M/S SASHI CABLES LTD.,KOLKATA vs. CIT, KOLKATA-1, KOLKATA

We start with basic facts pertaining to the instant lis. The assessee-company is engaged in manufacturing of conductor & cables, job work of bending on MS sheets & trading activity. It filed its return on 17.08.2009 declaring total income of ₹83,96,118/-. The Assessing Officer framed regular assessment in its case making A.Y. 2009-10 M/s Sashi Cables Ltd. Vs. CIT, Kol-01 Page 2 various disallowances / additions thereby assessing total income taxable income at ₹96,37,818/-.

Case file suggests that the CIT thereafter sought to revise the above regular assessment by terming it erroneous causing prejudicial to the interest of the Revenue. He issued sec. 263 show cause notice 12/14.02.2013. Both the learned representatives state at this stage that the CIT’s show cause for invoking revision proceedings reads as follows:- “OFFICE OF THE COMMISSIONER OF INCOME TAX, KOLKATA-I KOLKATA AAYAKARBHAVAN, 7th FLOOR, P-7 CHOWRINGHEE SQYAREM JIKJATA-69 No. CIT, Kol-1/263/Shashi Cables/2013-14/8369 Dated:12.02.2014 14 To The Principal Officer M/s Shashi Cables Ltd Laha Paint House 7, Chittaranjan Avenue, Kolkata-72 PAN: AAECS0433Q Sub: Proceeding u/s. 263 of the Income Tax Act, 1961 for A.Y. 2009-10-regarding- Examination of assessment records in your case for AY 2009-10 reveals the following: 1. In this case the assessee filed its Return of Income for Assessment Year 2009-10 on 17.08.2009 showing total income at Rs.83,96,118/-. The assessment was completed u/s. 143(3) on 29.12.2011 at a total income of Rs.96,37,820/- 2. On perusal of records it is observed that assessee had claimed TDS credits of Rs.8,72,172/-, and the major part of which (i.e. TDS of Rs.5,66,500/-) was deducted by M/s Vijay Electrical Ltd. on account of payments for professional fees of Rs.50,00,0000- by such party to the assessee. But from the Profit & Loss account of the year ended on 31.03.2009, relevant to the A.Y 2009-10, it is observed that such income i.e. professional fees receipt of Rs.50,00,000 was not credited in the accounts nor any adjustment of such amount is noticed from the details available on record. In view of above, the professional fees receipt of Rs.50,00,000/- for the year ended on 31.03.2009, relevant to AY 2009-10, was required to be added to the total income of the assessee. Since the addition has not made in the assessment, this has resulted in underassessment of income to the extent of Rs.50,00,000/- for the F.Y 2008-09 relevant to AY 2009-10. In view of the above facts, the order passed u/s 143(3) on 29.12.2011 for AY 2009- 10 appears to be erroneous in so far as it is prejudicial to the interests of revenue. Therefore, it is proposed to take up your case for revision u/s. 263 of the I.T Act, 1961. Your case is fixed for hearing u/s 263 of the IT Act,1961 on 25/02/2014 at 12.00 noon for this purpose. In case of failure to respond to this notice, decision may be taken on merits of the case. Sd/- M.S. Kaushik A.Y. 2009-10 M/s Sashi Cables Ltd. Vs. CIT, Kol-01 Page 3 (M.S.Kaushik) Commissioner of Income Tax, Kolkat-1, Kolkata.”

The assessee filed its reply on 25.02.2014. It first of all placed on record its licence fees agreement with M/s Vijay Electrical Ltd. in lieu of total consideration of ₹50 lac for seven years. The said entity paid it ₹50 lac after deducting TDS of ₹5,66,500/-. The assessee declared income of ₹9,39,335/- in the relevant previous year. It then claimed TDS credit of the above sum deducted by its payee. Its case was that above income had to be spread out for all eight years than to be assessed in the impugned assessment year only as per the relevant time span in the licence agreement. The CIT has declined the same in para 13 of his order without commenting anything on assessee’s explanation. He has not even commented anything on its above stated contentions.

We have given our thoughtful consideration to rival contentions qua the instant former issue of assessment of entire licence fees income of ₹50 lac received in the relevant previous year. This taxpayer has already placed on record its license agreement with M/s Vijay Electrical Ltd. indicating total consideration of ₹75 lac split in three installments of ₹25 lac each upon execution of agreement, completion of supply of technical know-how documentation procedures before the submission of joint undertaking to be furnished by licencing to the consumer and upon commencement of commercial production against the orders; respectively. The assessee had admittedly received ₹50 lac under the former two heads. The Revenue’s endeavour through the CIT‘s order under challenge is to assess this entire sum of ₹50 lac in the year of receipt i.e impugned assessment year. It transpires at this stage that the assessee had filed in assessment year 2011-12 before this tribunal challenging correctness of the lower authorities action assessing final payment of ₹25 lac. Learned co-ordinate bench’s order dated 13.07.2018 has accepted assessee’s appeal after holding the very license fees income is to be taxable on spread over basis in all corresponding seven assessment year(s). We adopt consistency in view of all these intervening developments to conclude that the Assessing Officer’s ITA No.793/Kol/2014 A.Y. 2009-10 M/s Sashi Cables Ltd. Vs. CIT, Kol-01 Page 4 action in assessing assessee’s licence fees income of ₹9,39,335/- instead of the entire receipt of ₹50 lac in the impugned assessment year is neither erroneous nor prejudicial to interest of the Revenue forming essential condition of invoking the CIT’s revisional jurisdictional vested u/s 263 as per hon'ble apex court’s landmark decision in Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC). We therefore reverse the CIT’s findings under challenge qua this former issue.

Next comes the correctness of CIT’s directions issued to the Assessing Officer on the latter issue of assessee’s share application / premium after holding that no detailed inquiries had been conducted during the course of scrutiny. The CIT’s relevant discussion qua this latter issue reads as follows:- “14. Further, as already mentioned above, the other issues raid during the proceedings u/s. 263 were informed to the assessee during the hearing on 25.2.2014. The assessee has failed to furnish details documentary evidences in respect of such queries raised. No books of accounts could also be produced by the assessee. It is seen that the assessee allotted shares to 3 (three) companies viz.- Sl.No. Name & Address of shareholder No. of shares Face value Premium 1 Jhilmil Distributors Pvt. Ltd. 20000 10/- 40/- 334/157 Jessore Rd. S.No.8 Kolkata-700089 PAN- AABCJ8307R 2 Dhanerash Tie-up Pvt.Ltd. 20000 10/- 40/- 334/157, Jessore Rd. S.No.8, Kolkata-700089 PAN- AACCD6155E 3 Potential Vinimay Pvt. Ltd. 10000 10/- 40/- 334/157, Jessore Rd.S.No.8 Kolkat-700089 PAN-AAECP3584D Total value involved is Rs.25,00,000/- 15. It may be mentioned here that this case forms a part of large number of cases in which share capital is shown to have been introduced by rotating the unaccounted money through various companies or entities. Such introduction of share capital was shown in large number of cases on the basis of dummy companies which were created solely for the purpose of building up share capital. This is evident from the fact that almost all these companies including this company are not found at the address given in the return of income, nor they have responded to the notices issued. The directors of these companies are either fictitious or low-paid employees like peons, drivers or other persons of small means. In almost all these cases it has been claimed that the address of the co. has changed. This very fact speaks volumes about the bona fide of these companies & their genuineness. No intimations are filed about the so-called Change of addresses. It is not very surprising that that every such co. claimed the change of add as the defense of not being found on official address.

The Modus Operandi of introduction of such bogus share capital is that unaccounted cash is generally deposited in account of different persons/companies and from these accounts, cheques are issued to various other companies and after rotating the money in 3-4 layers, the money is introduced as share capital in other companies and this cycle continues till the time unaccounted money reaches its intended destination. The operators of such bogus companies ensure that the money is laundered through more than one layer. That is the reason why while checking the bogus accounts of subscriber companies, it is invariably found that the said companies have also received similar amount from some other persons or companies by cheque and issued tile cheque as subscription to the share capital after few days. In such a situation, it is imperative that the .A.Os. conducting enquiries should go back to at least up to 2-3 layers, because it is only then that the real picture emerges. It is well settled principle of law as declared by the Hon'ble Supreme Court in the case of Sumati Dayal Vs. C1T (214 ITR 801) (SC) that the true nature of transaction have to be ascertained in the light of Surrounding circumstances. It needs to be emphasized that standard of proof beyond reasonable doubt has no applicability in determination of matters under taxing statutes. It is also well settled that tax authorities are entitled to look into surrounding circumstance to find out the reality of the transaction by applying the test of human probability. This was the principle laid down by the Honble Supreme Court in the case of CIT Vs. Durga Prasad More 82 ITR 540 (SC). It is also well settled law that onus of proving credits in its book of accounts lies squarely on the assessee and such proof consists of proving the identity of the subscriber or creditor, capacity of such creditor or subscriber to make payment and also to prove the genuineness of the transaction, It is only when the assessee discharges this primary onus, that onus shifts to the Department. Merely establishing the identity of the creditor is not sufficient. This is the ratio in a large number of decisions including Shankar Industries vs. CIT (1978) 114 ITR 689 (Cal); C. Kant & Co. Vs. CIT, (1980) 126 ITR 63 (Cal); Prakash Textile Agency Vs. CIT, (1980) 121 ITR 890 (Cal); Oriental Wire Industries P. Ltd. Vs. CIT, (1981) 131 ITR 688 (Cal); CIT Vs. United Commercial & Industries Co. (P) Ltd., (1991) 187 ITR 596, 599 (Cal); M.A. UnneeriKutti Vs. CIT, (1992) 198 ITR 147, 150 (Ker), Special Leave petition dismissed by the Supreme Court (1993) 201 ITR (St.) 23 (SC); CIT Vs. Precision Finance Pvt. Ltd., (1994) 208 ITR 465, 470 (Cal). The manner of payment by the account payee cheque is also not sacrosanct and this cannot make a bogus transaction as genuine one [(CIT Vs. Precision Finance Pvt. Ltd., ($) 208 ITR 465,470,471 (Cal). Cf. Nizam Wool Agency Vs. CIT, (1992) 1931TR 318,320 (All)].

It may be reiterated that the genuineness of the share capital in this case and hundreds of other such cases where assessments have been completed by various A.Os can be gauged from the fact that the same modus operandi has been used to obtain an order u/s. 143(3) providing authenticity or genuineness to the share capital introduced. Once the unaccounted money was introduced in the garb of genuine share capital in the company, by rotating it through various other companies, a return of income is filed showing nominal income, thereafter, a letter or information is sent to the A.O. stating that the assessee company has by mistake omitted to declare a nominal sum in the return of income, or made certain claim of deduction or expenses which is not allowable. This provides to the A.O. the reason or pretext for issuing notice u/s. 148 of the IT Act thereby bringing the case under scrutiny. The A.O. after conducting perfunctory & superficial enquiries u/s. 133(6), completes the assessment A.Y. 2009-10 M/s Sashi Cables Ltd. Vs. CIT, Kol-01 Page 6 order by making the token addition of the subsequently declared income and/or nominal disallowances without making any addition on a/c of dubious addition to the share - capital. This provides the certificate of genuineness to the share- capital which has been freshly laundered by introducing unaccounted money in various layers. Further the AO has not made any independent verification of the document filed in support of the contribution to share-capital. This renders the A.O's order completely erroneous & prejudicial to the interest of revenue. This also provides legitimacy to the bogus share capital introduced in the assessee company. This laundered share capital is then passed on to the ultimate intended destination. It may be mentioned here that for introducing and rotating the unaccounted money at various stages, certain percentage is charged as a cost. All these transactions and the introduction of bogus share capital may apparently seem to be real. However, it needs to be emphasized that apparent has to be distinguished from real, in a situation like the one described above, that has been contrived in a large number of cases. In this context, the observations of the Hon'ble Supreme Court in the case of CIT Vs. Durga Prasad More 540 (SC) are pertinent, wherein the Hon' ble Supreme Court has observed :- "It is true that an apparent must be considered to be real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self- serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents." This issue also has not been examined by the A.O. during the course of scrutiny.

Since the Assessing Officer has failed to properly scrutinize and enquire into the above aspects, the assessment completed in this case set-aside with the direction to the Assessing Officer that the facts and figures should be examined properly de-novo and a correct conclusion be arrived as per law. The assessment is, therefore, set aside in full.”

Learned counsel representing assessee fails to rebut the CIT’s basic finding of fact that it had not placed the relevant documentary evidence during the course of scrutiny for the purpose of Assessing Officer’s factual verification of the investor(s) parties. We find in this fact that this tribunal’s in M/s Shush Lakshmi Varey Ltd vs. CIT decided alongwith batch of more than 400 cases as affirmed in hon'ble jurisdictional high court’s in Raymandir Real Estate vs. DCIT ITA No.113/Kol/2016 finally upheld in hon'ble apex court has affirmed similar directions ITA No.793/Kol/2014 A.Y. 2009-10 M/s Sashi Cables Ltd. Vs. CIT, Kol-01 Page 7 issued to the Assessing Officer for re-verification of all investor parties. No rebuttal on facts or law is forthcoming from the assessee side. We thus affirm the CIT’s findings under challenge qua this latter issue.

No other argument has been raised before us qua any other substantive ground; if any pleaded in the instant appeal.