DCIT CENTRAL CIRCLE-8(4), MUMBAI vs. M/S.BELL FABRICS PRIVATE LIMITED, MUMBAI

Per Rajesh Kumar, Accountant Member:

The present appeal by the Revenue and cross objection by the assessee have been preferred against the order dated

2 ITA No.906/M/2018 & CO No.75/M/2019 M/s. Bell Fabrics Pvt. Ltd. 22.12.2017 of the Commissioner of Income Tax (Appeals) (hereinafter referred to as the CIT(A) relevant to assessment year 2009.10.

3 ITA No.906/M/2018 & CO No.75/M/2019 M/s. Bell Fabrics Pvt. Ltd. premium of Rs. 462/- per share. The AO observed that the said company does not have any reserve or surpluses except the share application money & share premium receipts nor any debtors/creditors in the company as no business activities were carried on during the year under consideration. Similarly, the assessee was not having any fixed assets. The assessee has only shown an investment of Rs. 8,49,30,000/- in the year under consideration which was made out of share premium received by the assessee. Based upon this information, the case of the assessee was reopened under section 147 of the Act by issuing notice under section 148 of the Act on 28.03.2016. The assessee complied with the notice vide letter dated 28.07.2016 requesting the AO to treat the return filed under section 139(1) of the Act in compliance to notice issued under section 148 of the Act. Thereafter, the notice under section 143(2) and 142(1) were issued and served upon the assessee. The objections filed by the assessee to reopening proceedings were dully disposed off by the AO. During the Course of assessment proceedings, the AO asked the assessee to furnish the names, addresses and PAN numbers of those persons from whom the share premium and share application money were received. Besides, the assessee was asked to furnish the share allotment certificates, confirmations from the investors and details of banking transactions etc. According to the AO, the financial position of the assessee is such which does not justify the issuance of share at such high premium. The AO also issued notices under section 133(6) of the Act to Bank of Rajasthan ( now ICICI Bank Ltd.) for details of transactions made during the financial year 2008-09. Similar

4 ITA No.906/M/2018 & CO No.75/M/2019 M/s. Bell Fabrics Pvt. Ltd. notices were sent to the investors who have invested in the assessee company. However, most of the notices were returned with the remarks “non known”. The AO also deputed the inspector to verify the address of the bank as was given by the assessee but found that no bank is being operated from the said premises. The AO found from the internet that Bank of Rajasthan has been dissolved and not taken over by ICICI Bank Ltd. Accordingly, A letter was issued to Pr. Officer of ICICI Bank Ltd. Calling for information under section 133(6) of the Act to provide information from 01.04.2008 to 31.03.2009. The Bank replied the said notice which is reproduced in the assessment order. As is clear from the reply of the ICICI Bank Ltd. that the bank has shown its inability to provide the bank statement for the period as mentioned in notice under section 133(6) of the Act. Again the assessee was given a show cause notice to produce the complete bank account details pertaining to such period. Thereafter, the Kamal Khetan was summoned by the AO and a statement was recorded u/s 133A of the Act the relevant extract whereof is reproduced in the assessment order. The assessee was also not provided cross examination as is noted by the AO in para no. 12 of the assessment order. We find that nowhere in the statement of Shri Kamal Khetan, the name of the assessee was ever taken. Similarly, the statement was also recorded of Shri Vikash Sankhlech who confirmed the modus operandi of the group. Finally, the AO came to the conclusion that the assessee has taken all the accommodation entries and issued share at a premium without any justification. The AO also observed that assessee has not discharged the onus and

5 ITA No.906/M/2018 & CO No.75/M/2019 M/s. Bell Fabrics Pvt. Ltd. finally added the amount of share premium of Rs. 83300000/- to the income of the assessee under section 68 of the Act as unexplained cash credit on the ground that assessee has failed to establish the ingredients as envisaged of the said section.

6 ITA No.906/M/2018 & CO No.75/M/2019 M/s. Bell Fabrics Pvt. Ltd. case, deleted the said addition U/s 68 of the Act by observing and holding as under: - “12.16 A perusal of the various statements of Shri Kamal Khetan, reveals that he has categorically denied any knowledge about the transaction of investments and share capital in the above mentioned five companies, which were taken over through the holding company namely M/sAkshunya Energy Private Limited. Shri Khetan in his statements has admitted that M/S Eskay Infrastructure Pvt. Ltd. had invested a sum of Rs.l crore in M/sAkshunya Energy Private Limited. Moreover, in the statement he also confirms that as these companies were taken over in the F.Y. 2011-12 relevant to AN. 201213, he does not know, as to what has happened in F.Y. 2008-09 relevant to 2009- 10, when he was not even the shareholder of these companies. 12.17 A perusal of the various statements and material on record, clearly reveals the fact that all these 5 companies were taken over through M/sAkshunya Energy Private Limited by Shri Kamal Khetan of Sunteck Group in the A.Y. 2012-13. On the contrary, the entire addition u/s 68 of the Act for the share premium has been made by the A.O. in A.Y. 2009-10 based on the above narrated statements of Shri Kamal Khetan & Shri Vikas Sankhlecha, which are with reference to subsequent events falling in A.Y. 2012-13. 12.18 It is pertinent to note that in relation to the current AN. 2009-10, Shri Kamal Khetan was in no way connected with any of the 5 companies viz. M/sPali Fabrics Pvt. Ltd., M/S Acro Exports Trade Pvt. Ltd., M/S Amazon Metal Pvt. Ltd., M/S Bell Fabrics Pvt. Ltd.& M/S Gandhar Yarn Pvt. Ltd. It is also a fact that in the A.Y. 2009-10, Shri Kamal Khetan was not connected / related even with the holding company namely, M/sAkshunya Energy Private Limited. Shri Kamal Khetan was neither a shareholder nor a director in the 5 companies or it's holding company in the AN. 2009-10. It was only in AN. 2012-13 that Shri Kamal Khetan of Sunteck Group has taken over M/s Akshunya Energy Private Limited through M/S Eskay Infrastructure Private Limited (a concern of Sunteck Group). 12.19 In view of these circumstances, it is factually incorrect to adversely interpret the statements of Shri Kamal Khetan & Shri Vikas Sanklecha, which are not relevant for the current assessment year i.e. AY. 2009-10. It is pertinent to note that neither Shri Kamal Khetan nor Shri Vikas Sanklecha, had any locus-standi in AN. 2009-10, in relation to the impugned 3 companies. In fact, in all the statements recorded of Shri Kamal Khetan & Shri Vikas Sanklecha are referring to events, which have happened after the current assessment year under consideration. 12.20 The above observations are further reinforced from the fact that Shri Kamal Khetan has not made any disclosure for the A.Y. 2009-10, the current assessment year, under consideration. At the cost of repetition, it is stated that Shri Kamal Khetan has made a disclosure of Rs- 47.6 Crore relevant to AN. 2010-11, AN. 2012-13 & AN. 2013- 14. 12.21 Further, the A.O. has without bringing on record any material evidence held that the impugned 5 companies including the appellant are shell companies. During the course of the appellate proceedings, the appellant has filed the details of these companies downloaded from the site of Ministry of Corporate affairs showing that in the case of all the impugned 5 companies, accounts have been filed till 31.032017, Further, the status of all the companies in the ROC Data has been shown as "Active".

7 ITA No.906/M/2018 & CO No.75/M/2019 M/s. Bell Fabrics Pvt. Ltd. On the basis of the information supplied by the Appellant, which is in public domain, I have noted that all the 5 companies are still active companies and are filing their returns with ROC on regular basis.During the course of the appellate proceedings, it was also argued that none of these companies are shell companies, as their names don't find mention in the list of such companies maintained by SEBI, IT or any other Regulatory authority. 12.22 The Appellant has further submitted that during the course of the reassessment proceedings, the Assessing Officer had asked the appellant company to furnish name, address, PAN of the persons from whom the share application and premium was received, share allotment certificates, confirmation from the parties to whom share were allotted and Bank statement etc. in order to verify the identity, genuineness and creditworthiness of the investor. 12.23 1 have noted that during the course of the assessment proceedings, the appellant has filed various details such as share application form, copy of declaration, Board resolution, Bank statement of investor company, PAN card, Acknowledgement of Return of income, Financial statement of investor company, Form No 2 for Allotment, Bank Statement reflecting the amount received through banking channel, etc in order to prove the identity, genuineness and creditworthiness of the investor. Such details were also filed before the undersigned, during the course of the appellate proceedings. It is a fact that the A.O. has not raised any doubt on any of the voluminous documentary evidence placed on record, by the Appellant. No further verification or enquiries were done by the A.O. on the documentation of shareholders / investors provided by the Appellant. Thus, the Appellant Company has duly discharged the onus for proving the identity, genuineness and creditworthiness of the various investors. 12.24 As regards the valuation of the shares of the appellant company is concerned, it has been submitted that valuation is a consideration for the investor and not for the Revenue, especially in the light of the fact that the provisions of section 36(2)(viib) were introduced in the statue w.e.f. 01.042013 and have not been given retrospective effect. Thus, as per the Appellant, the provisions of section 56(2)(viib) are applicable from the AN. 2013-14 and onwards. Accordingly, it has been submitted that the A.O. ought to have considered the law as it was in force during A.Y2009-10. It has also been emphasized, during the appellate proceedings that even the first proviso appended to section 68 of the Act, which requires the investor also, to satisfactory explain the nature and source of the credits was inserted w.e.f. 01.042013 i.e. from AN. 2013-14 and hence the same is not applicable for the present assessment year, viz. AN. 2009- 10. 12.25 As regards the notices issued under section 133(6) of the Act are concerned, the Appellant Company has stated that due to time lag certain person's might have left the place and for this no responsibility can be fastened on the appellant. It has been stated that the appellant has furnished the following details to the A.O., regarding the receipt of share premium:- 1. Share application form 2. Copy of declaration 3. Board resolution 4. Bank statement of investor company 5. PAN card 6. Acknowledgement of Return of income

8 ITA No.906/M/2018 & CO No.75/M/2019 M/s. Bell Fabrics Pvt. Ltd. 7. Financial statement of investor company 8. Form No 2 for Allotment 9. Bank Statement reflecting the amount received through banking channel 12.26 The appellant company has contended that by furnishing the above mentioned details regarding the investors, the appellant has duly discharged the initial onus cast on it. After this stage, the onus shifts on the A.O. to show as to how the explanation furnished by appellant is not satisfactory in his opinion. In this regard, the appellant has also relied on the judgment of jurisdictional High Court of Bombay in the case of CIT vs. Gagandeep Infrastructure Pvt. Ltd, 394 ITR 680, the relevant portion of which is reproduced hereunder :- "Proviso to section 68 introduced by Finance Act 2012 with effect from 1-4-2013, would not have retrospective effect. Where assessee-company had established identity, genuineness and capacity of shareholders who had subscribed to its shares, Assessing Officer was not justified in adding amount of share capital subscription as unexplained credit. Where revenue urged that assessee had received share application money from bogus shareholders, it was for Income-tax Officers to proceed by reopening assessment of such shareholders and assessing them to tax in accordance with law and it did not entitle revenue to add same to assessee's income as unexplained cash credit. ' 12.27 The Appellant company has also relied upon the decision of Apex Court in the case of Lovely Exports Pvt. Ltd. , 216 CTR 195, wherein it was held as under:-

"The assessee had received certain amounts from various persons as share application money. No addition on account unexplained cash credits could be made to its income in the absence of any evidence to suggest that the subscribers were benamidars or any part of the share capital represented the assessee's own income from undisclosed sources, as the assessee had furnished relevant details of the subscribers and the shares were allotted as per the rules of stock exchange. " 12.28 Apart from the above two decisions, the Appellant Company has also relied on many other decisions in support of its contention that no such addition could have been made by the assessing officer in the light of the fact that statue was amended with the proviso appended to section 68 w.e.f. A.Y.2013-14 and it was not a retrospective amendment. 12.29 Another objection of the A.O. contained in the assessment order is that the bank of the appellant company has failed to provide the bank statement of the appellant company, which was requisitioned under section 133(6) of the Act. As far as the issue of bank statement is concerned, the appellant company has supplied the same to the A.O., during the course of assessment proceedings, itself. 12.30 In fact, the A.O. has made observations in the assessment order based on the bank statements provided by the appellant company. Hence, no adverse inference can be drawn by the A.O. on this issue. The A.O. has erred in relying on the statements of Shri Kamal Khetan & Shri Vikas Sanklecha for making addition on account of share premium u/s 68 of the Act, for the current year under consideration. The A.O. has failed to appreciate that the statements of Shri Kamal Khetan& Shri Vikas Sanklecha relate to events, which have happened subsequent to the current assessment year under consideration. The A.O. has also ignored the fact that Shri Kamal Khetan has not made any disclosure of income for the current assessment year under consideration,

9 ITA No.906/M/2018 & CO No.75/M/2019 M/s. Bell Fabrics Pvt. Ltd. in any of his statements recorded by the Department. In his statements recorded by the Department, Shri Kamal Khetan has stated that he is unaware about the introduction of the share premium, as it was handled by the old management. Even the statement recorded of Shri Vikas Sanklecha refers to events, which have happened in the subsequent assessment years. Thus, the reliance of the A.O. on the statements of Shri Kamal Khetan & Shri Vikas Sanklecha for making the addition in the current year under consideration, is misplaced and contrary to material facts on record. 12.31 In fact, for making a case of addition u/s 68 of the Act for the current year under consideration, the A.O. should have examined & rebutted the voluminous details of shareholders furnished by the Appellant Company, during the course of the assessment proceedings. The A.O. has not placed any adverse material on record in relation to the actual shareholders, who have paid the share premium to the appellant company and instead erroneously relied on a subsequent change in shareholding in A.Y. 2012-13, of a holding company, namely M/s Akshunya Energy Private Limited. 12.32 1 have also taken note of the fact that on similar facts and circumstances, my Ld. Predecessor CIT(A)-30, Mumbai has in a connected case of M/S Prime Developers for AN. 2012-13 in Appeal No. CIT(A) 50/1T186/2015-16, vide order dated 24.02.2017 deleted the addition made on the basis of statement of Shri Paras Porwal & Shri Vikas Sanklecha. In the present appeal at hand, instead of Shri Paras Porwal of "0m Shanti Group", Shri Kamal Khetan of "Sunteck Group" is involved. My lad. Predecessor CIT(A)- 50, Mumbai has deleted the addition in the case of M/S Prime Developers for A.Y. 2012-13. 12.33 In view of the facts and circumstances, discussed in details in the above paras & in the light of various judicial pronouncements and following the order of my Ld. Predecessor CIT(A)-50, this ground of appeal of the appellant company is allowed. In the result, the Ground of Appeal No. 2 of the present appeal is allowed.”

10 ITA No.906/M/2018 & CO No.75/M/2019 M/s. Bell Fabrics Pvt. Ltd. Act, where the assessee has discharged the onus of the proving identity, genuineness of the transactions and creditworthiness of the investors by filing the necessary evidences. The Ld. A.R. submitted that despite the assessee having filed the various documents namely share application forms, copies of declaration, board resolutions, bank statements, PAN cards, acknowledgements of the returns of income, financial statements of investors company, form No. 2 for allotment and proofs of routing the transactions to banking channel, no further action was taken by the Ld AO. The Ld. A.R. therefore relied heavily on the order of Ld. CIT(A) who has passed a very reasoned and speaking order and relied on the decision of Hon’ble Supreme Court in the case of Lovely Exports Pvt. Ltd. 16 CTR 195 and jurisdictional High Court decision in the case of CIT vs. Gagandeep Infrastructure Pvt. Ltd. 394 ITR 680 (Bom.). The Ld. A.R. finally submitted that since the assessee has filed all the documents on the basis on which the AO could have carried out further verification and investigation, however, AO instead of doing any further verification chose to add the said amount on account excessive share premium. The Ld. A.R. finally submitted that since the issue has been settled in the group concern case as stated above, therefore, the appeal of the Revenue may kindly be dismissed.

11 ITA No.906/M/2018 & CO No.75/M/2019 M/s. Bell Fabrics Pvt. Ltd. information as supplied by the assessee during the course of assessment proceedings were analyzed in great depth and details and only then thereafter, AO relied on the analysis of said information of the directors of the assessee company. The Ld. D.R. also drew our attention to page No. 23 & 29 of the Paper book and submitted that in most of the cases, the addresses of the company were same. The Ld. D.R. submitted that these were circular transactions which were received from one company and then money was transferred to M/s. Amazon Metal Pvt. Ltd. Thus the Money received in the form of share capital and share premium was immediately transferred to other company. Therefore, this lead to undisputed conclusion that this is a case of an accommodation entries. The Ld. D.R. submitted that altogether different story was coined by the assessee in the assessment proceedings contrary to the facts admitted in the statement recorded. The Ld. D.R. submitted that no details were received in response to notices under section 133(6) of the Act issued to the bank. The Ld. D.R. while relying heavily on the order of AO submitted that this is a case of tax evasion in a planned manner by the assessee who has no credentials. The Ld. D.R. submitted that in view of these facts, the order of Ld. CIT(A) is wrong and may kindly be reversed.

12 ITA No.906/M/2018 & CO No.75/M/2019 M/s. Bell Fabrics Pvt. Ltd. income in financial year 2011-12 and 2012-13 which was duly assessed. The Ld. A.R. submitted that the assessee was having bank statements of investors, PAN numbers etc. however, no. further investigation was done during the assessment proceedings by the AO. The Ld. A.R. also submitted that no cross examination was allowed of Shri Vikash Sankhlech whose statement was solely relied upon by the AO and therefore the same is in violation of principle of natural justice. The Ld. A.R. also referred to Page No. 18 of the decision of the co-ordinate bench of the Tribunal in the case of M/s. Amazon Metal Pvt. Ltd. as referred to above wherein the decision of the Hon’ble Supreme Court in the case of DCIT vs. NRA Steel Pvt. Ltd. was considered and distinguished. Finally, the Ld. A.R. Prayed that the Appeal filed by the Revenue may Kindly be dismissed as the Ld. CIT(A) passed a very reasoned and speaking order. Moreover, the present case is covered by the decision of the co-ordinate bench of the Tribunal in the group concerns case and therefore the appeal of the revenue may be dismissed.

13 ITA No.906/M/2018 & CO No.75/M/2019 M/s. Bell Fabrics Pvt. Ltd. above said case adjudicated by the co-ordinate bench of the Tribunal. The operative part of the decision is reproduced below: “13. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The facts borne out from record are that the assesee and other four companies are subsidiaries of M/s Akshunya Energy Pvt.Ltd,. In the F.Y. 2008-09 relevant A.Y.2009-10, the assesee had issued 190000 equity shares at a premium of Rs. 464/- per share, amounting to Rs. 9,00,00,000/-. The holding company namely M/s Akshunya Energy Pvt.Ltd. was later on taken over by M/s Eskay infrastructure Development Pvt.Ltd., a Sunteck group company. On 15/10/2013 a survey u/s 133A of the I.T.Act, 1961 was conducted in Sunteck group of companies. During the course of survey, statement u/s 131 of the I.T.Act, 1961 was recorded from shri Kamal khetan, the main promoter of Sunteck group of company. In the statement, shri Kamal khetan, while replying to question No. 18 he had offered an amount of Rs. 46.6 crores as unaccounted income, in the name of five companies towards share capital and share premium received for the year under consideration. In the above statement, he further stated that his group concern M/s Eskay Infrastructure Development Pvt.Ltd. had acquired a controlling interest in M/s Akshunya Energy Pvt.Ltd. by investing a sum of Rs. 1 crore, as additional capital in the company, which has made him 99% owner of the company. Another statement of Shri Kamal Khetan was recorded on 16/10/2013. In response to question No.10, he confirmed that one of his group company M/s Eskay Infrastructure development Pvt.Ltd. had acquired holding company of five companies namely M/s Akshunya Energy Pvt.Ltd for a consideration of Rs. 1 crore. During the course of assessment proceedings, another statement of shri Kamal Khetan was recorded u/s 131 of the I.T.Act, 1961 on 08/11/2016. In the said statement, while replying to question No.9, he had denied any knowledge about all the transactions of investments and share capital in the above mentioned five companies. He, further stated that transactions of investments and share capital were handled by the old management and hence, he was not in a position to offer any comments on the admission made by the old management, in respect of share capital and share premium. In the said statement, in reply to question No.11, shri Kamal Khetan, once again stated that he was unaware as to the basis on which, shri Vikas Sankhlecha has stated that these five companies are Shell Company. He had also asked for cross-examination of shri Vikas Sankhlecha for the facts mentioned in his statement. 14. The Ld. AO has made additions towards share capital and share premium, on the ground that although, the assesee has filed various details to prove identity, genuineness of transactions and creditworthiness of the parties but, on perusal of details filed by the assessee, it was noticed that the assessee has failed to establish transactions between the parties are genuine in nature and also the subscriber to the share capital are having capacity to explain huge investments in assessee company. According to the AO, mere furnishing confirmation letters from the parties along with their PAN Number and ITR acknowledgement is not sufficient enough to discharge ,the onus cast upon u/s 68 of the I.T.Act, 1961 and what is relevant is to discharge the true identity of the investors. Although, the assessee has filed certain documents, including PAN number and ITR acknowledgement and

14 ITA No.906/M/2018 & CO No.75/M/2019 M/s. Bell Fabrics Pvt. Ltd. financial statements along with bank statement of subscribers, but when, it comes to genuineness of transactions and creditworthiness of the parties, except filing financial statements, no other evidences has been filed to prove that share capital received from subscribers is genuine in nature, which is supported by necessary evidences. The AO has also taken support from the findings recorded, during the course of survey and statement recorded from certain persons, including shri Kamal Khetan and shri Vikas Sanklecha to come to the conclusion that the assessee has entered into an arranged transactions with certain companies, in order to convert its own unaccounted income in the form of share capital, which is evident from the fact that the assessee has issued share capital with a huge premium of Rs. 480 per share, even though, the financial of those companies is not supporting such a huge valuation. Further, the AO has taken support from the admission of shri Kamal Khetan, during the course of survey where, he had admitted that share capital, including premium received for the year under consideration is an unexplained credit and accordingly, the same has been offered to tax. 15. The provision of section 68 of the Income Tax Act, 1961 deals with a cases, where any sum found credited in the books of accounts of an assesee, in any previous year, for which the assesee offered no explanation about the nature and source, thereof or the explanations offered by the assessee, in the opinion of the AO is not satisfactory, then sum so found credited may be charged to income tax, as income of the assesse of that previous year. In order to fix any credit within the ambit of section 68 of the I.T Act, 1961, the AO has to examine three ingredients ie., identity, genuineness of transactions and creditworthiness of the parties. In this factual and legal background, if you examine, the present case in the light of various evidences filed by the assessee, in order to prove credit found in the form of share capital and share premium, one has to see, whether the assessee has discharged its initial onus cast upon u/s 68 of the I.T.Act, 1961 or not. In this case, the assesee has filed various details, including share application form, copy of declaration, board resolution, bank statement of Investor Company, PAN card, acknowledgment of return of income, financial statement of Investor Company, form No. 2 for allotment of equity shares and bank statement reflecting, the amount received through banking channels. Once, the assessee has discharged its initial onus by filing various details, then the onus shift to the AO to carry out further verification, in the light of evidences filed by the assessee to ascertain true nature of transactions between the parties before, he come to the conclusion that the transactions between the parties are genuine or not. In this case although, the AO has issued 133(6) notices to the parties, no further enquiry has been conducted, including issue of summons u/s 131. No doubt, none of the investors companies have responded to 133(6) notices issued by the AO, but fact of the matter is when, assessee has filed complete set of documents, including name and address of the parties, it is for the AO to carry out further investigation by exercising all possible options available to him, but non attendance of parties in response to 133(6) cannot be attributed to the assessee, because due to time lag certain persons might have left the place and for this no responsibility can be fastened upon the assessee. In this case, the assessee done what best it could do and filed, whatever information available with it, in order to satisfy the AO. In case, the AO is not satisfied with documents furnished by the assessee, then he is free to carry out his own investigations by exercising powers conferred u/s 131 or u/s 133(6) of the

15 ITA No.906/M/2018 & CO No.75/M/2019 M/s. Bell Fabrics Pvt. Ltd. I.T.Act, 1961. In this case, the AO, except issue of 133(6) notices nothing has been done to find out, the nature of transactions between the parties. Therefore, we are of the considered view that when, assessee has filed complete details to prove identity, genuineness of transactions and creditworthiness of the parties, then there is no reason for the AO to came to the conclusion that share capital and share premium is unexplained only for the reason that during the survey proceedings, the director of the company had admitted that those five companies are shell companies ignoring the fact that such admission has been retracted by filing affidavit along with letter explaining reasons fro such admission during survey proceedings. Further, additions made by the AO cannot be sustained even on this count ,because the AO has relied upon statement of shri Vikas Sankhlecha, the erstwhile director of those five companies to make additions towards share capital, but when ,shri Kamal Khetan, the present director of the assessee company asked for copies of statement of shri Vikas Sankhlecha and also opportunity for cross examination of shri Vikas Sankhlecha, the AO has denied, the opportunity of cross examination and also not furnished copies of statement recorded from shri Vikas Sankhlecha. It is a settled position of law that once, any third party information/statements is relied upon to make additions, it is the obligation of the AO to provide copies of such statements/information and also to provide an opportunity of cross examination of the person, who gave the statement, when such opportunity has been availed by the person against whom, such statements are used. This legal proposition is supported by the decision of Hon’ble Supreme Court in the case of Kishanchand Chellaram vs CIT 1980 125 ITR 713 (SC), where it was held that when, third party information is relied upon to draw an adverse inference against the assessee, the same needs to be provided and also opportunity of cross examination shall be given, if such opportunity is availed by the assessee. The Hon’ble Supreme Court in the case of Andaman Timber Industries Ltd Vs CCE, Kolkata II in Appeal No 4228 of 2006 has vide order dated 02.09.2015 had also upheld a similar legal position and held that not allowing the assessee to cross-examine the witnesses by the adjudicating the authority, though the statements and those witnesses were made the basis of the impugned order is a serious flaw, which makes the order nullity in, as much as, it amount to violation of principle of natural justice, because of which, the assessee was adversely affected. Therefore, on this count also the additions made by the AO cannot be sustained. 16.Coming to the other aspect of the issue, the AO has invoked the provisions of section 56(2)(viib) of the I.T. Act, 1961. We find that the said provision has been inserted by Finance Act, 2012 w.e.f 10.04.2013, where it provides that where a closely held company issues its shares at a price which is more than its fair market value, then amount received in excess of fair market value will be charged to tax in the hands of the company as income from other sources. We, further noted that the provisions of section 56(2)(viib) was inserted by Finance Act,2012 w.e.f. 1.04.2013 is applicable from A.Y. 2013-14 onwards. In fact, a similar amendment has been made in section 68 by insertion of a proviso by the Finance At 2012 w.e.f. 01.04.2013 as per which the assessee company (not being a company in which public are substantially interested) and sums so credited consists of share application money, share capital , share premium or any such amount by whatever name called, any explanation offered by such assessee company shall be deemed

16 ITA No.906/M/2018 & CO No.75/M/2019 M/s. Bell Fabrics Pvt. Ltd. to be not satisfactory, unless the person being, a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited and such explanation in the opinion of the AO aforesaid has been found to be satisfactory. On perusal of amendments brought out by Finance Act 2012, w.e.f. 01.04.2013 to the provisions of section 56(2)(viib) and section 68 of the Act, it is very clear that where the assessee has issued shares at premium and also received share capital and if such company do not offer any explanation about the nature and source, then sum so received may be regarded as income of the assessee from undisclosed sources. In other words, the purpose of insertion of proviso is to examine the source of investment by subscriber to the share capital. This amendment has been examined by the Hon’ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure (P) Ltd. (2017) 394 ITR 680, where the court observed that proviso inserted to section 68 w.e.f. 01.04.2013 is considered to be prospective in nature and is applicable from A.Y. 2013-14 onwards. From the above, it is very clear that similar amendment has been made to provisions of section 56(2) by insertion of clause (viib) so as to bring share premium within the ambit of section 56(2) of the I.T Act, 1961. Since, the proviso inserted to section 68 is considered to be prospective in nature, obviously sub clause (viib) inserted to section 56(2) is also considered to be prospective and cannot be applied to the assessment year in question. Even otherwise, assuming for a moment above provisions are applicable for the year under consideration, in order to apply said amended provisions, the AO has to prove that the assessee has not proved capacity of the investors and also not offered any justification for issue of shares at premium. In this case, from the facts on record, it is clear that the assessee has proved identity and genuineness of the transactions by filing necessary evidences. The assessee has filed valuation report from registered valuer as per which the share price of the company is over and above premium charged by the assessee. Therefore, we are of the considered view that provisions of section 56(2)(viib) has no application.”

17 ITA No.906/M/2018 & CO No.75/M/2019 M/s. Bell Fabrics Pvt. Ltd. 147 of the I.T.Act, 1961. Since, we have already decided the issue of additions made by the AO, in respect of share capital and share premium u/s 68 of the I.T.Act, 1961, in favour of the assessee and against revenue in appeal filed by the revenue in ITA.No. 906/Mum/2018, the cross objection filed by the assessee challenging validity of reopening of assessment becomes academic and, therefore, the cross examination filed by the assessee is dismissed as infructuous.

Order pronounced in the open court on 25.05.2021.

Sd/- Sd/- (C.N. Prasad) (Rajesh Kumar) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, Dated: 25.05.2021. * Kishore, Sr. P.S.

Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// [ By Order

Dy/Asstt. Registrar, ITAT, Mumbai.