INS FINANCE & INVESTMENT P LTD.,,NEW DELHI vs. ITO WARD - 12(3), NEW DELHI

PER AMIT SHUKLA, J.M.: The aforesaid appeal has been filed by the assessee against the impugned order dated 29.12.2017, passed by Ld. Commissioner of Income Tax (Appeals)-XLIV, New Delhi for the quantum of assessment passed u/s.147/143(3) for the Assessment Year 2010-11. In the grounds of appeal the assessee has raised following grounds:

“1(i). That on facts and circumstances of the case, the Ld. CIT(A) was not justified in dismissing the appeal without proper opportunity or appreciation of the written submissions placed on record.

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(ii) That the impugned order having been passed by CIT(A) without any hearing and merely on the basis of submissions made before erstwhile CIT(A), the impugned order is illegal and contrary to principle of natural justice. (iii) That the order passed by CIT(A) is in contravention of provision of section 250(1) and 250(2)(a) of the Act. 2(i). That on facts and circumstances of the case, the Ld. CIT(A) was not justified in upholding the validity of notice u/s 148 of the Income Tax Act, 1961 even though the notice u/s 148 was issued without recording proper reasons to believe in terms of provisions of section 147 of the Act. (ii) That in the absence of any evidence or material in respect of any income escaping assessment, there is no ground or basis for assuming jurisdiction u/s 148 of the Income Tax Act, 1961 (iii) That the reasons having been recorded without application of mind and tangible material, the same are improper, invalid and fails to confer valid jurisdiction u/s 147 of the Act. (iv) That even otherwise, the notice u/s 148 having been issued without proper approval in terms of provisions of section 151 of the Act, the same is illegal and without jurisdiction. (v) That in any case, reasons being merely on the basis of information from investigation wing and in absence of any independent tangible material to establish the case of escapement of income, the reasons recorded are uncorroborated, unsubstantiated and based on erroneous presumption. (vi) That in absence of proper disposal of objections to notice u/s 148, the CIT(A) has grossly erred in confirming the re-

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assessment proceedings u/s 147 of the Act. 3(i). That on facts and circumstances of the case, the Ld. CIT(A) has grossly erred in confirming the addition of Rs. 5,12,40,000/- u/s 68 on the alleged ground of bogus share capital even though the same is neither part of reasons nor in respect of which any evidence or material is on record in support of allegation of any undisclosed income. (ii) That the reasons having been recorded only in respect of issue of share capital to the extent of Rs. 2,50,00,000/- received from M/s. Pranneta Industries Ltd., the remaining additions are wholly without jurisdiction and against the spirit of provisions of section 147 of the Act particularly when there is no adverse information or material on record. (iii) That the scope of reassessment proceedings u/s 147 is defined with reference to reasons recorded and in absence of any fresh notice u/s 148 or approval u/s 151 in respect of other issues, the assessing officer was bereaved from making roving enquiry or investigation in respect of issues falling outside the reasons. (iv) That assessing officer having exceeded his jurisdiction u/s 147 and there being no case of any tangible material, the Ld. CIT(A) was not justified in confirming the impugned addition u/s 68 of the Act as same is illegal, unwarranted and not sustainable under the law. 4(i). That on facts and circumstances of the case, the Ld. CIT(A) was not justified in confirming addition of Rs. 2,50,00,000/- u/s 68 in respect of share capital issued to M/s. Pranneta Industries Ltd., a listed company, even though same is

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duly supported from documentary evidences. (ii) That the assessing officer having not disputed the genuineness of the documentary evidences furnished in support of share capital received from said party, the impugned addition u/s 68 is on mechanical and arbitrary basis and against the settled legal principle. (iii) That even otherwise, the assessing officer having failed to provide copy of statement of Sh. Shirish C Shah and opportunity of cross examination, the impugned addition are contrary to principle of nature justice and not sustainable under the law. 5. That the entire share capital being fully supported from documentary evidences, the impugned order confirming the addition u/s 68 to the extent of Rs. 7,62,40,000/- is illegal, arbitrary and without proper opportunity. 6. That the orders of lower authorities are not justified on facts and are bad in law. 7. That the appellant craves leave to add, amend, alter or forgo any or all of the grounds as may be necessary and in the interest of justice.”

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2(2), Mumbai containing allegation of assessee being a beneficiary of accommodation entry of Rs. 2.50 crores provided by M/s. Prraneta Industries Ltd. (now known as M/s. Aadhaar Ventures India Ltd.), the assessee’s case was sought to be reopened. The contents of the information from DCIT Mumbai have been brought out in the reasons on the basis of which the assessing officer formed the opinion that share capital received by the assessee company from M/s. Prraneta Industries Ltd. is in the nature of accommodation entry resulting in income escaping assessment to the extent of Rs. 2.50 crores. The reasons recorded by the Assessing Officer have been incorporated in the assessment order, which for the sake of ready reference are reproduced hereunder: ‘Recording of reasons for re-opening the case of M/s INS Finance & Investment Pvt. Ltd. A.Y. 2010-11, PAN: AABCI4418E 1. Background

The assessee company M/s INS Finance & Investment Pvt. Ltd. was incorporated on 22/11/2005. The business of the assesses is finance and investment. The directors of the Assessee company are Ms. Megha Goel, Sh, Naresh Goel and Sh. Raj Kdinar Gael. The company fried its Return of income for A.Y.2010-11 on 18/09/2010 declaring income of Rs. 1,66,200/-. Thereafter the return was processed u/s 143(1) of IT. Act The case was not picked up for scrutiny, so assessment u/s 143(3) was not made.

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2.1. The DOT, CO-2(2), Mumbai vide letter F. No. Mum/ DCIT CC 2(2)/Intimation/ 2016-17/ dated 26/04/2016 intimated that M/s INS Finance & Investment Pvt. Ltd. (PAN : AABCI4418E) has taken accommodation entry amounting to Rs.2,50,00,000/-in financial year 2009- 10 relevant to assessment year 2010-11 from the entity controlled and operated by Sh. Sirish C Shah entry provider, mentioned below.

Sr No Name of the entry provider Name of the F.Y A.Y Amount Beneficiary (Rs.) Company 01 M/s Praneta Industries Ltd. M/s INS Finance & 2009-10 20 10-11 2,50,00,000 (now known as M/s Aadhaar Investment Pvt. Ltd, Ventures India Ltd.)

2.2 The DCIT CC-2 (2), Mumbai further reported that a search operation was conducted at the various premises of Sh. Shirish C Shah who was engaged in providing accommodation entry in the shape of loan, share capital/ premium/ long term capital gain, Sh. Shirish C Shah directly controlled more than 200 companies and M/s Aadhaar Ventures India Ltd. is also one of the companies controlled by him. It is seen from the impounded material that assesses mentioned in Para-2 above has acquired accommodation entry from M/s Aadhaar Ventures India Ltd. The assessment of Sh. Shirish C Shah as well as assessment of the entry provider companies have been completed where-in details facts and modus operandi of the entities have been mentioned. In the assessment order it was held that impugned companies were engaged in providing accommodation entries to various beneficiaries. Perusal of assessment order of Sh. Shirish C Shah tantamount that M/s Aadhaar Ventures India Ltd. (P) Ltd was a dummy company and provided accommodation entry to various beneficiaries including the assessee company.

2.3 A data furnished by the DCIT CC-2(2) Mumbai demonstrates that the above named company is a meagre net profit deriving entity which clearly indicates that it does not have creditworthiness to invest in M/s IMS Finance & Investment Pvt. Ltd. During the assessment proceedings, M/s Aadhaar Ventures India Ltd. Pvt. Ltd. has failed to

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prove creditworthiness of the investment in the assess company

3.1. I have perused the information received from the DOT, CC-2(2), Mumbai. The following facts emerged from, the report, as. provided by the*. DOT, CC-2 (2), Mumbai:-

(i) M/s INS Finance & Investment Pvt. Ltd. has taken accommodation entry from M/s Aadhaar Ventures India Ltd. amounting to Rs.2,50,00,000/- in the A. Y 2010-11. It is difficult to ascertain how a newly incorporated company has raised such amount particularly from non descript and paper company. (ii) M/s Aadhaar Ventures India Ltd. in its assessment proceedings admitted that accommodation entry was given to various beneficiaries including the assessee company, (iii) Sh. Shirish C Shah, the main operator and controller of M/s Aadhaar Ventures India Ltd. (P) Ltd. admitted in its own assessment proceedings that he was accommodation entry provider and gave accommodation entry to various persons in lieu of cash received.

4.1 The return of income of Assessee Company has been downloaded from the ITD system and the same was examined in the light of information received from DCIT ,CC 2(2) Mumbai. During the year under consideration, the company has shown security premium more than Rs.2.5 crore which strengthen the belief that the company has received accommodation entry of Rs.2.5 crore or more in the guise of share premium/ share application money.

4.1.2 From the above it is evident that the assessee company has raised its share application money/ including share premium amounting to Rs.2,50,00,000/- . The balance sheet of M/s INS Finance 8s Investment Pvt. Ltd, for the A. Y. 2010-11 was also perused and it was found that this company invested Rs.2,50,00,000/- or more and has earned income of Rs. 1,66,200/- The ITR-6 of the company is also showing, cash in hand is cf Rs.5,93,123/- and balance with banks is of Rs. 14,862/-.

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5.1 In the light of above discussion, it is apparent that the company has raised share application money amounting to Rs.2,50,00,000/- in the A. Y 2010-11. It is difficult to ascertain how a newly incorporated company has raised such huge share application money particularly from non-descript and paper companies. Since, the assessee company is a beneficiary of the accommodation entries as per details given above and as per information, I have reason to believe that the income of Rs/2,50,00,000/- has escaped assessment as defined by section 147 of the ActforA.Y 2010-11. The income chargeable to tax has escaped assessment for this year by the reasons of the failure on the part of the assessee to disclose fully and truly all material facts. Therefore it is a fit case for the issuance of notice u/s 148 of the Act for A. Y. 2010-11.”

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M/s. Prraneta Industries Ltd. (now known as M/s. Aadhaar Ventures India Ltd.) for sums of Rs.2,50,00,000/- for which information was received by the Assessing Officer. The details of these companies are as under:

Details of shares purchase Total amount of Face Premiu NameS Address of Subscriber No. of investment (Rs) value m . SI. shares (Rs) No (Rs) Mrigiya Electronic Industries Pvt. bid,, 27A, Matcalf Streeet, 3rd Floor, Kolkata, 1 25000 10 90 25,00,000/- (WB) Marubhumi Finance & Developers :Pvt. Ltd. Room No.205, 2nd Floor, 10A 2 25000 10 90 25,00,000/- Hospital Street, .Kolkata 70072 (WB)

Makesworth Project & Developers (F) Ltd. 156A, 3rd Floor, Lanin Sarani, 3 48400 10 90 48,40,000/- Koikata (WB)

Link Point Infrastructure (P) Ltd. 10A 4 : Hospital Street, Kolkata 70072 (WB) 39000 10 90 39,00,000/- .

Abhilasha Export (P) Ltd. 5 25000 10 90 25,00,000/- 3, Sakelat Place, Kolkata (WB) Chandimata Management (P) Ltd. 27A, Matcalf Streeet, 3«! Floor, Kolkata, 55,00,000/-: 6 55000 10 90 (WB)

Cimmco Vinmay (P) Ltd. 7 16 Munshi Sadruddin Lane, 1st Floor, 40000 10 90 40,00,000/- Kolkata (WB) Mehandipura Trade Link Pvt. Ltd., 50000 90 50,00,000/- 85, Netaji Subhash Road, 8 10 Kolkata Jainex Securities Pvt. Ltd., 20000 90 20,00,000/ 9 10 7 Lyonce Rande, Rolkata- 700001 Critcare Marketing Pvt. Ltd. ISA, 45000 90 45,00,000/ 10 10 Ramakant Bose Street, Kolkata-70001 S.R. Jute Traders Pvt. Ltd. 10000 90 10,00,000/- 23/1, Maharishi Devindra Road, 11 10 Kolkata-700007 Mabavir Fihcon i[P) Ltd. 35000 90 35,00,000/- 10, Clive Row, 7* Floor, Room No. 710, 12 10 Kolkata Nitin Hire Purchase (P) Ltd. House 25000 90 25,00,000/- ; No.2698, Mohala Dhiranakodar DT .1 10 13 Jalandher, Kolkata

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Fly High Exports (P) Ltd. 25000 90 25,00,000/- : 4, B.B.D Bagh East, Stephen House 10 14 Kolkata -700001 PMB Holdings (P) Ltd. 10000 90 10,00,000/- 15 19, Synagogue Street, City Centre 2^ 10 . Floor, Kolkata Devraaj Mercantile (P) Ltd. 18, 20000 90 20,00,000/- Ramakant Bose Street, Kolkata -700003 16 10 Prraneta Industries Ltd. S 574- 77 4th 250000 90 2^00,000 Floor, Belgaum Square, Ring Road, 10 Surat, Gujrat M/s Balaji Fineap .'Pvt-. Ltd., ISA, U- 5000 90 5,00,000 158, 2“4 Floor, Vats Complex, Vikas 10 Marg, Shakarpur Delhi. M/s Anikaish Project Pvt. Ltd., 14, 10000 90 10,00,000 U/158, Floor, Vats Complex, Vikas 10 Marg, Shakarpur, Delhi. 7,62,40,000/-

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etc. The relevant question and answer are reproduced hereunder: “Q.2 Please give details of your source of Income, if any, Ans. I had promoted a company by the name of M/s Prraneta Industries Limited in 1993 then known as M/s. Aadhar ventures India Limited, I received salary from this company as managing Director of this Company on 10.01.2013. In addition to salary received from this company I also earned commission income and income from investment in shares. All the income earned by me is duly reflected in the returns of income filed by me. I have filed the return of income till A.Y. 2011-12 and am in process to file the return for A.Y. 2012-13 and 2013-14. Q.3 .Please provide the complete details of the office premises, factories, godowns, branch offices and other place of business from where the activities of M/s Prraneta Industries Limited are carried out and where the books of accounts of this company along with the primary documents iricluding bills and vouchers are maintained. Ans. Sir, There is. only one office of M/s Prraneta Industries Limited and the same is situated at 323, Golden Point, ring Road, Near BSNL Bhavan, Surat. There is no other branch office, factory, godoum site office or any other Business premises of the company, This is the office of the company since last one and half yean Earlier the only office of the company was at 574/ 75, Belgium Square, Ring Road, Surat since inception of the company i.e. year 1993. The books of accounts since inception till 2008-09 were maintained at this office only. However, since the affairs of the company are being managed by Shirish Chcmdrakant Shah the books of accounts are maintained by Shri devang Dinesh Chandra Master an associate of Shirishbhdi at this office situated, at Nawdb Building, Fort, Mumbai. Regarding bills of purchase and sale I would like to state that there is no activity in the company nor the company is doing any business, however whatever purchases and sales for turnover and entry have been made its bills are maintained by Shirishbhai and Shri Dewang Master. Some of the bills were sent by Shirishbhai for Income tax assessment purposes from Mumbai and the same were seized by the department during the course of search conducted at

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the registered office of the Company on 09.04.2013. Q.4 Please provide details of the promoters of M/s Prraneta Industries Limited and who manages and controls the affairs of the company including the day to day business activities like purchases, sales, investments, financial transactions like loans advances received and paid and other revenue generating activities. Ans. Sir, 1 along with my wife Smt. Rajshree Khandelwal, my brother Shri Vijay Narayan Sharma (Joshij and few other people promoted, this company in 1993 and share capital of Rs. 1 lacs. The company was listed at BSE in 1996 and true share capital was raised to Rs, 8,15,21,000/-. However, the entire inception til 2008, Thereafter, the entire affaires of the company are managed by Shirish Chandrakant Shah, Q.5 On perusal of the Annual Accounts for F.Y. 2008-09 to 2011-12 of M/s Prraneta Industries Limited filed with ROC and certified and signed by you as Managing Director of the company there has been significant receipt of funds in form of share capital, Share application money, securities premium. The details of the same are as under: Particulars F.Y. 2008-09 F.Y, 2009-10 F.Y, 2010-11 F.Y. 2011-12 Share Capital 81,521,000 225,721,000 225,721,000 225,721,000 Money 544,885, Received Against Share Warrants Securities 180,250,004 180,250,004 180,250,004 Premium Reserve Share 1,201,080,000 2,508,42 Application Money pending Allotment In this regard you are requested to provide the details of the investors, produce the share application forms and also produce the Board resolutions ed for inviting investment through provate placement Also provide details as these funds were used. - the entire work of raising the share capital of the company was done Ckandrakant Shah. He along with Devang Dinesh Chandra Master -rivate placement of shares of M/s Prraneta Industries

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Limited, I »vestors, nor the company is in possession of share application *hese investors. As per my knowledge no Board resolution ny of the promoters of the company in this regard. This Shirish Chandrakant Shah so as to provide “one time” share capital, unsecured loans and LTCG, the purpose for which he took control and management of my company. With regard to the utilization of the funds also I am not aware as these funds were received in the bank accounts operated and controlled by Shirish Bhai at Mumbai and paid to various parties from those bank accounts. However, I can surety say that these funds were ot used for any of the business activities of the company like purchase, sate, investments etc. The receipt and payment of funds both are not genuine transactions, but, part of the accommodation entry business of Shirishbhai operated through my company M/s Prraneta Industries Limited. I would like to clarify that Shirishbhai did not pay me the commission earned by him from entry business, as agreed by him when the" control and management of the company was handed over to him, thus, I withdrew myself from the entry business of the company, 1 ham been requesting Shirishbhai since past 2-3 years for filing revised Form No. 32 with ROC and withdrawing me from the post of managing director of the company in Jan 2013. Q-6 Please company details of the business activities of M/s. Prraneta Industries Limited since inception. Arts. The company has been engaged in providing accommodation entries of purchase, sale, loans, advances and one time entry of share capital introduction to the clients. 1 managed the entire business till year 2008. In year 2006, I received the proposal from Shirish Chandrakant Shah of Mumbai whom I knew through some common friends. He informed me that he is in the business of providing accommodation entries of bogus LTCQ to various clients on receipt of commission. Shirishbhai proposed that he is interested in using M/s Prraneta Industries Limited for providing accommodation entries of LTCG and for this he told me that the commission received from providing the accommodation entries will be shared equally between me and him For this Shirishbhai requested me to transfer the shares of M/s Prraneta Industries Limited under my control to the persons and companies specified by him. I agreed to the proposal and the shares of M/s Prraneta

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Industries Limited under my control were transferred to the persons specified by Shirishbhai partly through off market sale and partly through synchronized trading at BSE. Q.7 In reply to question No. 6 you have stated that you managed the business of the company till 2008. Pleasee explain when you gave control of the company to Shirish Chandrakant Shah in year 2006, how were you and to what extent controlling the activities of M/s. Prraneta Industries Limited. Ans. Sir, In the year 2006 the control over the shares and its trading so as to five accommodation entries of LTCG Was handed over to Shirish Chandrakant Shah, however, the other accommodation entries being provided by the company including the one time entries were being entirely managed by me from Surat. In year 2008-09, Shirishbhai told me that he will issue shares through private placement to various investors for providing accommodation entries of share capital and for this purpose he opened a hank accounts in the name of M/s Prraneta Industries Limited at Mumbai and on his request Jew dummy Directors as specified by him were appointed by the company. The dummy Directors appointed by Shirishbhai are julls Raichand Madan, Mrs. Jyoti Munver, Mr. Rif an Thakore, Mr. Monish Thakkar. The authority to operate these accounts was vested with some of these Directors and. Shri Radhe Shy am Sharrna, Director of the company at that time and my employee. Thereafter, the funds received in the company were used by Shirishbhai to provide one time entries. However, after 2008-09 the entire affairs of M/s Prraneta Industries Limited were being managed and controlled by shirishbhai. On perusal of the bank accounts of M/» Prraneta Industries Limited at Surat held with the Karur Vysya bank Limited, Parle Point, and operated by me, it would be clear that no significant deposits or withdrawals are made in these banks accounts relating to the business activities of this company. Similarly, the bank accounts operated and maintained by Shirishbhai at Mumbai will be having all the deposits and withdrawals relating to the entry business of Prraneta Industries Limited including turnover entries, Q.8 In reply to question above you have stated that since inception M/s Prraneta Industries Limited was engaged in providing

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accommoda tion entries of various types. Please explain the modus operandi of providing accommodation entries. Ans. Sir, the entry business in M/s Prraneta Industries Limited started mainly after the receipt of funds raised through IPO in the year 1996. Through IPO funds aggregating to 8,15,21,000/~ were managed to be raised. The funds raised through IPO were used to give entries of share capital, unsecured loans, advances or inter corporate deposits was provided used to give cheques to square off the account in their books. These cheques were used to provide accommodation entries to other parties whose accounts were squared off on receipt of cheques. One time entries of share capital was also provided to clients. In this type of entries two types of Modus operandi were employed. Firstly, share capital of the client company was subscribed from whom cash and commission were received. Along with the share application from share transfer forms Were handed over to the clients and finally the shares were transferred to the persons designated by the client at normal prices. Secondly, share applications were made in the client companies and first call payments were made as per the understanding with the client and the cash received from them. Thereafter, the client company used to call for the arrear calls amount and gave a notice that failing, the payment of the remaining call amount the share application money would be forfeited. As .per the understanding the arrear calls were not paid and the share application money was forfeited by the client company. In this way the cash received from the client was introduced back in their company as share forfeiture amount without any obligation to. pay back. Q.9 Please provide details of commission charged by you for providing accommodation entries to various clients and whether such commission income was offered to tax, if yes, please explain how. Ans. Sir, after deducting the expenses commission @ 1.8% per annum was charged for providing accommodation entries of unsecured loans, inter-corporate deposits and loans and advances. For providing one-time accommodation entries of share capital introduction commission @2% was charged. This income was not

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reflected in the books of accounts. However, in certain cases bogus interest payments received from clients against loan entries was reflected in the books of amounts, 7'his interest was received from the clients so as to give legitimate colour to the accommodation entry of loans and advanceshowever, the interest received through cheques was paid in cash to the clients and was not actual income of the company, but, however, the same was reflected in the books of M/s Prraneta Industries Limited. Q.10) Please provide the year wise details of the persons to whom accommodation entries of loan, advances, inter corporate deposits, investments that have been provided by you through M/s Prraneta Industries Limited. Ans. Sir, All the loan, advances inter corporate deposits, investment entries appearing in the books of accounts of M/s Prraneta. Industries Limited. Are accommodation entries as there has not been any business activity I the company since its inception, as already stated by me above. Thus, on perusal of the books of M/s Prraneta Industries Limited. You can identify the clients to whom accommodation entries have been provided. Q. 11 Please also explain the types of bogus accommodation entries provided by Shirish Chandrakant Shah using the bank accounts and the books of accounts of M/s Prraneta Industries Limited. Ans. Sir, Shirishbhai was mainly engaged in providing bogus LTCG entries to his clients using the shares of M/s Prraneta Industries Limited. And the number of companies managed by him. The complete modus operandi followed by him is not known to me. However, as per my knowledge and understanding between us and discussed he used to convert cash received from the clients into LTCG using his expertise in dealing in shares and securities through synchronized trading. He also used the bank accounts of M/s Prraneta Industries Limited. To provide one time entries. Q. 12 As per the final accounts of M/S Prraneta Industries Limited. Signed and certified by you as managing Director for the Financial years 2008-09 to 2011-12 and filled with ROC it is seen that M/s Prraneta Industries Limited. Mas turnover, income and expenses as under: Particulars F.Y. 2008-09 F.Y. 2009-10 F.Y. 2010-11 2011-12 Total turnover 653.55,080 5366,72,892 2,655,541,196 1,727,097,811

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Income from staes Of shares 34,82,730 74,37,557 Income from sale 1,260,202,839 1,875,562,713 Of fabric and cloths 606,52,510 1865,98,568 4587,97,947 Income From road and infrastructure projects

Expenses for purchase of Raw material 1846,99,643 2,633,445,588 1,259,326,252 Expensesfor Road Construction 3317,53,4,887 377,43,243 4497,88,601

Please comment regarding the genuineness of the. turnover of the company and the expenses recorded in the books of accounts of the company, as recorded above. Also produce evidence with regard to receipt and delivery of the goods i.e, fabrics and cloth purchased and sold by the company. Ans. Sir, As already stated, by me in my statement, above, M/s Prraneta Industries Limited. Since its inception is engaged in the activity of providing accommodation entries to various clients of share capital, unsecured loans, inter corporate deposits etc., moreover, it is listed company, thus, to keep the company alive turnover entries were given and received from various parties. Though, most of the turnover as recorded by you in the question, above, is bogus and a mere book entry, in some cases bogus entries of purchase and expenses might have been provided to certain parties. More details in this regard can only be provided by Shirish Bhai for the period after 2008-09. However, being the managing Director of the Company lean surely say that there is no real business activity in the company and the entire turnover and expenses credited and debited to the P/L account except for few day to day maintenance and salary expenses are bogus. As no real goods were purchased and sold evidences with regard to the delivery and receipt of goods cannot be produced by me. I would like to clarify that annual accounts filed with ROC for F.Y. 2011-12 have not been signed by me and my signatures on the annual return have been forged. Q.13 I am showing you the statement of Shirish Chandrakant Shah recorded under section 132(4) of the Act, during the course search on 13.04.2013. In reply to question no. 8, he has stated that he is managing and controlling the affairs of various listed companies including M/s Prraneta Industries Limited,

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{know Aadhar Ventures India Limited). Further, in reply to Question No. 9 he has stated that he has used the network of various companies managed and controlled by Mm for providing “one time” and bogus LTCG entries on receipt of cash from the clients. However, he has clarified that in case of listed companies he is involved only to the extent of providing accommodation entries and whatever, bogus bills of purchase and sale have been issued by the listed companies (including y our company) have been issued by the promoters and he has no role to play in the 'issue of such bogus bills. However, you have stated that the bogus turnover entries of purchases and sale of M/s Prraneta Industries Limited. Are being managed and controlled by Shirish Chandrakant Shah, whereas he has categorically denied to have issued bogus purchase and sale entries. Infact as per his statement referred above the bogus bills have been issued by the promoters and in your statement above you have clearly stated that on behalf of the promoters entire affairs of the company are being managed and controlled by you. In this regard you are requested to go through the statement of Shirish Chandrakant Shah and offer your comments- Arts. Sir, I have gone through the statement of Shirish Chandrakant shah and I am not in agreement with the statement wherein he has stated that the bogus bills of purchase and sales of goods by the listed companies are being issued the promoters as far as my company M/s Prraneta Industries Limited, is concerned. I however, agree with other parts of his statement wherein he has stated that he has used the listed companies managed and controlled by him including my company M/s Prraneta Industries Limited, to provide various types of accommodation entries Q.15 I am showing you loose paper file inventoriesd as Annexure BS-2 (pages 1 to 135), This file contains certain agreements entered into by my company M/s Prraneta Industries Limited, with PACL India. Limited for execution of land Development work in Tamilnadu, This file also contains the agreements entered into by M/s Prraneta Industries Limited, with some companies in Kilkata wherein the work contracted by M/ s PACL India Limited has been sub- contracted to these companies based in Kolkata. This file also contains the invoices raised by M/s Prraneta Industries Limited, on

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PACL India Limited and by sub-contractors on M/s Prraneta Industries Limited. These files were brought by me and Shri radhe Shyam Sharma, my employee from Shirish Bhai’s residence at Meghdoot, Marin Lines Mumbai. He asked us to keep the filed at the registered office of th company in case some enquiry is conducted by income tax or any of the Department. In reply to various questions in this statement you have stated that M/s sta Industries Limited, does not have any real business activities, but, is only engaged in the business of providing accommodation entries. Please explain as to how such big contracts of land development were awarded to your company. Also explain as to how these contracts were executed and the key persons responsible for execution of this contract. Ans. Sir, it is true that M/s Prraneta Industries Limited, does not have any business activities other than providing accommodation entries. The contract with M/s PACL India Limited is also not a genuine contract. It might be a turnover entry or bogus billing entry done by Shirish Chandrakant Shah. As managing Director of the Company I can surely say that my company M/s Prraneta Industries Limited, did not execute any land development contract in Tamil Nadu or any other part of the country till date. Q.17 Please produce the contract ag nts, invoice raise dby M/s Prraneta Industries Limited, and evidences including bills vouchers of the expenses incurred wih regard to the Road and Infrastructure projects executed by M/s Prraneta Industries Limited, in which context and income of Rs. 45.88 crores has been shown in the audited accounts for F.Y. 2011-12. Am. Sir, I do not have any idea with regard, to any Road Development Projects executed by M/s Prraneta Industries Limited, till date. As already stated in my statement that M/s Prraneta Industries Limited, is not engaged in any business activity, thus there is no question of executing any Road Development Project. No bills or invoices with regard to these contracts have been raised from the office of M/s Prraneta Industries Limited, neither any bills nor other details, contracts have been received from Shirishbhai pertaining to Road Development Projects. Q.18 You are given an opportunity to go through the statement given

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by you and confirm as to whether the same has been recorded as stated by you. In case you want to make any clarifications, corrections or a notification to what has been recorded, you can state the same. Ans. Sir, I have gone through the entire statement and I confirm that what has been stated by me has been recorded as stated by me. I do not want to modify or correct and the facts stated by me and recorded in this statement above. However, I would like to state that It was operating a small accommodation entry business using my company M/s Prraneta Industries Limited, since inception till 2008- 09. However, after the control to the extent of the entries recorded in the bank accounts maintained by the company at Surat and whatever bogus accommodation entries, bogus bills have been issued by the company which are reflected in the bank accounts maintained at Mumbai have been effected only by Shirish Bhai and I have no role to play I those accommodation entries and neither I got any significant income regarding those entries. I again confirm that since inception no genuine business transactions have been made by M/s Prmneta Industries Limited and the company has been involved in providing accommodation entries.”

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Kolkata and from there he observed that the investor companies has found to be bogus. Before the Assessing Officer the assessee has filed the various materials and documents which according to Assessing Officer were not substantiated. The assessee had raised the specific objection that in the re-assessment proceedings the Assessing Officer cannot made addition on the issues which are mentioned in the reasons recorded. However, the ld. Assessing Officer rejected the assessee’s contention after referring to Explanation 3 to Section 147. Thereafter, Assessing Officer elaborated judicial principles with regard to burden of proof u/s.68 as laid down by various Courts which has been elaborated by him from pages 31 to 44. Finally, he has made the addition of Rs.7,62,40,000/- after observing and holding as under: “28. The reply furnished by the assessee has been considered but the same is tenable. The AR has again raised the baseless ground that complete statements and other documents were not provided to him, though all relevant papers were handed over to earlier AR of the company. Moreover, the CD containing various statements and- copy of Inspector report was forwarded along with the final show cause notice. On the other hand, the AR still at the time of framing assessment order did not provided the information that were called vide this office notice issued u/s 142(1) dated 13/09/2017. Moreover the summons so issued also remained uncomplied with.

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on the basis of borrowed satisfaction and without proper application of mind and harped upon the fact that copy of information from DCIT Mumbai and statements of Shirish C Shah was not confronted to assessee and as such the same cannot be relied for recording reasons for reopening of the assessment u/s 147 of the Act.

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citations on the issue of reopening u/s 148 of the Act.

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reasons are based on borrowed satisfaction is devoid of any merits as the assessing officer has recorded the reasons only after analysing the information from investigation wing and matching the same with return of income filed by the appellant. Even though we agree that assessing officer should have also carried out preliminary enquiry vis-à-vis M/s. Prraneta Industries Ltd. (now known as M/s. Aadhaar Ventures India Ltd.) so as to verify the allegations of accommodation entry, however, in our view, non carrying of out such exercise will have little effect on validity of notice u/ 147 which is based on specific information from investigation wing. In view of above, we find that the reasons recorded for issue notice u/s 148 satisfies the jurisdictional requirement of section 147 of the Act and as such the validity of notice u/s 147 is upheld.

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added u/s. 68 being share capital received during the year from M/s. Prraneta Industries Ltd. (now known as M/s. Aadhaar Ventures India Ltd.), ld. counsel submitted that M/s. Prraneta Industries Ltd. (now known as M/s. Aadhaar Ventures India Ltd.) is a listed company on Bombay Stock Exchange and as such the identity of the party is not in dispute. It was further argued that there is no adverse material on record in support of allegation of accommodation entry and the assessing officer has considered the addition merely on the basis of so called statement of Director of Shareholder Company Sh. Om Prakash Khandelwal is unreliable as later on he has retracted from his above statement. It was vehemently submitted that assessing officer, despite repeated requests, did not provide the copy of information/material from investigation or statement of the parties on the basis of which adverse inference was drawn. The assessing officer even failed to provide opportunity of cross examination in case he wanted to rely on any such statement.

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the Madhya Pradesh High Court in the case of PCIT vs. Chain House International Pvt. Ltd. [IT Appeal Nos. 110 to 115 of 2018 dated 7th Aug 2018] wherein the credential of the share holder company M/s. Prraneta Industries Ltd. (now known as M/s. Aadhaar Ventures India Ltd.) were found to be genuine by three consecutive authorities right from CIT(A), ITAT and Hon’ble High Court. The main thrust of Ld. AR’s argument was that since the very same company has already been scrutinized and examined in great depth by Hon’ble High Court, there remains no doubt over the veracity of share capital of Rs. 2.50 crores received by the appellant company. Our attention was also drawn to observation in High Court’s order regarding retraction of statement by Sh.Om Prakash Khandelwal before CIT(A). It was further submitted that order of Hon’ble High Court was confirmed by Supreme Court as SLP of revenue was dismissed.

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officer and CIT (A). It was argued that Investor Company does not possess creditworthiness to make investment of Rs. 2.50 crores in Assessee Company. It was also submitted that shares of the company has been issued at premium which is unjustified and creates doubt over the genuineness of the transaction. Further, the Ld. CIT DR also countered that there is no requirement for affording opportunity of cross examination of person whose statements are being relied upon since same is secondary material and as such there is no contravention of principles of natural justice. Reference was made decision of Supreme Court in the case of NRA Iron & Steel P. Ltd. 412 ITR 161 (SC) and other revenue favoring decisions of High Courts and ITAT. However, the Ld. DR fairly conceded that issue of share capital relating to very same company was considered by ITAT and MP High Court.

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person/entity must have actual existence which is legally recognized. The word ‘creditworthiness’ in simple terms means the resources to pay money (investment in the present case) i.e. the person/entity should have necessary funds to pay. Now it is not necessary that those funds must be own funds or out of earnings but same could also be in the nature of borrowings. The sum and substance is that there should be explainable means in the hands of the investor. The last ingredient is ‘genuineness’ which apparently means that entire transaction must be real and there should not be any element of collusiveness or sham. Once these pre-requisites of section 68 are satisfied, the can be no case of any addition in the hands of the assessee.

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party is showing healthy profit before tax of Rs. 1,72,12,447/- and has reserves of over Rs. 18 crores in the balance sheet. Let us now come to third and the most important element which is genuineness of transaction. We note that the assessing officer has primarily relied upon the statement of Sh. Omprakash Khandelwal in reaching the conclusion that M/s. Prraneta Industries Ltd. (now known as M/s. Aadhaar Ventures India Ltd.) is an accommodation entry provider. We also note that assessment order is absolutely silent about any enquiry carried out by the assessing officer with respect to M/s. Prraneta Industries Ltd. and no attempt has been made to independently verify and bring on record material to establish the alleged collusiveness or any connivance between appellant and investor, if any.

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M/s. Prrenata Industries has been providing accommodation entries to varios persons. This precise issue and allegations had come up for consideration before the coordinate bench of the Tribunal in the case of Bharat Securities Pvt. Ltd., Chain House International and Rohtak Chain Co. Pvt. Ltd. in ITA no. 598, 599, 584, 595 and 597/Del/2017 order dated 27.12.2017. The relevant facts and the observation of the Tribunal in that case for the sake of better appreciation for our case also are reproduced hereunder:

“3. During the course of assessment proceedings, the AO noticed that the assessee has received share application money and share premium amounting to Rs. 30 Crores in A. Y. 2012-13 and Rs. 25 Crores during for assessment year 2013-14. The details of share application money received during the year under consideration are as under:

SN Name F. Y. 2012-13 Amount F. Y. 2013-14 Amount in Rs. in Rs. 1 15,75,00,000 25,00,00,000 M/s. Prraneta Industries Pvt. Ltd. ( Later named as M/s. Aadhaar Venture India Ltd. PAN NO AABCP4155F

2 9,75,00,000 M/s. Dhanus Technologies Ltd. PAN: AABCD3429L 3 3,00,00,000 M/s. Emporis Projects Ltd. PAN NO AABCN0273G

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4 75,00,000 M/s. L. N. Polyesters Ltd. ( Later named as M/s. L N Industries India Ltd.) PAN NO AAACC4102B

5 75,00,000 M/s. Shri Ganesh Spinners Ltd. ( Later named as M/s. Yantra Natural Resources Ltd.) PAN NO AACCS4221Q Total 30,00,00,000 25,00,00,000

Page-13

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Page-17

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opportunity to cross examine was granted to the assessee company which was availed by the assessee company. Page-25

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requests, CIT(A) had decided to summon such persons and record their statements and provide an opportunity of cross examination to the appellant company as per law, rule and procedure. The question, therefore, arose as to which of the two statements i.e. one recorded earlier and the other recorded by the CIT(A) herself deserves reliance. After considering the entire scenario of the case the CIT(A) found that the earlier statements did not merit acceptance for the reasons such as earlier statements were recorded behind the back of the assessee and also behind the back of the AO. No opportunity of cross examination was allowed despite specific and repeated requests. Even the opportunity of cross examination once sought to be provided was immediately snatched. The earlier statements were recorded much before the search on the appellant company. Bharat Securities was not in the picture and was not an issue during these statement. In such statements non had named Bharat Securities. We also observe that the Ld. CIT(A) held that the statements recorded by her are more authentic in all respect. Direct questions regarding investment in Bharat Securities were put up and replied. Books of accounts were produced and examined. Investment found recorded. Audited Balance Sheets also demonstrate the investment in share capital of Bharat Securities Pvt. Ltd. Source of the source has also been explained and found to be correct. In these circumstances, CIT(A) found herself in agreement with the statements recorded by herself. It was held that detailed statements were recorded and all the five investor companies have admitted the investment. CIT(A) finally held that investment made by five listed companies in the share capital of the appellant company was genuine and there was no question of

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providing and taking any accommodation entries by the assesse company. 29. After considering the statement of Sh. Somabhai Sunderbhai Meena, Director of major investor company namely M/s. Aadhaar Ventures India Ltd. which was recorded by the AO during assessment proceedings, the Ld. CIT(A) arrived to the following findings. “The appellant company had produced one director of Aadhaar Ventures namely Sh. Somabhai Sunderbhai Meena before the AO during assessment proceedings. He confirmed that his company had invested a sum of Rs. 40.75 crores in the share capital of the appellant company in FY 2011-12 and 2012-13. He produced the books of accounts of the company and was thoroughly examined by the AO. This investment was found recorded in the books of accounts as verified by the AO. He explained the source of investments with reference to the books of accounts. Such source was then examined by the AO and the AO also obtained copies of the necessary ledger accounts with reference to the source of investments. He explained that his company was never engaged in providing accommodation entire and on the contrary was carrying on real business where the turnover runs into approx. 171 crores and 133 crores in FY 2011-12 and 2012-13 respectively. He also produced the bank accounts of his company with reference to the share capital invested in Bharat Securities. The AO also required him to send certain documents. Consequently copy of resolution, shareholding pattern, copy of share certificate, copy of MOU, copy of arbitration award, copy of due diligence report, copy of share valuation report and legal notice were sent by his

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company vide letter dtd. 18.03.2016. The AO never disagreed with the contents of the statements of Somabhai. His only objection was that Somabhai was not a director of the company at the time of making investment in Bharat Securities. Now two other directors of the same company namely Sh. Jils Raichand Madan and Sh. Omprakash Anandilal Khandelwal appeared before me and their statements were recorded. Both of them were directors of Aadhaar Ventures at the time of making the investment in Bharat Securities. Their tatements have already been discussed in the earlier paras and to avoid any repetition I simply want to reiterate that the present statements given by both the directors of Aadhaar Ventures before me are totally confirmatory and corroborative to the earlier statement of Somabhai Sunderbhai Meena recorded by the AO during the assessment proceedings”.

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the course of assessment. It is very pertinent to note here that even the AO could not find discrepancies with the books of accounts or the documents produced or the fact of investment and source thereof. The AO had never disagreed with the various evidences and documents submitted before him by the director of the investor company. In the presence of enormous evidences it is very difficult to hold that these companies are paper companies.

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statement ( PB-336-343& 839-846), copy of ledger account of the assesse in the books of investor company ( PB-344) and reply dtd. 14.07.2014 in response to summons dtd. 25.06.2014 issued by ADIT (Inv.)-Delhi furnished by said company ( PB 754 to 831). Reply dtd. 06.08.2014 field by the Sh. Jai Rai Cahnd Madan, in his personal capacity as a director in response to the letter dtd. 30.07.2014 issued by the ADIT (Inv.) Delhi under section 131(1 A) PB 32, Assessment order page No. 129). Reply filed dtd. 06.08.2014 by Smt. Jyoti Dhiresh Munver, director in her personal capacity as a director in response to the letter dtd. 30.07.2014 as issued by the ADIT (Inv.), Delhi, letter dtd. 19.11.2015 issued by the AO duly served on investor company ( page No. 33 & 34 of CIT(A) order and reply dtd. 26.11.2015 filed by investor company ( PB-834-883), reply dtd. 12.02.2016 filed by Investor company duly confirming investment made by it in the share of the assessee company along with relevant documents ( page No. 144 & 171 of assessment order) in support of the claim that identity and credit worthiness of investor and genuineness of transaction of said investor/share applicant is duly established. It was further submitted that opportunity of cross examination was grained to the assesse for examination in the case of Sh. Shirish Chandrakant Shah and Sh. Sawan Kumar Jajoo for which the assesse reached Mumbai at the time as given and the Venue, but since prior to the date of cross examination opportunity scheduled, ( reference page No. 134,135,170 and 171 of assessment order) the same was withdrawn by ADIT (Inv.)-Delhi and therefore, the opportunity did not actually materialise (PB-884-894). Thereafter opportunity for cross examination was demanded by the assessee in time and again before the AO but the same was never provided by

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the AO. In support of this claim the learned counsel for the assesse referred page No. 133 ( Para-2), page No. 134 ( Para-3) page No. 135 ( Para-4) Page No. 145 ( Para-ii, iv & vi) of the assessment order. 87. Thus, we find that the AO and Investigation Wing has not given any change to cross examination all the parties which even though demanded by the assessee company and said opportunity was denied to the assessee even the assessee has reached at Mumbai on given date. The AO is required to allow the opportunity of cross examination, in view of the decision of Hon’ble Supreme Court in the case of Andaman Timber Industries Vs. Commissioner of Central Excise (2015) 13 STD 805 (SC). 88. We further observed that the Ld.CIT(A) having convinced with this serious injustice rightly decide to summon the witness on whose statements the AO had placed reliance without giving the opportunity of cross examination to the assessee. All the witness appeared before the CIT(A) and they were examined by her and their statements were recorded and opportunity of cross examination was given to the appellate company. From careful perusal of such statement and logical analyses of thereof we are convinced that there statements were found to be strongly supporting the explanation and stand of the assessee company against the made by the AO u/s. 68 of Act. We also find that the Ld. CIT(A) send these statement and other relevant evidence for examination, verification and comments of the AO providing due opportunity to him. However, AO and not made any adverse comment on these statements except contending that the same cannot be considered in favour of the assesse. We are unable to

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see any valid reason to disbeliever or discard statement recorded by the Ld. CIT(A) and thus we hold that the first appellate authority was right in considering he same in right prospective and hence we are unable to see any valid reason to interfere with the findings of Ld. CIT(A) as noted above. 89. We find that Sh. Somabhai Sunderbhai Meena, the present director of Aadhaar Ventures India Ltd., the investor company appeared on 19.02.2016 before the AO with books of accounts and his detailed statement was recorded under section 131 of the Act, wherein he has duly confirmed the investment made in the shares capital in the assesse company. The copy of his statement is placed at paper book page No. 230 to 243. We further find that in response to summons under section 131 of the Act, issued by the CIT(A) invoking his power under section 250(4) of the Act, Sh. Jils Raichand Madan, along with books of accounts duly appeared before the CIT(A) and duly confirmed the investment made in the shares of the assesse company, in his statement recorded by the Ld. CIT(A). Refer paper book page No. 244 to 256 and page No. 132 to 142 of order of CIT(A). Similarly, Sh. Omprakash Anandilal Khandelwal, the then director of the company, appeared before the CIT(A) and duly the investment in his statement recorded before the Ld. CIT(A) (refer page No. 151 to 158 of the order of CIT(A) and paper book page No. 257 to 266) 90. Further, in response to summons u/s. 131 of the Act issued by the CIT(A) by invoking power u/s. 250(4) of the Act, Sh. Chandrakant Shah, a third party, duly appeared before the CIT(A) and denied in any invoking of accommodation activities. (Paper book page No. 296 to 302 and page No. 217 to 223 of the

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order of CIT(A)). Similarly, Sh. Sawan Kumar Jajoo, being third party, who already as per the Revenue worked as broker, has also appeared before the CIT(A) and had explained that he does not know the name of the assesse company and name, chart and other figures in the statement was provided and written by the Authorized Officer himself, refer to question No. 15 to 19 (Page No. 207 to 208 of the order of CIT(A)). 91. Sh. Chandan Kumar Singh, a third party was duly appeared before the CIT(A) and he had denied of any accommodation entries provided, in his statement recorded by the CIT(A), his denial in invoking in any accommodation activities are placed at paper book page No. 303 to 311 and also reflected at page No. 229 to 234 of the order of Ld. CIT(A). Thereafter, the statement of both the directors and third parties recorded by the CIT(A) were provided to the AO for his comments ( second para last four line of page No. 130 of CIT(A) order and the AO submitted his comments and comments on the statement of directors and third parties were filed by the CIT(A) ( refer paper book page No. 313 to 322, page No. 144-146, ( OAK) 161-162 (SCS) 224-213, (CKS) and 224-225 (Jajoo) of the order of CIT(A). However, no adverse comments appears to have been made by the AO on these statements except merely saying that statement cannot be recorded at this stage. 92. In our considered opinion as per sub section (4) of section 250 of the Act, the Ld. CIT(A) before disposing any appeal may make such further any enquire as he thinks fit, or he may direct the AO to make such enquiry and to report the result of the same thus according to this provisions the CIT(A) is empowered to make any further enquiry and in the present case

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the Ld. CIT(A) conducted the proceeding with the ambit of the said provisions. Therefore, in our opinion, the Ld. CIT(A) has duly discharged her obligation by conducting examination of the key person involved by way recording statement and examination of books of accounts. These evidence brought on record proved and established the identity and credit-worthiness of share applicant and investor and genuineness of transaction of above said five investor companies. Whereas the AO has not brought on record anything contrary and made addition by merely holding that the said subscriber as non- genuine on the basis of inquiry conducted in the case of third party who has not whispered any word against the assesse company. Therefore, no addition on account of share application money can be made particularly when shares are allotted and transaction are through banking channel and concerned party relied to summon issued by investigation wing and also by the AO conforming the investment made in the BSPL.

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reproduced by the CIT(A) verbatim at page No. 130 to 263 of her appellate order. Accordingly, identify credit worthiness and genuineness of transaction has been duly proved and established. Therefore, the addition of Rs. 15.75 crore in A.Y. 2012-13 and Rs. 25 crores in A.Y. 2013-14 made in respect of this subscriber and alleged assumed payment of commission of 1.50 for A.Y. 2012-13 and Rs. 1.25 crore for the assessment year 2013-14 as deleted by the CIT(A) are rightly deleted by the Ld. CIT(A) thus, we uphold the same. In the present case, the AO has not brought any evidence on record that the amounts of share application money received from Aadhar Ventures India Ltd., Dhanus Technologies Ltd., M/s. Emporis Projects Ltd., L.N. Polyester Ltd. and M/s. Yantra Natural Resources Ltd. are merely accommodation entries. As mentioned earlier, the AO has acted merely on the basis of information received from the Investigation Wing. Therefore, the ratio laid down by Hon’ble Madhya Pradesh High Court in CIT Vs. Peoples General Hospital Ltd. (2013) 356 ITR 65 )MP), (2013) 216 Taxman 320(MP)/(2013) 35 Taxmann.com 444 (Madhya Pradesh) is squarely gives shelter to the assessee, wherein it was held that where the assessee establishes the identity of share applicant, burden of proving creditworthiness was not on assessee. 122. In the light of above discussion, we held that the AO was not justified in making addition of Rs. 30 crores by treating the share application money received by the assessee as unexplained cash credit u/s. 68 of the Act. Therefore, we are in agreement with the findings of Ld. CIT(A) in deleting the same, as there was no case for making such addition either on

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protective basis or on substantive basis. Since, we have held that the assessee company has genuinely received share application money, therefore, question of payment of any commission does not arise and therefore, we find no infirmity in the order of CIT(A) accordingly, her findings are upheld. Accordingly, all the grounds of appeal of Revenue are dismissed.”

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found recorded and source of such investment was also explained. He stated that audited balance sheet of the company for both the years reflecting the investment made in shares of BSPL. These books of account were examined by CIT (A). He also stated that prior to making the investment a due diligence enquiry from a company secretary regarding BSPL was also made. He also stated that a share valuation report of shares of BSPL was provided to them. He also stated that his company subscribed 105000 shares @ of Rs.1500/- per share in the Assessment Year 2012-13. He further stated that his company subscribed to 80,00,000 shares @ Rs.125/- per share in the Assessment Year 2013-14 for the purpose of acquiring controlling stake in BSPL and thereby acquire control of its subsidiary company Chain House International (P) Ltd. he also stated that he knew BSPL and its Directors. He had visited their residence and also visited business premises of its sister concerns. He stated that Shrish Chandrakant Shah was their financial consultant and he did not know Shri Sawan Kumar Jajoo. His company had made genuine investment in BSPL. He also denied to have received or collected any cash from anybody in exchange of RTGS made to BSPL for subscribing share capital. He further stated that the earlier affidavit was filed under fear and pressure. 20. After considering the entire factual scenario of the case, the appellate authority found that the earlier statements did not merit acceptance for the reasons such as earlier statements were recorded behind the back of the assessee and also behind the back of the AO. No opportunity of cross examination was allowed despite specific and repeated requests. The earlier

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statements were recorded much before the search on the appellant company. BSPL was not in the picture and was not an issue during these statements. In such statements none had named BSPL and held that the statement recorded by the CIT (Appeals) are more authentic in all respect and held as under :— "I examined this issue in detail and found that there is no evidence to prove, firstly generation of unaccounted cash and transfer of such cash to others for obtaining accommodation entries. In have also found that during the course of search at the appellant company and also on its associate companies and residence of the directors when every corner of the house was searched, not a single paper, evidence or record was unearthed by the search team which support the allegation of generation of any unaccounted cash and transfer of such cash for the purpose of obtaining accommodation entries. In the absence of any evidence of such cash transfer, the AO was unjustified in holding that the appellant company had routed back its own unaccounted cash. In this connection it would be also relevant to state that during the process of examining these investor companies I have found that there is no transfer of cash from the appellant company to these investor companies or to anybody else for this purpose. I hold that there is no generation of cash outside the books of account and also there is no transfer of any such cash by te appellant company to anyone else and, therefore, I old that there is no accommodation entry and the share capital received is genuine." 21. The appellate authority (A) held that the assessee company was not connected with the money trial and the assessee company was only concern with the source of share capital

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which stands proved. The appellate authority also examined the issue of share capital and held as under :— "I find that the position in the prsent case is otherwise. All the five companies have produced the books of account. There is an audit reports. All the investors have appeared personally. The books of account were examined thoroughly and I find that such books of accounts contain purchases and sales transactions, payments and receipts by banking channels, incurring of various expenses such as payments of rent, electricity excise duty, sales tax, bank interest, staff salaries etc. He himself examined the director of major shareholder Aaadhaar Ventures namely Somabhai Sunderbahi Meena and also examined the books of account produced by him during the course of assessment. It is very pertinent to note here that even the AO could not find discrepancies with the books of accounts or the documents produced or the fact of investment and source thereof. The AO had never disagreed with the various evidences and documents submitted before him by the director of the investor company." 23. After considering the statement of Shri Somabhai Sunderbhai Meena, Director of major investor company namely M/s. Aadhar Ventures India Ltd. which was recorded by the AO during assessment proceedings, the CIT(A) arrived to the following findings :— "The appellant company had purchased one director of Aaadhaar Ventures namely Shri Somabhai Sunderbhai Meena before the AO during assessment proceedings. He confirmed that his company had invested a sum of Rs.40.75 crores in the share capital of the appellant company in Fys. 2011-12 and 2012-13. he produced the books of account of the company and was

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thoroughly examined by the AO. This investment was found recorded in the books of account as verified by the AO. He explained the source of investments with reference to the books of account. Such source was then examined by the AO also obtained copies of the necessary ledger accounts with reference to the source of investments. He explained that his company was never engaged in providing accommodation entire and on the contrary was carrying on real business where the turnover runs into approx171 crores and 133 crores in Fys. 2011-12 and 2012- 13 respectively. He also produced the bank accounts of his company with reference to the share capital invested in Bharat Securities. The AO also required him to send certain documents. Consequently copy of resolution, shareholding pattern, copy of share certificate, copy of MOU, copy of arbitration award, copy of due diligence report, copy of share valuation report and legal notice were sent by his company vide letter dated 18.3.2016. The AO never disagreed with the contents of objection was that Somabhai was not a director of the company at the time of making investment in Bharat Securities. Now two other directors of the same company namely Shri Jils Raichand Madan and Shri Omprakash Anandilal Khandelwal appeared before me and their statements were recorded. Both of them were directors of Aaadhaar Ventures at the time of making the investment in Bharat Secuirties. Their statements have already been discussed in the earlier para and to avoidany repetition I simply want to reiterate that the present statements given by both the directors of Aaadhaar Ventures before me are totally confirmatory and corroborative to the earlier statement of Somanbhai Sunderbahai Meena Recorded by the AO during the assessment proceedings."

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Kumar Singh. In the statement recorded by me he has denied all such allegations. He has admitted that SCS was not involved in any business of providing accommodation entries and nor he has ever seen SEC Controlling these five companies. Hence I do not agree with the conclusion arrived at by the AO." 51. The learned ITAT after due examination of the order of CIT (Appeals) and the documents on record insofar as identity creditworthiness, genuineness of transaction of M/s. Aaadhaar ventures (I) Ltd, M/s. Dhanush Technologies Ltd, M/s. Emporis Projects Ltd and M/s. L.N. Industries Ltd (formarly known as L.N. Polyster Ltd) came to the conclusion that the assessee company having receipt share application money through bank channel and furnished complete details of bank statements, copy of accounts and complied with notices issued and the directors of the subscriber company also appeared with books of accounts before the appellate authority and confirmed the investment made by them with the assessee company, therefore, the identity and creditworthiness of investor and genuineness of transaction of the share applicant has been proved in the light of the ratio laid down by the M.P. High Court, Delhi High Court and the Hon'ble Supreme Court and were of the opinion that the onus cast upon the assessee as provided under Section 68 of the Act has been duly discharged by the assessee the identity of the share subscriber, creditworthiness and genuineness of the transaction is not to be doubted. The learned ITAT considered the case of the each company in great detail in paras 85 to 110 of the impugned order and recorded its finding. The aforesaid finding of fact recorded by the ITAT are based on the material available on record which is a finding based on appreciation of

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evidence on record. 52. Issuing the share at a premium was a commercial decision. It is the prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of shareholder whether they want to subscribe the shares at such a premium or not. This was a mutual decision between both the companies. In day to day market, unless and until, the rates is fixed by any Govt. Authority or unless there is any restriction on the amount of share premium under any law, the price of the shares is decided on the mutual understanding of the parties concerned. 53. Once the genuineness, creditworthiness and identity are established, the revenue should not justifiably claim to put itself in the armchair of a businessman or in the position of the Board of Directors and assume the role of ascertaining how much is a reasonable premium having regard to the circumstances of the case. 54. There is no dispute about the receipt of funds through banking channel nor there is any dispute about the identity, creditworthiness and genuineness of the investors and, therefore, the same has been established beyond any doubt and there should not have been any question or dispute about premium paid by the investors therefore, unless there is a limitation put by the law on the amount of premium, the transaction should not be questioned merely because the assessing authority thinks that the investor could have managed by paying a lesser amount as Share Premium as a prudent businessman. The test of prudence by substituting its own view in place of the businessman's has not been approved by the Supreme Court in the decisions of CIT v. Walchand & Co. (P.) Ltd.

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[1967] 65 ITR 381 and J.K. Woollen Mfg. v. CIT [1969] 72 ITR 612 (SC). 55. The question of share premium has been considered by the Delhi High Court in the case of CIT v. Anshika Consultants (P.) Ltd.[2015] 62 taxmann.com 192 wherein it was held thus :— "The onus cast upon the assessee under Section 68 of the Act to satisfy the department about the true identity of an investor, its creditworthiness and genuineness of a transaction was explained by the Supreme Court in CIT v. Lovely Exports (P) Ltd., [2008] 216 CTR 195,. Whilst, the AO acted legitimately in enquiring into the matter, the inferences drawn by him were not justified at all in the circumstances of the case. Whether the assessee company charged a higher premium or not, should not have been the subject matter of the enquiry in the first instance. Instead, the issue was whether the amount invested by the share applicants were from legitimate sources. The objective of Section 68 is to avoid inclusion of amount which are suspect. Therefore, the emphasis on genuineness of all the three aspects, identity, creditworthiness and the transaction. What is disquieting in the present case is when the assessment was completed on 31.12.2007, the investigation report which was specifically called from the concerned department in Kolkata was available but not discussed by the AO. Had he cared to do so, the identity of the investors, the genuineness of the transaction and the creditworthiness of the share applicants would have been apparent. Even otherwise, the share applicants' particulars were available with the AO in the form of balance sheets income tax returns, PAN details etc. While arriving at the conclusion that he did, the AO did not consider it

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worthwhile to make any further enquiry but based his order on the high nature of the premium and certain features which appeared to be suspect, to determine that the amount had been routed from the assessee's account to the share applicants' account. As held concurrently by the CIT (Appeals) and the ITAT, these conclusions were clearly baseless and false. This Court is constrained to observe that the AO utterly failed to comply with his duty considers all the materials on record, ignoring specifically the most crucial documents." 56-57. It is well settled that if the creditworthiness of the investor company and genuineness of the transaction is proved no addition under Section 68 could be made and no substantial question of law arises.

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of Shirish C Shah with Investor Company was also examined and it was found that Shrish C Shah was not even controlling the said concern. After examining the entire gamut of facts in the light of decision of Hon’ble MP High Court, there remains no shred of doubt in our mind that M/s. Prraneta Industries Ltd. is a genuine concern and veracity and authenticity of share capital received by the appellant from the said investor cannot be questioned.

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under serious doubt. However, nothing of that sort has done in this case.

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reassessment proceedings gets vitiated. The legal position to this effect is well supported by the decision of Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. v. CIT[2011] 336 ITR 136 (Del) and Bombay High Court in the case of Jet Airways [2011] 331 ITR 236 (Bom). It was held by Hon’ble Jurisdictional High Court that Explanation 3 to section 147 will not applicable if no addition is made in respect of issue which was subject matter of notice u/s 148.

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appellant assessee that once the assessing officer records reason and obtains approval for issue of notice u/s 148, the scope of proceedings u/s 147 gets laid down and it is not open to assessing officer to make roving and fishing enquiry and arbitrarily enhance the scope of reassessment proceedings as per whims and fancies. It was further contended that Explanation 3 to section 147 does not provide unfettered power to assessing officer to go beyond the reasons and same has to be read in conjunction with principle provision of section 147, 148 and 151. The upshot of argument of Ld. AR is that for making any further enquiry or addition, the following conditions must be satisfied:

i. There must be some tangible material coming to the notice of assessing officer during the course of assessment which shows escapement of income in respect of some other item (other than one referred in the reasons).

ii. The assessing officer must record reasons for including such other item in the scope of ongoing reassessment proceedings u/s 147

iii. Fresh approval must be obtained u/s 151 and notice u/s 148 must also be issued.

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Bindal v. ITO (ITA No. 4271/D/19 dated 18/12/2019). The finding of coordinate bench is reproduced hereunder:

“We are in complete agreement with the reasoning of the Division Bench of the Bombay High Court in the case of CIT vs., Jet Airways (I) Limited [2011] 331 ITR 236 (Bom.). We may also note that the heading of section 147 is "income escaping assessment" and that of section 148 "issue of

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notice where income escaped assessment". Sections 148 is supplementary and complimentary to section 147. Sub- section (2) of section 148 mandates reasons for issuance of notice by the Assessing Officer and sub-section (1) thereof mandates service of notice to the assessee before the Assessing Officer proceeds to assess, reassess or re- compute the escaped income. Section 147 mandates recording of reasons to believe by the Assessing Officer that the income chargeable to tax has escaped assessment. All these conditions are required to be fulfilled to assess or reassess the escaped income chargeable to tax. As per Explanation 3 if during the course of these proceedings the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the Legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of the escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before the Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account,

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he would be required to issue a fresh notice under section 148.” 36. Similar view is taken by the ITAT, Mumbai G Bench in the case of Juliet Industries Ltd., Mumbai vs., ITO 6(3)(3), Mumbai (supra). Considering the totality of the facts and circumstances, we are of the view that A.O. has recorded non-existing, incorrect and wrong facts in the reasons recorded for reopening of the assessment. The A.O. did not applied his mind to the report of Investigation Wing. The A.O. merely believed report of Investigation Wing without making further scrutiny at the assessment. The A.O. merely reproduced report of Investigation Wing without making further scrutiny of the same. The A.O. merely reproduced report of Investigation Wing and crux of statement of Shri Kishori Sharan Goel for reopening of the assessment in the matter. Therefore, it was merely a borrowed satisfaction without application of mind. We, therefore, held that initiation of re-assessment proceedings in the instant case is illegal, bad in law and is liable to be quashed. In this view of the matter, we set aside the orders of the authorities below and quash the reopening of assessment under section 147/ 148 of the Income Tax Act, 1961. Resultantly, all additions stand deleted. In view of the above, there is no need to adjudicate the issues on merit which are left with academic discussion only.

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intention of legislature behind enacting provisions of section 147 is not to create a parallel assessment proceeding akin to regular assessment framed u/s 143(3) of the Act. The purpose of section 147 is to catch in the tax net income escaping assessment based on tangible material. The requirement of tangible material and approval u/s 151 is to keep check on arbitrary exercise of power u/s 147 which necessarily means that assessing officer cannot convert reassessment proceedings into regular scrutiny proceedings at his/her sweet will. It goes without saying that Explanation cannot defeat the intention and purpose of a section and as such the application of Explanation 3 will have to be in accordance with checks and balances which are applicable at the time of issuance of notice u/s 148.

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absolute misuse of power in the context of scope of section 147 as well as settled legal principle.

Order pronounced in the open Court on 26th October, 2020.

Sd/- Sd/- [B.R.R. KUMAR] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 26th October, 2020 PKK: