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Income Tax Appellate Tribunal, DELHI BENCH ‘B’: NEW DELHI
Before: SHRI YOGESH KUMAR US & SHRI AVDHESH KUMAR MISHRA
ORDER PER AVDHESH KUMAR MISHRA, AM Common grounds and facts arise in the above captioned appeals; therefore, these appeals were heard together and are being disposed off by this common order.
These appeals for the Assessment Year (hereinafter, the ‘AY’) 2005-06, filed by the assessee (ITA No.401/Del/2009) and the Revenue ( 20.11.2008 and 16.12.2008 respectively passed by the Commissioner of Income Tax (Appeals)- II, New Delhi [hereinafter, the ‘CIT(A)’].
The core issue raised in these appeals revolves around the taxability of share application money of Rs.2,24,00,000/- in the hands of (i) the recipient company; M/s Esteem Steel (P.) Ltd., on substantive basis and (ii) the share applicant; Sh. K. N. Shukla, on protective basis. Later on, the issue of non- recording of satisfaction note under section 153C of the Income Tax Act, 1961 (hereinafter, the ‘Act’) raised as additional ground in the case of M/s Esteem Steel (P.) Ltd. was admitted vide order sheet noting dated 20.05.2024. The relevant facts giving rise to these appeals are that the Income Tax Department conducted intrusive actions; i.e. Search and Survey operations under section 132 and 133A of the Act on various persons of Nitishree Group on 17.02.2006. Consequential assessment proceedings under section 153A and 153C of the & 401/Del/2009 Esteem Steel (P) Ltd. & K. N. Shukla Act, as the case may be, were initiated in the Group cases. The Assessing Officer (hereinafter, the ‘AO’) initiated the assessment proceedings under section 153C of the Act in the case of M/s Esteem Steel (P.) Ltd. and under section 153A of the Act in the case Shri K. N. Shukla. Consequential assessment of M/s Esteem Steel (P.) Ltd. of the relevant year was completed under section 153C r.w.s. 143(3) of the Act, wherein the receipt of share application money of Rs.2,24,00,000/- was taxed on substantive basis. On the other hands, the assessment of Sh. K. N. Shukla, share applicant, was completed under section 143(3)/153A of the Act, wherein the share application money of Rs.2,24,00,000/- was taxed on protective basis.
3.1 Aggrieved, both assessees filed appeals before the CIT(A), who confirmed the substantive addition in the hands of appellant company; M/s Esteem Steel (P) Ltd. as under: -
“I have considered the arguments of the appellant and facts of the case. During the year under appeal the appellant company is in receipt of 3.46 crores under share application money. When necessary, proof was asked in support of the above sums, the appellant could file before the A.O., necessary confirmations in respect of 1.42 crores received from Sh. Anil Jain, M/s Shurya Tower Power Ltd. and M/s Dhampur Alco Ltd. only. As regards to the amount of Rs. 2.24 crores, it was submitted to the A.O. that it relates to Sh. K. N. Shukla, who is an associate of Sh. Anil Jain and both of them are having stake in group companies as Directors. However, the appellant failed to adduce any evidences in the form of confirmation and creditworthiness of the persons especially Sh. K. N. Shukla in support of the sum of Rs. 2.24 crores shown in the books of the assessee company towards share application money. Not only from Sh. K. N. Shukla, the assessee could not get any confirmation from the persons in & 401/Del/2009 Esteem Steel (P) Ltd. & K. N. Shukla whose names the said share application money of Rs. 2.24 crores was credited in its books. As per the details it is noticed that this amount is credited in the names of various Pvt. Ltd. companies but no confirmations nor proof of their existence was forth coming from the appellant in support of those entries appearing in its books. It is the primary duty of the appellant to get all necessary evidences in support of its contention that the amount of Rs. 2.24 crores shown in the account of share application money is really received from those persons whose names are appearing in the books of accounts. Without discharging such basic duty which is legally incumbent on it, the appellant cannot contend that there is no material available with the A.O. to make this addition. The appellant vehemently argued on the point that Sh. K. N. Shukla has admitted in his letter to the A.O. and requested for adjustment of taxes etc. Though Mr. Shukla has filed a letter to that extent but that cannot bring any relief to the assessee simply because the share application money has been shown in various names other than the name of Mr. Shukla in the accounts of the appellant. Further even till date the said share application money is lying with the appellant under the same head without being converted as share capital. It means no shares have been allotted to any of these persons who have said to have been contributed to the share application account. No genuine investor would be willing to keep their funds without any return on such investments or without their money being converted as share capital. All these facts basically prove one point that the amounts reflecting under share application money under various names is not explained with evidences, hence the same is to be assessed as income of the assessee from undisclosed sources under section 68 of the I. T. Act. In the course of appeal proceedings, the Ld. AR has argued that this amount cannot be assessed as a income of the assessee due to the recent decision of the Apex Court in the case of M/s Lovely Export Pvt. Ltd: I am unable to concur with a view of the Ld. AR because the amount shown by the assessee in the books is reflecting share application money but not as share capital. Unless the share application money is converted to share capital by issue of shares the said amount represents loan from the so-called subscribers. Hence the said ruling of the Apex Court has no application to the facts of the instant case. Accordingly, in view of the above discussion, the action of the A.O. in assessing the amount of Rs. 2.24 crores as the income of the assessee is sustained due to failure on the part of the appellant to adduce any evidences in support of the same.
& 401/Del/2009 Esteem Steel (P) Ltd. & K. N. Shukla
In the end, appeal is dismissed.”
3.2 The appeal in the case of Mr. K. N. Shukla was allowed by deleting the protective addition on the reasoning that the substantive addition had already been upheld in the hands of the appellant company.
3.3 Aggrieved, the Company; M/s. Esteem Steel (P.) Ltd. filed appeal challenging the substantive addition of Rs.2,24,00,000/-. on the other hand, the Revenue challenged the deletion of addition in the case of Sh. K. N. Shukla. Now, these appeals are before us.
During the proceedings before the Tribunal, the appellant company; M/s. Esteem Steel (P.) Ltd. took additional grounds raising the jurisdictional issue under section 153C of the Act. The said additional grounds were admitted vide order sheet noting dated 20.05.2024, which reads as under: -
“When the matter was called out, the Ld. Representative referred to the Application dated 06.06.2019 seeking to raise the Additional Grounds of Appeal which were hitherto not raised in the Memo of Appeal. The said Additional Grounds of Appeal read as under: - I. That Ld. CIT(A) while confirming the assessment order has erred in not considering that in this case there is no "satisfaction note” which needs to be recorded as per the provisions of section 153C of the Income Tax Act, 1961 has been recorded by the Assessing officer before invoking the provisions of section 153C of the Act in the case of the appellant and hence the entire assessment is vitiated. II. That Ld. CIT (A) has erred in not considering that as per the guidelines of the Hon'ble Supreme Court in the case of CIT vs. Calcutta Knitwears & 401/Del/2009 Esteem Steel (P) Ltd. & K. N. Shukla
(2014) 43 Taxmann.com 446/223 Taxman 115 which has been accepted by the Income Tax Department and a Circular No. 24/2015 dated 31.12.2015 has been issued CBDT to this effect, a satisfaction note needs to be recorded in the case of the assessee by the Assessing Officer in case of the person(s) in whose case the search proceedings u/s. 132 of the Act were conducted and also by the Assessing Officer who has passed the assessment order u/s. 153C of the other person which is not subject to search, the same is absent in this case. In support of the said Additional Grounds, the Ld. Representative pointed out that the existence of the "Satisfaction Note" before making assessment u/s. 153C of the Act is mandatory and according to him the said aspect is missing in the present case. The Ld. Representative referred to an information sought by the Assessee under RTI Act, 2005 vide Application dated 12.9.2008, in response to which ACIT, СС-16, New Delhi vide reply Letter dated 23.10.2018 stated that the said information was not available in the records of the assessee in his office and that "it may be kept in another file". In this view of the matter, the Ld. Representative has sought time to justify the aforesaid Additional Grounds of Appeal. A perusal of record of proceedings reveal that vide order sheet entry dated 21.02.2023 our Coordinate Ld. Bench has show caused the Revenue to state the objections in relation to the Additional Ground. Since then the matter has been listed on multiple occasions and even today the Ld. CIT (DR) has not furnished any detail in this regard. Be that as it may, after hearing both the sides, we deem it fit and proper to admit the aforesaid Additional Ground No. 1, as it raises a point of law for which no fresh investigation of facts is required and the same being relevant to determine the tax liability of the assessee, hence, the same is admitted for adjudication, following the ratio of the Hon'ble Supreme Court in the case of NTPC vs. CIT (1998) 229 ITR 383 (SC). As a consequence, we direct the Registry to post the matter for further hearing on 27.06.2024 and the Ld. DR is allowed another opportunity to defend the impugned assessment qua the Additional Ground lest adverse view is taken, keeping in mind that sufficient time has lapsed and the Revenue has not brought on record any credible material in support of its stand. Both parties informed in the Court.”
& 401/Del/2009 Esteem Steel (P) Ltd. & K. N. Shukla
The Ld. Counsel of the appellant Company; M/s. Esteem Steel (P.) Ltd. categorically submitted that the Assessing officer had not recorded any satisfaction note for initiating proceedings under section 153C of the Act. The Ld. Counsel, placing reliance on the decision of the Hon’ble Supreme Court in the case of Super Mall Pvt. Ltd. in Civil Appeal No. 2006 and 2007 of 2020 and the decision of the Hon’ble Delhi High Court in the case of Ganpati Fincap Services Pvt. Ltd. 395 ITR 692, submitted that the recording of satisfaction note by the AO of the searched person is mandatory pre-condition for initiating assessment proceeding under section 153C of the Act in the case of other person i.e. appellant company; M/s. Esteem Steel (P.) Ltd. It was further submitted that the recording of satisfaction under section 153C of the Act is mandated even if the AO of the searched person and other person is same.
To Buttress his argument, the ld. Counsel placed reliance on the CBDT Circular No. 24/2015 dated 31.12.2015 wherein the CBDT has reiterated the recording of satisfaction note by the AO of the searched person and the AO of the other person. It was specifically submitted that the AO of the searched person and the assessee company had not recorded the satisfaction note for initiating proceedings in the hands of the appellant/company; M/s. Esteem Steel (P.) Ltd. It was argued that the Revenue had taken many adjournments for bringing the copy of the satisfaction note, if any, on the record but it failed to bring the same yet. The Ld. Counsel further drew our attention to the reply of the AO to the RTI application regarding recording of satisfaction note by the & 401/Del/2009 Esteem Steel (P) Ltd. & K. N. Shukla AO of the appellant company for initiating assessment proceeding under section 153C of the Act in the case of the appellant company; M/s. Esteem Steel (P.) Ltd.
We have heard both parties and have perused the material available on the record. We perused all the case laws relied upon. After careful consideration of material on the record and facts in entirety, we find force in the argument of the Ld. Counsel of the appellant company; M/s. Esteem Steel (P.) Ltd. We are of the considered view that the issue raised in additional ground is squarely covered by the decision of the Hon’ble Supreme Court in the case of Super Mall Pvt. Ltd. (supra) and the decision of the Hon’ble Delhi High Court in the case of Ganpati Fincap Services Pvt. Ltd. (supra). We therefore, following the reasoning given by the Hon’ble Supreme Court and the Hon’ble Delhi High Court in above mentioned decisions, hold that the AO has not recorded satisfaction note for initiating proceedings under section 153C of the Act in the hands of the appellant/company; M/s. Esteem Steel (P.) Ltd. Accordingly, the assessment order is held void ab-initio. Consequentially, the impugned order is set aside and the addition of Rs.2,24,00,000/- is deleted.
The Niti Shree Group consists of two sub-groups; Mr. Anil Jain and Mr. K. N. Shukla. During the course of search in Niti Shree Group, Mr. K. N. Shukla, on behalf of various assessees surrendered the income of Rs.15.00 & 401/Del/2009 Esteem Steel (P) Ltd. & K. N. Shukla Crores in aggregate. Out of this surrendered income of Rs.15.00 Crores, Mr. K. N. Shukla had surrendered Rs.2.24 Crores, in his individual case on account of share application money payment to M/s. Esteem Steel (P.) Ltd., vide his signed statement dated 31.07.2006. The said statement surrendering the income was also filed in the office of Joint Commissioner of Income Tax (Investigation), Unit-V, New Delhi on 31.07.2006. However, Shri K. N. Shukla retracted from the said surrender by filing the ITR of the relevant year and not offering said surrendered income of Rs.2.24 Crores and claiming the refund of tax paid on the surrendered income of Rs.2.24 Crores. The Income Tax Return did not contain any justification for the said retraction. The tax on the surrendered income of Rs.2.24 Crores was paid by M/s. Sourya Tower Pvt. Ltd. (in which Mr. K. N. Shukla was one of the directors).
The said share application money of Rs.2.24 Crores was taxed substantively in the hands of M/s. Esteem Steel (P.) Ltd. and protectively in the hands of Mr. K. N. Shukla. The Ld. Counsel prayed for deletion of protective addition of Rs.2.24 Crores on the reasoning that the assessee was never a shareholder and director of M/s. Esteem Steel (P.) Ltd., and had never made any investment therein as share application money and that was why the shares were not allotted in the names of Mr. K. N. Shukla. It was submitted that no prudent man would not get his investment in shares allotted in his name for quite long time after payment of share application & 401/Del/2009 Esteem Steel (P) Ltd. & K. N. Shukla money. It was further contended that Mr. K. N. Shukla had not surrendered the said sum of Rs.2.24 Crores.
On the other hand, the Ld. CIT-DR submitted the copy of the surrendered letter duly signed by Shri K. N. Shukla wherein he had surrendered the said share application money of Rs.2.24 Crores. The said surrendered letter is scanned as under:
& 401/Del/2009 Esteem Steel (P) Ltd. & K. N. Shukla & 401/Del/2009 Esteem Steel (P) Ltd. & K. N. Shukla & 401/Del/2009 Esteem Steel (P) Ltd. & K. N. Shukla & 401/Del/2009 Esteem Steel (P) Ltd. & K. N. Shukla
We have heard both parties and have perused the material available on the record. After careful consideration of material on the record and facts in entirety, above scanned surrendered letter in particular, we find force in the argument of the Ld. CIT-DR. The submission filed on behalf of Shri K. N. Shukla that he had not surrendered the said share application money of Rs.2.24 Crores and had not given any authority to anyone for surrounding the said share application money of Rs.2.24 Crores is found factually incorrect which is evident from the above scanned surrendered letter. The material on the record clearly demonstrates that Shri K. N. Shukla has surrendered the said share application money of Rs.2.24 Crores and requested for adjustment of taxed out of seized assets. The subsequent retraction of the said surrender by not offering the income of Rs.2.24 Crores for tax is without any basis and justification. Thus, it is held that the said share application money of Rs.2.24 Crores is of Shri K. N. Shukla, whose genuineness and source thereof are not explained by Shri K. N. Shukla. Thus, in view of the above, we set aside the & 401/Del/2009 Esteem Steel (P) Ltd. & K. N. Shukla impugned order and upheld the addition of Rs.2.24 Crores on substantive basis.