SUNIL HITECH ENGINEERING LTD,MUMBAI vs. DCIT 14(3)(2), MUMBAI

Per Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeals by assessee for Assessment Years [AY] 2005- 06 & 2009-10 agitate separate orders of first appellate authority. The same are being disposed-off by way of this common order for the sake of convenience & brevity.

2. On the facts and in the circumstances of the case, Ld. Commissioner of Income tax (Appeals) erred in not appreciating the details provided in respect of the subscribers to the share capitals comprising of name, address, Permanent Account Number and the source of funds.

3. On the facts and in the circumstances of the case, Ld. Commissioner of Income tax (Appeals) erred in not appreciating the fact that 5 out of 15 subscribers had responded to summons issued to them for their appearance and who, in fact, had confirmed their subscriptions.

4. On the facts and in the circumstances of the case, Ld. CIT(Appeals) erred in confirming the addition made by the A.O. merely on the ground that balance subscribers had not responded to the summons without appreciating the corroborative evidences placed on record.

5. On the facts and in the circumstances of the case, Ld. CIT(Appeals) erred in relying on the fact that in 2007-08 the subscribers had sold their shares at reduced rate to the Managing Director of the Assessee for the purpose of holding the transaction as not being genuine.

6. Assessee craves leave to amend or alter the existing grounds or add further grounds at the time of hearing.

3.1 Facts in brief are that the assessee being resident corporate assessee stated to be engaged as service contractor during impugned

M/s Sunil Hitech Engineers Limited Assessment Year : 2005-06 & 2009-10 AY was assessed u/s 143(3) read with Section 263 by Ld. Deputy Commissioner of Income Tax Circle-14(3)(2), Mumbai [AO] on 31/03/2015. The income of the assessee was determined at Rs.544.85 Lacs after sole addition u/s 68 for Rs.165 Lacs as against income of Rs.379.85 Lacs assessed u/s 143(3) read with Section 153A on 30/12/2011. The sole subject matter of present appeal before us is addition u/s 68 for Rs.165 Lacs. 3.2 The original return of income was filed by the assessee at Rs.364.79 Lacs which was initially processed u/s 143(1). Subsequently, the assessee was subjected to search & seizure action u/s 132 on 15/09/2009 wherein certain incriminating documents were found and seized. The assessment u/s 143(3) read with Section 153A was completed by Ld. ACIT, Central Circle, Nagpur on 30/12/2011 determining the income at Rs.379.85 Lacs. 3.3 Subsequently, the aforesaid order was subjected to exercise of revisional jurisdiction u/s 263 by Ld. Commissioner of Income Tax (Central), Nagpur [CIT] vide order dated 28/03/2014. The basis of the revisional jurisdiction was the fact that the assessee had allotted certain shares during the year at Rs.60/- per share but these were repurchased @Rs.12/- per share in AY 2007-08. All the Share Allottees were stated to be bogus sub-contractors of the assessee itself and it was alleged that share application was nothing but unaccounted money of the promoters which was generated by booking bogus sub-contract expenditure in the name of such persons. However, it was observed that Ld. AO did not summon these persons to ascertain the true facts and Ld. AO ought to have examined the source of such investments in the hands of the M/s Sunil Hitech Engineers Limited Assessment Year : 2005-06 & 2009-10 buyers and ought to have verified their respective return of income. In the above background, invoking the provisions of Section 263, the order of Ld. AO on this issue was set aside for framing of fresh assessment by conducting requisite inquiries. As per the said directions, notice u/s 143(2) was issued by ACIT, Central Circle, Nagpur. It has been submitted that the assessee has not contested the invocation of jurisdiction u/s 263. 3.4 Subsequently, as per express request of the assessee and in view of change in the registered office of the assessee, the case records along with jurisdiction was transferred to DCIT-10(1), Mumbai who issued statutory notices directing assessee to file the requisite information / documents. 3.5 During set-aside proceedings, it transpired that the assessee allotted shares to various persons, numbering 15 in all, @Rs.60/- per share. The allotment details & list of Allottees has already been extracted at para 5 of the quantum assessment order. An opinion was formed that all the Allottees were none but sub-contractors of the assessee company itself and the share application money invested by them was nothing but unaccounted money of the promoters of the company which was generated by booking bogus sub-contract expenditure in the name of such persons. The assessee drew attention to the facts that all the Allottees voluntarily agreed to sell back these shares during AY 2007-08 @Rs.12/- per share. 3.6 Notices sent u/s 133(6) to share Allottees for confirmation of account elicited no satisfactory response which resulted into issuance of summons u/s 131 to all the 15 Allottees. However, in response only 5

M/s Sunil Hitech Engineers Limited Assessment Year : 2005-06 & 2009-10 persons appeared and their statement was recorded under oath wherein these persons admitted to carry out fabrication and erection services for assessee at various power plant sites and confirmed having purchased the shares against outstanding balance with the company, which led the Ld. AO to conclude that no payment was made by any of the Allottees towards purchase of shares. The summons remained unserved in the case of 9 persons whereas one person denied having applied for any share from the assessee. 3.7 During the course of search, various incriminating documents were found and seized from the premises of the assessee. The seized material numbered as Annexure-03 Page 1-31 contained unsigned Memorandum of Understanding between Allottees of the shares and the assessee in terms of which the Allottees agreed to sell the shares @Rs.70 per share. Since the MOU was unsigned and stamp papers of Rs.100 were purchased in April, 2006, the same led the Ld. AO to believe that the intention of the assessee was to deal with the shares of the Allottees as and when required. Further, the shares were allotted without any receipt of money but merely issued against outstanding amount of the share Allottees. A scanned copy of unsigned MOU has been made a part of quantum assessment order. 3.8 The assessee, in response to showcase notice dated 04/03/2015, reiterated that all the Allottees were sub-contractors and details of there respective PAN, addresses, copies of ledgers and work orders of these parties were already provided to Ld. AO. Further, the 4 persons had already confirmed the stated transactions in response to summons u/s 131. However, not convinced, Ld. AO opined that the assessee failed to M/s Sunil Hitech Engineers Limited Assessment Year : 2005-06 & 2009-10 demonstrate the fulfilment of primary conditions of Section 68 and therefore, treating the amount of Rs.165 Lacs (no. of shares 2,75,000 x Rs.60/- per share) as unexplained cash credit, added the same to the income of the assessee. 4.1 Aggrieved, the assessee agitated the same without any success before Ld. first appellate authority vide impugned order dated 22/02/2017 wherein the assessee submitted that complete details of share Allottees viz. name, address and respective PAN was available on record and the allotment were made against the outstanding of respective Allottees who were assessee’s sub-contractors. The attention was drawn to the fact that no disallowance was made on account of bogus payments to contractors and therefore, the additions were made on the basis of mere suspicion, conjectures & surmises. 4.2 However, Ld. CIT(A), after due consideration of factual matrix and assessee’s submissions came to a conclusion that the assessee failed to prove the genuineness and creditworthiness of the transactions. The capacity of the Share Allottees to incur corresponding expenditure on behalf of the assessee could not be evidenced. Further, the shares were stated to be repurchased at Rs.12/- per share during AY 2007-08 which would establish that the transactions were not genuine. Resultantly, the additions were confirmed, against which the assessee is in further appeal before us.

M/s Sunil Hitech Engineers Limited Assessment Year : 2005-06 & 2009-10 work for the assessee. The complete details of the Share Allottees was provided by the assessee along with their addresses and PAN and therefore, the primary ingredients of Section 68 were duly fulfilled by the assessee. Reliance has been placed on following judicial pronouncements to support the afore-said submissions: - No. Case Laws Authority Citation 1. CIT Vs. Gagandeep Hon’ble Bombay High 394 ITR 680 Infrastructure P. Ltd. Court 2. CIT Vs. Orchid Industries P. Hon’ble Bombay High ITA 1433 of 2014 dated Ltd. Court 05/07/2017 3. Acquatic Remedies Pvt Ltd. ITAT, Mumbai dated Vs DCIT 17/04/2015 (Revenue’s appeal dismissed by Hon’ble Bombay High Court) 4. ITO Vs Superline ITAT, Mumbai ITA No. 3645/Mum/2014 dated Construction P Ltd. & Others 30/11/2015

Per Contra, Ld. DR submitted that only five persons confirmed the transactions out of 15 parties, which shows that the assessee miserably failed to prove the transactions. Reliance has been placed on the decisions of Hon’ble Delhi High Court rendered in PCIT Vs. NDR Promoters Pvt. Ltd. [ITA 49/2018 dated 17/01/2019]. 6. We have carefully heard the rival contentions and perused relevant material on record and deliberated on judicial pronouncements as cited by respective representatives. The undisputed position that emerges is that the assessee has allotted certain shares to 15 parties @Rs.60/- per shares. All these persons are stated to be the sub-contractors of the assessee and the shares are said to have been allotted against their respective outstanding against the assessee. However, notices issued to confirm the transactions remained un-responded to in nine cases whereas one entity denied having entered into any such transactions with the assessee. The said fact has led the lower authorities to M/s Sunil Hitech Engineers Limited Assessment Year : 2005-06 & 2009-10 disbelieve the genuineness of the transactions. We are of the considered opinion that the initial onus to prove the identity, creditworthiness and genuineness of the transactions was upon assessee which assessee has failed to discharge. The revisional jurisdiction u/s 263 was invoked against the assessee with specific directions to Ld. AO to carry out requisite inquiries qua the transactions. The assessee could not produce parties to confirm the transactions in contrast to the fact that all the Allottees were stated to be assessee’s sub-contractor and the shares were repurchased during AY 2007-08 from these Allottees. The assessee failed to rebut the allegations of the revenue that unaccounted money was routed back in the shape of share allotment. Therefore, on the facts and circumstances, we deem it fit to provide another opportunity to the assessee to substantiate these transactions before Ld. AO as per the directions given in the revisional order u/s 263. The matter stand remitted back to the file of Ld. AO with a direction to the assessee to establish fulfilment of primary ingredients of Section 68. Needless to add that adequate opportunity of being heard shall be granted to the assessee.

M/s Sunil Hitech Engineers Limited Assessment Year : 2005-06 & 2009-10 8.2 The relevant facts are that the assessee had filed its return of income on 30/09/2009 at Rs.38.47 Crores which was processed u/s 143(1). A search & seizure action was conducted on business premises of the assessee on 15/09/2009 wherein certain incriminating material was found. The assessee filed revised return of income declaring income of Rs.85.83 Crores which was assessed u/s 143(3) r.w.s. 153A on 30/12/2011 at Rs.85.83 Crores. The income was reassessed on 29/04/2014 at Rs. 86 Crores. 8.3 However, in the meantime, Ld. Commissioner of Income Tax (Central), Nagpur, upon perusal of case records of assessment framed u/s 153A on 30/12/2011, exercise revisional jurisdiction u/s 263 vide order dated 28/03/2014. The said jurisdiction stem from the fact that the assessee had purchased certain cranes from M/s Dharmesh Steel for Rs.118.81 Lacs and paid the same in cash. The company had to pay Rs.209 Lacs to Dharmesh Steel out of which Rs.90 Lacs were to be withheld on account of short material supply, VAT etc. and the balance amount of Rs.119 Lacs was alleged to be paid in cash. Accordingly, the matter was set aside to Ld. AO for fresh adjudication. It has been submitted that the assessee has not challenged the aforesaid jurisdiction u/s 263. 8.4 During set aside proceedings, summons was issued u/s 131 to M/s Dharmesh Steel, however, the same were returned back undelivered. Upon confrontation, the assessee, vide reply dated 13/03/2015, submitted that all the bills of the party were accounted for in the books of accounts and all documents including ledger for FY 2007-08 & 2008-09 was produced for verification. The attention was drawn to the fact that M/s Sunil Hitech Engineers Limited Assessment Year : 2005-06 & 2009-10 the amount of Rs.118 Lacs alleged to be paid in cash was, in fact, paid through UCO Bank Term Loan on 16/05/2008. However, the assessee’s explanation could not convince Ld. AO who added the amount of Rs.118.81 Lacs in the hands of the assessee. 8.5 Although, the assessee preferred further appeal against the same, however, the assessee’s stand could not find favor with Ld. first appellate authority. Aggrieved, the assessee is in further appeal before us.

Sd/- Sd/- (Pawan Singh) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member मुंबई Mumbai; िदनांक Dated : Sr.PS, Thirumalesh/Sr.PS Jaisy Varghese आदेशकी�ितिलिपअ�ेिषत/Copy of the Order forwarded to : अपीलाथ�/ The Appellant 1. ��थ�/ The Respondent 2. आयकरआयु�(अपील) / The CIT(A) 3. आयकरआयु�/ CIT– concerned 4. िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, मुंबई/ DR, ITAT, Mumbai 5. गाड�फाईल / Guard File 6.