ITO, KOLKATA vs. BLACKBERRY VYAPAAR PVT. LTD., KOLKATA

Brief facts of the case are that the return of income for AY 2008- 09 was filed showing total loss of ₹47,599/- which was processed u/s 143(1) of the Act and subsequently, the case was reopened by issuing notice u/s 148 of the Act and the order u/s 147/143(3) of the Act was passed on 28.05.2010 assessing total income of ₹32,201/-. Subsequently, on 28.03.2013 an order u/s 263 of the Act was passed by the CIT, Kolkata-II, Kolkata (‘the CIT’) setting aside the order passed u/s 147/143(3) of the Act dated 28.05.2010 and directing the Assessing Officer (hereinafter referred to as Ld. 'AO') to do the assessment afresh. The background of the case as excerpted from the order of the Ld. CIT u/s 263 of the Act is mentioned at pages 2 and 3 of the assessment order. In view of the special facts and circumstances as well as the judicial decision relied upon in the case of Commissioner of Income- tax vs. Divine Leasing & Finance Ltd. reported in [2007] 158 Taxman 440 (Delhi)/[2008] 299 ITR 268 (Delhi)/[2007] 207 CTR 38 (Delhi)[16-11-2006] the order u/s 147/143(3) of the Act was set aside vide the order passed u/s 263 of the Act with the direction to the Ld. AO as mentioned hereunder: “i) Examine the genuineness and source of share capital, not on a test check basis, but in respect of each and every shareholder by conducting independent enquiry not through the assessee. The bank account for the entire period should be examined in the course of verification to find out the money trail of the share capital. ii) Further the A.O. should examine the directors as well as examine the circumstances which necessitated the change in directorship if applicable. He should examine them on oath to verify their credentials as director and reach a logical conclusion regarding the controlling interest. I.T.A. No.: 1234/KOL/2023 Assessment Year: 2008-09 Blackberry Vyapaar Pvt. Ltd. iii) The A.O. is directed examine the source of realization from the liquidation of assets shown in the balance sheet after the change of Directors, if any. After conducting the inquiries & verification as directed above, the A.O. should pass a speaking order, providing adequate opportunity of being heard to the assessee.”

The Ld. AO issued summons u/s 131 of the Act to both the then directors Shri Pawan Kumar Sharma and Shri Atul Kumar Sultania, which were duly served upon them but none of the directors appeared in response to the summons issued. The Ld. AO noted that the assessee company was incorporated with a capital of ₹1 Lakh and had raised share capital amounting to ₹1,53,20,000/- by issuing 15,32,000 equity shares having face value of ₹10/- at a premium of ₹90/- per share by private placement amounting to ₹13,78,80,000/-. There were 17 shareholders as per Form No. 2 filed before the ROC and investment to the tune of ₹15,32,00,000/- was also observed from the Balance Sheet furnished for the assessment year under consideration. Perusal of the records revealed that the assessee company utilized funds received from the issue of shares in making the said investment. During the course of hearing, the Ld. AR produced the books of account viz. cash book, bank statement etc., which were examined by the Ld. AO and to verify the justification of the share capital and share premium received and the identity, creditworthiness and genuineness of the 17 alleged shareholders, summons u/s 131 of the Act were issued to the Principal Officers (being the then directors) of the assessee company but none of them appeared. Therefore, as per the Ld. AO, the identity, creditworthiness and genuineness of the 17 shareholders remained unexplained. Further, the share capital, reserve and surplus, net worth, turnover of the assessee company also remained unexplained which are necessary for an investor to consider before an investment is made. The Ld. AO concluded that the investment was done without minimum I.T.A. No.: 1234/KOL/2023 Assessment Year: 2008-09 Blackberry Vyapaar Pvt. Ltd. business prudence and is not usual, as it lacks the motive of profit or gain. This was contended by the fact that the directors also failed to appear before the Ld. AO. However, there was compliance in respect of the notices issued u/s 133(6) of the Act and a perusal of the reply received shows that all these companies were conduit companies, popularly known as name lenders, which were being used to allow only book entries by colouring the same in the shape of transactions as appeared in their replies. It appeared to the Ld. AO that the assessee company had arranged its own money and routed it through these companies in the garb of share capital and share premium and resorted to such manipulation in transactions to give an appearance of genuineness which are in fact sham transactions. Accordingly, the sum of ₹15,32,00,000/- received from 17 alleged shareholders and ₹1,00,000/- as initial share capital was treated as bogus, added u/s 68 of the Act and charged to tax. Further, disallowance u/s 14A of the Act was also made and a sum of ₹47,599/- u/s 14A read with Rule 8D of the I.T. Rules, 1962 and another sum of ₹44,500/- on account of commission received and equivalent amount of expenditure under the head donation was disallowed and the total income was computed at ₹15,33,44,500/-. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A), who relied upon the decision of the Coordinate Bench of Lucknow in the case of M/s. Treadstone International vs. DCIT in ITA No.21/LKW/2014 order dated 30.10.2015 and dismissed the ground challenging the juri iction of the Ld. AO. For non-compliance of summons by the directors, the appellant submitted that the directors did not receive the notices and also submitted that the revisionary assessment order was passed under suspicion and not based on any concrete finding of evidence, especially I.T.A. No.: 1234/KOL/2023 Assessment Year: 2008-09 Blackberry Vyapaar Pvt. Ltd. when the assessee had discharged the primary onus and had filed the required evidence before the Ld. AO and relied upon the decisions of the Coordinate Benches of (a) Mumbai in the case of M/s. Simplex Casting Ltd. vs. DCIT (O )-3(1), Mumbai in ITA No. 1562/MUM/2015 for AY 2010-11 order dated 04.11.2016 and (b) Delhi in the case of Phool Singh vs. ACIT in ITA No. 2901/Del/2014 for AY 2010-11 order dated 11.04.2017. The Ld. CIT(A) held that the assessee had discharged the onus of filing requisite details to substantiate the genuineness of the transaction and creditworthiness of the persons paying for equity share capital and deleted the addition of ₹15,33,00,000/-. The addition of ₹47,599/- on account of disallowance u/s 14A of the Act was however confirmed and the appeal was partly allowed. Aggrieved with the order of the Ld. CIT(A), the Revenue has filed the appeal before this Tribunal.

Ground no. 1 is regarding the absence of identity of the creditors, genuineness and creditworthiness of the entire transactions. In Ground no. 2 it is mentioned that no personal attendance was made by any of the directors of the share allottee companies during the course of assessment proceedings and as such identity and creditworthiness of the creditors and genuineness of the transactions could not be verified. In Ground no. 3 the revenue has relied upon the decision of Hon'ble Supreme Court in the case of PCIT vs. NRA Iron & Steel Pvt. Ltd. reported in 412 ITR 161 wherein it is mentioned that the Assessing Officer is duty bound to investigate the creditworthiness of the creditor/subscriber, verify the identity of the subscribers and ascertain whether the transactions are genuine or these are bogus entries of name lenders and since despite best efforts made by the Assessing Officer, he could not verify the same as there was no response from the companies, therefore, the NFAC, Delhi is erroneous in holding that the raised share I.T.A. No.: 1234/KOL/2023 Assessment Year: 2008-09 Blackberry Vyapaar Pvt. Ltd. capital was not the assessee’s own income. Similar grounds have been raised in Ground nos. 4 and 5 of the appeal as well as in Ground no. 6. 6. The Ld. DR drew our attention to page 4 of the assessment order in which it is mentioned that the summons u/s 131 of the Act to the directors were partly served and no compliance was made but when the notices u/s 133(6) of the Act were issued there was compliance. The Ld. AR of the assessee was given an opportunity to produce the directors before the Ld. AO but none appeared. There is no evidence of creditworthiness of the subscribers and no evidence for the genuineness of the transaction of ₹15.33 Crore. It was brought to our notice that on the face value of ₹10/- premium of ₹90/- was charged from the 17 subscribers. The assessee submitted before the Ld. CIT(A) as per para 4.15 of the order of the Ld. CIT(A) that the directors did not receive notices. It is contrary to the finding of the Ld. AO at page 5 where it is categorically mentioned that summons were served and no opportunity was provided to the Ld. AO to verify the same. It was brought to our notice that the directors did not appear and even the Ld. AR failed to produce the directors.

We have heard the submissions made and examined the facts of the case. On identical facts, the Hon'ble Calcutta High Court in the case of Principal Commissioner of Income-tax (Central)-2 vs. BST Infratech Ltd. [2024] 161 taxmann.com 668 (Calcutta)/[2024] 468 ITR 111 (Calcutta)[23-04-2024] have held as under: “■ The Commissioner (Appeals) has analysed the three principles which are required to be fulfilled namely identity, creditworthiness and genuineness of the transaction. It is not in dispute that the investors whose details have been referred are all either group companies or having a common set of directors. Further the assessee has not been able to dislodge the factual findings recorded by the Commissioner (Appeals) that the share application I.T.A. No.: 1234/KOL/2023 Assessment Year: 2008-09 Blackberry Vyapaar Pvt. Ltd. money was received from independent legal entities. By way of illustration if the case of GTPL is taken, it is found that they have invested Rs. 8.10 crores in the assessee-company. The said company receives a total of Rs. 1.65 crores on 1-6-2011 and 2-6-2011 from eight private limited companies/entities. Out of the said amount, Rs. 1.50 crores was remitted to the assessee’s bank account on 2-6-2011 by three cheques of Rs. 50 lakhs each. The balance remained at Rs. 15.09 lakhs. On 2-6-2011, an amount of Rs. 38 lakhs was remitted to the account by a private limited company and the balance rose to Rs. 53.09 lakhs out of this an amount of Rs. 50 lakhs was remitted to the assessee-account on the same day. On 4-6-2011, DSPL deposited another sum of Rs. 60 lakhs of which Rs. 50 lakhs was remitted to the assessee on 6-6-2011. On 6-6-2011 HGPL transferred a sum of Rs. 10 lakhs to this account by taking a closing balance to Rs. 23.08 lakhs. On the same day an amount of Rs. 20 lakhs was remitted to the assessee- account. On 6-6-2011 DSPL transferred Rs. 25 lakhs, Rs. 38 lakhs and Rs. 37 lakhs to this account and out of this amount Rs. 1 crore was remitted to the assessee’s account in two transactions on 7-6-2011. On 14-6-2011, MDPL remitted an amount of Rs. 35 lakhs to the account which was immediately transferred to the assessee’s account. On 18-7-2011, SRPL credited an amount of Rs. 50 lakhs to the account which was remitted to the assessee’s account on 19-7-2011. On 20-7-2011 amount of Rs. 30 lakhs was received through RTGS in the account and the amount was transferred to the account of the assessee on the same day. On 2-1-2012 an amount of Rs. 40 lakhs was deposited into account by two companies and this was remitted to the assessee’s account on 3-1-2012. On 3-1-2012 SGTPL credited to the account a sum of Rs. 20 lakhs and out of the said amount Rs. 40 lakhs was transferred to the assessee’s account on 4-1-2012. The Commissioner (Appeals) has in the above manner examined the factual position and has analysed the pattern of the transactions in the bank accounts of the five investor companies to that of the assessee’s bank account. They have received cheques from somewhere and immediately issued in favour of another company and the balance remaining in the account was very meagre the bank account has been operated solely for the purpose of rotating money. [Para 28] ■ With regard to the other investor namely MCPL on perusal of the bank statements, it was found that the said company had transactions with the assessee between 23-7-2011 to 28-7-2011 and the entire sum remitted to the assessee by MCPL had come from GTPL. The bank statements of HIL Engineering was also thoroughly examined more particularly the pattern of transaction and it was held that the only apparent purpose for which the bank accounts have been used is to receive money from one account and transfer it to another. With regard to the investor PMPL the bank statements revealed that the entire sums are remitted by PMPL to the assessee had come from GTPL. The analysis done by the Commissioner (Appeals) would I.T.A. No.: 1234/KOL/2023 Assessment Year: 2008-09 Blackberry Vyapaar Pvt. Ltd. reveal the nature and character of the transaction and the Commissioner (Appeals) cannot be faulted to have held that the transactions are well planned and stage managed to show genuineness behind which a clean and simple ‘round tripping’ of funds is taking place. The Commissioner (Appeals) on examination of the facts found that the bank accounts act as ‘highway’ in the ‘journey of money’ on a rotation and laundry trial from one entity to another and by this way these bank accounts create a façade of documentary evidence for clean money in the form of account payee cheques for any kind of accommodation entries. [Para 29] ■ The Commissioner (Appeals) did not stop with the above findings but proceeded to analyse the data which was made available in the form of return of income, bank statements etc. and found that the investors have purchased the shares of the assessee at a premium and all have shown similar characteristics, the revenue from operations are either nil or are negligible; the returns are either of loss or of insignificant income below taxable limit; they have been issued shares at very high premium without having earned any revenue from business operations; they have invested on shares at very high premium in companies who also have not earned anything from business operations; their balance sheet shows that even though they do not earn anything, they invite huge investments in their accounts and this money is used to make further investments at high premiums in other companies and they have also issued unsecured loans to other companies; money obtained from the route of share premium is rerouted for supplying sources of receipts of money to other companies; the circuit of investments remains within a group companies and in this manner through a circular routing of funds, the capital of each of the companies is enhanced and this inflated capital is then used for providing loans etc. to desired entities; the bank accounts show huge sums are received from one concern through cheques or RTGS and immediately diverted to other companies of the group and the bank balance remains negligible before and after such transfers; each of these companies invest in each other at very high premiums even though there is no business conducted; there is no reason or logic provided by any of the companies as to on what basis they arrived at the value of premium on shares to be issued as neither the assessee nor its investors had followed the guidelines of RBI or ICAI or any other guidelines for determining the rate of premium on their shares. Thus, the fixing of rate for premium is arbitrary and devoid of any financial or accounting rationale; the investors have not bothered to ensure protection of their investments; the investor company do not have any business operations worth noticing yet they have raised huge capital through issue of shares at a premium and also made investments in shares of other companies at a premium even though the other companies like them, did not have any promising business activities. Thus, on analysing the data which was available it is seen that each of the companies have invested in each I.T.A. No.: 1234/KOL/2023 Assessment Year: 2008-09 Blackberry Vyapaar Pvt. Ltd. other and the investments have been made by rotating funds from one account to another. The assessee has not been able to explain why the investors companies had applied for shares in the assessee’s company at a high premium even though the face value of the share was Rs. 10 per share. The pattern of transaction clearly shows that these investors companies had raised capital by issue of shares at a very high premium and the transaction is repetitive. Therefore, the mere fact that the transactions were though banking channels or that the companies where income-tax assessees or registered with