M/S. LALBABA SEAMLESS TUBES PVT. LIMITED ,KOLKATA vs. DCIT, CIRCLE - 3(1), KOLKATA

This is the appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax(Appeals)-14, Kolkata (hereinafter referred to as the Ld. CIT(A)”] dated 07.11.2019 for the AY 2012-13.

The sole issue raised by the assessee in the various grounds of appeal is against the confirmation of addition of Rs. 5,38,00,000/- by Ld. CIT(A) as made by the AO u/s 68 of the Act on account of unexplained cash credit in respect of share capital and share premium received by the assessee during the year.

Facts in brief are that the assessee filed return of income on 27.09.2012 declaring a loss of Rs. 6,22,65,652/-. The case of the assessee was selected for scrutiny and statutory notices were duly issued and served to the assessee. The AO noticed on the basis of assesse’s records that the assesse has issued share capital at a premium to 7 share subscribers/investors and accordingly issued questionnaire along with notice u/s 142(1) of the Act on 28.11.2014 calling upon the assessee to furnish various details/evidences. Thereafter the AO again vide letter dated 23.01.2015 called upon the assessee to produce new shareholder within 15 days. Thereafter the AO proceeded to decide the issue on the basis of available records and information. The AO found from the records before him that the assessee had issued share capital to the seven companies the details whereof are given in table in para 3 at page 2 of assessment order. The AO also admitted the fact that during the assessment proceedings, the some documents/evidences relating to share application money were furnished by the assesse however neither directors of the assessee nor that of the investor companies appeared to prove the genuineness of the transactions. The AO then referred to the information received from DDIT (Inv), Unit-iii(2), Kolkata which stated that the assessee has been beneficiary of accommodation entries of bogus share capital to the tune of Rs. 1.51 crores by M/s Clubside Dealcom Pvt. Ltd. which is controlled and managed by Shri Krishna Murari Naita and the DDIT(Inv) has also conducted a survey u/s 133A of the Act on 23.04.2014 on Shri K.M. Naita. Finally the AO came to the conclusion that the assessee has failed to prove genuineness of the transactions and identity and creditworthiness of the investors and also failed to avail the opportunity of cross-examination to show whether these transactions were genuine. Finally he came to the conclusion that assessee has entered into sham transactions with investors without having regular business transactions in the past or in the future and added the entire amount to the income of the assessee u/s 68 of the Act as unexplained cash credit in the assessment framed vide order dated 03.03.2015.

In the appellate proceedings the Ld. CIT(A) dismissed the appeal of the assessee on this issue by simply affirming the order of AO by citing the reason that Assessment Year: 2012-13 M/s Lalbaba Seamless Tubes Pvt. Ltd . the assessee has failed to establish the genuineness of these transactions and creditworthiness of the share holders.

The Ld. A.R vehemently submitted before us that both the authorities below have hurriedly passed order without any application of mind and without examination of evidences as adduced before both the authorities and wrongly came to conclusion that share capital received by the assessee were sham transactions. The Ld. A.R. stated that neither AO nor Ld. CIT(A) issued any notice u/s 131 of the Act to any of the share subscribing companies. The Ld. A.R. submitted that the assessee has filed all details/evidences in respect of said investments as were required by the AO. The Ld. A.R. submitted that all the details/evidences establishing the identity, creditworthiness of the investors and genuineness of the transactions were furnished before the AO copies whereof are filed at page 40 to 42 of the PB. The Ld. A.R. submitted that on page no. 40, vide written submission dated 12.12.2014 the assessee filed all the details of allotment of shares with full details of shareholdingswith their respective PAN and page no. 41 vide letter dated 20.02.2015 the assessee brought to the notice of the AO the details/evidences called for in respect of share holders have already been filed. Thereafter the Ld. A.R. submitted that the details as contained in PB-2 from page 1 to 698 which contained the complete details in respect of all the share holders such as source of investments, bank statements, ITR’s, audited annual accounts, copies of Form 23AC etc. and submitted that all these evidences/record were before the AO as well as the Ld. CIT(A). The Ld. A.R. submitted that all seven share applicants have responded to the notice issued u/s 133(6) of the Act to the AO the copies whereof are placed in the paper book however, the AO has not bothered to discuss or point out any defect or deficiency in the documents furnished by the share applicants. The said evidences were neither controverted by the AO during the assessment proceedings nor in the remand proceedings when the case was remanded back to the AO in the appellate proceedings. The Ld. A.R. submitted that the AO has simply added the amount of share capital and share premium on the ground that assessee has not produced the shareholders whereas as a matter of fact notice u/s Assessment Year: 2012-13 M/s Lalbaba Seamless Tubes Pvt. Ltd . 133(6) of the Act of the Act were issued to them and all of them responded by furnishing all the requisite details/evidences along with Sworn Affidavit by these investors confirming their subscription/investment in the assessee company and also the source of investment which is placed at page 101 to 109 of the PB. The Ld. A.R submitted that all the investing companies have huge own funds available with them to make investment in the assessee company the details whereof are placed at page 43 of the PB by submitting that the amount invested by the company ranged between 1.17 % to 3.5% of the funds available. The Ld. A.R also submitted that the shareholders are also assessed to tax on regular basis and the assessment were framed u/s 143(3) of the Act by referring to the assessment orders as filed in Paper Book from page 68 to 100. The Ld. A.R. submitted in all the cases except in the case of M/s Clubside Dealcom Pvt. Ltd., no addition was made in the assessment proceedings u/s 143(3) of the Act. The Ld. A.R submitted that in the case of M/s Clubside Dealcom Pvt. Ltd. ,the addition of entire money received to the tune of Rs. 36.53 crores was made in the hands of said investor. The ld AR argued that in that eventuality no addition can be made in the hands of assessee as the AO also held that the money was invested out of these funds of the investor. In defense of his arguments the Ld. A.R. relied on the order of Co-ordinate Bench of ITAT, Kolkata in the case of ITO vs. Happy Structure Pvt. Ltd. in for AY 2012-13 dated 22.05.2019, DCIT vs. Maa Amba Towers in ITA No. 1381/Kol/2015 for AY 2012-13 dated 12.10.2018 and Steelex India Pvt. Ltd. vs. ITO in ITA NO. 2666/Kol/2019 for AY 2012-13 dated 09.09.2022. The Ld. A.R. while referring to page 58 to 67 of PB, submitted that all the investor companies were active. The Ld. A.R. further argued the survey conducted on Shri K.M. Naita who is controlling M/s Clubside Dealcom Pvt. Ltd. was never brought to the notice of the assessee at the time of assessment proceedings and also the fact that Shri K.M. Naita was the director of M/s Clubside Dealcom Pvt. Ltd. The Ld. A.R. also referred to the affidavit of the director of the assessee company Mr. Sushil Kumar Naita who has furnished a sworn affidavit the copy of which is filed at page 110 of PB affirming on oath that no accommodation entries were provided to the assessee. The Ld. A.R. submitted that such details were Assessment Year: 2012-13 M/s Lalbaba Seamless Tubes Pvt. Ltd . also filed before the authorities below however the same remained uncontroverted. The Ld. A.R. submitted that neither Shri K.M. Naita was examined by the AO nor any cross-examination were afforded to the assessee. The Ld. A.R. submitted that no addition could be made on the basis of statement of entry operator without affording cross-examination to the assessee and in defense of his arguments he relied on the various decisions namely:

The Ld. D.R on the other hand relied heavily on the order of authorities below and strongly controverted the arguments presented by the Ld. Counsel for the assessee by submitting that M/s Clubside Dealcom Pvt. Ltd. and its director Mr. K.M. Naita were subjected to survey u/s 133A of the Act on 23.04.2014 by the DDIT(INV) during which it was revealed that Shri K.M.Naita was engaged in the business of providing accommodation entries through a network of companies nonetheless he was never associated himself as director on these companies. The ld DR while taking us through the order of lower authorities argued that the directors were never produced for verification of evidences and examination. The Ld. D.R while relying on the order of Ld. CIT(A) submitted that the money received by the assessee is nothing but accommodation entries taken by the assessee from these companies and therefore the order of Ld. CIT(A) which is otherwise speaking and well reasoned order may kindly be upheld by dismissing the appeal of the assessee.

After hearing the rival contentions and perusing the material on record, we find that the assessee has raised share capital from seven investors by issuing equity shares at premium the details whereof are given at page 2 in para 3 of assessment order . We note that during the course of assessment proceedings the AO called for Assessment Year: 2012-13 M/s Lalbaba Seamless Tubes Pvt. Ltd . various details/documents from the assessee in respect of investments and the investors which were duly supplied to the AO. Besides the AO issued notice u/s 133(6) to these companies calling for certain information/evidences which were duly furnished by all the investors and are available on record. We note that AO has not issued summons u/s 131 of the Act to the directors of the investor companies however made an addition on the basis that directors were not brought or produced by the assessee. We note that the assessee has furnished all the evidences during the assessment proceedings which are available at page 1 to 631 of PB-2 which comprised of ITR’s, audited financial statements, bank statements, source of investments etc. We also note that these investors were too selected for scrutiny assessments and assessment were framed u/s 143(3) of the Act and no addition was made in the hands of the investors except M/s Clubside Dealcom Pvt. Ltd. in which the entire amount of money raised to the tune of Rs. 36.53 Cr was added to the income, out of which the said company had invested in the share capital of the assessee. Therefore ,we find merit in the contentions of the Ld. A.R that once the addition made in the hands of subscribing company, no further addition could be made as this amounts to double addition of the same amount. The case of the assessee finds support to the decision of Kolkata bench in the case of ITO Vs Happy Structure A.Y. 2012-13 order dated 22.05.2019 which referred and relied on the another decision of coordinate bench in the case of DCIT Vs M/S Maa Amba Towers ITA No. 1381/Kol/2015 A.Y. 2012-12 order dated 10.10.2018. Similar ratio has been laid down by the coordinate bench recently in the case of Steelex India (P) Ltd Vs ITO ITA No. 2666/Kol/2019 A.Y. 2012-13 order dated 09.09.2022.

We note that share subscribers have also filed sworn affidavits confirming the said investments and source of investments copies whereof have been filed at page 109 to 113. We further note that all the companies are active and have invested the money out of their own resources as is apparent from the details filed by the assessee as comprised in from page 58 to 67 of PB. It is also undisputed that a survey was Assessment Year: 2012-13 M/s Lalbaba Seamless Tubes Pvt. Ltd . conducted on Shri K.M. Naita who controlled the M/s Clubside Dealcom Pvt. Ltd. and during survey it was revealed that the said company was providing accommodation entries. However the said fact was never brought to the notice of the assessee during the assessment proceedings of the assessee. We also note that Mr. Sushil Kumar Naita has given a sworn affidavit a copy of which is filed at page 110 of PBstating that no accommodation entry was ever provided to the assessee. We note that said affidavit was available before both the authorities below but has remained uncontroverted. Mr. K.M. Naita was neither examined by the AO nor any cross- examination was afforded to the assessee. It is settled legal position that the statement given during survey cannot be used to make addition in the hands of the assessee unless the assessee was allowed to cross-examine the person who gave statement which was used against the assessee to make the addition. The case of the assessee finds support from the decision of Hon’ble Supreme Court in the case of Kishinchand Chellaram (supra) and Hon’ble Allahabad High Court in the case of CCE vs. Shyam Traders (supra). We note that the assessee has proved the source and source of source of all these investors even though the same is not required to be proved in the instant assessment year as the amendment is applicable prospectively as has been held by the Hon’ble Bombay High Court in the case of Gangadeep Infrastructure (supra).

We have considered the rival submissions. We are of the view that order of Ld. CIT(A) does not call for any interference. It may be seen from the grounds of appeal

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