OVERTOP VINCOM PRIVATE LIMITED ,KOLKATA vs. ITO, WARD - 7(2), KOLKATA , KOLKATA

आदेश /O R D E R PER S.S.Godara, Judicial Member:- This assessee’s appeal for assessment year 2012-13 arises against the Commissioner of Income Tax (Appeals)-3, Kolkata dated 22.03.2018, passed in case No. 995/CIT(A)/-3/Ward-7(2)/15-16/Kol, involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’

Case called twice. None appears at assessee’s behest. The registry has already sent an RPAD notice dated 26.11.2019 to the taxpayer. It had not put in appearance in earlier hearing(s) as well. It is accordingly proceeded ex parte. The case is now taken up for adjudication on merits.

Overtop Vincom Pvt. Ltd. Vs. ITO Wd-7(2), Kol. Page 2 2. Coming to assessee’s sole substantive grievance challenging correctness of both the lower authorities’ action treating its share capital of ₹21 crores as bogus unexplained cash credits u/s. 68 of the Act learned CIT-DR submitted in support of the impugned addition that it has failed to prove identity, genuineness and creditworthiness of its investor parties. His further case is that the assessee had also not put in appearance before the CIT(A) as well despite having been afforded adequate opportunities of hearing which culminated in the impugned addition affirmed vide lower appellate order passed ex parte as under:- “III. Decision: In this appeal the assessee has raised a number of grounds. However, the main issue is regarding the addition made by the AO on account of unexplained fresh share capital along with premium received by the assessee during the previous year of Rs. 21,00,00,000/-. The appellant company filed its return of income for the impugned assessment year on 21.12.2012 declaring total income of Rs.0/-. The directors of the appellant company and the directors of the companies who had subscribed to the shares of the appellant were not produced before the AO. The appellant failed to establish the genuineness of the share capital and premium received during the previous year. The AO passed order u/s. 143(3) wherein he made the addition of Rs, 21,00,00,0001- u/s, 68 on account of unexplained fresh share capital along with premium. The basic issue is the genuineness of the transactions of receipt of share capital and huge share premium. However, the appellant has failed to discharge its onus in this matter. The relationship of the assessee to the applicants should be at arm's length in such cases and this is what the appellant was required to establish. Also the concept of “shifting onus" does not mean that once certain facts are provided, the assessee's duties are over. If on verification, the information becomes false, unsatisfactory or unverifiable, the onus shifts back to the assessee. The details available reflect some paper work or documentation but genuineness, creditworthiness and identity are deeper and obtrusive. Verification of all aspects was needed but due to complete non-compliance, the applicant's case falls flat. In this case none appeared and no compliance was made. No documents, to substantiate the genuineness of share capital and premium, have been filed. Even the audited accounts of the appellant and the share capital subscribing companies have not been filed before me. Documents and evidences to justify the genuineness of the share capital and premium have not been filed before me. The high share premium charged has not been justified. Therefore, the onus cast u/s. 68 has not been discharged. The Apex court of the land has laid down the Human Probability Test to analyze the genuineness of the entry through logical analysis in the case of CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC) which has also been followed in case of Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC). Applying the test of human probability and preponderance of probability as laid down by the Apex Court to the surrounding facts and circumstances of this case, as discussed above, the claim of the appellant is farfetched and cannot be sustained on the test of Human Probabilities. Moreover, the issue is squarely covered by the judgement of Hon High Court, Kolkata, in the case of Rajmandir Estate Pvt, Ltd v PCIT in CA No 509 of2016, wherein it has been held as under:- "(21) After hearing the learned advocates, we are of the opinion that the following questions arise for consideration:- (a) Whether in the light of the views expressed in the case of Lovely Exports (supra) & Steller Investment (supra) the order under Overtop Vincom Pvt. Ltd. Vs. ITO Wd-7(2), Kol. Page 3 Section 263 directing further investigation is legal? (b) Is the finding of the Commissioner of Income Tax that unaccounted money was or could have been laundered as clean share capital by creating facade of paper work, routing the money through several bank accounts and getting it the seal of statutory approval by getting the case reopened under Section 147 suo motu perverse? (c) Whether the order passed by the assessing officer under Section 143(3)/147 of the Income Tax Act is erroneous and also prejudicial to the interest of the revenue? (d) Whether the impugned judgement of the learned Tribunal is perverse? [22] We shall consider the second question first. In a commentary on the Prevention of Money Laundering Act, 2002 by Dr. M. C. Mehanathan published by Lexis Nexis, 2014, the steps of money laundering are described as follows:- "STEPS OF MONEY-LAUNDERING Although money-laundering often involves a complex series of transactions, it generally includes the following three basic steps:

1. 1. Placement it involves introduction of the proceeds of crime into the financial system. This is accomplished by breaking up large amounts of cash into smaller sums that are then deposited directly into a bank account, or by purchasing monetary instruments, transferring the cash overseas for deposit in banking/financial institutions, use for purchase of high value things such as gold, precious stones, art works etc. and reselling the same through cheques or bank transfers etc.

2. Layering This involves formation of complex layers of financial transactions which distance the illicit proceeds from their source and disguise the audit trail. In this process a series of conversions or transactions are involved for moving the funds to places such as offshore financial centers operating in a liberal regulatory regime. Often "front" companies are formed to accomplish this task. These companies obscure the real owners of the money through the bank secrecy laws and attorney-client privilege. The techniques wed for the purpose are to lend the proceeds back to the owner as loans, gifts and etc., under invoicing the items exported to the real owner or etc. cases, the transfers may be disguised as payments for goods or services, thus giving them a legitimate appearance.

3. Integration This involves investment in the legitimate economy so that the money gets the colour of legitimacy. This is achieved by techniques such as lending the money through "front" companies etc. The money may be invested in real estates, business and etc. The stages at which money- laundering could be easily detected are those where cash enters into- the domestic financial system, either formally or informally, where it is sent abroad to be integrated into the financial systems of tax haven countries and where it is repatriated in the form of transfers. "The role of the revenue authorities in tackling the menace of laundering black money was commented by the learned author as follows:- "It has to be kept in view that India has a problem of black. economy, which is unaccounted and many a time the holders of black money' also launder the black money in order to acquire legitimate assets. Legal or illegal income which evades tax and illegal income that comes within the exempted taxation slab constitute the unreported Gross Domestic Product or black economy. Laundering the black money and laundering proceeds of crime are two different issues, although there is frequent overlap between the two. While laundering black money is to be handled through taxation laws or similar laws, the laundering of proceeds of crime is to be handled through special anti-money-laundering laws. " - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - ------------------------------------------------ (24) From the aforesaid evidence the following, prima facie, inferences can safely be drawn.- (a)The promoter/directors of the assessee and their close relatives and friends had united with the common object of creating at least 20 (19+1) companies apparently having a large capital base, but, in fact these are mere paper companies Overtop Vincom Pvt. Ltd. Vs. ITO Wd-7(2), Kol. Page 4 having no real worth. The transaction of sale and purchase of shares was nominal rather than real. (b)The allegation, in response to the notice to show-cause u/s. 263 that "it bears importance to state here that the investor companies of shares were interested to subscribe shares of the assessee company as, according to them, the assessee company had prospect in future”, is a plain lie. (c) The blank share application forms etc. tabulated above go to show that the alleged application for shares and the alleged allotment were not in the usual course of the business. (d) In the light of the aforesaid pieces of evidence and the prima facie finding, we are emboldened to say that the three requirements: (A) identity of the share-holders, (B) genuineness of the transaction and (C) the creditworthiness of the share-holders repeatedly impressed, by Mr. Poddar, upon us, have not been satisfied. Identity of the alleged share-holders is known but the transaction was not a genuine transaction. The transaction was nominal rather than real. The creditworthiness of the alleged share holders is also not established because they did not have any money of their own. Each one of them received from somebody and that somebody received from a third person. Therefore. prima tack. the ,we-holders are mere name lenders. [25] For the reasons discussed in the preceding paragraph, we are satisfied that the Judgement in the case of CIT - Vs- Steller investment (supra) has no manner of application to the facts and circumstances of this case. The question as to whether there has been a device adopted for money laundering also did not crop up for consideration in that case. The Prevention of Money Laundering Act, 2002 was not also there on the statute at that point of time. Before the appeal in Steller Investment Ltd. was dismissed by the Apex Court, the question had cropped up in the case of Sophia Finance Ltd. reported in (1994) 205 ITR 98 wherein a special bench held as follows:- "As we read section 68 it appears that whenever a sum is found credited in the books of account of the assessee then, irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the Income-tax Officer has the jurisdiction to enquire from the assessee the nature and source of the said amount. When an explanation in regard thereto is given by the assessee, then it is for the Income-tax Officer to be satisfied whether the said explanation is correct or not. It is in this regard that enquiries are usually made in order to find out as to whether, firstly, the persons from whom money is alleged to have been received actually existed or not. Secondly, depending upon the facts of each case, the Income-tax Officer may even be justified in trying to ascertain the source of the depositor, assuming he is identified, in order to determine whether that depositor is a mere name-lender or not. Be that as it may, it is clear that the Income-tax Officer has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of share application money. The use of the words "any sum found credited in the books" in Section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money." In the case of Sumati Dayal-Vs- CIT reported in (1995) 214 ITR 801 (SC) Their Lordships held that a capital receipt can become taxable if the explanation offered by the assessee about the nature and source thereof is not satisfactorily explained. The judgement in the case of CIT -Vs- Lovely Exports Pvt. Ltd.. reported in (2008) 299 ITR 268 lends no assistance to the assessee because in that case the Division Bench reiterated that omission to make an enquiry, where such an exercise is Overtop Vincom Pvt. Ltd. Vs. ITO Wd-7(2), Kol. Page 5 provoked, shall render the order of the assessing officer both erroneous and prejudicial to the revenue. The Division Bench went on to hold that the revenue should not harass the assessee where "the preponderance of evidence Indicates absence of culpability". In the present case there exists reasonable suspicion if not prima facie evidence of culpability. [26] The learned Tribunal in the impugned judgement in paragraphs 3, 4 and 5 observed, inter alia as follows:- "We have heard the rival submissions and perused the relevant material on record. It is relevant to mention that we have disposed of more than 500 cases involving same issue through certain orders with the main order having been passed in a group of cases led by Subhlakshmi Vanijya Pvt. Ltd. - Vs- CIT (ITA No.1104/KoIl2014) dated 30.07.2015 for the A. Y. 2009-10. Both the sides have fairly admitted that facts and circumstances of the cases under consideration are mutatis mutandis similar to those decided earlier, except for certain issues which we will advert to a little later. In our aforesaid order in Subhalakshmi Vanijya Pvt. Ltd., vs. CIT (ITA No. 1104/KoL/2014 A, y. 2009-10), we have drawn the following conclusions:- *** It is noticed that all or some of the above conclusions are applicable to the appeals in this batch." The appellant has disclosed a copy of the judgement delivered by the learned Tribunal in Subhalaxmi Vanijya Pvt. Ltd -Vs- CIT. The learned Tribunal in paragraph 17 I opined as follows.- "All the cases under consideration have the same common feature of passing assessment orders in undue haste. When we consider the above factual matrix, there can be no escape from an axiomatic conclusion that in all these cases the enquiry conducted by the AOs is exceedingly inadequate and hence fall in the category of 'no enquiry' conducted by the AO, "What to talk of charactering it as an inadequate enquiry', In our considered opinion, the highly inadequate enquiry conducted by the AO resulting in drawing incorrect assumption of facts, makes the orders erroneous and prejudicial to the interests of the revenue. " - - - - - - - ----------------------------------- - [28] We have indicated above the pieces of evidence which go to show that the Commissioner had reasons to entertain the belief that this was or could be a case of money laundering which went unnoticed because the assessing officer did not hold requisite investigation except for calling for the records. The evidence which we have tabulated above and the prima facie inference drawn by us is deducible from the documents also submitted before the assessing officer. The fact that the assessing officer did not apply his mind to those pieces of evidence would be evident from the assessment order itself - - - - - - - - - - - - - - - - - - - - - - - ----------------------------------- [28] We find no substance in the submission that the order of the learned Tribunal is perverse, after examining all the submissions advanced by Mr. Poddar. [29] Whether receipt of share capital was a taxable event prior to 1st April, 2013 before introduction of Clause (VII b) to the Sub-section 2 of Section 56 of the Income Tax Act; whether the concept of arms length pricing in a domestic transaction before introduction of Section 92A and 92BA of the Income Tax Act was there at the relevant point of time are not questions which arise for determination in this case. The assessee with an authorised share capital of &.1.36 crores raised nearly a sum ofRs.32 Overtop Vincom Pvt. Ltd. Vs. ITO Wd-7(2), Kol. Page 6 crores on account of premium and chose not to go in for increase of authorised share capital merely to avoid payment of statutory fees is an important pointer necessitating investigation. Money allegedly received on account of share application can be roped in under Section 68 of the Income Tax Act if the source of the receipt is not satisfactorily established by the assessee. Reference in this regard may be made to the judgement in the case of Sumati Dayal -Vs- CIT (supra) wherein Their Lordships held that any sum "found credited in the books of the assessee for any previous year, the same may be charged to income tax .... ". We are unable to accept the submission that any further investigation is futile because the money was received on capital account. The Special Bench in the case of Sophia Finance Ltd. (supra) opined that lithe use of the words "any sum found credited in the books" in Section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same IS credited as receipt of share application money. Mere fact that the payment was received by cheque or that the applicants were companies, borne on the file of Registrar of Companies were held to be neutral facts and did not prove that the transaction was genuine as was held in the case of CIT - Vs- Nova Promoters and Finlease (P) Ltd. (supra). Similar views were expressed by this Court in the case of CIT -Vs- Precision Finance Pvt. Ltd. (supra). We need not decide in this case as to whether the proviso to Section 68 of the Income Tax Act is retrospective in nature To that extent the question is kept open. We may however point out that the Special Bench of Delhi High Court in the case of Sophia Finance Ltd.' (supra) held that “the ITO may even be justified in trying to ascertain the source of depositor". Therefore, the submission that the source of source is not a relevant enquiry does not appear to be correct. We find no substance in the submission that the exercise of power under Section 263 by the Commissioner was an act of reactivating stale issues. In the case of Gabriel India Ltd. (supra) the CIT was unable to point out any error in the explanation furnished by the assessee. Whereas in the present case we have tabulated the evidence which was before the assessing officer which should have provoked him to make further investigation. The assessing officer did not attach any importance to that aspect of the matter as discussed above by us. The judgement in the case of Leisure Wear Exports Pvt. Ltd. (supra) relied upon by Mr. Poddar has no applicability because the evidence furnished by the assessee in this case does suggest a cover up. We also have held prima facie that neither the transaction appears to be genuine nor are the applicants of share are creditworthy. The judgement in the case of Omar Salay Mohamed Sait (supra) cited by Mr. Poddar has no application for reasons already discussed. It is not true that the Commissioner in this case has merely on the basis of suspicion held that this was or could be a case of money laundering. We as a matter of fact have discussed this issue in great detail and need not reiterate the same. The order passed by the Commissioner is by no means an act of substituting his own views to that of the assessing officer. It is true that the assessing officer had requisitioned the necessary details by his notice u/s.142 (1) but he thereafter did not apply his mind thereto. The judgement in the case of J. L. Morrison (India) Ltd. has no manner of application because in that case the question essentially was whether the receipt was of a capital or revenue nature. The facts and circumstances were not in dispute. Moreover the view taken by the assessing officer was not shown nor was held by the Court to be an erroneous view. Whereas in this case we have demonstrated in some detail as to why is the order of the assessing officer erroneous and prejudicial to the revenue. The judgement in the case of Malabar Industrial Co. Ltd. (supra) and Max India Ltd. do not apply to the facts of this case for reasons already discussed by us. From the judgement of the learned Tribunal in the case of Subholaxmi, placed before us in great detail by Mr. Poddar, we find that all important issues placed for consideration by no other than Mr. Poddar himself were duly considered by the learned Tribunal.

Overtop Vincom Pvt. Ltd. Vs. ITO Wd-7(2), Kol. Page 7 The Hon'ble High Court has discussed the issue in detail with reference to Money Laundering Act, provisions of section 68 and the case of creditors being only name lenders. The Hon'ble High Court while passing the above decision has also taken into consideration the findings given by the Apex Court in the case of Lovely Export (P) Ltd (216 CTR 195) to come to the conclusions that it does not help in the case of the assessee. The SLP filed by the assessee against the order of the Hon'ble High Court in Rajmandir Estate Pvt. Ltd (Surpa) has now been dismissed by the Hon'ble Supreme Court therefore the observations in the above order has now attended finality. Further in this case it is observed that there is huge premium on shares. The NR of the appellant has not appeared before me 3ftd no clarification has been given in this regard. In this case the company issued 30,000 equity shares for Rs. 10/- face value at a premium of Rs. 6990/- per share. There is no justification for premium charged. The appellant has failed to explain. The financials do not justify the premium changed. Moreover, the issue is squarely covered by the judgement of Hon'ble ITAT "C" Bench, Kolkata, in the case of I.T.O, Ward- 5(3), Kolkata Vs. M/s Blessings Commercial Pvt Ltd in for A.Y 2010-11, wherein it has been held as under: "The second argument of the Id. Counsel for the assessee, is that the assessee has proved the identity and creditworthiness of the creditor company as well as the genuineness of the transactions. We are not able to agree with the same. A 10 rupees share has been issue at a premium of 990 rupees. On a question, the assessee has not even attempted to justify the amount of share premium. A perusal of the audited statement of accounts of these companies demonstrate that there is hardly any income was disclosed or any expenditure worth mentioning was claimed There is no activity whatsoever in these companies. The Reserve Bank of India, the Institute of Chartered Accountants of India, and certain other organisations, have laid down various methods based on which the amount of share premium can be decided. None of these methods have been followed in this case. The exorbitant quantum of share premium collected shocks the conscience of any reasonable person. A mockery has been made of the whole system. These are not transactions which can be justified by any stretch of imagination. Thus, in our view, the genuineness of these transactions is not proved.

12. These being companies, which are registered with ROC, are artificial individual persons and hence, their identity has been proved Coming to the creditworthiness of the creditor, the examination of the Balance sheet, Profit & Loss Account as well as balances in the Bank Account demonstrate that they are not more than a couple Hundreds of rupees or few thousands of rupees. No figures are in lakhs also, except the cheque issued. Bank Balance are around Rs.12,000/- Thus in our view the creditworthiness is not proved As the genuineness of the transactions and the creditworthiness of the parties have not been proved, the addition has been correctly made u/s 68 of the Act by the A.O.

13. The last contention of the Id. Counsel for the assessee is that. if these credits as well as investments are sham, then no addition whatsoever can be made as these are not real transactions. He submits that when the A. O. gives a categorical finding that these are fictitious book entries, then logically no additions should be made. In our view, this argument has to be dismissed for the reason that credit entry has been made in the books of account consequent to receipt of cheques against which share capital has been allotted by the assessee company which. by the admission of the assessee, are legally valid transaction The requirements of the Negotiable Instruments Act and the Companies Act are fulfilled in this case. Shares have been legally allotted. Amounts have been validly received by cheque. There is no violation of law. Thus, it cannot be said that these are fictitious or sham entries and no cognizance should be Overtop Vincom Pvt. Ltd. Vs. ITO Wd-7(2), Kol. Page 8 taken of theses entries. These are not unreal transactions as held by the A.O. These transactions are valid in law. 13.

15. The "B" Bench of the ITAT, Delhi in & 2164/Del/2008. Assessment Year 2000-2001, ITO vs. M/s. SBS Properties & Finvest Pvt. Ltd., order dt. 30.05.2016. wherein one of us is the author of the decisions has held as follows: 27. We now consider the merits of the addition without taking into consideration the statement of Shri SK. Jain or the material found during the search of Shri S.K. Jain. On a perusal of the documents submitted by the assessee, we are of the considered opinion that the genuineness of the transaction and the creditworthiness of the creditors has not been demonstrated by the assessee. The AO in his order at page 7 has clearly recorded that the assessee company has no financial base or business and the money received by it was withdrawn the very same day or the next day. More important he has recorded that the assessee has not given any, let alone satisfactory explanation for the high premium charged on the shares. When shares are allotted within a span of less than one month the reason for charging high premium in the case of VPC Financial Services P Ltd. KilIa Financial Services Pvt. Ltd., Highyield Securities Pvt. Ltd. Mehul Finvest Pvt. Ltd: and Synergy Finlease P. Ltd. and reason for not charging premium in the case of M/s. Timely Fincap Pvt. Ltd. and Graph Financial Services Pvt. Ltd: is not at all explained. The explanation given that the Ld. Counsel for the assessee that charging of premium is the sole discretion of the company and Overtop Vincom Pvt. Ltd. Vs. ITO Wd-7(2), Kol. Page 9 that price is a contract entered between two parties and cannot be questioned by the revenue is devoid of merit. The AO cannot be expected to wear blinkers and accept bald explanations of the assessee. There should be some explanation which is logical and rationale. Ld. Counsel could not demonstrate that the assessee company was in fact carrying on the business of finance and investment. It is common sense that shares of loss making companies do not command a premium. The financial status or the projected cash flow of the assessee company or any such record has been produced by the assessee to justify the charging of such premiums for allotment. Discounted cash flow matter is one of the accepted methods to determine premium chargeable on share capital. Certain other methods have also been prescribed. Premium cannot be charged as per the whims and fancies of the company. In cases where explanation or justification of the valuation of shares is given. to explain the basis on which share premium has been fixed, then no addition can be made as the genuineness of the transaction can be held as explained. In this case no explanation whatsoever has been given. Under these circumstances we are of the considered opinion that the assessee has not discharged the burden that lay on it in proving the genuineness of the cash credits. We also find that the AO was right in holding that the assessee has not proved the creditworthiness of the share holder companies. The balance sheets. income tax assessments etc. show that the resources of these companies are limited. We now discuss the case law on the subject.

Overtop Vincom Pvt. Ltd. Vs. ITO Wd-7(2), Kol. Page 10 “In CIT vs. Daulat Ram Rawatmull [1973] 87 ITR 349, the Supreme Court dealt with the question as to when the findings of facts recorded by the Tribunal can be interfered with in a reference made under section 66 of the Indian Income Tax Act, 1922. The Supreme Court referred to the leading case of Edwards (Inspector of Taxes) v. Bairstow [1955] 28 ITR 579 (HL.) decided by the House of Lords in which Viscount Simonds observed as under:- "For it is universally conceded that, though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, 1 think, fairly summarized by saying that the court should take that course if it appears that the Commissioners have acted without any evidence or upon a view of the facts which could not reasonably be "In the same case Lord Radcliffe expressed himself in the following words: “If the case contains anything ex facie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come 10 the determination under appeal. In those circumstances, too, the court must intervene. "Reference was also made 10 the observations of Bhagwati, J. (speaking for the majority) in the case of Mehia Partkh & Co. v. CIT (1956)30 ITR 181 (SC), which are as under:- "It follows, therefore, that facts proved or admitted may provide evidence to support further conclusions to be deduced from them, which conclusions may themselves be conclusions of fact and such inferences from facts proved or admitted could be matters of law. The court would be entitled to intervene if it appears that the fact-finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question. "In DIT v. Bharat Diamond Bourse [2003] 259lTR 280/126 Taxman 365, the Supreme Court again reiterated the aforesaid position and held as under: - "As a principle, this court does not disturb findings of fact unless the findings of fact are perverse. It appears to us this is one of those exceptional cases where the correct conclusion recorded by the Assessing Officer, and affirmed by the appellate authority, has been reversed by the Tribunal on account of perverse reasoning. as we shall presently see. "