M/S BST INFRATECH LTD. (FORMERLY KNOWN AS BABA STRIPS AND TUBES LTD.0,KOLKATA vs. D.C.I.T.,CIRCLE-3(1), KOLKATA

order : November 30, 2022 आदेश / ORDER संजय गग�, �या�यक सद�य �वारा/ Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order dated 28.11.2019 of the Commissioner of Income Tax (Appeals)-11, Kolkata (hereinafter referred to as the ‘CIT(A)’) passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’). The assessee in this appeal has taken the following grounds of appeal: “1. That the Ld. CIT(A) was wrong in confirming the addition of a sum of Rs.14,63,00,000/- u/s 68 of the Act being the share capital & share premium money received during the year from the share applicants without appreciating the fact that the details and documents provided to him were fully examined. Further, all the share applicants are assessed to income tax and the entire share application money was received though Assessment year: 2012-13 M/s BST Infratech Ltd. proper banking channels. Thus, addition made by Ld. A.O and confirmed by Ld. CIT(A) is unjustified and needs to be deleted.

2. The brief facts of the case are that that Assessing Officer( in short AO) during the assessment proceedings noted from the accounts of the assessee that the assessee during the year had shown receipt of share capital including share premium of Rs.14,63,00,000/- from different private limited companies. On being asked to explain in this respect, the assessee furnished the required documents to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction. However, the Assessing Officer treated the said share capital and share premium as unexplained income of the assessee and made the impugned addition of u/s 68 of the Income Tax Act. In first appeal, the Ld.CIT(A) confirmed the additions so made by the AO.

Assessment year: 2012-13 M/s BST Infratech Ltd. The ld. AR has also brought our attention to the relevant paras of the impugned order of the CIT(A) to demonstrate that even the ld. CIT(A) in para 6.1 of the impugned order has categorically mentioned, “in a cryptic and unclear statement, the ld. AO has stated that the appellant had furnished ‘some details’ without mentioning which detail was furnished and which were not.” The ld. CIT(A) has also pointed out that though the AO has mentioned that the assessee did not produce any of the director of the shareholder companies for examination, however, the said fact has been refuted by the ld. AR stating that all the details as required by the AO were submitted before him and that even the directors were also produced before him but the ld. AO refused to record their statement, and, with a biased mind, passed the impugned assessment order. Further, the ld. CIT(A) in para no. 8 of the impugned order has observed that since the ld. AO had not brought any relevant fact on record, therefore, he himself proceeded to undertake the fact-finding exercise. He, accordingly, asked the assessee to furnish the details of the directors of the assessee company, the names of companies in which they are substantially interested, the details of companies/entities who have invested in the assessee company, their returns of income, financial statement along with copies of memorandum of association, bank account statements of the accounts from which the cheques were issued for investment in the assessee company and the basis, formula or method which was followed in ascertaining the value of the shares and deciding the rate at which premium was to be issued. The ld. CIT(A) examined the details furnished by the assessee, however, concluded as under:

Assessment year: 2012-13 M/s BST Infratech Ltd. “(a) They have no or nominal assets in real terms. Assets in the form of investments have been created through a circular rotation of money as is evidenced by the bank accounts of the investors. This has already been discussed above. (b) The assets consist of cash and cash equivalents, (c) There actually is no or insignificant business being conducted by its investors. They do not have income (or have negligible income from business operations), (d) The returns filed by them are mostly of loss or of insignificant proportions being below the taxable limits. (e) The bank accounts are used only for rotating money and for issuing account payee cheques to impart an appearance of genuineness to the transactions.”

4. The ld. counsel for the assessee explained before us that the assessee company has issued 29,26,000 no. of shares of Rs.10/- each at a share premium of Rs.40/- per share amounting to Rs.14,63,00,000/-. The ld. Counsel, further submitted that all the shareholders companies were group companies of the assessee. That in every group, there was one or two flagship companies and so was the case of the assessee. Further, that the relatives of Mr. Gopal Kumar Agarwala, the director of Assessee company, were also directors in the share applicant companies. The nature of relationship has been explained in the table below:

Sl Name of the company Relation with Mr. Gopal Kumar Name of Directors No. Agarwala a. Ramesh Prasad Brother In Law of Gopal Kr. Agarwala M/s. GainwellTextrade 1. Pvt. Ltd. Agarwal b. Rohit Saraf Relative of Gopal Kr. Agarwala 2. M/s. Lucky Tradelink Pvt. a. Sangita Wife of Brother in Law of Gopal Kr.

Assessment year: 2012-13 M/s BST Infratech Ltd. Ltd. Agarwal Agarwala b. Bijay Poddar Maternal Uncle of Gopal Kr. Agarwala Director of M/s. BST Infratech Ltd a. Gopal Kumar (Formerly, M/s. Baba Strip & M/s. Pawapuri Mercantile Agarwala 3. Tubes Ltd) Pvt. Ltd. b. Krishna Dalmia Sister of Gopal Kumar Agarwala a. Gopal Krishna Relative of Gopal Kumar Agarwala Lodha M/s. HIL Engineering Pvt.

4. Ltd. b. Manoj Kumar Brother In Law of Gopal Agarwal Kumar Agarwala Nephew of Gopal Kumar a. Rajiv Dalmia Agarwala M/s. Mubarak Cosmetics 5. Pvt. Ltd. b. Urmila Devi Wife of Gopal Kumar Agarwal Agarwala 4.1. The Ld. Counsel, further, took us through the written submissions filed before the ld. CIT(A), details of the appellant company which included its audited financial statement, income tax return, bank statement and the documents of investor companies placed in the paper- book. He submitted that the share applicants were having sufficient net owned funds for making investments in the assessee company. The details of the net owned funds of the applicants and the investments made by them were explained as under: Sl. Name of the company Net Worth of Investment No. Applicant made by them in assessee 1. M/s. GainwellTextrade Pvt. Ltd. 18.87 Crores 8.10 Crores 2. M/s. Lucky Tradelink Pvt. Ltd. 5.53 Crores 50 lakhs Assessment year: 2012-13 M/s BST Infratech Ltd.

3. M/s. Pawapuri Mercantile Pvt. 18.24 Crores 60 lakhs Ltd.

Sl. Particulars Copy of letter dated 26.02.2015 intimating Income Tax Department of A. issuance of shares during AY 2012-13 B. Documents in support of change in name of assessee Copy of Certificate of Incorporation pursuant to change of name from M/s. Baba Strip 1 & Tubes Ltd to M/s. BST Infratech Ltd. 2 Copy of ITR Acknowledgement for A.Y. 2012-13. 3 Copy of Audited Accounts for the F.Y. 2011-12 5 Copy of relevant page of Bank Statement Copy of Assessment proceedings for the A. Y. 2012-13 filed before the Ld. DCIT Circle 6 -3(1), Kolkata along with requisite documents. Documents of the share applicants to show their identity, credit worthiness C. & also the genuineness of the transactions 7 M/S. GAINWELL TEXTRADE PVT. LTD. (Share Applicant) 7.1 Copy of Company Master data 7.2 Copy of PAN CARD 7.3 Copy of Ledger Account of M/s. Baba Strip & TubesLtd. in the books of M/s. GainwellTextrade Pvt. Ltd evidencing share application money paid to M/s. Baba Strip & Tubes Ltd. on different dates during the F.Y. 2011-12. 7.4 Copy of relevant page of Bank Statement 7.5 Copy of Affidavit before the Notary Public Kolkata relating to share application money Copy of Source of Fund towards payment made to M/s. Baba Strips & Tubes Pvt. Ltd. 7.6 (Name changed to M/s. BST Infratech Ltd.) 7.7 Copy of ITR Acknowledgement for A.Y. 2011-12 7.8 Copy of Audited Accounts for the F.Y. 2010-11 7.9 Copy of ITR Acknowledgement for A.Y. 2012-13 7.10 Copy of Audited Accounts for the F.Y. 2011-12 7.11 Copy of ITR Acknowledgement for A.Y. 2013-14 7.12 Copy of Audited Accounts for the F.Y. 2012-13 7.13 Copy of Memorandum of Association & Article of Association Assessment year: 2012-13 M/s BST Infratech Ltd. Sl. Particulars 8 M/S. LUCKY TRADELINK PVT. LTD. (Share Applicant) 8.1 Copy of Company Master data 8.2 Copy of PAN CARD Copy of Ledger Account of M/s. Baba Strip & TubesLtd. in the books of M/s. Lucky 8.3 Tradelink Pvt. Ltd. evidencing share application money paid to M/s. Baba Strip & Tubes Ltd. on different dates during the F.Y. 2011-12. 8.4 Copy of relevant page of Bank Statement 8.5 Copy of Affidavit before the Notary Public Kolkata relating to share application money 8.6 Copy of Source of Fund towards payment made to M/s. BST Infratech Ltd 8.7 Copy of ITR Acknowledgement and Computation for A.Y. 2011-12 8.8 Copy of Audited Accounts for the F.Y. 2010-11 8.9 Copy of ITR Acknowledgement for A.Y. 2012-13 8.10 Copy of Audited Accounts for the F.Y. 2011-12 8.11 Copy of ITR Acknowledgement for A.Y. 2013-14 8.12 Copy of Audited Accounts for the F.Y. 2012-13 8.13 Copy of Memorandum and Articles of Association 9 M/S. PAWAPURI MERCANTILES PVT. LTD. (Share Applicant) 9.1 Copy of Company Master data 9.2 Copy of PAN CARD Copy of Ledger Account of M/s. Baba Strip & TubesLtd. in the books of M/s. Pawapuri 9.3 Mercantiles Pvt. Ltd. evidencing share application money paid to M/s. Baba Strip & Tubes Ltd. on different dates during the F.Y. 2011-12. 9.4 Copy of relevant page of Bank Statement 9.5 Copy of Affidavit before the Notary Public Kolkata relating to share application money 9.6 Copy of Source of Fund towards payment made to M/s. BST Infratech Ltd Assessment year: 2012-13 M/s BST Infratech Ltd. Sl. Particulars 9.7 Copy of ITR Acknowledgement for A.Y. 2011-12 9.8 Copy of Audited Accounts for the F.Y. 2010-11 9.9 Copy of ITR Acknowledgement for A.Y. 2012-13 9.10 Copy of Audited Accounts for the F.Y. 2011-12 9.11 Copy of ITR Acknowledgement and Computation for A.Y. 2013-14 9.12 Copy of Audited Accounts for the F.Y. 2012-13 9.13 Copy of Memorandum and Articles of Association 10 M/S. HIL ENGINEERING PVT. LTD. (Share Applicant) 10.1 Copy of Company Master data 10.2 Copy of PAN CARD Copy of Ledger Account of M/s. Baba Strip & TubesLtd. in the books of M/s. HIL 10.3 Engineering Pvt. Ltd. evidencing share application money paid to M/s. Baba Strip & Tubes Ltd. on different dates during the F.Y. 2011-12. 10.4 Copy of relevant page of Bank Statement 10.5 Copy of Affidavit before the Notary Public Kolkata relating to share application money 10.6 Copy of Source of Fund towards payment made to M/s. BST Infratech Ltd 10.7 Copy of ITR Acknowledgement for A.Y. 2011-12 10.8 Copy of Audited Accounts for the F.Y. 2010-11 10.9 Copy of ITR Acknowledgement for A.Y. 2012-13 10.10 Copy of Audited Accounts for the F.Y. 2011-12 10.11 Copy of ITR Acknowledgement for A.Y. 2013-14 10.12 Copy of Audited Accounts for the F.Y. 2012-13 10.13 Copy of Memorandum and Articles of Association 11 M/S. MUBARAK COSMETIC PVT. LTD. (Share Applicant) 11.1 Copy of Company Master data 11.2 Copy of PAN CARD Assessment year: 2012-13 M/s BST Infratech Ltd. Sl. Particulars Copy of Ledger Account of M/s. Baba Strip & TubesLtd. in the books of M/s. Mubarak 11.3 Cosmetic Pvt. Ltd. evidencing share application money paid to M/s. Baba Strip & Tubes Ltd. on different dates during the F.Y. 2011-12. 11.4 Copy of relevant page of Bank Statement 11.5 Copy of Affidavit before the Notary Public Kolkata relating to share application money 11.6 Copy of Source of Fund towards payment made to M/s. BST Infratech Ltd 11.7 Copy of ITR Acknowledgement for A.Y. 2011-12 11.8 Copy of Audited Accounts for the F.Y. 2010-11 11.9 Copy of ITR Acknowledgement for A.Y. 2012-13 11.10 Copy of Audited Accounts for the F.Y. 2011-12 11.11 Copy of ITR Acknowledgement for A.Y. 2013-14 11.12 Copy of Audited Accounts for the F.Y. 2012-13 11.13 Copy of Memorandum and Articles of Association 11.14 Copy of ITR Acknowledgement for A.Y. 2012-13 11.15 Copy of Audited Accounts for the F.Y. 2011-12 11.16 Copy of relevant page of Bank Statement 4.4 The Ld. Counsel has further submitted that the justification for raising the share capital and share premium from group companies was also furnished before the lower authorities, which is given as under:

“1.4 Before entering into the merits of the case and travelling through the discussion to prove the identity and creditworthiness of the investors as well as genuineness of the transactions, it is pertinent to understand that why at all such huge capital was required by the assessee at the impugned point of time and also how such huge capital was used by the assessee company for its business?

1.4.1 The answer to above questions was itself available in the financial statement of the assessee which the AO did not take pain to see. At the Assessment year: 2012-13 M/s BST Infratech Ltd. relevant point of time the assessee was expanding its business. There were huge additions to plant & machinery, buildings, etc. In the impugned year the increase in fixed assets was Rs.14,37,89,571/-. Also, the business of the assessee has increased remarkably in the year concerned. The revenue from operations (Net) has increased by Rs. 102,00,99,789( (i.e 73%) in comparison to the previous year. Therefore, the business activities have also increased considerably. For the purpose of expansion, funds are required to carry on the business activities. Therefore, the assessee raised funds from various means, increment in share capital from associates being one of them. Consequent to sales there has also been huge increase in the expenses incurred by the assessee in achieving such huge turnover. The increase in expenses was Rs. 102,17,48,258/- as compared to last year. If we travel through the other side of balance sheet, then your honors will address that the stock and debtors have increased by Rs. 11,01,72,814/- and Rs 29,44,11,286/-. From the above it apparent that a considerable part of funds was blocked in stock and debtors. Therefore, the assessee was in need of funds that could be channelized into its operation activities as well as in assets expansion. The assessee utilised the funds so raised (including the impugned amount of share application money of Rs. 14,63,00,000/-) for the production purpose, for acquisition of fixed assets, for repayment of loans and other activities concerned with day to day operation of the business.

1.4.2 Therefore, the facts emerging from the above analysis are that the assessee is a manufacturing company having a genuine and renowned client base. In order to have a strong capital base and for business expansion, the capital of the company needs to be increased so that it can create a sound impression among the investors, who are well known & close associates of the assessee, about the soundness of its creditworthiness and bright future prospect. The assessee raised its capital by allotting the shares to its group companies. On careful examination of balance sheet of the assessee your honors will address the fact that the assessee is using mixed pool funding system i.e, both owned capital and borrowed capital are used by the assessee. In the instant case, the assessee has also borrowed short term loans for utilization in its business in addition to the issue of shares for raising capital. Therefore, issue of shares and raising capital from body corporate is just a way of funding its business activities and it should not be seen in isolation.”

Assessment year: 2012-13 M/s BST Infratech Ltd. We further find force in the contention of the Ld. AR that even the Assessing Officer or the CIT(A) has not brought on record any evidence to show that it was the assessee’s own fund that was brought back in the form of share application money. The Ld. CIT(A), himself, has pointed out that the assessment order of the AO was cryptic and that no exercise was done by the AO to examine the records of the case.

Even the Ld. CIT(A), who has, himself, done the exercise of examining the documents has not pointed any doubt or discrepancy with regard to the identity of the investors. The only contention that has been raised by the CIT(A) in the impugned order is that the investor companies have low income. Assets in the form of investments have been created through rotation of money in between the group companies and that the assets mainly consist of cash and cash equivalents. The above contentions raised by the CIT(A), in our view, are not enough to prove that any unaccounted money of the assessee has been introduced in the assessee company, warranting addition under section 68 of the Income Tax Act. Even after making elaborate exercise of examining the documents, the Ld. CIT(A) could not point out any rebuttal to the above evidences furnished by the assessee to prove the identity, creditworthiness of the share subscribers and genuineness of the transaction. The hon’ble Jurisdictional Calcutta High Court, in the case of PCIT vs. Anmol Stainless (P.) Ltd. (2022) 138 taxmann.com 535 (Calcutta HC) has held that that where it has been sufficiently established that share applicants had substantial creditworthiness and investments had been made by assessee's own sister concern/group companies having mostly common directors and thus, establishing creditworthiness and genuinity Assessment year: 2012-13 M/s BST Infratech Ltd. of investments, additions under section 68 had been rightly been deleted.

In view of the discussions made above, we do not find justification on the part of lower authorities in making/confirming the impugned additions, the same are accordingly ordered to be deleted.

In the result, the appeal of the assessee is, hereby, allowed.