M/s Nortel Vanijya Pvt. Ltd. is an accommodation entry provider which was controlled by an entry operator Shri Subash Agarwal and he reproduced his statement in his order (which was recorded in some other search proceedings). Based on the statement of Shri Subhash Agarwal, the AO was of the opinion that the directors of M/s Nortel Vanijya Pvt. Ltd. were dummy directors and were common directors in so many shell companies operated by Shri Subash Agarwal. Further, the AO notes that in respect of Delhi based investor companies he had issued notice u/s 133(6) of the Act to ten (10) companies and he acknowledges that replies were received from most of the companies. However, according to him, none of the companies furnished the date of confirmations in their respective confirmations. According to him, the copy of confirmation were similar as that filed by the assessee dated 27.05.2016 and found the letter heads of them this time to be different from the one filed earlier. Thereafter he discussed the financials of this investor companies and after acknowledging that directors of two investor companies appeared in his office, whose statements were recorded [and the AO have reproduced these statements in the assessment order]. But AO was not convinced about the nature and source of the share capital and premium collected by the assessee. The main fault according to AO was that the assessee’s failure to produce the directors of investor companies despite summons and [after pointing out certain discrepancies in the documents filed and after discussion

M/s Shivam Securities Pvt. Ltd. A.Y. 2014-15 about the verification done by the Inspectors which made him suspect the genuineness of the share transaction] he was pleased to make the addition to the tune of Rs. 25,54,50,000/-.

5. On appeal, Ld. CIT(A) has dismissed the appeal of the assessee by passing a cryptic order after reproducing the AO’s order as stated above (out of 34 pages appellate order, 33 pages contain the reproduction from assessment order).

M/s Shivam Securities Pvt. Ltd. A.Y. 2014-15 Thereafter he has discussed about the non-service of notice of Kolkata investor entities and commission report and inspector report as well as noting that one investor company was indulging in entry operator, he disbelieved the transaction. However, the main deficiency pointed out by the AO was that the assessee has failed to produce the directors of the sixteen (16) corporate entities before him to satisfy identity, creditworthiness and genuineness of the transaction though he admits that two directors have appeared before him, which also according to AO did not inspire confidence. However, the AO has finally concluded as under: “8.2 Once the assessee files the basic details such as confirmations, ITRs & bank statements, the initial onus gets discharged. Since the revenue has doubted the creditworthiness of the investors & genuineness of share transactions by citing above discussed reasons, the onus shifts back to the assessee company to offer an explanation to the satisfaction of the AO as contemplated under section 68 of the I. T. Act. In the present case assessee could have discharged its onus by producing the share subscribers before the undersigned, so that the truth behind smokescreen could have been unraveled by the undersigned by interrogating them. But in the instant case assessee has completely failed to discharge its onus. [Emphasis given by us]

M/s Shivam Securities Pvt. Ltd. A.Y. 2014-15 confirmation, audited financials etc of all these sixteen (16) investor companies. The AO has admitted ten (10) Delhi based companies have replied to the AO pursuant to his 133(6) notice which the AO finds faults for reasons not repeated. As far as Kolkata based companies are concerned [six (6)] according to assessee there were certain changes in addresses, so therefore notice u/s 133(6) might not have been served upon them which the AO contest. According to Ld. A.R since the assessee company’s managing director was bed ridden and so could not effectively coordinate the requirements as directed by the AO, the directors of investor companies could not be physically presented before the AO. In such a scenario, and the AO’s finding we have recorded (supra) that failure of director of investor companies made him conclude that assessee did not discharge their burden of proof u/s 68 of the Act, so for the reason stated in the affidavit filed by the director of assessee company in the interest of justice and fair play we are inclined to allow the assessee an opportunity to produce the directors of the investor companies before the AO. For that we rely on the decision of Hon’ble Supreme Court in Tin Box Co. (supra) wherein it was held as under:

“1. It is unnecessary to go into great detail in these matters for there is a statement in the order of the Tribunal, the fact-finding authority, that reads thus :

"We will straightaway agree with the assessee's submission that the Income-tax Officer had not given to the assessee proper opportunity of being heard."

3. Two questions were placed before the High Court, of which the second question is not pressed. The first question reads thus :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not setting aside the assessment order in spite of a finding arrived at by it that the Income- tax Officer had not given a proper opportunity of hearing to the assessee ?"

M/s Shivam Securities Pvt. Ltd. A.Y. 2014-15 now be remanded to the assessing authority for fresh consideration, as aforestated. No order as to costs.”

Order is pronounced in the open court on 14th July, 2021