SAROWAR GOODS PVT. LTD,KOLKATA vs. ITO, WARD-3(3), KOLKATA

This is an appeal preferred by the assessee against the order of Ld. CIT(A)-10, Kolkata dated 31.10.2019 for AY 2009-10.

The assessee has challenged the order of the Ld. CIT(A) on jurisdictional issue as well as on merits. At the time of hearing the Ld. Counsel for the assessee did not press the jurisdictional ground nos. 1 to 4 and accordingly, these grounds are dismissed as not pressed.

The issue raised in ground no. 5 is against the action of the Ld. CIT(A) in confirmin the addition of Rs.1,27,00,000/- as made by the AO u/s. 68 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).

The facts in brief are that the assessee filed its return of income u/s. 139(1) of the Act which was processed u/s. 143(1) of the Act on 04.11.2010. Thereafter, the case of assessee was reopened on the ground that assessee has taken accommodation entries of unquoted shares by depositing cash belonging to the assessee in the bank account of M/s. Balaji Finance with DCB bank and thereafter, cheque was issued in favour of the assessee. The AO noted that all these purchase and sale of shares are part of the mechanism followed by the assessee to give it a legal character. Accordingly the assessee issued notice u/s. 148 of the Act on 30.03.2016 by the AO which was replied by the assessee by filing return of Sarowar Goods Pvt. Ltd., AY 2009-10 income on 05.04.2016. Thereafter, several notices were issued to the assessee however, all remained uncomplied with. Finally, the assessment was completed u/s. 144 read with section 147 of the Act vide order dated 18.08.2016 making an addition of Rs.1,27,00,000/- as unexplained cash credit which was stated to have received by the assessee in consideration of sale of shares.

The Ld. AR submitted before us that both the authorities below have failed to appreciate the fact that the assessee has sold shares worth Rs.1,27,00,000/- to M/s. Balaji Finance. The Ld. AR also submitted that 50800 shares were sold to M/s. Balaji Finance at Rs. 250/- per shares and credited in the books of assessee representing sale proceeds of these shares. The Ld. AR submitted that the assessee was showing these shares as stock in trade, the details whereof were filed by the assessee at page no. 24A and 24B of the paper book giving details of dates, name of the scripts, quantity and price at which purchase and sold. The Ld. AR also placed before the bench the details of investments held by the assessee as on 31.03.2008, purchased during the year, sold during the year and closing investments as on 31.03.2009. The Ld. AR argued that these shares were sold out of stock in trade held by the assessee and, therefore, there is no question of treating it as accommodation entries. The Ld. AR also submitted that the authorities below have not doubted the investments made by the assessee into these shares in the earlier years as well as in the current year and even after selling the investments in shares which fetched Rs.1,27,00,000/- , the closing stock of shares in the hands of the assessee. The Ld. AR submitted that the assessee has been not benefited in any manner whatsoever by selling these shares as the assessee has purchased these shares at Rs.250/- per share and sale was also made at the same price. The ld counsel argued that, therefore, the observations of the authorities below are fallacious , wrong and against the facts of the case. The Ld. AR, Sarowar Goods Pvt. Ltd., AY 2009-10 therefore, prayed that the addition as made by the AO on account of bogus accommodation entries may kindly be deleted by allowing the appeal of the assessee and reversing the order of ld CIT(A).

After hearing the rival contentions and perusing the material available on record, we note that the assessee has sold 50800 shares during the year to M/s. Balaji Finance at Rs.250/- per share which fetched Rs.1,27,00,000/-. We note that assessee was holding these shares as stock in trade as apparent from the tally of investments as on 31.03.2009 which showed details of opening stock of shares , purchases , sales and the closing stock in trade held by the assessee. We note that all these shares in the preceding as well as in the current year were purchased from various companies at Rs. 250/- per share and were sold at the same price. Therefore, we are not in agreement with the theory coined and adopted by the AO and its confirmation by the Ld. CIT(A) that these are accommodation entries as the assessee has purchased the shares on various dates and thereafter sold the shares to M/s. Balaji Finance. After perusing the details as placed before us we are of the view that these are not the accommodation entries but shares were sold at the same price at which these were purchased and thereby no pecuniary gain has accrued to the assessee. Under these circumstances, we are inclined to set aside the order of the Ld. CIT(A) and direct the AO to delete the addition. Ground no. 5 of the assessee is allowed.

The issue raised in ground no. 7 is consequential in nature and is not adjudicated.

In the result, the appeal of assessee is partly allowed. Order is pronounced in the open court on 10th May, 2022.