AVANCE TECHNOLOGIES LTD,MUMBAI vs. DCIT CENTRAL CIR 2(2), MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M): These appeals in 3640/Mum/2019 to 3645/Mum/2019 for A.Y.2008-09 to 2014-15 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-48, Mumbai in appeal Nos. CIT(A)-48/IT-119,120,121,122,123,124 & 125/DCIT-CC 2(2)/2016-17 dated 29/03/2019 (ld. CIT(A) in short) against the order of assessment

ITA No.3644/Mum/2019 (A.Y.2013-14)

3.1. The ground Nos. 5-6 raised by the assessee are as under:-

M/s. Avance Technologies Ltd., “5. That the Ld. C1T(A) grossly erred in facts of the case in not allowing set- off of income declared in the books of account against the assessable commission income on incorrect presumption that the assessee company had declared losses in its books of account.

3.2. The issue in dispute is whether the assessee is entitled for benefit of telescoping the commission income with the income declared in the return.

4.1. The ld. AO observed in his assessment order that assessee had deployed its funds in the form of share capital with huge share premium with various companies by providing bogus accommodation entries with the help of Shri Shirish C Shah to various parties and had earned commission income. The Director of the assessee company in his statement had admitted that it had earned 0.30% commission from the entries. The ld. AO however, observed that the commission in said trade ranges from 0.5% to 4%. The ld. AO considering the fact that commission is shared by number of brokers in between proceeded to add net commission in the hands of the assessee @1% and added a sum of M/s. Avance Technologies Ltd., Rs. 1,89,41,785/- for A.Y.2013-14 and completed the assessment, by applying 1% on new investment made during the year and total sales shown during the year. Similar additions were made for other assessment years also by the ld. AO.

4.2. We find that the ld. AO had assessed the income u/s.143(1) r.w.s. 153C of the Act for the various assessment years which can be summarised by way of following table:-

A.Y. Assessee Date of filing Original Date of filing of Returned Assessed income u/s. 143{3) r.w.s. 153C of original return of income Income in Returned d income income u/s. 143(3) return of in response to response to income notice u/s. 153C notice u/s. 153C

2008-09 28.09.2008 10135 579270 31.10.14 10135 9756750 2009-10 29.09.2009 2166824 2166820 31.10.14 2166824 9970020 2010-11 14.10.2010 3966149 31.10.14 3966149 14071720 2011-12 30.09.2011 2290527 31.10.14 2290527 36350060 -7393754 2012-13 28.09.2012 -7393754 31.10.14 14585110 295448340 2013-14 28.09.2013 -2533450 31.10.14 -2533450 15868400 2014-15 30.09.2014 Nil after set of brought forward loss and short term capital less of earlier assessment years 4.3. From the above table, it could be seen that the ld. AO while computing the assessed income had taken the income returned by the assessee as well as loss returned by the assessee, as the case may be. In other words, for A.Y.2012-13 and 2013-14, assessee had declared loss as per the return of income, which has been duly set off by the ld. AO while computing the commission income on an estimated basis.

M/s. Avance Technologies Ltd., 4.4. We find that assessee had pleaded before the ld. CIT(A) by conceding and accepting that it earned commission income on bogus entries but further pleaded that the said commission income should have been restricted only to transactions with outside companies and not to transactions with group companies controlled by Shri Shirish C Shah. This was on the logic that no one can earn profit from one self. The ld. CIT(A) duly appreciated this contention of the assessee and gave a categorical finding that the internal movements of funds within the companies controlled by Shri Shirish C Shah / Shri Dewang Master would be for window dressing or layering of movement of funds and would not yield commission income. Accordingly, he held that the computation of commission income should be restricted only to investments and sales to outside companies / parties. He also observed that assessee has given details of amounts of investments and sales to outside companies in his written submissions which was directed to be verified by the ld. AO and compute commission income accordingly. The ld. CIT(A) however, upheld the rate of commission at 1% as adopted by the ld. AO.

4.5. With regard to yet another plea made by the assessee seeking for benefit of telescoping, the income declared by the assessee in the return, the ld. CIT(A) rejected the plea of the assessee on the ground that income recognised in the books is in the form of other income and cannot automatically be allowed benefit of telescoping the commission income without assessee having established that the income in the books is exclusively and wholly out of the commission income as computed by the ld. AO. The ld. CIT(A) observed that there is no business activity in reality and profit and loss statement of each of the assessment year is sham and is only a window dressing. Therefore, having admitted bogus nature of M/s. Avance Technologies Ltd., accounts, assessee cannot take advantage of any income declared in such accounts.

4.6. Aggrieved by the rejection of benefit of telescoping, the assessee is in appeal before us vide ground Nos. 5 & 6. We find that there is absolutely no dispute that the transactions reflected by the assessee in its books of accounts are sham and bogus and correspondingly, the book results reflected thereon would also become sham and bogus. In other words, there is absolutely no dispute that assessee is only an accommodation entry provider and that all the entries reflected in the books are merely accommodation entries and not real transactions of the assessee. That is why we find the ld. AO had rejected the book results and had resorted to determining the income of the assessee on an estimated basis by estimating commission @1%. Hence, the income returned by the assessee cannot be brought to tax. Similarly, the loss returned by the assessee cannot be allowed to be set off with estimated commission income. We find that assessee is seeking telescoping benefit of commission income with the income returned by the assessee because, the ld. AO had started the computation of income from the figure of “income / loss” as per the return of income.

4.7. We find that assessee is indeed entitled for the benefit of telescoping for those assessment years where the positive income has been declared by it in the return of income. However, for the A.Yrs. 2012-13 and 2013-14, assessee has declared loss as per the return of income which has already been set off of the ld. AO with the estimated commission income determined by him while completing the assessment. This action of the ld. AO was also upheld by the ld. CIT(A) except for tinkering of estimation of commission income.

M/s. Avance Technologies Ltd., 4.8. Against the said order of the ld. CIT(A), the revenue is not in appeal before us. Since, this Tribunal does not have power of enhancement of income, we are not inclined to disturb the wrong set off of loss as per the return of income (already granted by the ld. AO in the assessment) with the estimated commission income for A.Yrs. 2012-13 and 2013-14. We find with regard to the issue of telescoping of positive income as per the return with the estimated commission income, the issue is already covered in favour of the assessee in the following cases:- Assessee Date of the order 3646/Mum/2019 2008-09 M/s. Empower 18/12/2020 India Limited 3647/Mum/2019 2009-10 M/s. Empower 18/12/2020 India Limited 3648/Mum/2019 2010-11 M/s. Empower 18/12/2020 India Limited 3649/Mum/2019 2012-13 M/s. Empower 18/12/2020 India Limited M/s. Empower 18/12/2020 3650/Mum/2019 2013-14 India Limited 3651/Mum/2019 2014-15 M/s. Empower 18/12/2020 India Limited 4.9. In view of the aforesaid observations and respectfully following the aforesaid decision of this Tribunal, we hold that (a) in the A.Y.2008-09 to 2011-12, only estimated commission @1% on investments and sales to outside companies / parties should be considered and the same should be telescoped with the income returned by the assessee for the respective assessment years. (b) in the A.Yrs.2012-13, 2013-14 & 2014-15 only estimated commission @1% and investments and sales to outside companies / parties should be considered without disturbing the set off of M/s. Avance Technologies Ltd., returned loss already given by the ld. AO in his assessment order as this Tribunal does not have power of enhancement. The ground Nos. 5 & 6 are disposed of in the above mentioned terms.

A.Y. Amount wrongly taken by AO in order Commission 2012-13 63,97,82,000 63,97,820 2013-14 61,44,33,569 61,44,335 2014-15 13,69,92,820 13,69,928 5.1. The assessee pleaded before the ld. CIT(A) by way of written submission that the ld. AO had erroneously considered the figure of amount of increase in investment. The same was not appreciated by the ld. CIT(A). The assessee filed the following chart before us. A.Y. 2012-13 Amt. (As on Amt. (As on Difference 31/03/2012) 31/03/2011) Non-Current 1,05,38,99,577/- 2,12,28,69,023/- (-)1,06,89,69,446/- Investments Current 63,97,82,000/- 63,97,82,000/- Investments 1,69,36,81,577/- 2,12,28,69,023/- (-) 42,91, 87,446/-

M/s. Avance Technologies Ltd., A.Y. 2013-14 Amt. (As on Amt. (As on Difference 31/03/2013) 31/03/2012) Non-Current 1,66,83,33,146/- 1,05,38,99,577/- 61,44,33,569/- Investments Current 15,22,20,820/- 63,97,82,000/- (-)48,75,61,180/- Investments 1,82,05,53,966/- 1,69,36,81,557/- 12,68,72,389/- A.Y. 2014-15 Amt (As on Amt. (As on Difference 31/03/2014) 31/03/2013) Non-Current 1,76,36,75,577/- 1,66,83,33,146/- 9,53,42,431/- Investments Current 3,03,90,012/- 15,22,20,820/- (-)12,18,30,808/- Investments 1,79,40,65,589/- 1,82,05,53,966/- (-) 2,64,88,377/- 5.2. We hold that in the interest of justice and fair play, we deem it fit and appropriate that the aforesaid chart on investments filed by the assessee requires to be re-visited by the ld. AO and we deem it fit to remand this issue to the file of the ld. AO for denovo adjudication on this aspect of the issue in accordance with law. Accordingly, ground No.7 raised by the assessee for A.Yrs.2012-13, 2013-14 and 2014-15 is allowed for statistical purposes.

6. The ground No.8 raised by the assessee for A.Y.2013-14 in is challenging the addition of Rs.27,90,40,000/- on account of forfeiture of share application money.

6.1. We have heard rival submissions and perused the materials available on record. We find that the ld. AO had observed that assessee

M/s. Avance Technologies Ltd., during the year had forfeited a sum of Rs.27,90,40,000/- being the share application money received from shareholder who did not pay the balance amount of partly paid share warrants. The ld. AO sought to treat the same as income of the assessee and accordingly, issued show-cause notice to the assessee. The assessee submitted vide its letter dated 29/02/2016 that the amount forfeited towards share application money would only represent capital receipt in the hands of the assessee company and the same cannot be taxed in the hands of the company. The ld. AO however, observed as under:-

“It is not just simple a case of forfeiture. It is method adopted to bring unaccounted money in the books of accounts so that further accommodation entries can be provided through the assessee. No doubt the amount was brought in through Shri Shirish C Shah but the ultimately the money so received has been enjoyed by the assessee only in providing further accommodation entries to various parties Therefore the amount of Rs 27,90,40,000/- is added to its total income. Penalty proceedings u/s 271(1)(c) has been initiated for furnishing inaccurate particulars of income.”

6.2. When the assessee contested this addition before the ld. CIT(A) on the ground that assessee is only engaged in the business of providing accommodation entries and that the forfeiture of share application money cannot be taxed as income in the hands of the assessee company, the ld. CIT(A) did not appreciate the contentions of the assessee and upheld the action of the ld. AO.

6.3. The ld. AR stated that assessee had received a sum of Rs.27,90,40,000/- from its shareholder by way of issuance of 128000000 equity warrants of Rs.8.70 each partly paid Rs.2.18 per convertible equity warrant. This sum was forfeited by the assessee company during the year under consideration. The ld. AR pointed out that the assessee had stated in his audited financial statements that it had forfeited Rs.27,90,40,000/-

M/s. Avance Technologies Ltd., in compliance with SEBI guidelines of ICDR 2009 where an amount of 25% as received in terms of application money should be forfeited and that as per the terms and conditions of issue of convertible equity warrants (CEW), the said amount should be transferred to reserves and surplus. The ld. AR submitted that case of the lower authorities is that the forfeiture of share application money is only the method adopted by the assessee to bring unaccounted money in its books of accounts in order to provide more accommodation entries to other beneficiaries. The ld. AO also had stated that this amount was originally brought in by Shri Shirish C Shah and since the money so brought in had been enjoyed by the assessee company itself, the same is to be treated as income in the hands of the assessee. The ld. AR argued that the Revenue had not even bothered to mention the section under which the addition is said to be made in the hands of the assessee company. The ld. AR argued that the forfeiture of share application money is only entry made in the books of accounts of the assessee and the same would not automatically become income in the hands of the assessee company. The ld. AR placed reliance on the decision of the Hon’ble Jurisdictional High Court in the case of PCIT vs. Alag Securities Pvt. Ltd., reported in 425 ITR 658.

6.4. The ld. DR before us vehemently argued that the entry in the books of accounts representing forfeiture of share application money would only constitute cash credit liable for taxation u/s.68 of the Act when the nature and source of credit is not proved in the hands of the assessee.

6.5. We find that the ld. AO had completely ignored all the submissions made by the assessee in this regard. No finding has been given by the ld. AO with regard to the fact of receipt of monies by issuance of convertible equity warrants; its treatment given by assessee in the books; prevailing

M/s. Avance Technologies Ltd., law on the impugned issue; whether the same was done in accordance with SEBI Guidelines as pointed out by the assessee in its annual report etc. We find that the ld. AO directly concludes the issue that the amount forfeited represents unaccounted income of the assessee. We find that the ld. AO had also not brought on record, under what provisions of the Act, the amount forfeited becomes income of the assessee. Hence, in the interest of justice and fair play, we deem it fit and appropriate, to remand this issue to the file of ld. AO for denovo adjudication in accordance with law. Since, the entire issue is sent back to the file of the ld. AO for denovo adjudication in accordance with law, the reliance placed on the decision of the Hon’ble Jurisdictional High Court in the case of Alag Securities reported in 425 ITR 658 would be premature at this stage. The assessee is at liberty to quote the said decision before the ld. AO while adjudicating this issue in the denovo proceedings. The ld. AO is hereby directed to determine its applicability to the facts of the case.