DCIT 12(1)(1), MUMBAI vs. ADHUNIK TRNASPORT ORGANISATION LTD, MUMBAI

Further, as a principle of natural justice, it is obligatory on the part of revenue authorities to confront the adverse material used against the assessee and provide an opportunity to rebut the same. The failure to do so would render the assessment proceedings nullity in the eyes of law. The additions made merely on the basis of third-party statements and the denial to provide an opportunity to cross-examine the concerned parties would lead to violation of principle of natural justice rendering the assessment proceedings nullity as held by Hon’ble Apex Court in 4 M/s. Adhunik Transport Organisation Ltd. Assessment Year :2012-13 Andaman Timber Industries [Civil Appeal No.4228 of 2006 02/09/2015].

Keeping in view the above legal position in mind, we find that revenue is under appeal before us for AY 2012-13 against the order of Ld. Commissioner of Income-Tax (Appeals)-20, Mumbai [in short referred to as ‘CIT(A)’], Appeal No. CIT(A)-20/DCIT-12(1)(1)/IT-95/2015- 16 dated 03/02/2017 qua deletion of addition u/s 68. The grounds raised

Upon confrontation of said facts, the assessee demanded copy of statements / documents relied upon by Ld. AO in 6 M/s. Adhunik Transport Organisation Ltd. Assessment Year :2012-13 case of Shri Pravin Kumar Jain. The assessee denied having any dealing with Shri Pravin Kumar Jain. Similarly, the assessee demanded copy of statement of Shri Abhishek Morarka given before the Sales Tax Authorities. The attention was also drawn to the fact that in response to summons issued by Ld. AO, Shri Abhishek Morarka visited the office of Ld. AO on 17/03/2015 and on 20/03/2015. The assessee reiterated that the documentary evidences already submitted by the assessee would establish that all the entities were genuine and independent entities who applied to assessee’s share capital. In the said background, it was submitted that invocation of provisions of Section 68 was not justified since the assessee established the primary ingredients of the transactions. Reliance was placed, inter-alia, on the decision of Hon’ble Supreme Court rendered in Lovely Exports P. Ltd. [319 ITR 5]. 5.3 The assessee, vide further submissions dated 25/03/2015, drew attention to the retraction dated 15/05/2014 in the shape of an affidavit filed by Shri Pravin Kumar Jain before investigation wing wherein it was stated that statement during search operations was recorded under coercion, force and mental duress. He confirmed that the activities of all the entities were genuine and all the entities were carrying on legal business. To substantiate the genuineness of the transactions, the assessee filed copies of the affidavits executed by the directors of entities listed at serial nos. 1 to 4 confirming the transactions of share capital with assessee company. 5.4 At the same time, the assessee also submitted Copy of Income Tax Return, financial statement of entity listed at Serial No.8 in 7 M/s. Adhunik Transport Organisation Ltd. Assessment Year :2012-13 support of genuineness of the transaction with respect to the said party. The assessee also filed valuation report to justify the premium received on the share transactions. 5.5. in the above circumstances, the assessee pleaded for acceptance of the stated transactions. 5.6 However, the Ld. AO, at para 5.2, observed that mere filing of declarations by directors of entities listed at serial nos. 1 to 4 that the shares have been subscribed would not serve any purpose since Shri Pravin Kumar Jain has not proved the source of funding and also not made any attempt to counter evidences unearthed during the search proceedings and therefore, these affidavits would have no value in the eyes of law. The Ld. AO also disregarded the valuation arrived at by the assessee using Discounted Cash Flow method. At para 5.4, Ld. AO observed that all the shares subscribed during the year were transferred in Financial Year 2013-14 to Mr. Rajender K. Agarwal, promoter shareholder and Managing Director of the assessee company at face value. No satisfactory reply could be received from Mr. Rajender K. Agarwal in response to notice u/s 131. Summons issued u/s 131 to directors of concerns managed and controlled by Shri Pravin Kumar Jain through ward inspector revealed that none of the party was available at the given addresses. 5.7 The search action u/s 132 on 01/10/2013 on Shri Pravin Kumar Jain, in the opinion of Ld. AO, established beyond doubt that the said group was engaged in the business of providing accommodation entries of various types through numerous self-controlled business entities. The findings of the search have been extracted on para 8 M/s. Adhunik Transport Organisation Ltd. Assessment Year :2012-13 5.7.1 of the quantum assessment order. Further, the retraction statements filed in the shape of affidavits were termed as a planned move to thwart the process of investigation in the cases of beneficiaries of accommodation entries. In the above background, Ld. AO, at para 5.7.3 came to a conclusion that Shri Pravin Kumar Jain was providing accommodation entries through numerous entities running in the names of various name sake directors / proprietors. All these entities were not carrying out any genuine business but solely used as conduits for providing accommodation entries. The real objective of these share subscription was to introduce unaccounted money of the assessee company in the garb of share capital. Another fact noted was that during the year 50,000 shares were issued to Mr. Ritesh Agarwal and Mr. Rajender K Agarwal at face value of Rs.10/- each as against the fact that such shares were issued to the applicant at a premium of Rs.240/- per share. Further, the shares, in later year, was transferred by the share applicants to the promoter shareholders at face value. 5.8 Finally, citing various judicial pronouncements, the said amount of Rs.250 Lacs representing Share Capital & Share Premium was added in the income of the assessee as unexplained cash credit u/s 68 by Ld. AO by observing as under: - 5.13 Creditworthiness is not proved by showing issue and receipt of a cheque or by furnishing a copy of statement of bank account, when circumstances requires that there should be some more evidence of positive nature to show that the subscribers had made genuine investment or had, acted as angel investors after due diligence or for personal reasons. The final conclusion must be pragmatic and practical, which takes into account holistic view of the entire evidence including the difficulties, which the assessee may face to unimpeachably establish creditworthiness of the shareholders.