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Income Tax Appellate Tribunal, “A”, BENCH KOLKATA
Before: SHRI S.S. GODARA, JM & SHRI M.BALAGANESH, AM
Date of Hearing 26/12/2018 Date of Pronouncement 20/02/2019 आदेश / O R D E R PER M. BALAGANESH (A.M):
These two appeals arise out of the separate orders passed by the Learned Commissioner of Income Tax (Appeals) -4, Kolkata [hereinafter referred to as the ld CITA] in Appeal Nos. 237 & 238 /CIT(A)-4/Circle-10(1)/Kol/15-16 dated 16.10.2015 against the separate orders of assessments framed by the Learned Deputy Commissioner of Income Tax, Circle 10(1), Kolkata [hereinafter referred to as the ld AO] for the Asst Year 2012-13 under section [u/s in short] 143(3) of the Income Tax Act, 1961 [hereinafter referred to as the ‘Act’] dated 31.3.2015.
As identical issues are involved in both the appeals, they are taken up together and disposed off by this common order for the sake of convenience.
Both the parties before us fairly agreed that the facts are identical in both the cases and the decision of would have to be applied for ITA No. 51/Kol/2016 with equal force except with variance in figures and hence the appeal in ITA No. 50/Kol/2016 is taken as the lead case.
The only issue to be decided in this appeal is as to whether the ld CITA was justified in confirming the addition made u/s 68 of the Act towards share capital and share premium in the facts and circumstances of the case.
The brief facts of this issue are that the assessee company is engaged in the business of generation of power and energy and had filed its return of income for the Asst Year 2012-13 on 25.9.2012 declaring total loss of Rs 8,87,88,588/-. The ld AO observed that during the period 1.4.2011 to 31.3.2012, the assessee company had issued equity shares of Rs 10 each with a premium of Rs 50 per share totaling to Rs 120 crores. The ld AO observed that the entire share capital and share premium was raised through private placement. The ld AO called for the details of the shareholders and their share subscriptions to the assessee company. The assessee provided the requisite details called for. The ld AO observed that the credit of share capital and premium to the tune of Rs 120 crores were made on various dates during the year and such credits were made against the name of some companies who had either no income or meager income. According to ld AO, all the share subscribing companies are merely paper or shell companies and did not have sufficient means to fund the assessee company and accordingly the same are to be treated as bogus warranting addition u/s 68 of the Act.
The assessee company stated before the ld AO that it had set up a Solar Power Generating Plant of 25 MW capacity popularly known as Gujarat Solar Park, under the Gujarat Solar Policy 2011 of Government of Gujarat with an approximate investment of Rs 400 crores. This power plant was operational since February 2012. The project cost was funded with a mixture of debt and equity contribution as under:-
Contribution from shareholders as equity contribution - Rs 120 crores Contribution from Banks - Rs 280 crores 5.1. In order to meet the financial requirements, the assessee company partnered with M/s Shree Ganesh Jewellery House (I) Ltd (SGJHL in short) , which is a listed company and one of the prominent jewellery manufacturers / exporters in India. Almost entire equity requirement was met / provided by SGJHL either directly or indirectly through its promoter held companies. For funding its promoter contribution , SGJHL, apart from its own net worth, also took loan of Rs 40 crores via its 100% subsidiary company viz. M/s Easy Fit Jewellery Ltd (EFJL), which is also a renowned jewellery manufacturer and exporter in India, from M/s Aditya Birla Finance Ltd, a well known Non-Banking Finance Company (NBFC). In order to facilitate the equity funding of the assessee company, SGJHL formed 5 Body Corporates having 5 shareholders specially for the purpose of holding the shares of the project company i.e the assessee company, as a Special Purpose Vehicle (SPV). The reason for forming this SPV under the direct control of project company was also to facilitate easy transfer of ownership to new investor or induction of fresh equity as and when required, which is a common practice in big projects. Further the said SPV was formed for investments exclusively in the project company and not to any outside companies and the source of funds invested through these SPVs were from profit making working companies i.e SGJHL and EFJL. Further the business of these SPVs is essentially to stay invested in the project companies and get the benefits and gains upon the event of stake sale of this project to new investors. These SPV companies vis a vis shareholding companies, which were duly registered under Registrar of Companies (ROC) are as under:- a) M/s Shirdi Commodities Pvt Ltd b) M/s Shirdi Commosale Pvt Ltd c) M/s Alex Mercury Pvt Ltd d) M/s Carvan Creation Pvt Ltd (NBFC) e) M/s Alex Energy Pvt Ltd 5.2. The assessee company, investing company SGJHL, SGJHL’s 100% subsidiary EFJL and the aforesaid 5 SPVs have common directors and management to facilitate day to day activities of the companies. Therefore , so far as investment in the project from equity contribution is concerned, the same was funded by the group companies only and no other outside company or agency was involved in such equity funding. In terms of the above arrangement or funding, the assessee company received Rs 120 crores from 5 SPVs on different dates through banking channels as under:- M/s Carvan Creation Pvt Ltd - Rs 30,00,00,000 M/s Alex Mercury Power Pvt Ltd - Rs 36,00,00,000 M/s Shirdi Commosales Pvt Ltd - Rs 18,00,00,000 M/s Alex Energy Pvt Ltd - Rs 24,00,00,000 M/s Shirdi Commodities Pvt Ltd - Rs 12,00,00,000 ---------------------- Rs 120,00,00,000 ---------------------- 5.3. The assessee furnished the various details called for by the ld AO with regard to the aforesaid shareholders such as sources of funds for the above shareholders to make investment in assessee company ; balance sheets of respective shareholder companies ; address of the aforesaid shareholders, PAN, ITR acknowledgements, bank statements of shareholder companies, name of the bank in which the amounts received were credited in the bank of assessee ; audited financial statements and bank statements together with confirmation from banks in respect of transactions of M/s SGJHL and EFJL. The assessee company further in order to meet its debt portion raised almost 70% of the total project outlay from various banks through a 5 member consortium of banks.
5.4. The ld AO inspite of the aforesaid facts, evidences and detailed narration of the transactions observed that the assessee company had failed to establish how the investment has actually been made by SGJHL through its other subsidiaries and also the creditworthiness of the investors to the equity contribution. He observed that the claim of the assessee that the investment through the subsidiary company and various intermediary companies has been transmitted to the assessee company out of reserves and surplus of SGJHL as well as loan taken from reputed NBFC by EFJL is not proved beyond doubt and remained unexplained. Accordingly, he proceeded to add the entire credit of share capital and share premium of Rs 120 crores as unexplained cash credit u/s 68 of the Act.
The assessee pleaded before the ld CITA that the assessee had duly proved the identity of the investing companies since they are existing companies duly registered with Registrar of Companies, having PAN and had submitted their financial statements regularly and assessed to income tax. Further the independent entity is also substantiated from the fact that the directors of these SPV companies are common to SFJHL and EFJL and they responded to the enquiries made by the Ld AO. Moreover these SPV companies have their independent bank accounts and all these facts and evidences go to establish beyond doubt the independent identity and existence of these companies. The high net worth of SGJHL and EFJL substantiate the creditworthiness of those entities to advance monies to the aforesaid SPV companies. All the transactions were routed through regular banking channels and hence the genuineness of the transactions are also proved beyond doubt.
The assessee also explained the immediate source of credit for each of the shareholder companies together with their respective bank statements for making investment in the assessee company. The ld CITA appreciated the aforesaid documents and on detailed examination vis a vis the respective sources for the shareholder companies came to the conclusion that the assessee in the instant case had duly proved the three ingredients of section 68 of the Act viz. identity of the shareholders, creditworthiness of the shareholders and genuineness of the transactions. Accordingly, he deleted the addition made in the sum of Rs 120 crores u/s 68 of the Act in the assessment. Aggrieved, the revenue is in appeal before us.
We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee comprising of pages 1 to 285 of the paper book. This paper book contains the following documents :- a) Copy of reply letter filed before the ld AO on 18.3.2015 (pages 1 to 6 of PB) b) Detailed chart of source of funds in the assessee company (page 7 of PB) c) Bank statements of assessee company (pages 8 to 22 of PB) d) ITR acknowledgement and annual accounts for Asst Year 2012-13 (pages 23 to 36 of PB) e) Detailed chart of source of funds of Alex Mercury Power Pvt Ltd ; copy of their bank statements ; ITR acknowledgement and annual accounts for Asst Years 2011-12 and 2012-13 (pages 37 to 67 of PB) f) ITR acknowledgement and annual accounts of Kumud Parekh for Asst Year 2011-12 (pages 68 to 74 of PB) g) ITR acknowledgement and annual accounts for Asst Year 2012-13 of Shree Ganesh Jewellery House Ltd (SGJHL) (pages 75 to 102 of PB) h) Detailed chart of source of funds of Shirdi Commodities Pvt Ltd; copy of their bank statements ; ITR acknowledgement and annual accounts for Asst Year 2012-13 (pages 103 to 117 of PB) i) ITR acknowledgement and annual accounts for Asst Year 2012-13 of Easy Fit Jewellery Ltd (EFJL) ( Pages 118 to 145 of PB) j) Detailed chart of source of funds of Shirdi Commosales Pvt Ltd; copy of their bank statements ; ITR acknowledgement and annual accounts for Asst Year 2012-13 (pages 146 to 163 of PB) k) Detailed chart of source of funds of Carvan Creation Pvt Ltd; copy of their bank statements ; ITR acknowledgement and annual accounts for Asst Years 2011-12 and 2012-13 (pages 193 to 245 of PB)- l) ITR acknowledgement and annual accounts for Asst Year 2012-13 of K & R Associates (pages 246 to 253 of PB) m) Detailed chart of source of funds of Alex Energy Pvt Ltd; copy of their bank statements ; ITR acknowledgement and annual accounts for Asst Year 2012-13 (pages 255 to 265 of PB) n) ITR acknowledgement and annual accounts for Asst Year 2012-13 of Radiant Equity Management Pvt Ltd (pages 266 to 285 of PB).
8.1. From the materials available on record, we find that the assessee company was formed for the purpose of setting up a solar power plant in the State of Gujarat. The Government of Gujarat had come up with an industrial policy to promote setting up of solar power plants in their State. The assessee company was awarded 25MW solar power plant to be commissioned within 31st December 2011 in terms of expressed agreement with Gujarat Urja Vikas Nigam Limited ('GUVNL'), a State Government Undertaking. Pursuant to the contract for setting up solar power plant, the assessee had obtained a land for lease and also entered into power purchase agreement with GUVNL. The total project cost was worked out at Rs. 400 crores. The assessee was successfully able to obtain bank finance for 70% of the total project cost. For the remaining 30% of the project outlay, the appellant company partnered with Shree Ganesh Jewellery House (I) Ltd. (SGJHL) for investment in equity share capital of the company who showed their interest as well as intention to invest in the solar power project. However instead of directly contributing in the share capital, SGJHL and the assessee company reached an agreement wherein it was decided that SGJHL would provide loans, either directly or indirectly to other companies who in turn will invest in the equity share capital of the assessee company.
8.2. Accordingly, 4 special purpose vehicle (SPVs) were formed specially to hold 75% of the shares of the project company, i.e. Alex Astral Power Pvt. Ltd. namely:- i) M/s Alex Mercury Power Pvt. Ltd. (10%) ii) M/s Alex Energy Pvt. Ltd. (15%) iii) M/s Shirdi Commosales P Ltd. (20%) iv) M/s Shirdi Commodities P Ltd. (30%)
8.3. Apart from these 4 SPVs, SGJHL also provided loans to M/s Caravan Creation Pvt. Ltd. indirectly through group concerns, who made 25% equity investment in the assessee company out of the said loan funds. M/s Caravan Creation Pvt. Ltd is a NBFC company whose main business is investment in shares and granting / taking intercorporate loans. It is not in dispute that this company is an associate company of SGJHL.
8.4. Consequently as per this arrangement, the entire equity capital of 10000 shares of the promoter group were first transferred to these 5 companies on 02.08.2010 as follows:
Transfer of Initially Allotted 10,000 shares Name of Shareholder Nature No. of shares Ratio of shareholding Shirdi Commosales Pvt. Ltd. SPV 1,000 10% Shirdi Commodities Pvt. SPV 1,500 15% Ltd. Alex Energy Pvt. Ltd. SPV 2,000 20% Alex Mercury Power Pvt. SPV 3,000 30% Ltd. Caravan Creation Pvt. Ltd. NBFC 2,500 25% Total 10,000 100% 8.5. Thereafter as per the arrangement, Shree Ganesh Jewellery House (I) Ltd, directly and indirectly through its subsidiaries and associate concerns, funded almost the entire source of equity investment (Rs.119.25 crores i.e. 99% of the equity fund requirement) to the 5 new share applicant companies via loan transactions who finally contributed in the equity share capital of the assessee company to meet the project cost. As such, during the year, the assessee issued 2,00,00,000 equity shares at a face value of Rs.10/- per share and share premium of Rs.50/- per share to these 5 existing shareholders of the companies in the same ratio in which the original 10000 equity shares were transferred in three tranches as detailed below:
8.6. Hence the project was funded as under: a. From Banks - Rs.280 crores b. From Shareholders as Equity Contribution - Rs.120 crores TOTAL Rs.400 crores 8.7. We find that the assessee had furnished before the ld AO the sources of funds for the above shareholders to make investment in assessee company ; balance sheets of respective shareholder companies ; address of the aforesaid shareholders, PAN, ITR acknowledgements, bank statements of shareholder companies, name of the bank in which the amounts received were credited in the bank of assessee ; audited financial statements and bank statements together with confirmation from banks in respect of transactions of M/s SGJHL and EFJL. However, the learned AO was of the view that the companies who invested in the share capital of the assessee company exist only on papers and none of these companies were even operational or capable to do the business before making such huge investment in the form of share capital. But we find from the materials available on record that the assessee company, investing company SGJHL, EFJL and the aforesaid five shareholder companies have common directors or management to facilitate day to day activities of the companies and that the entire investment by way of equity contribution in the assessee company was funded by the group companies of SGJHL only and no other outside agency was involved in such equity funding. We find that the assessee had furnished the details of funds for each of the shareholder companies as under:-
During the year, Alex Mercury Power Pvt. Ltd. made an equity investment of Rs.36 crores in the assessee company. The said company is regularly assessed to income tax. The ITR acknowledgment, computation of income, Annual Accounts for the Financial Years 2010-11 and 2011-12 were enclosed. The amounts invested by this company in the assessee company is duly reflected in its balance sheet. The sources of funds from which equity investment was made are as follows: - i) Loan from Late. Mrs.Kumud Parekh (M/o Nilesh Rs. 12,00,000 Parekh, Chairman of SGJHL) ii) Loan from Shree Ganesh Jewellery House (I) Ltd. Rs.35,88,00,000 Total Rs.36,00,00,000 A detailed chart showing the datewise inflow of funds and the subsequent investment in the assessee company was filed before the lower authorities together with the bank statements. We find that the assessee had also filed a copy of ITR acknowledgment and annual accounts of Late Mrs. Kumud Parekh for the AY 2011-12. On perusal of the same, it is evident that loan of Rs.12,00,000/- was given by Mrs Kumud Parekh to M/s Alex Mercury Power Pvt Ltd. The own funds of Late Mrs Kumud Parekh is Rs. 21,48,58,769/-. This very clearly shows her high networth and creditworthiness to advance loans. Mrs Kumud Parekh (since deceased) is the mother of Shri Nilesh Parekh, director of SGJHL. Hence the assessee had proved the source of Mrs Kumud Parekh (i.e source of source) also in the instant case to the extent of Rs 12,00,000/-.
We find from the ITR acknowledgement and audited annual accounts of SGJHL that an amount of Rs.35.88 crores was advanced to M/s Alex Mercury Power Pvt Ltd. From the balance sheet of SGJHL, we find that the own funds of the said company is Rs.1,32,501.38 lakhs i.e. 1,325.01 crores. This very clearly shows the high networth and the creditworthiness of SGJHL to advance loans to M/s Alex Mercury Power Pvt Ltd. It is not in dispute that SGJHL is a listed company and one of the pioneers in manufacturing of jewellery generating huge surplus and having sufficient cash flows. The company reported Gross Total Income of Rs. 4,07,79,517/- in the Income Tax Return filed for the year. Loan given to M/s Alex Mercury Power Pvt Ltd. is shown in the balance sheet of SGJHL under ‘Related Party disclosures’. M/s Alex Mercury Power Pvt Ltd is wholly owned subsidiary of SGJHL. Hence we find that the assessee had proved the source of SGJHL (i.e source of source) also in the instant case to the extent of Rs 35,88,00,000/-.
B. M/s. Shirdi Commodities Pvt. Ltd. During the year, M/s. Shirdi Commodities Pvt. Ltd made an equity investment of Rs.12 crores in the assessee company. The said company is regularly assessed to income tax. The ITR acknowledgment, computation of income, Annual Accounts for the Financial Year 2011-12 were enclosed. The amounts invested by this company in the assessee company is duly reflected in its balance sheet. The source of funds from which equity investment was made are as follows: - Loan from Easy Fit Jewellery Limited (EFJL) (Subsidiary of SGJHL) - Rs 12,00,00,000/- A detailed chart showing the datewise inflow of funds and the subsequent investment in the assessee company was filed before the lower authorities together with the bank statements. From the balance sheet of EFJL, we find that the own funds of the said company is Rs.84,68,26,000/- i.e. 84.68 crores. This very clearly shows the high networth and the creditworthiness of EFJL to advance loans to M/s Shirdi Commodities Pvt Ltd. The company reported Gross Total Income of Rs. 48,75,807/- in the Income Tax Return filed for the year. Loan given to M/s Shirdi Commodities Pvt Ltd is shown in the balance sheet of EFJL under ‘Related Party disclosures’. M/s Shirdi Commodities Pvt Ltd is wholly owned subsidiary of EFJL. Hence we find that the assessee had proved the source of EFJL (i.e source of source) also in the instant case to the extent of Rs 12,00,00,000/-.
C. M/s Shirdi Commosale Pvt. Ltd. During the year, M/s. Shirdi Commosale Pvt. Ltd made an equity investment of Rs.18 crores in the assessee company. The said company is regularly assessed to income tax. The ITR acknowledgment, computation of income, Annual Accounts for the Financial Year 2011-12 were enclosed. The amounts invested by this company in the assessee company is duly reflected in its balance sheet. The source of funds from which equity investment was made are as follows: - Loan from Easy Fit Jewellery Limited (EFJL) (Subsidiary of SGJHL) - Rs 18,00,00,000/- A detailed chart showing the datewise inflow of funds and the subsequent investment in the assessee company was filed before the lower authorities together with the bank statements. From the balance sheet of EFJL, we find that the own funds of the said company is Rs.84,68,26,000/- i.e. 84.68 crores. This very clearly shows the high networth and the creditworthiness of EFJL to advance loans to M/s Shirdi Commosale Pvt Ltd. The company reported Gross Total Income of Rs. 48,75,807/- in the Income Tax Return filed for the year. Loan given to M/s Shirdi Commosale Pvt Ltd is shown in the balance sheet of EFJL under ‘Related Party disclosures’. M/s Shirdi Commosale Pvt Ltd is wholly owned subsidiary of EFJL. Hence we find that the assessee had proved the source of EFJL (i.e source of source) also in the instant case to the extent of Rs 18,00,00,000/-.
D. M/s. Caravan Creation Pvt. Ltd. During the year, M/s. Caravan Creation Pvt Ltd made an equity investment of Rs. 30 crores in the assessee company. The said company is regularly assessed to income tax. The ITR acknowledgment, computation of income, Annual Accounts for the Financial Years 2011-12 and 2012-13 were enclosed. The amounts invested by this company in the assessee company is duly reflected in its balance sheet. M/s Caravan Creation Pvt. Ltd is a NBFC company whose main business is investment in shares and taking and granting of inter-corporate loans. The source of funds from which equity investment was made are as follows: - Loan from M/s K & R Associates - Rs 32,35,91,000/- A detailed chart showing the datewise inflow of funds and the subsequent investment in the assessee company was filed before the lower authorities together with the bank statements. From the balance sheet of K & R Associates , we find that the firm has given a loan of Rs. 40,13,91,000/- to M/s. Caravan Creation Pvt. Ltd out of unsecured loan received from its partner Kumud Parekh to the tune of Rs 42,98,91,000/-. M/s. K & R Associates is a partnership firm, wherein Smt. Kumud Parekh (since deceased) and Smt. Ratna Parekh were partners. Late Kumud Parekh was the mother of Shri Nilesh Parekh and Smt Ratna Parekh is the wife of Shri Nilesh Parekh. Shri Nilesh Parekh is the Director of SGJHL. This partnership firm holds 100% shareholding in M/s Caravan Creation Pvt. Ltd. As such, M/s Caravan Creation Pvt. Ltd., is indirectly controlled and managed by Shri Nilesh Parekh, director of SGJHL. Hence we find that the assessee had proved the source of K & R Associates (i.e source of source) also in the instant case to the extent of Rs 32,35,91,000/-.
E. M/s. Alex Energy Pvt. Ltd. During the year, M/s. Alex Energy Pvt Ltd made an equity investment of Rs. 24 crores in the assessee company. The said company is regularly assessed to income tax. The ITR acknowledgment, computation of income, Annual Accounts for the Financial Year 2011-12 were enclosed. The source of funds from which equity investment was made are as follows: - Loan from M/s Caravan Creation Pvt Ltd (NBFC) - Rs 11,40,00,000/- Loan from M/s Radiant Equity Management Pvt Ltd - Rs 75,00,000/- Loan from SGJHL - Rs 12,00,00,000/- Total Rs 24,15,00,000/- A detailed chart showing the datewise inflow of funds and the subsequent investment in the assessee company was filed before the lower authorities together with the bank statements.
The assessee had filed before the lower authorities the copy of ITR acknowledgement and annual accounts of M/s Caravan Creation Pvt Ltd for the AY 2012-13. As stated supra, M/s Caravan Creation Pvt Ltd is a NBFC company whose primary business is investment in shares and dealing inter-corporate loans and advances. It is a company belonging to SGJHL group.
The assessee had filed before the lower authorities the copy of ITR acknowledgment and annual accounts of M/s Radiant Equity Management Pvt Ltd for the AY 2012-13. From perusal of the balance sheet of M/s Radiant Equity Management Pvt Ltd, it is evident that it has own funds of Rs 64,35,05,315/- . This very clearly shows the high networth and the creditworthiness of M/s Radiant Equity Management Pvt Ltd to advance loans to M/s Alex Energy Pvt Ltd. The company reported Gross Total Income of Rs. 1,05,605/- in the Income Tax Return filed for the year. Loan given to M/s Alex Energy Pvt Ltd is shown in the balance sheet of M/s Radiant Equity Management Pvt Ltd. Hence we find that the assessee had proved the source of M/s Radiant Equity Management Pvt Ltd (i.e source of source) also in the instant case to the extent of Rs 75,00,000/-.
The assessee had filed before the lower authorities the copy of ITR acknowledgment and annual accounts of SGJHL for the AY 2012-13. From the perusal of the balance sheet of SGJHL, it is evident that it has own funds of Rs. 1,325.01 crores. This very clearly shows the high networth and the creditworthiness of SGJHL to advance loans to M/s Alex Energy Pvt Ltd. It is not in dispute that SGJHL is a listed company and one of the pioneers in manufacturing of jewellery generating huge surplus and having sufficient cash flows. The company reported Gross Total Income of Rs. 4,07,79,517/- in the Income Tax Return filed for the year. Loan given to M/s Alex Energy Pvt Ltd is shown in the balance sheet of SGJHL. Hence we find that the assessee had proved the source of SGJHL (i.e source of source) also in the instant case to the extent of Rs 12,00,00,000/-.
8.8. We find from the aforesaid documents and evidences available on record that the following facts emerge :- a) The five shareholder companies, SGJHL, EFJL, K & R Associates, Radiant Equity Management Pvt Ltd and Kumud Parekh are regular income tax assessees as is evident from their respective ITR acknowledgements. This proves the identity of all those parties. b) The aforesaid transactions are duly recorded in their respective books of accounts as is evident from their respective annual accounts and all the transactions are routed through regular banking channels by way of account payee cheques or the online transactions as the case may be. This clearly proves the genuineness of the transactions. c) The five shareholder companies, SGJHL, EFJL, K & R Associates, Radiant Equity Management Pvt Ltd and Kumud Parekh are having high net worth and creditworthiness to advance funds to respective parties which in turn had found its way into the coffers of the assessee company by way of equity contribution for the purpose of solar power project.
8.9. We find that the entire funds had ultimately reached the assessee through SGJHL or EFJL or 5 shareholder companies which are all group companies of the assessee having common directors and common management of day to day activities. In this regard, the following points would be pertinent to note :- a) Easy Fit Jewellery Ltd and M/s. Alex Mercury Power Power Pvt. Ltd are wholly owned subsidiaries of Shree Ganesh Jewellery House (I) Ltd. b) M/s. Shirdi Commosale Pvt. Ltd. and M/s. Shirdi Commodities Pvt. Ltd. are the wholly owned subsidiaries of Easy Fit Jewellery Ltd. As such, these became the step down subsidiaries of Shree Ganesh Jewellery House (I) Ltd. c) M/s. Caravan Creation Pvt. Ltd is a NBFC company owned by M/s. K & R Associates. M/s. K & R Associates is a partnership firm, owned by Late. Mrs Kumud Parekh, mother (since deceased) of Shri Nilesh Parekh and Mrs. Ratna Parekh, wife of Shri Nilesh Parekh. As such, this company is indirectly controlled by Shri Nilesh Parekh, director and chairman of SGHJL., which is a listed company. d) Alex Energy Pvt. Ltd is owned by Shri Prannay Sureka, director of the assessee company and his family. .
8.10. We find that the ld AO at Page 8 of the assessment order had further alleged that "the assessee has failed to appreciate the queries raised in two consecutive show-cause letters especially on creditworthiness of the alleged companies who are shown as immediate creditors of share capitals in the assessee company and who are newly created and either don't have any income or very little income. Further the assessee has failed to draw straight Cash Flow from SGJHL to its next entity and onwards to substantiate with reference to the bank accounts. The assessee. has failed to prepare the flow chart of cash of so called patron Shree Ganesh Jewellery House (I) Ltd (herein after called as SGJHL) to show the liquidity of each of the companies starting from the source company to all intermediary companies. Rather the assessee has shown interest in describing the history of SGJHL and background of their business along with the details of Easy Fit Jewellery Private Limited (herein after called as EFJPL) but has shown very little interest to substantiate the creditworthiness of alleged share capital credited in the books of accounts "of so called share applicant companies ". In this regard, we find that out of five, four of the share applicant companies were specially formed as SPVs for the purpose of making private investment in equity share capital. Hence, they were newly incorporated and as such were not having sufficient funds to invest in the equity share capital of the company. The fifth company, M/s Caravan Creation Pvt Limited is an NBFC company and an associate concern of SGJHL. As per the arrangement of funding entered into between SGJHL and the assessee company, SGJHL group met almost the entire equity fund requirement either directly or indirectly by advancing loans to the share applicant companies to enable them to make the required equity investment in the assessee company.
8.11. With regard to the contention of the ld AO that Shri Nilesh Parekh, director of SGJHL failed to appear in response to summons issued u/s 131, it was submitted that Shri Nilesh Parekh was travelling out of town on the specified date on which he was called upon to appear in person. The aforesaid various documents and evidences on record would conclusively prove that the assessee company had duly discharged the onus that lie on him by complying with the three necessary ingredients of section 68 of the Act viz. identity of the share applicants, creditworthiness of share applicants and genuineness of transactions. Even otherwise in a scenario, when the assessee has successfully discharged the onus of proving the three essential conditions as stipulated in section 68 of the Act, non-attendance of one party cannot suffice as a reason for rejecting the documents filed and the submissions made in this regard. We find that the ld AO had made only general comments doubting the source of funds stating it to be dubious. He neither brought any specific evidence to support his allegation nor was he able to controvert or point any infirmity in the details furnished by the assessee. We find that the ld AO has not taken any pains to prove that the share capital investment transactions are not genuine. He has simply put emphasis only on the creditworthiness of the share applicant companies regardless of the fact that these companies borrowed funds from SGJHL and its group concerns to make the equity investment. The creditworthiness and the high networth of the entities providing loans to the share applicant companies have been already proven by the assessee without any doubt in the preceding paras. Apart from making a sweeping & bold statement, the ld AO had not been able to specifically point out as to how he was not satisfied with the explanation offered by the assessee or as to which specific detail/evidence was unclear or dubious.
8.12. We find that the source of share application monies had been explained in a crystal clear manner and therefore was no doubt or suspicion with regards to the source of share application whatsoever. The entire modus operandi and purpose of raising share capital along with premium has been lucidly explained by the assessee. Hence the contention of the ld AO that the share applicant companies are bogus and ficititious entities is totally baseless. It is not in dispute that all the aforesaid documents and evidences were very much available before the ld AO itself during the course of assessment proceedings and it could only be said that the same were not properly appreciated by the ld AO.
8.13. We also find from the summons issued u/s 131 of the Act to the director of the company to furnish the details of companies floated by him with certain specified individuals, details of his personal investments in shares of companies, details of amounts ploughed back in companies other than the assessee where he was a director, why and how SGFHL controls the assessee company and his personal income & expenditure account and balance sheet for the period 01.04.2009 to 31.03.2012. We are not able to persuade ourselves to understand as to what relevance these questions have got to understand the veracity and genuineness of share capital and share premium received by the assessee company from five share applicant companies, more so, in the light of various details already filed on record by the assessee before the ld AO. In our considered opinion, the answers to the aforesaid questions sought for by the ld AO would lead to no inference for determination of the issue under dispute before him viz the genuineness of share capital received from corporate shareholders. We find that the ld AO also required the director to explain as to how SGJHL controlled the assessee company in the summons, when the same had been already adequately answered by various documentary evidences supra available with him. The ld AO had further required the director to provide details of other companies in which he was a director where monies were ploughed back by those companies. In our considered opinion, this is also of no relevance for examining the assessee’s transactions with the share applicant companies. Hence it could be safely concluded that the summons u/s 131 of the Act issued by the ld AO calling for certain details had no relevance in determining the genuineness of transactions or creditworthiness of the share applicant companies. Hence non-compliance to the said summons seeking illogical information which are not germane to the issue under dispute , would not , in our considered opinion, make any difference to the issue and would not automatically lead to drawing an adverse inference on the issue before the ld Ao. It is not in dispute that the assessee company had placed before the ld AO the relevant information which the ld AO could have verified independently from the Departmental records. Infact in the instant case, as could be seen from the aforesaid documentary evidences, the assessee even furnished the source of source of funds and explained the modus operandi of issuance of share capital to establish the bonafide and genuineness of the transactions. Hence in our considered opinion, nothing would have turned or changed on the appearance of representatives or director of the assessee since the relevant materials and documents required for determination of genuineness of transactions and creditworthiness of shareholders were already available in the file of the ld AO.
8.14. We find from the perusal of the assessment order that save & except making general assertions & observations about the modus operandi adopted by few paper companies, the ld AO did not bring on record any substantial material to disprove the documentary evidences which the assessee had placed on ld AO's record in support of the share subscription transactions. The ld AO made sweeping remarks such as he had carried out "discreet enquiries" into the share transactions, or that "onus was discharged on paper and not in reality". The ld AO failed to specify as to what discreet enquiries he had made so as to conclude that the share subscriptions were in nature of accommodation entries. The ld AO also failed to explain as to why the tangible material & documents placed by the assessee was only sufficient to discharge onus on paper but not in reality. Undisputedly the ld AO is fully empowered in law to make discreet as well as indiscreet enquiries and investigate into the affairs of an assessee. However the ld AO is duty bound to confront the assessee with the enquiries made and information gathered and the principal of nature justice demands that the assessee should be allowed an opportunity to give its rebuttal and/or explain its case in light of the enquiries allegedly made by the ld AO. In the present case, we find that the ld AO merely stated that he had made "discreet enquiries" which led to him forming conclusion that the share application monies received during the year were in nature of accommodation entries. However the nature & findings of enquiries were unknown. The ld AO never confronted the assessee with the information borne out of the so called "discreet enquiries". In fact from the material on record, we find that no enquiries were conducted by the ld AO under the provisions of Section 133(6) and/or 131 from the share subscribers who had actually paid the monies to the assessee. The ld AO seems to have sat back with folded hands just so as to arbitrarily reject the documents & evidences placed by the assessee at the end of the assessment proceedings with a pre-conceived notion in order to reach to pre-decided destination. The ld AO was unable to bring an iota of evidence so as to substantiate his allegation that the capital raised by the assessee was in the nature of accommodation entries or that the monies were routed back to SGJHL and its associates as alleged in the impugned order. The ld AO seemed to have acted in haste and made generalized comments & observations for making this humongous addition in the hands of the assessee. On the other hand, the assessee had discharged its onus of substantiating the identity & creditworthiness of the shareholders and the genuineness and background of the transaction. We find from the materials available on record that the assessee company was formed for the purpose of setting up solar plant in terms of express agreement with GUVNL. The funds for the project were substantially raised from banks & financial institutions. The stipulated equity base was financed by SGJHL and its associates. From the assessee's audited financial accounts, we find that the assessee invested the funds in considerable fixed assets besides other current assets. As such on the facts, it could be safely concluded that the assessee is not a mere paper company as alleged by the ld AO which are engaged in the business of providing accommodation entries. Similarly the share applicant companies also could not be considered as mere paper companies as alleged by the ld AO in the light of various documentary evidences available supra on record. The audited accounts of the assessee company showed that it is engaged in the business of solar power plant and the monies were not routed back to SGJHL and/or its subsidiaries as alleged by the ld AO. We would like to reiterate at the cost of repetition that in the course of assessment proceedings, the assessee had furnished the documentary evidences as were made available to the assessee by the share subscribing companies. The documents furnished proved the identity & creditworthiness of the shareholders. The transactions were carried through banking channels. Although the documents were submitted before the ld AO, no enquiry was conducted by the ld AO either from the Departmental records or from the bankers of the share subscribers. Hence it could be safely concluded that the adverse inference drawn by the ld AO was based on surmise & conjecture having no relation whatsoever with the facts of the case.
8.15. In view of our aforesaid findings in the peculiar facts and circumstances of the instant case, taking into consideration the totality of the facts discussed as above, it is well established that the assessee by producing necessary documents viz. detailed chart of inflow and outflow of funds, IT records, audited Balance Sheets, bank statement copy etc of self and all other parties involved., has sufficiently established the identity and creditworthiness of the share subscribers and the genuineness of the share transaction. As such, the addition made by the ld AO is sheerly based on surmises and wrong appreciation of the facts of the case. Hence we find that the ld CITA had rightly appreciated the contentions of the assessee, which in our considered opinion, does not require any interference. Accordingly, the grounds raised by the revenue are dismissed.
In the result, both the appeals of the revenue are dismissed. Order pronounced in the open court on this 20/02/2019