DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(1), CHENNAI, CHENNAI vs. DEVANAYAGAM FINANCE PRIVATE LIMITED, KOLKATA

The assessee is engaged in the business of finance and investment. A search u/s. 132 of the Act was carried out in the case of the assessee along with the business premises of KAG India Ltd. on 26.02.2021. During the search, it was alleged that KAG India Ltd. had routed its unaccounted income as share capital through direct investments by shell companies based in Kolkata and by way of capital introduction through M/s. Devanayagam Finance Pvt. Ltd. and M/s. Bholenath Merchants Pvt. Ltd. The A.O. in the assessment order has noted that an application had been filed before the NCLT, Kolkata, for amalgamation of M/s. Anilabh Vinimay Pvt. Ltd., M/s. Bholenath Merchants Pvt. Ltd., M/s. Equal Dealers Pvt. Ltd., and M/s. Wakeeta Vyapaar Pvt. Ltd. with the assessee-company w.e.f. 01.04.2018.

However, he proceeded to make additions in respect of the amalgamating companies in the hands of the assessee-company. The A.O in the order passed u/s. 153A of the Act for A.Y. 2014-15, has made additions u/s. 56(2)(x)(c) of the Act in respect of purchase of 63,890 share of M/s. Bholenath Merchants Pvt. Ltd. by M/s. Anilabh Vinimay Pvt. Ltd. at face value, making addition of Rs. 1,43,75,250/-, for purchase of 1,05,695 shares of M/s. Devanayagam Finance Pvt. Ltd. by M/s. Equal Dealers Pvt. Ltd. at lower value, making addition of Rs. 1,42,68,825/- and for purchase of 60,980 shares of M/s. Bholenath Merchants Pvt. Ltd. by M/s. Wakeeta Vyapaar Pvt. Ltd. at face value, making addition of Rs.1,37,00,250/-. The assessee challenged the assessment order before the Ld. CIT(A) on multiple grounds: (i) that no incriminating material was found during the search and, therefore, no addition could be made u/s. 153A, (ii) that the A.O. assumed jurisdiction beyond the 6th assessment year without recording satisfaction that underlying assets exceeded Rs. 50 lakhs, as required by Explanation 2 to Section 153A, and (iii) that the additions were made u/s. 56(2)(x)(c) of the Act for A.Y. 2014-15 though the provision was introduced by the Finance Act, 2017 w.e.f. 01.04.2017. The Ld CIT(A) in detailed speaking order has allowed the appeal on all accounts.

The Ld. Departmental Representative (DR) contended that the Ld. CIT(A) had relied more on technicalities rather than on substance, failing to recognize that the impugned transactions were colourable devices to introduce unaccounted income. The Ld. DR argued that during the search it was revealed that KAG India Ltd. had routed unaccounted income into its company as share capital through shell companies based in Kolkata and through capital introduction via M/s.

On the other hand, the Ld. Authorized Representative (AR) of the assessee submitted that the transactions related to M/s. Anilabh Vinimay Pvt. Ltd., M/s. Equal Dealers Pvt. Ltd., and M/s. Wakeeta Vyapaar Pvt. Ltd., which amalgamated with the assessee-company w.e.f. 01.04.2018, and therefore the additions could not be made in the hands of the assessee. The Ld. AR reiterated that there was no incriminating material found during the search and that no reference to any seized material was made in the assessment order. The Ld. AR further argued that while assuming jurisdiction beyond the 6th year, the A.O. had not recorded the mandatory satisfaction regarding existence of assets exceeding Rs. 50 lakhs as required u/s. 153A. It was also contended that the addition was made u/s. 56(2)(x)(c) for A.Y. 2014-15, even though the section was introduced only w.e.f.

We have heard the rival submissions and perused the materials on record. The A.O. has passed the order u/s. 153A for A.Y. 2014-15, which falls beyond the 6th assessment year immediately preceding the assessment year relevant to the previous year in which the search was conducted. The additions were made u/s. 56(2)(x)(c) in respect of shares purchased by M/s. Anilabh Vinimay Pvt. Ltd., M/s. Equal Dealers Pvt. Ltd., and M/s. Wakeeta Vyapaar Pvt. Ltd. below fair market value , but there was no reference to any seized material. Further, Section 56(2)(x)(c) of the Act was introduced by the Finance Act, 2017, with effect from 01.04.2017, and therefore it has no application to A.Y. 2014-15. The Ld CIT(A) has discussed all the grounds in details and allowed the appeal and we do not find any infirmity in the order of the Ld. CIT(A). At the same time we do not find any force in the appeal of revenue. Accordingly, we uphold the order of Ld CIT(A) and dismiss the appeal of Revenue.

In the result, the appeal filed by the Revenue is dismissed.