ACIT, NEW DELHI vs. M/S. SMC FOODS LTD., UTTAR PRADESH

This appeal is filed by The Assistant Commissioner of Income Tax, Central Circle – 04, New Delhi [AO] against the order of The Commissioner of Income Tax (Appeals) – 23, New Delhi [CIT (A)] dated 16/2/2015 for assessment year 2010 – 11. 02. The learned AO has challenged the order of the learned CIT (A) stating that on the facts and circumstances of the case, the learned CIT (A) has erred in law in deleting the addition of Rs 2,67,00,000/- made by the AO [1] The ACIT , New Delhi Vs SMC Foods Limited 68 of The Income Tax Act [The Act]. 03. This appeal was initially heard on 27/2/2019. However at the time of dictation of order, it was found necessary to look at the assessment records, for which appeal was fixed for hearing on 4/6/2019. On that date, the ld CIT DR produced the assessment records, which were perused along with the orders of the lower authorities to dispose of this matter. 04. The brief facts of the case show that assessee is a company engaged in the business of manufacturing of the schemed milk powder, butter, and liquid milk etc having its factory at Saharanpur. Search and seizure u/s 132 of The Act was carried out in the case of the assessee belonging to SMC group on 4/8/2011. Therefore, the notice u/s 153A was issued on 23/1/2013. The assessee filed its return of income on 6/5/2012 declaring income of INR 1, 64,34,590/–. 05. During the course of search operation it was noted that in financial year 2009 – 10 assessee has issued 3,00,000 shares to Shalini Holdings Ltd [SHL] at the face value of INR 10/- charging share premium of INR 90/- per share amounting in all to INR 30,000,000/-. Subsequently the shares allotted to that company, it transferred its shares to another company Paper Creations Private Limited at INR 10/- per share. Paper Creations Private Limited subsequently sold to another company CFL at [2] The ACIT , New Delhi Vs SMC Foods Limited INR 11/- per share. Therefore, the learned AO noted that it ultimately benefitted group by an amount of INR 30,000,000/- minus INR 300,000/- amounting to INR 26,700,000/- which is an undisclosed income of the assessee. Therefore, show cause notice was issued.

The assessee submitted reply that all the required details to prove the identity, creditworthiness as well as genuineness of the amount received like name and address, confirmed copy of account giving therein the income tax particulars, as well as a copy of the bank statement and balance sheet. Therefore, it was submitted that the share capital and share premium received by the assessee company could not be considered as bogus. It was further stated that assessee is not aware about the source from which the company has raised funds.

The learned assessing officer considered the explanation of the assessee. He held that though the money was received through banking channel but it did not reflect actual genuine business activity. Share subscriber did not have their own profit making apparatus and were not involved in any business activity. They merely rotated money, which was coming to the bank accounts by means of deposit by way of cash and issue of cheques. He further referred to the bank account of the entry operator that sought substantial deposit of cash and issued cheques on transfer in the bank account of company and subsequent issue of cheques to the beneficiary assessee company. He therefore noted that the subscriber to [3] The ACIT , New Delhi Vs SMC Foods Limited the shares is not carrying any other business activity. He further held that certificate of incorporation, name, and address, income tax particulars etc cannot in all cases tantamount to satisfactorily discharge of its onus. He further noted that no dividend has been declared in the past year and therefore no investor will invest such a huge sum, until he or she is getting some return on investment of INR 30,000,000/-. He further held that the onus to prove the share application money or premium is on the assessee, since based on information provided by the assessee it cannot be verified. He further noted that the basic information like address etc is not verifiable. He further stated that Assessee Company is not a public company where the issue of share capital is through inviting applications, which is mainly contributed by the public, but it is a private limited company, therefore, contributors and source of their funds are in the knowledge of the assessee. He therefore held that onus is on the assessee who is privy to such information, has not been discharged by the assessee. He also noted that subsequently those shares having issued for Rs 3 crores have been transferred to Group Company through a chain of transaction for Rs 33 lakhs, balance sum is unexplained cash credit in the hands of the assessee. Hence addition of Rs. 267,00,00,00/- was made under section 68 of the Act. Consequently the assessment order u/s 143 (3) read with [4] The ACIT , New Delhi Vs SMC Foods Limited 153A of the Act was passed on 31/3/2014 at INR 46667920/– against the returned income of INR 16434590/–.

The assessee aggrieved with the order of the learned AO, preferred an appeal before the learned CIT – A who deleted the above addition as per order dated 16/2/2015 for the following reasons:- a. that from the copies of the public records available on the website of the registrar of companies Shalini Holdings Co Ltd is an active public company having share capital of INR 127,400,000/- and reserves and surplus of Rs 111,00,00,000/- . Therefore, without evidence to the contrary, by no stretch of imagination, it could be concluded that the purchase of share or share application money amounting to INR 30,000,000/- by this company with huge resources in excess of INR 1 24,00,00,000/- is not genuine. b. He further held that Paper Creations Private Limited is also an active private limited company with the paid-up share capital of INR 1,869,000/- and reserves and surplus of INR 38,400,000/- and therefore in the absence of any evidence to contrary, it could not be concluded, that purchase of shares worth only INR 3,300,000/- by this company having a source in excess of Rs. 4 crores was not genuine c. He further held that there was no requirement of producing the director of Shalini Holdings Ltd, as the learned assessing officer [5] The ACIT , New Delhi Vs SMC Foods Limited 131 of the Act. d. Non-reply of the summons from the parties in second and third layer entities was never brought to the notice of the appellant, and therefore it could not be held against the assessee without affording proper opportunity. e. He further referred to his own decision in Moolchand steel private limited in appeal number 107/14 – 15 for assessment year 2006 – 07, wherein he has deleted the addition based on the statement of Mr. Tarun Goyal, another entry operator, holding that as there is no specific evidence that for the share premium received by the appellant company any collateral payment was made. He further noted that mere fact alone that the shares have been issued and the premium does not make the transaction non-genuine. f. He further noted that the provisions of section 56 (2) (vii) have come into effect from assessment year 2013 – 14 and e taxation of such benefits cannot be chargeable to tax in this year i.e. AY 2010- 11.

The learned AO aggrieved with the order of the learned CIT – A has preferred this appeal.

The learned CIT DR submitted that during the year the assessee issued 3,00,000 shares at face value of INR 10/- each at a premium of INR 90/- per share to Shalini Holdings limited. The total amount received was INR 30,000,000/- from that company. Subsequently that company transferred these shares to another company i.e. Paper Creations Private Limited at the rate of INR 10/- per share. Those shares were later on transferred by Paper Creations Limited to CFL at the rate of INR 11/- per share. He therefore stated that the amount of Rs. Three crores have been deposited in the bank account of the assessee company by issue of those shares, which were later on purchased by Group Company for Rs 33 lakhs. Thus, there is clear-cut money laundering of Rs 2.67 Crores by the group. He further stated that accommodation entry provider in answer to question number 5 of the statement recorded u/s 132 (4) has admitted having provided accommodation entries to assessee’s group of companies. In view of the above facts, he submitted that the assessee has miserably failed to prove the identity, creditworthiness of the subscriber. He further stated that the shares of this appellant company were originally issued at Rs. 100/- per share to Shalini Holdings Pvt Limited. Subsequently those shares has reached to the group concern at the rate of INR 11/- per share which itself shows that within a short span of time the above shares have come back to the appellant group at around the face value only. The shares of the [7] The ACIT , New Delhi Vs SMC Foods Limited Rs 100/- per shares were brought back for Rs 11/- per share resulted in to the net gain of Rs 89/- per shares in a short time, without any reason, which clearly shows that transaction is not genuine. It shows that the transaction is not genuine. He further stated that merely because the transactions are carried out through cheques could not make them genuine. He further stated that the assessee has not explained during the course of assessment proceedings or before the learned CIT – A as to show that how and why Shalini Holdings Pvt Ltd bought the shares having a face value of INR 10/- at a premium of INR 90/- and subsequently immediately within a short span of time has sold the shares at INR 11/- back to the group concerns of the assessee. In fact, it clearly shows that the benefit of INR 2.67 Crores has been earned by the assessee. He further submitted that linkage of these transactions, which are standard transaction of converting unaccounted money by issuing shares at a huge premium and later on bought back by the promoters at on or around face value, thus creating huge capital in the company, with section 56 is devoid of any merit, as the assessing officer has made addition u/s 68 of the Act. He further referred to the order of the learned CIT – A and submitted that the summons were issued to the shareholder but merely replies were filed but no personal presence was ensured, therefore no reasons could be gauged that why the 3rd person would buy share of the assessee [8] The ACIT , New Delhi Vs SMC Foods Limited 10 times more than the value and immediately sell them at 1/10th of the purchase price. He therefore submitted that the assessee as well as the shareholder completely failed to prove the genuineness of the transactions. Therefore, he submitted that the basic ingredients of the provisions of section 68 of the income tax act have not been proved by the assessee. He further stated that genuineness of the transaction is clearly in serious doubt in view of the fact that the transactions have been carried out by the shareholder in such a clandestine manner that INR 30,000,000/- have been transferred to the assessee by only paying INR 3,300,000/-. The learned departmental representative vehemently relied upon the decision of the honourable Delhi High Court in PRINCIPAL COMMISSIONER OF INCOME TAX VS NDR PROMOTER’S PRIVATE LTD dated 17/01/2019 reported in 2019 – TIOL – 172 – HC – del – IT and submitted that the issue is squarely covered in favour of the revenue by the decision of the honourable Delhi High Court. He further referred to that decision. He further relied up on :- a. CIT VS MAF ACADEMY PRIVATE LIMITED 361 ITR 258, b. CIT VS NAVODAYA CASTLES PRIVATE LIMITED 367 ITR 306, c. KONARK STRUCTURAL ENGINEER PRIVATE LIMITED VS DEPUTY COMMISSIONER OF INCOME TAX 90 TAXMANN.COM 56, [9] The ACIT , New Delhi Vs SMC Foods Limited d. PREM CASTINGS PRIVATE LIMITED VS CIT 88 TAXMANN.COM 189, e. CIT VS NIPUN BUILDERS AND DEVELOPERS PRIVATE LIMITED 350 ITR 407, f. CIT VS NOVA PROMOTERS AND FINLEASE PRIVATE LIMITED 340 ITR 169 g. ULTRA MODERN HOME EXPORTS PRIVATE LIMITED 40 TAXMANN.COM 458, h. CIT VS NR PORTFOLIO PRIVATE LIMITED 29 TAXMANN.COM 291 11. The learned authorised representative submitted that learned departmental representative could not dislodge findings of the learned CIT – A for deleting the above addition. He extensively referred to order of the learned CIT – A and submitted that he has accepted that assessee has proved the identity, creditworthiness of the depositors and the genuineness of the transactions. He further submitted that relevant details were submitted before the assessing officer and the depositors also complied with the summons u/s 131 of the income tax act as all the information required were submitted, same were not proved to be incomplete/ false. He further submitted that the transactions shows that a sum of INR 30,000,000/- had been received by the assessee as share capital and share premium, however the addition is made only of [10] The ACIT , New Delhi Vs SMC Foods Limited Rs. 267,00,000/-, this itself shows that the person who has invested in the company is genuine. He submitted that identity of the person also stands admitted. He stated that the payment has been received through account payee cheque and against which the shares have been issued to the applicant, hence, the assessee has discharged the complete onus with respect to the identity, creditworthiness, and genuineness of the transaction. He further submitted that the moment these ingredients of the provisions of section 68 of the Act are established , onus has been discharged by the assessee, and, now it has shifted to the assessing officer, who has not thrown it back on the assessee. He submitted that the onuses to prove above three ingredients are never static. He further stated that learned assessing officer has not at all put any question about the several evidences submitted by the assessee. He further stated that Shalini Holdings Ltd and the Paper Creation Private Limited Company both are active companies on the website of registrar of companies (ROC). He further stated that when the summons was issued to the party, reply has been received and no adverse inference can be drawn. For this proposition has relied on the decision of the honourable Delhi High Court in 357 ITR 146 COMMISSIONER OF INCOME-TAX v. FAIR FINVEST LTD. The learned authorised representative also stated that one part of the transaction is accepted as genuine as out of the sum of INR 30,000,000/- only INR 26,700,000/- have been added under [11] The ACIT , New Delhi Vs SMC Foods Limited 68 of the Act , then remaining part of the transaction is also required to be accepted as genuine. For this proposition, he referred to the decision of the 122 ITR 14. TARA DEVI GOENKA v. COMMISSIONER OF INCOME TAX, WEST BENGAL. He further submitted that statement of Sri SK Jain was no implicating the assessee and therefore it was not supported by any material. He further referred to the decision of the honourable Delhi High Court in [2016] 67 taxmann.com 5 (Delhi)/ [2016] 238 Taxman 653 (Delhi) 238 taxman 653 in CIT V SVP Builders (India) Ltd wherein it has been held that when the parties are assessed to tax, confirmations have been filed and no investigation by the learned assessing officer has been made the addition cannot be made. He further submitted that the decision cited by the learned DR in case of NDR promoters Pvt Ltd [2019] 102 taxmann.com 182 (Delhi)/ [2019] 261 Taxman 270 (Delhi)/ [2019] 410 ITR 379 (Delhi of the honourable Delhi High Court is not applicable to the facts of the present case where the issue before the honourable Delhi High Court conclusively showed that shareholders were bogus. He stated that each case is required to be decided on its own facts. He submitted that in the present case there is no allegation that these are bogus shareholders. For this proposition he relied on the decision of [2002] 255 ITR 147 (SC) PADMASUNDARA RAO (DECD.) AND OTHERS v. STATE OF TAMIL NADU AND OTHERS at page number 153 that Courts should not place [12] The ACIT , New Delhi Vs SMC Foods Limited reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morrin in Herrington v. British Railways Board [1972] 2 WLR 537 (HL). Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. He further referred to the page number 28 of the order of the learned CIT – A to show that how the price of Rs. 100/- is determined. Therefore, he submitted that the premium charged by the assessee is not on hypothetical basis. He further submitted that the source of source need not be explained by the assessee and therefore it is not the duty of the assessee to show that wherefrom Shalini Holdings P ltd had money available with it for purchase of shares were INR 30,000,000/- of Assessee Company. In view of this, he submitted that the order of the learned CIT – A deserves to be upheld.

We have carefully considered the rival contention and perused the orders of the lower authorities. We have also called for assessment records, which were produced by the learned CIT DR on the date of hearing. The facts of the case are simply put shows that in Assessee Company there is an investment of INR 30,000,000/- made for purchase of shares by one [13] The ACIT , New Delhi Vs SMC Foods Limited M/s Shalini Holdings P Ltd for 30,000 shares of the face value of INR 10/- each at a premium of INR 90/-. Subsequently, those shares were transferred to another company namely Messer Paper Creation Private Limited by M/s Shalini Holdings private limited at INR 10. M/s paper creation later on sold theses shares to CFL ( group co of assessee) at the rate of INR 11/- per share. Ld AO noted that shares issued for Rs 3 crores were transferred back in circuitous route back to group at Rs 33 lakhs resulted in to the benefit of Rs 2.67 crores to the assessee. Therefore the learned assessing officer noted that assessee has got benefit of INR 2,67,00,000 (Rs 30000000/- Rs 3300000/- ). It was added u/s 68 of The Income Tax Act.

Learned CIT – A deleted above addition for the reasons stated in para number 4.3 onwards as under:- “4.3 it is seen from the copies of public records (available on the ROC website, and therefore not additional evidence) that SHL is an active public company with paid-up capital of INR 127480000/– and reserves and surplus of Rs. 1116527100/–. Thus, without evidence to the contrary, by no stretch of imagination it could be concluded that the purchase of shares/share application money amounting to only INR 30,000,000 by this company with huge resources in excess of INR 124,00,00,000 was not genuine. It is further seen that [14] The ACIT , New Delhi Vs SMC Foods Limited PCPL is also an active private limited company with paid-up share capital of INR 1869500/– and reserves and surplus of INR 38403673/– and, therefore in the absence of evidence to the contrary, it could not be concluded that the purchase of shares worth only INR 3,300,000 by these company having resources in excess of INR 40,000,000 was not genuine. There is no evidence whatsoever that any collateral payment was made by the appellant. 4.4 The revenue was specifically directed by letter dated 24/11/2014 to provide the basis for observing that share capital and premium had been raised by the appellant through a company providing entries such SHL. In its reply dated 21/1/2015, the revenue has submitted that SHL, is promoted by one Shri Surender Jain, was known to be a company providing entries, it is other directors were not found at the given addresses, that SHL was receiving money from other private (2nd layer) companies which in turn had received the money from another set of private (3rd layer) companies, that SHL had ultimately shares purchased at much lower prices, that summons u/s 131 were issued to SHL and notices u/s 133 (6) were issued to the 2nd layer and 3rd layer companies but there was no compliance nor the appellant [15] The ACIT , New Delhi Vs SMC Foods Limited SHL or other companies. In reply, the appellant has submitted that only general allegation has been made in the remand report of the AO that was providing accommodation entries through layers of shell companies and that is no specific allegation in the report that share capital and premium received by the appellant from SHL was bogus. I find from the record that SHL had duly filed a reply before the AO on 28/11/2013, in response to the summons dated 19/11/2013, submitting copy of account of the appellant appearing in its books as well as copies of ITR, assessment order u/s 153C, balance sheet and bank statement. The revenue has not commented on the evidence filed nor assailed it. Thus, it was not appropriate to require the production of SHL, especially when no defect had been found in reply filed by SHL to the summons. It was held in the case of Dhakeshwari cotton mills Ltd vs. CIT (1955) 27 ITR 126 (SC) that the ITO is not factored by technical rules of evidence and pleadings, and he is entitled to act on material which cannot be accepted as evidence in court of law. In C Vasantlal & Co V CIT 19 6245 ITR 206 (SC) it was held that it is open to the ITO to collect materials to facilitate assessment even by private enquiry. But he for desires to use the material so [16] The ACIT , New Delhi Vs SMC Foods Limited collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it. The fact of non-reply from 2nd and 3rd tier entities to the summons was never brought to the notice of the appellant by the revenue. Thus, non-reply by the 2nd and 3rd tier entities would not be held against the appellant without affording proper opportunity. This is the extant and settled law in the matter.”

Thereafter the learned CIT – A referred to his own decision in Moolchand steels private limited in para number 4.5 of his order and thereafter in para number 4.6 finally deleted the addition as under:- “4.6 As already observed, there is no specific evidence that for the share premium received by the appellant company any collateral payment was made. Further, as observed in the case of MSL (cited and quoted above), there appears to be some justification for the appellant to raise share capital with premium. No doubt, the appellant stands to gain/benefit by the amount of share premium received. But this fact alone does not make the transaction on genuine. It is also very relevant that the value of share premium received in excess of the fair market value of shares allotted has been made taxable u/s 56 (2) (vii) only with effect from assessment year 2013 – 14 by the finance act, 2012. This clearly establishes that expression of such benefits (without incriminating evidences)

In reply to above letter, assessee replied on 20/2/2014 submitting following details as per annexure 1 of that letter:- a. copy of account of Shalini Holdings Ltd from the books of SMC foods Ltd ( assessee) for financial year 1/4/2009 to 31/03/2010 wherein INR 30,000,000 were received through 8 different transactions starting from 23/ 4/2009 to 8/10/2009 and ultimately on 23/10/2009, through a journal entry, accounting narrations shows that 30,000 equity shares of INR 10 each were issued on a premium of INR 90 per share. b. bank account of the assessee company with Vijaya Bank to demonstrate by highlighting those 8 different entries to show that these are received through banking channel Assessee did not submit any other detail other than mentioned above as per the above letter with respect to the above transaction. The assessee submitted that from the perusal of the above details so enclosed, it might be observed that the amount of share capital and share premium received by the assessee company cannot be considered as bogus. Assessee further submitted that address and other details in respect of [20] The ACIT , New Delhi Vs SMC Foods Limited AO and as such he independently summon to those parties to verify the genuineness of the transaction. It was further stated that the assessee is not aware about the source from which the company has raised funds and as such, the assessee should be given an opportunity to cross-examine the above company.

Therefore, no further information was coming from the assessee about the above transaction to the ld AO.

Meanwhile The ld AO had issued the summons to the investor company on 19 – 11 – 2013 in case of Smc Power Generation Ltd and other group cases to Shalini Holdings private limited wherein the AO asked for personal deposition. He further asked the a. return of income and balance sheet and profit and loss account of the company for FY 2005 – 06 to FY 2011 – 12. b. to furnish the details as to the investment in the share application and share capital of SMC power generation Ltd, SMC foods Ltd and creamy foods Ltd along with the evidence for the transaction c. bank statement from which payments have been made and the source of immediate credit from such investment. d. details of the parties to whom such shares have been sold, gain or loss is incurred thereon and its reflection in its books of accounts.

In response to the above summons Shalini Holdings Ltd vide letter dated 27/11/2013 submitted certain details, which were filed in the office of the learned assessing officer on 28/11/2013. Investor submitted (i) copy of account of Assessee from the books of Shalini Holdings Ltd (ii) copy of acknowledgement of income tax return for assessment year 2010 – 11 (iii) balance sheet for the year ended on 31/3/2010 and (iv) Copy of Assessment order u/s 153C of the act of the investor (v) bank statement with Axis bank of the investor for some period 22. The learned CIT – A held that the revenue has not commented on these evidences filed and nor assailed it. This is one of the main reasons for deletion of the addition. 23. On the basis of the above communication it is required to be ascertained whether the assessee has discharged its initial onus cast upon him under section 68 of the income tax act or not. The only communication with respect to the above amount of the share capital made by the assessee is letter dated 20/2/2014 ( Annexure – I) wherein it has submitted a. The copy of the account of Shalini Holdings Ltd from the books of the assessee company for the period 01/04/2009 2 31/03/2010 at [22] The ACIT , New Delhi Vs SMC Foods Limited 5 of that letter. The copy of account is signed neither by the assessee company nor by the Shalini Holdings Ltd. b. The bank account with Vijaya bank of the assessee company starting from 01/04/2009 till the last date of the sum received from Shalini Holdings Ltd (account number 600406211000070) therefore on verification of the above details, it is apparent that assessee did not file any confirmation or information pertaining to the Shalini Holdings Ltd except the Ledger account from its books of accounts of the Shalini Holdings Ltd and its bank account wherein the cheques issued by the investor company have been reflected. Therefore, assessee did not establish either the identity or creditworthiness of the investor. There was no attempt, despite specific notice by the assessing officer, about the issue of the shares to that company at huge premium and subsequently acquired by a group company almost at around face value, to justify the genuineness of the transactions. Therefore assessee did not address at all the genuineness of the about transaction before the assessing officer.

Now we come to the reply of Shalini Holdings Ltd to the assessing officer in response to summons dated 19/11/2013. That company [ SHL] submitted the Ledger account of Assessee Company from its books showing those eight receipts of cheques and RTGS amounting to INR 30,000,000. However surprisingly looking at the Ledger account there is [23] The ACIT , New Delhi Vs SMC Foods Limited 23/10/2009. There is a difference between the Ledger accounts submitted by the assessee from its books of the investor [SHL], wherein the assessee has shown that it has allotted shares on 23/10/2009; however, the Ledger account submitted by the investor [SHL] does not show any accounting entry on 23/10/2009 of allotment of those shares in the ledger account submitted.

The income tax return attached by the Shalini Holdings Ltd for assessment year 2010 – 11 shows that the gross total income of the Shalini Holdings Ltd is only INR 129653 for assessment year 2010 – 11 and it has paid nil advance tax and only claimed the tax deduction at source of INR 13154 and paid the self-assessment tax of INR 3 0150/- . We are aware that mere meagerness of the income cannot go against the creditworthiness of the assessee, and it has to be looked in wholesome manner. We have also analyzed the balance sheet of the investor company for these purposes. 26. Shalini Holdings Ltd also submitted its annual account for the year ended on 31st of March 2010 wherein it has the share capital of INR 1 27480000/– and reserves and surplus of Rs. 1121250000/–. Against this the above sum is invested in shares of INR 1 077911512/– and loans and advances of INR 1 48374244/– and share application money of INR 1 6500000/–. It has incurred accumulated loss of INR 4 775836/– [24] The ACIT , New Delhi Vs SMC Foods Limited as per the balance sheet. In its profit and loss account for the year ended on 31/3/2009 has a turnover of INR 835,000 and for the year ended on 31/03/2010, the turnover is only INR 1,171,000. It is profit is Rs, 1,18,000 for 31/03/2009 and Rs. 88,000 for 31/03/2010.

On looking at the investment made by this company, surprisingly it is found that it has made investment or sold that investment during the year of almost 250 companies. This company has also further applied for share application money in other companies over and above those 250 companies. It has also given advances against property of almost Rs 3,00,00,000/- and further loans and advances of more than Rs. 12,00,00,000/-. These investments are in private limited companies in equity shares.

On looking at the profit and loss account this company has paid a salary of INR 350,000/- , incurred telephone expenses of INR 8642/–, made a professional fees payment of only INR 19,000/- , and audit fee of INR 5000/- .

Therefore, the investor is managing investment in more than 250 companies, has the huge asset base as investment in non descript private limited companies, resulting into the meager income of INR 100,000/- , does not have any substance in the form of any staff or professional persons, has incurred meager expenditure for its [25] The ACIT , New Delhi Vs SMC Foods Limited subsistence and sustenance clearly shows that the investor company is merely a paper and shell company.

The investor also submitted in response to the summons the copy of the bank account with axis bank from 11/5/2009 to 1/10/2009. The bank account clearly shows the huge deposits and transfer from the same with meager bank balances left in that bank account after each transactions. The bank account also corroborates the analysis of the annual account of the investor company and further strengthens the finding that investor company is merely a paper and shell company.

Therefore looking to the nature of the annual accounts of the investor SHL, bank accounts, nature of expenditure, nature of transactions entered, Income tax returns showing meager income, non production of directors, huge investments in 250 non descript companies, non yielding advances clearly shows that there cannot be any better example of the shell company than the investor itself.

Further, the Shailini Holdings p ltd has also submitted a copy of the assessment order u/s 153C of the act. Apparently, there is no addition made in the hands of that company. In fact, there should not also be any addition in the hands of that company as it was merely a conduit company and not the real beneficiary of the share capital introduced in assessee Company. In fact it is the assessee company who is the real beneficiary of the above investments and therefore the addition, if any [26] The ACIT , New Delhi Vs SMC Foods Limited Holdings P Ltd. Therefore, assessment order passed in case of Shalini Holdings P Ltd does not have any consequence on the issue before us.

The learned assessing officer on the basis of the information submitted by the assessee and obtained by him in consequence of summons issued to the investor, made the detailed enquiry of the bank account of the investor company and found that most of the credits have been received from another companies, this information was obtained by obtaining the bank account of the investor company and the bank account of those company from whom the credits have been received in the account of investor company. The learned assessing officer issued enquiry letter under section 133 (6) of the act to axis bank and after the analysis of the bank account of the investor it issued letters under section 133 (6) of the act to various companies:- a. Prathmesh Vinimay Limited b. Sarang Securities Limited c. Real Star Impex P Ltd d. Ahnsa Financial Services P Ltd e. Graph Financial Services P Ltd f. Sri Endrash Investments & Finance Limited g. Gracious Portfolio Limited [27] The ACIT , New Delhi Vs SMC Foods Limited h. Besty Growth Finance Limited i. Prabhmeet Consultations Limited j. AAs Securities Limited k. I B Buildcon P Ltd l. I B Trading P Ltd m. Buildwell Housing Limited

Ld. AO also issued summons to Dhanguru Financial Solutions P Ltd through which the monies have been transferred in the bank account of the investor company. According to the AO, these are layer 3 and layer two companies who did not reply to any of the query letter of the AO.

The learned assessing officer has shown that Investor Company is promoted by one Shri Surender Kumar Jain who is known for accommodation entry and the investor company was stated to be known to be a company providing entries. The learned AO also noted that the directors of these companies are not found at the given addresses. The AO also held that investor was receiving money from other private companies through respective number of layers and subscribed to the shares in the appellant company at huge premium and subsequently sold the shares to the group company of the appellant company at around face value. The transaction was a classic example of tax evasion.

From the above facts it is absolutely clear to our mind that during the course of assessment proceedings the assessee on its own did not discharge its onus of proving the identity, creditworthiness of the investor company as well as the genuineness of the whole transaction of issuing shares to that investor at huge premium and subsequently getting those share transferred to the group company of the assessee at or around face value. The assessee also did not show to prove [29] The ACIT , New Delhi Vs SMC Foods Limited Shalini Holdings private limited was carrying on, as it can afford to have a 90% loss on the investment made by it within a short span of time and what could be the reason that the shares issued at huge premium introducing huge money in the books of the appellant company and in a series of transaction the shareholding reaching to the assessee group at around face value.

Regarding the observation of the learned CIT – A that investor company is an active public company. This was noted by him by perusing the website of the registrar of companies. The company acts through its directors. It is stated by the learned assessing officer and rightly recorded by the learned CIT – A that the directors of this company were not at all available for examination. It is apparent that a company if it has the share capital of Rs. 12,00,00,000/- and reserves and surpluses of Rs. 111,00,00,000/- has directors, who could not be produced before AO/ CIT (A). On analysis of the balance sheet submitted by the investor, we have given our findings to show that the investor company is nothing but a paper company, which is used as a conduit for providing the accommodation entry to the assessee.

The finding of the learned CIT – A that when the Shalini Holdings has furnished the details as required by the learned assessing officer there is no requirement of the personal deposition of the directors of Shalini [30] The ACIT , New Delhi Vs SMC Foods Limited Holdings is devoid of any merit because the first requirement of the learned assessing officer was personal deposition. It could not have been substituted by submitting the other information. Hence, we do not agree with the finding of the learned CIT – A that personal deposition of the directors of the investor was not required. In fact, the learned CIT – A has closed its eyes to the fact that the directors of the above company are not available for examination by the AO.

The finding of the learned CIT – A that the non-receipt of any replies from the layer two and layer three companies does not prove anything. We disagree with the finding of the learned CIT – A because of the reason that the whole source of the funds have been coming from layer 2 and layer 3 companies has investigated by the learned assessing officer from the bankers clearly shows that the clique of those companies have worked in tandem under the control of the accommodation entry provider Shri SK Jain for introducing unaccounted money of the beneficiaries.

The learned CIT – A has also believed the explanation of the assessee that such a huge premium was taken from the investor company as the investor was very keen to invest in the company as the assessee company was going for listing in stock exchange. Further justification of share premium the learned CIT – A believed that it is comparable with quality dairy India Ltd, milk food Ltd, Nestle India Ltd and Heritage foods [31] The ACIT , New Delhi Vs SMC Foods Limited India Ltd. Further, surprisingly an investor who is very keen to invest in the assessee company, did not take any part in the management of the assessee company, and further was not at all traceable clearly shows that the explanation of the assessee was without any basis. It was neither shown to the CIT – A that the assessee company went into public issue for listing of its shares.

Further the learned CIT – A also erred in relying upon the decision of his own in another company where the assessment was already completed u/s 143 (3) and further the share capital was scrutinized in the original assessment and same was added u/s 153A of the income tax act and stated that para number 3.7 of that decision mentioned at page number 34 of the order of the learned CIT – A. Therefore, it is clear that without verifying the facts of that case the learned CIT – A applied his decision in that case to the facts of this case, which are quite different and distinguishable.

Learned CIT – A also took help of the provisions of section 56 (2) (vii) holding that same is applicable from assessment year 2013 – 14 and does not apply the impugned assessment year 2010 – 11. According to us, the above finding is relevant in view of the fact that the addition has been made u/s 68 of the income tax act.

The LD AR relied up on the decision of the honourable Delhi High Court in [2016] 67 taxmann.com 5 (Delhi)/ [2016] 238 Taxman 653 (Delhi) 238 [32] The ACIT , New Delhi Vs SMC Foods Limited 653 in CIT V SVP Builders (India) Ltd wherein it has been held that when the parties are assessed to tax, confirmations have been filed and no investigation by the learned assessing officer has been made the addition cannot be made. IT is apparent on examination of assessment records that assessee has not filed any confirmation of the investor. Further, the ld AO has made detailed investigation. Summons issued to Investor was not complied with by personal deposition as asked by the ld AO. Therefore, the facts of the above decision were distinguishable.

Ld AR further submitted that the decision cited by the learned DR in case of NDR promoters Pvt Ltd [2019] 102 taxmann.com 182 (Delhi)/ [2019] 261 Taxman 270 (Delhi)/ [2019] 410 ITR 379 (Delhi of the honourable Delhi High Court is not applicable to the facts of the present case where the issue before the honourable Delhi High Court conclusively showed that shareholders were bogus. He stated that each case is required to be decided on its own facts. He submitted that in the present case there is no allegation that these are bogus shareholders. For this proposition he relied on the decision of [2002] 255 ITR 147 (SC) PADMASUNDARA RAO (DECD.) AND OTHERS v. STATE OF TAMIL NADU AND OTHERS at page number 153 that Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed.

Even otherwise in the present case, the assessee has not furnished any confirmation or any other information to prove the identity, creditworthiness of the investor and the genuineness of the transaction, therefore, the learned CIT – A has erred in deleting the above addition made by the learned assessing officer u/s 68 of the income tax act. Accordingly we reverse the order of the learned CIT – A and restore the order of the learned assessing officer. Accordingly, the only substantive ground raised