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Income Tax Appellate Tribunal, “F” Bench, Mumbai
Per Justice P.P. Bhatt (President):-
This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals) [in short learned CIT(A)] dated 7.12.2016 and pertains to A.Y. 2012-13.
2. The grounds of appeal reads as under :- 1) The Ld. C.I.T. (Appeals) erred in confirming the addition made by Ld. D.C.I.T. by on account of Share Application Money (Share Capital) holding the same as non genuine. 2) The Ld. C.I.T. (Appeals) erred in confirming the action of Ld. D.C.I.T. of treating the share Application Money (Share Capital) as bogus and thereby erred in making addition of Rs. 4,45,00,000/-.
3. The assessee has sought to raise additional ground by submitting as under :-
2 Jajoo Enterprises Ltd.
“1. The Appellant is moving the present application before this Hon'ble Bench to admit the additional grounds of appeal raised. The Appellant submits that though the additional grounds of appeal, the Appellant has raised the issue of violation of principles of natural justice which goes to the root of the proceedings. The Ld. A.O. invoked the provisions of section 68 of the Act to treat the share application money received by the Appellant as income relying on the statements of some persons. The Appellant has neither been provided with the copies of the same nor cross examination of the persons who had given the statements. The Appellant submits that this issue goes to the root of the proceedings. Hence, the additional grounds of appeal may be admitted.
2. For the abovementioned well-established proposition of the law, the Appellant strongly relies upon the following judicial pronouncements and requests your honour to admit and adjudicate the said additional ground.
Sr. Name of judicial pronouncements Hon'ble Judicial Relevant No. Forum Citation 1 Jute Corpn. of India Ltd. v/s Supreme Court 187ITR688 Commissioner of Income-tax 2 National Thermal Power Co. Ltd. Supreme Court 229ITR383 v/s Commissioner of Income Tax 3 Anmedabad Electricity Co Ltd v/s Bombay High 199ITR351 Commissioner of Income-tax Court
4. The additional ground read as under :-
The Ld. A.O. is unjustified in treating the share application money received by the Appellant amounting to Rs.4,45,00,000/- as unexplained cash credit under section 68 of the Act relying on the statements of third parties without providing the Appellant an opportunity to cross examine those persons. Thus, the action of the Ld. A.O. in is breach of principles of natural justice. Thus, the assessment order dated 31.03.2015 passed under section 143(3) of the Act is bad in law and void ab initio. Hence, the same may be quashed.
5. The assessee has also moved a petition to admit additional evidence as under :-
“The Applicant is moving this application under rule 29 of the Income Tax Appellate Tribunal Rules, 1963 to admit the additional evidence, compiled in Paper Book at Serial Nos. 12 and 13 at Pages 294 to 299. The Applicant requests your Honours to admit the same after considering the following facts:-
The Applicant is a Private Limited Company, engaged in the business of wholesale trading in synthetic cloth. The Applicant filed its return of income for the relevant assessment year on 27.09.2012 declaring total income at Rs.2,64,03,226/-. During the course of assessment proceedings, the Ld. A.O. doubted the genuineness of share application
3 Jajoo Enterprises Ltd. money amounting to Rs.4,45,00,000/- received from M/s. Speciality papers Limited in the assessment years 2011-12 and 2012-13 relying on the statement of Shri Shirish Chandrakant Shah recorded under section 132(4) of the Act. The Ld. A.O. while finalizing the assessment order made the addition of Rs.4,45,00,00/- under section 68 of the Act in the year under consideration by alleging that the Applicant has obtained accommodation entry from M/s. Speciality papers Limited which is controlled by Shri Shirish Chandrakant Shah. The Ld. A.O. while coming to this conclusion relied on the statement of Shri Shirish Chandrakant Shah recorded under section 132(4) of the Act, dated 13.04.2013. It is pertinent to note that the Applicant has nothing to do with Shri Shirish Chandrakant Shah. He had no role to play in the share subscription received from M/s. Speciality papers Limited. The Applicant being aggrieved by the assessment order preferred the appeal before the Ld.CIT (A). On appeal, the Ld. CIT (A) uphold the action of the Ld. A.O.
2. The Applicant being aggrieved by the appellate order preferred the present appeal before Hon'ble Appellate Tribunal.
3. The Applicant strongly objects to the addition made by the Ld. A.O. under section 68 of the Act and confirmed by Ld. CIT(A). The Applicant submits that the authorities below are not justified in doubting the share application money received by the Applicant from M/s. Speciality Papers Limited amounting to Rs.4,45,00,000/-. The Applicant submits that it has provided all the details to substantiate the genuineness of the share subscription made by M/s. Speciality Papers Limited by furnishing relevant evidence which are enclosed in the paper book before Hon'ble Appellate Tribunal. The Applicant further, submits that the Ld. A.O. has acted arbitrary in making addition in the hands of the Applicant merely relying on the statement of a third party.
The Applicant submits that Shri Shirish Chandrakant Shah has affirmed an affidavit on 14.12.2019 at the instance of Mr. Kamal Jajoo, director of the Applicant Company to clarify all the facts of the present case. Shri Shirish C. Shah has clearly stated in his affidavit that his statements recorded during the course of search action cannot be relied since the same are not true and given under fear and pressure. The Applicant submits that this affidavit is a vital evidence which may be relevant to decide the present issue. The Applicant wants to place this affidavit on record before the Hon'ble Appellate Tribunal by way of additional evidence. Thus, the Applicant is furnishing herewith the petition to admit the additional evidences under Rule 29 of the Appellate Tribunal Rule, 1963 along with the affidavit of Shri Shirish Chandrakant Shah, dated 14.12.2019. The Applicant submits that this affidavit has got direct bearing on the present appeal filed before the Hon'ble Tribunal. The Applicant submits that the Hon'ble Bench has been vested with the discretion to admit the additional evidence under Rule 29 of the Income Tax Appellate Tribunal Rules, 1963.
4 Jajoo Enterprises Ltd.
5. The Applicant prays that your Honours may be pleased to admit the additional evidences as the same substantiates the legality of the case and this evidence go into the root of the issues. It is therefore, respectfully submitted that the aforesaid additional evidences may kindly be admitted in the interest of justice. The Appellant relies on the ratio laid by Bombay High Court Smt. Prabhavati Shah vs. CIT 231 ITR 1 (Bom) and PatnaTribunal in the case of Abhay Kumar 63 ITD 144 (Pat.)TM for admission of additional evidence.
The brief facts of the case are that the assessee is a company stated to be engaged in the business of wholesale trading of cloth. It is also gathered that the assessee company got converted into a limited company from Private Limited Company as on 31.01.2008. A search and seizure action u/s. 132 of the act was conducted by the Ahmedabad Investigation Wing in the case of M/s. Rolta India Ltd. and its group cases covering business and residential premises of the associated persons on 29/04/2010. Simultaneously, premises of Shri Mukesh Chandak and Sirish Chandrakant Shah were also covered u/s. 132 of the act. During the search proceedings, it was revealed that Shri Sirish Chandrakant Shah, through its various entities/concerns has been engaged in providing accommodation entries. Various material/documents viz., blank letter heads of various companies, signed cheques, bills etc. were found and seized from his premises. Shri S.C. Shah was confronted with these seized documents and his statement was recorded u/s. 132(4). In the statement recorded on oath, he accepted that he was engaged in providing accommodation entries in nature of bogus share capital etc. to prospective clients against some commission. Subsequently information to this effect was forwarded by the ACIT, Central Circle-1, Mumbai vide letter No. ACCC-1/ 2013-14 dated 16/08/2013 to the present AO , wherein it was informed that during the course of search, various documents, loose papers, books of account, etc. belonging to the present assessee, namely M/s. Jajoo Enterprises Ltd. were found and seized. The relevant seized material and a satisfaction note was forwarded to take suitable action in the case. The return of income for the year under consideration was filed on 27/09/2012 declaring total income at Rs. 2,48,98,522/-. The case was selected for scrutiny and 5 Jajoo Enterprises Ltd.
accordingly notice u/s. 143(2) was issued on 14.10.2013 and duly served on the assessee. Further notices were issued on the assessee calling for various details. During the course of search, apart from other things, it was detected that the assessee company had taken bogus share application money to the tune of Rs.4,45,00,000/- from a company of Sirish Chandrakant Shah group namely Specialty Papers Ltd. The AO accordingly asked the assessee to prove the genuineness of share application money.
By placing reliance upon the findings of search and seizure wing the Assessing Officer made following observations :- “During the course of search the evidence establishing that he is engaged in providing accommodation entries to the clients on receipt of cash has been found and seized/impounded. Evidence with regard to the fact that all the 212 companies are managed and controlled by him has also been found. The details of the evidence found during the course of search establishing the facts, which is noted by DDIT(lnv.), Unit-l(3), Ahmedabad as hereunder:-
i. Details of 220 bank accounts and more than 300 Blank and signed cheque books were found. These pertain to 212 companies including 16 listed companies managed and controlled by him and used for provided accommodation entries by SCS. ii. Directors of the 212 companies have been found to be dummy and for namesake. Statements of persons who are Directors in large number of companies have been recorded; wherein they have admitted that they were mere name lenders. Notarized declarations have also been filed by a number of Directors wherein they have stated that they are only name lenders and do not know about the activities of the companies in which they are Directors. iii. PAN card, seals of the companies, records of statutory compliance etc of all these companies have been found and taken on record during the search and survey proceedings. iv. Evidence of synchronized trading to artificially raise share price of the listed companies managed by SCS has been found and seized. v. Details of receipt of cash against which cheques for accommodation entries were issued to the respective beneficiary parties have been seized. vi. Though SCS is formally not associated with any of the aforesaid companies the fact remains that SCS manages and controls these companies and has used the web of corporate structure to facilitate introduction of share capital, unsecured loans, synchronized trading and providing bogus LTCG. This fact has been admitted under oath by him and many of the dummy directors of these companies.
6 Jajoo Enterprises Ltd. vii. This clearly establishes that the ultimate source of funds in the bank accounts of the companies managed and controlled by him is unaccounted cash received from the clients though it is made to appear that the same has been received as Loan or Share Capital from other companies.
On a perusal of the shareholding pattern of the assessee, it is observed that the following entities/persons are having shareholding more than 5% shares in the company:-
S.No. Name of the No. of Shares % of holding Shareholder held 1. Kamal Jajoo 59,650 31.95 2. Nita Jajoo 40,300 21.59 3. Kamal Jajoo HUF 34,492 18.47 4. Speciality Papers Ltd. 20,375 10.91
The total amount involved against M/s Speciality Papers Ltd, is calculated as follows:
Total No. of shares : 20,375 (19,750+65) Partly paid up shares : Rs. 3,95,00,000 19,750 x 2000(Rs. 25 face value + Rs.1975 share premium = Fully paid up shares : Rs. 50,00,000 625 x 8000(Rs. 100 face value + Rs.7900 share premium)= Rs. 4,45,00,000
It is seen from the details of the Annual Report of the said company filed by the assessee vide submission dated 26.02.2015 that in the list of Shareholders holding more than 5% of equity shares in the company as at 31.03.2012, the following four companies are held and managed by Shri Shirish Chandrakant Shah viz. :- i. Dhanus Technologies Ltd ii. Channel Guide India Ltd. iii. Empower India Ltd. iv. Allied Computer International Asia Ltd.
Shri Shirish Chandrakant Shah has admitted in his statement recorded on oath that these listed companies are used by him only for providing accommodation entries of share capital/premium, share application, unsecured loans (one time) etc. Out of the 8 companies mentioned in the list of shareholders holding more than 5% of equity shares, 4 companies are non genuine with no business activity as discussed above. M/s. Speciality Papers Ltd. has held 20,375 shares (19,750 partly paid + 625 full paid) as per
7 Jajoo Enterprises Ltd. assessee's books with a shareholding of 10.91%. Under this backdrop of the issue, the assessee, by virtue of notice u/s.142(1) dated 12.03.2015, was show caused as to why the entire amount of Rs. 4,45,00,000/- [19,750 X 2000 (Rs. Rs. 1975 share premium + Rs. 25 face value)] + [625 X 8000 (Rs. 7900 share premium + Rs. 100 face value)] should not be considered as unaccounted and unexplained money routed back into the assessee's business through non- genuine and illegal channels and added back to the total income of the assessee. The assessee was also required to ascertain and prove the genuineness of the transactions with the aforesaid parties. In this regard, the assessee was asked to furnish the following details:- a) Confirmed copies of ledger account of M/s Speciality Papers Ltd. as appearing in your books for the period from 01.04.2011 to 31.03.2012. b) Submit a copy of bank statement reflecting the aforesaid transactions. c) Furnish the purpose for which the said transactions were done. d) Furnish a copy of acknowledgement of return of income filed by M/s Speciality Papers Ltd. for A.Y.2012-13 along with Balance Sheet, P&L Account and all the relevant schedules. e) Confirmed copies of ledger account of M/s Jajoo Enterprises Ltd. as appearing in the books of M/s Speciality Papers Ltd. for the period from 01.04.2011 to 31.03.2012. f) Furnish the complete address of M/s Speciality Papers Ltd.
Along with the aforesaid notice u/s.142(1), the assessee was also made available copies of Statement of Shri Shirish Chandrakant Shah recorded on oath u/s.132(4) of the I.T.Act, as obtained from the Investigation Wing, for cross- examination.
Thereafter the Assessing Officer noted the following submission of the assessee:- “In response to the aforesaid show cause, the assessee, through its submissions filed vide letter dated 19.03.2015, has filed following documents:
a) Ledger account of M/s Speciality Papers Ltd. in its books for FY 2011-12. b) Bank statement reflecting the transactions and M/s Speciality Papers Ltd. c) Bank statement of M/s Speciality Papers Ltd. from their banker which shows payment entry transaction. d) ITR of M/s Speciality Papers Ltd. for AY 2011-12 & 2012-13. e) PAN card of M/s Speciality Papers Ltd. f) Balance sheet and P&L account of M/s Speciality Papers Ltd. for FY 2011- 12. g) Share application form of M/s Speciality Papers Ltd. h) Resolution of M/s Speciality Papers Ltd. for share application in its company. i) Declaration from M/s Speciality Papers Ltd. for share application in its company.
The Assessing Officer has further noted that in support of its contention, the assesses has made following written submissions :-
8 Jajoo Enterprises Ltd.
1. "We have issued 20375 shares to-M/s Speciality Papers Ltd. details of which is given below:
We have issued 625 fully paid Shares to M/s Speciality Papers Ltd. in AY 2011-12 @ 8000/- per share in which Share Capital Rs. 100/- per share and Share premium Rs. 7900/- per share.
We have issued 19750 partly paid Shares to M/s Speciality Papers Ltd. in AY 2012-13 @ 2000/- per share in which Share Capita! Rs. 25/- per share and Share premium Rs. 1975/-per share. 4. The total comes to 20375 shares allotted to M/s Speciality Papers Ltd..
The complete address of M/s Speciality Papers Ltd. is as below: 93, Dadisheth Agiary Lane, Off Kalbadevi Road, Mumbai - 400002
In this connection, we would inform you that we do not know the Shri Shirish Chandrakant Shah. We have done the genuine transaction with M/s Speciality Papers Ltd. We have received amount from M/s Speciality Papers Ltd. in our share capital and share premium account. We have already submitted you the papers related with M/s Speciality Papers Ltd.. Thus we vehemently object to your proposed action to treat this as bogus. We have genuinely received Share application through banks after verifying the identity capacity and genuineness of the investors. Thus we have discharge our onus to prove the same..."
However, the Assessing Officer was not satisfied. He proceeded to refer to the findings of the investigation wing and statement on oath of Shri S.C. Shah. He held that the above said findings corroborate that all concerns run controlled/operated by Shri S.C. Shah are engaged in the activity of providing accommodation entries only. That from the information received it is derived that the assessee has taken accommodation entries in the nature of bogus share capital to the tune of Rs. 4.45 crores from Shri M/s.Speciality Papers Ltd. Thereafter the Assessing Officer referred to the provisions of section 68 of the Act and Hon'ble Supreme Court decision in the case of Sumati Dayal Vs. CIT [(1995) Supp.(2)SCC453] and accordingly he added share capital to the tune of Rs. 4.45 crores as undisclosed income of the assessee.
Upon assessee’s appeal learned CIT(A) referred to the submission of the assessee. Thereafter he also referred to the findings of the investigation wing of 9 Jajoo Enterprises Ltd.
the Income Tax Department and the statement of Shri S.C. Shah. He referred extensively to the statement of Shri S.C. Shah, wherein he mentioned that some of the companies including M/s. Speciality Papers Ltd. were engaged in providing bogus share application money and also bogus unsecured loans, long term capital gains against cash received from the clients. They were not doing any business. Learned CIT(A) further mentioned that the assessee argued that he has received share application money through bank and he is not aware of any Shirish Chandrakant Shah. Learned CIT(A) rejected this contention and referred the Hon'ble Supreme Court decision in the case of Kanchwala Gems (122 TTJ 854) which held that payment through cheque alone does not determined the genuineness of the transaction and the assessee has to prove its genuineness to the satisfaction of the Assessing Officer. He noted that the assessee is being assessed to tax and has shown some turnover and some income/loss. However in view of the specific statement of Shri S.C. Shah entire turnover of this company is bogus and income/loss returned by them is unreliable. Thereafter learned CIT(A) noted that the Assessing Officer has issued notice u/s. 133(6) to this company with a view to examine the transaction of the assessee company. That the assessee never responded to the notice. Thereafter referring to section 68 of the I.T. Act and Hon'ble Supreme Court decision in the case of Sumati Dayal (supra), learned CIT(A) confirmed the addition.
Against this order assessee is in appeal before us.
We have heard both the counsel and perused the records. Learned Counsel of the assessee Shri K. Gopal referred to the additional ground being raised. He submitted that the revenue has primarily relied upon the statement of Shri S.C. Shah from the investigation wing of the Income Tax Department. That the assessee was never given opportunity to cross examine the said Shri S.C. Shah. Furthermore, he submitted that the assessee has obtained affidavit from Shri S.C. Shah in support that he has no dealing with the assessee company and that he is not engaged in providing accommodation entry.
10 Jajoo Enterprises Ltd.
Learned counsel further submitted that the assessee has provided all the necessary evidences for the genuineness of the transactions. He further submitted that out of Rs. 4.45 crores added as bogus share capital, Rs. 50 lakhs was received in the earlier assessment year. Hence, the same can never be added u/s. 68 in the present assessment year.
Per contra, learned Departmental Representative Ms. Samantha Nullamudi submitted that addition has been made on the basis of clear and cogent finding of the investigation wing of the Income Tax department that Shri S.C. Shah operates bogus company to provide accommodation entries. The said M/s. Speciality Papers Ltd. from whom assessee has received share capital was one of them which have provided bogus accommodation entries to the assessee company. Learned Departmental Representative further submitted that at any time during time of proceeding authorities below, the assessee has never asked for an opportunity to cross examine the said person Shri S.C. Shah. She further submitted that the assessee has managed to obtain affidavit of the said person namely Shri S.C. Shah hence no purpose is being served by asking for cross-examine. Moreover, learned Departmental Representative reiterated that the said investor company has no fund of its own to utilise for share capital and share premium. That it only has fund in the shape of share premium received from other concerns. That this supports the finding of investigation wing, that it is a part of surreptitious routing of money in shape of share capital and share premium. She placed reliance upon the Hon'ble Supreme Court decision in CIT Vs. N.R. Portfolio Pvt. Ltd. Income Tax Appeal No. 1019/2011 dated 22nd November, 2013.
Upon careful consideration we find that this addition for share capital and share premium has been done by the Assessing Officer upon finding of the investigation wing of the Income Tax Department that assessee was receipt of bogus accommodation entries from Shri S.C. Shah Group of companies. The Assessing Officer has issued notice u/s. 133(6) to the assessee company. There was no response from the said company. However, learned Counsel of the 11 Jajoo Enterprises Ltd.
assessee submits before us that at no point of time the assessee was asked to produce directors of the investor company. That if the same was done the assessee would have made necessary endeavor to bring representative/director of the company before authorities below. We find that notice by the authorities below issued u/s. 133(6) has remained unresponded. Further the assessee has submitted certain documents including financial statement of the investor company, for which the authorities below have observed that these are part of surreptitious routing of money and investor company was not doing proper business.
In our considered opinion for addition u/s. 68 as undisclosed income following three ingredients have to be examined :- (i) Genuineness of the transaction (ii) Identity of the payer (iii) Creditworthiness
In the present case we note that the lower authorities have noted that notice u/s. 133(6) has not be responded. Learned Counsel of the assessee has submitted that the assessee was not required to produce the director of the investor company. We further note that the issue of additional evidence and additional ground are no more germane to the issue at hand as the assessee has himself produced affidavit from Shri S.C. Shah for the proposition that he is not providing accommodation entry.
Now the issue remains examination of the identity, creditworthiness and genuineness of the transaction. The same is not clear from the documents on record. The same is also cogently not brought out in the orders of the authorities below. Learned Counsel of the assessee submits that if the assessee is asked to produce representative/director of the investor company the same can be attempted. In the facts and circumstances of the case we deem it appropriate to remit this issue of addition u/s. 68 of the Act to the file of the Assessing Officer. The Assessing Officer shall issue necessary notices to the assessee company and shall make the necessary examination with respect
12 Jajoo Enterprises Ltd. to identity, creditworthiness and genuineness of the transaction. He shall properly examine the documents and financial statement being submitted by the assessee company and pass a speaking order
With these directions we remit this issue to the file of the Assessing Officer. Needless to add the assessee should be granted adequate opportunity of being heard the assessee is free to submit the necessary documents as it deems appropriate.
In the result, appeal filed by the assessee stands allowed for statistical purposes.
Order pronounced under Rule 34(4) of the ITAT Rules on 27.10.2020 by placing the result on notice board.