SHAKTI SHARE SHOPPEE PVT. LTD.,MUMBAI vs. ITO ,WD-13(2)(3), MUMBAI

The above titled appeals have been preferred by the assessee against the order dated 16.03.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment years 2008-09 & 2009-10.

During the course of search proceedings on Shri Pravin Kumar Jain and related entities, it was revealed that Shri Pravin Kumar Jain and his associate concerns were engaged in providing accommodation entries in the form of share application money cum share premium, unsecured loans and also bogus share sale and purchase in penny stocks. It was also revealed that all these entities connected with Shri Pravin Kumar Jain are not doing any genuine business such as trading, manufacturing or financing etc and are rendering accommodation services. The AO discussed in detail the modus operandi of Shri Pravin Kumar Jain in the assessment order from page No.2 to 19. During the course of assessment proceedings the AO called upon the assessee to furnish the evidences/documents relating to the investors and prove their genuineness which was replied by the assessee by filing copies of the letter sent by the investors, payment details by account payee cheques and details of shares issued at a face value of 10

In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee by observing and holding as under: “5.8. I have considered the submissions and facts on record carefully. The distinguishing feature in this case noted is that the director of the appellant company was summoned and statement recorded at the time of the assessment proceedings itself. The statement -is reproduced in the assessment order. It is highly improbable that the director Shri Deepak Singhvi could not name the person who was contacted for investing in the appellant company when such investors are the largest shareholder in the appellant company. If such large investment was made, it is again unbelievable that such investor will not nominate/its own director and not attend the AGM of the appellant company. When queried why it had to obtain details of investors from ROC, it turned out that the investors had since then transferred the shares to Singhvi family, the promoters. Details were called including copy of share transfer memo and the purchasers bank statement, return of income and computation of income. This was not submitted though from details filed it is clear that all shares invested to by these 5 investors have been purchased by the Singhvi family and at par. Why would any investor invest Rs 400/ share only to sell it to the original promoter family for Rs 10 per share? All these peculiar facts, show that the transactions are not genuine.

The Ld. A.R. vehemently submitted before the Bench that the order passed by Ld. CIT(A) has no basis and the appeal of the assessee has been dismissed without considering the facts on record and various judicial citations. The Ld. A.R. submitted that assessee has filed copies of confirmations, PAN numbers, board resolutions, copies of bank statements, IT returns and audited annual accounts of the investor entities duly reflecting the investments made in the assessee company, however, the AO has not brought any material on record to prove that these transactions were non genuine. The Ld. A.R. submitted that assessee has proved all the three ingredients of section 68 i.e. identity and creditworthiness of the investors and genuineness of the transactions by furnishing various evidences as stated hereinabove before the AO, however, the AO failed to bring any substantive material to prove that the said transactions were non genuine. The Ld. A.R. submitted that the authorities below have only relied on the statement of Shri Pravin Kumar Jain which was recorded during the course of search proceedings on Shri Pravin Kumar Jain and his related entities wherein the Shri Shri Pravin Kumar Jain admitted that he was doing the business of providing the accommodation entries only but the AO has overlooked the fact that the said statement recorded under section 132(4) of the Act stood retracted by Shri Pravin Kumar Jain and by various other persons afterwards. The Ld. A.R., therefore, submitted that the assessment so framed by the AO is bad in law and addition made of Rs.1,80,00,000/- deserved deletion on this count. In defence of his arguments the 6 & 4101/M/2017 M/s. Shakti Share Shoppee Pvt. Ltd. Ld. A.R. relied on the decision of the co-ordinate bench of the Tribunal as follows: 1. ACIT 30(3), Mumbai. v/s. Shreedham builders (ITAT Mumbai) 2. Arceli Realty Limited v/s. Income Tax Officer - 15(1)0), Mumbai. (ITAT Mumbai) 3. Anil Chhaganlal Jain v/s. ACIT - 18(1), Mumbai. (It AT Mumbai) 4. Income Tax Officer, 13(2)(3), Mumbai. v/s. M/s Shreedham Construction Pvt. Ltd. (ITAT Mumbai) 5. M/s Shree Laxmi Estate Pvt. Ltd. v/s. ITO, Wd. 15(3)(3), Mumbai. (ITAT Mumbai) 6. ACIT 24(3), Mumbai v/s. Shri Ramesh Ramswarupdas Jindal. (ITAT Mumbai) 7. DCIT - 12(1)(2), Mumbai. v/s. Bairagra Builders P Ltd. (ITAT Mumbai) 8. M/s. Komal Agrotech P. Ltd. v/s. The Income Tax Officer, Ward - 2(1 ), Hyderabad. (ITAT Hyderabad) 9. ITO - 4(2)(4), Mumbai. v/s. M/s. Kushboo Exports Pvt. Ltd. (ITAT Mumbai) 10. Income Tax Officer - 3(2)(4),Mumbai. v/s. M/s. Pyramid Rralty Pvt. Ltd. (ITAT Mumbai) 11. Aim Properties & Investment Pvt. Ltd. v/s. Income Tax Officer, 5(1)(1), Mumbai. (ITAT Mumbai) 12. Sudhanshu Suresh Pandhare v/s. ITO Ward 21(3)(2), Mumbai. (IT AT Mumbai) 13. ITO - 10(2)(3), Mumbai. V/s. J J Multitrade Pvt Ltd. (ITAT Mumbai) 14. M/s. SDB Estate Pvt Ltd. v/s. ITO - 5(3)(2), CIT(A) 10, Mumbai. (ITAT Mumbai) 15. Bharti Syntex Ltd. v/s. Deputy Commissioner of Income Tax, Jaipur, (ITAT Jaipur) 16. ITO vs M/s Ahaan Financial Services Pvt Ltd IT A No. 5904/Mum/2017

The second plea of the assessee is that the share capital has been raised at a premium by issuing shares with face value of Rs.10 at a premium of Rs.390 was in fact on the basis of balance sheet of the assessee as on 31.03.2007 according to which the intrinsic value of the share works out to Rs.411 per share. Therefore, objection of the AO as per para 2 of the assessment order that the value of the share is only Rs.10 is wrong and against the facts of record. The Ld. A.R. submitted that the findings recorded for forming belief as to the escapement of income by recording reasons under section 148(2) is wrong and fallacious. The Ld. A.R. also submitted that the assessee has filed all the evidences as stated hereinabove before the AO evidencing the issue of shares, confirmations of investments by the investors, evidence of payments received by 7 & 4101/M/2017 M/s. Shakti Share Shoppee Pvt. Ltd. the assessee and payments made by the investors through banking channels as is clear from the bank statements filed before the AO as well as before the Ld. CIT(A) and therefore the said issue of shares at a premium can not be added under section 68 of the Act. In defence of his argument, the Ld. A.R. relied on the following decisions:

Pr. CIT 5 v/s. Laxman Industrial Resources Ltd. ITA 169/2017 CM Appl. 7385/2017(HC - Delhi) 18. CIT v/s. Value Capital Services (P.) Ltd. ITA No. 348 of 2008 (HC-Delhi) 19. Nathu Ram Premchand v/s. CIT 49 ITR 561 (HC-Allahabad) 20. CIT v/s. Expo Globe India Ltd. 51 Taxmann.com (HC-Delhi) 21. CIT vs Victony Spinning Mills Ltd. 50 taxmann.com 416 (HC- Madras) 22. CIT v/s. Dwarkadhish Investment (P.) Ltd. 1 94 Taxman 43 (HC-Delhi) 23. CIT v/s. M/S. Nishan Indo Commerce Ltd. ITA No. 52 of 2001(HC-Calcutta ) 24. CIT v/s. Vacmet Packaging (India) (P.) Ltd. 45 Taxmann.com 204 (HC-Allahabad) 25. CIT v/s. Gangeshwari Metal (P.) Ltd. 30 taxmann.com 328 (HC-Delhi) 26. ACIT v/s. Venkateshwar Ispat (P.) Ltd. 3 1 9 ITR 393 (HC- Chhattisgrah) 27. CIT v/s. Nav Bharat Duplex Ltd. 35 Taxmann.com 289 (HC- Allahabad) 28. CIT v/s. Samir Bio-Tech (P.) Ltd. 325 ITR 294 (HC-Delhi) 29. Mod Creations (P.) Ltd. v/s. ITO 13 Taxmann.com 1 14 (HC- Delhi) 30. CIT v/s. Jay Dee Securities & Finance Ltd. 32 taxmann.com 91 (HC-Allahabad) 31. Jaya Securities Ltd. v/s. CIT 166 taxman 7 (HC- Allahabad) 32. Pr. CIT vs Apeak Infotech 397 ITR 148 (Bom-HC) 33. Pr. CIT vs. Veedhata Tower Pvt Ltd 403 ITR 415(Bom-HC) 34. Pr. CIT vs . Vaishnodevi refoils & Solvex 96 Taxmann.com 469 (SC) & 100 CCH 228 (Guj-HC)

The Ld. A.R. also argued that amendment in section 56(2) (vii)(b) was effective from A.Y. 2013-14 and therefore not applicable to the instant year and the assessee was at liberty to issue share at a premium as this was a business decision of the assessee and tax authorities have no role to play in the said

The Ld. A.R. finally submitted that in view of the aforesaid submissions the addition may kindly be deleted by reversing the order of Ld. CIT(A).

The Ld. D.R., on the other hand, strongly controverted the argument of the Ld. A.R. by submitting that the assessee undisputedly availed the accommodation entries from entities belonging to Shri Pravin Kumar Jain and the investment was made in the assessee company in the form of share capital and share premium. The entire modus operandi of Shri Pravin

In the rebuttal, the Ld. A.R. referred to the page No.11 of the paper book in A.Y. 2008-09 and drew the attention of the Bench to the balance sheet placed at page No.11 to 15 and pointed out that even prior to issue of shares to these entities, the book value per share was Rs.411.80 and therefore the arguments of the Ld. D.R. that share value was issued at a very high price is wrong and against the facts on record. The Ld. A.R. submitted that the decision to buy shares back from these investors is a commercial decision and can not be doubted by the tax authorities.

We have heard the rival submissions of both the parties and perused the material on record including the impugned order. We find that assessee has filed the necessary evidences as stated hereinabove in support of its claim before the AO as well as before the Ld. CIT(A). The evidences filed comprised of copies of ITR, annual accounts, bank statements, PAN numbers, application from share applicants, copies of board resolutions etc and even in response to summons issued under section 131, these investors filed their audited statements, ITRs and bank statement before the AO. The AO has also proceeded on the basis of the statement of Shri Pravin Kumar Jain and others recorded during the course of search to doubt these transactions and has not brought on record any substantive material to prove these investments as non genuine whereas the assessee has filed all the evidences. We also find that the director Shri Dipak Singhvi has presented himself before the AO in order to examine Shri Pravin Kumar Jain and others, however, the same did not attend before the AO and cross examination could not be 12 & 4101/M/2017 M/s. Shakti Share Shoppee Pvt. Ltd. performed. Besides ,the amendment to section 56(2)(vii)(b) of the Act is applicable from A.Y. 2013-14 and not to the year under consideration and therefore the question of issuing shares at a premium can not be examined in this year and also addition can not be made. Moreover, we find that on the date of issue of shares, the intrinsic value of the share as on 31.03.2007 was 411.80 and therefore the observation of the AO that shares were issued at a very high price is wrong and against the facts of the case. We have also perused the decisions referred to and relied by the ld. AR of the assessee in support of his arguments and found them to be squarely applicable to the assessee’s case. In this case, the assessee has discharged the onus cast upon it by filing the necessary documents before the AO as well as CIT(A). Moreover in absence of cross examination of the persons whose statements were relied by the AO, the addition can not be made in view of the fact that specific prayers to the AO to this effect were made before the AO. In view of the above discussion and facts of the case, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition.

The appeal of the assessee is allowed.

The issue involved in the present appeal is identical to the one as stated above in A.Y 2008-09. Therefore, our finding in ITA No.4100/M/2017 A.Y 2008-09 would, mutatis mutandis, apply to this appeal as well. Accordingly the appeal of the assessee is allowed.