M/S. ADITYA PAPER INDUSTRIES PVT. LTD., ,KOLKATA vs. ITO, WARD - 4(4), KOLKATA , KOLKATA

ORDER Per M.Balaganesh, AM

M/s Aditya Paper Industries Pvt. Ltd. A.Yr. 2012-13 3. The brief facts of this issue is that the assessee is a private limited company incorporated on 26.5.2009 with the object of manufacture and sale of all kinds of papers, board, corrugated board, printing, absorbent and writing paper. It is a sister concern of M/s Krishna Tissues P Ltd (in short KTPL) which is engaged in the business of manufacturing of coated diplex paper board. During the year under review, the assessee had received total equity share capital with share premium of Rs 1,25,00,000/- with a premium of Rs 90 per share from the following shareholders :- a) RBM Impex Pvt Ltd b) Extreme Tie-Up Pvt Ltd c) Mahamaya Tie-Up Pvt Ltd d) Winson Vanijya Pvt Ltd e) Uphar Vanijya Pvt Ltd f) Kamna Housing Pvt Ltd 3.1. During the course of assessment proceedings, the ld AO called for examination of various details and documents with supporting evidences and one such issue of examination was with regard to receipt of share capital and share premium received during the year by the assessee. The assessee submitted all the details regarding the receipt of share capital with premium before the ld AO by submitting the names and addresses of the shareholders, their balance sheets, their income tax return acknowledgements and their bank statements. The ld AO did not find anything adverse on those details and documents filed by the assessee. The ld AO thereafter issued summons u/s 131 of the Act to the Director of the assessee company and notices u/s 133(6) of the Act to the share applicant companies. All the share applicants responded to the notices u/s 133(6) of the Act vide their forwarding letters along with various documents enclosing in support of proving their identities, creditworthiness and genuineness of their share subscription in the assessee company. In response to the 2

M/s Aditya Paper Industries Pvt. Ltd. A.Yr. 2012-13 summons issued by the ld AO, one of the directors of the assessee during the time of issuance of summons during 2015 appeared before the ld AO and a statement was recorded from him by the ld AO. The director who appeared before the ld AO stated that he was not the director of the assessee company during the financial year 2011-12 when share capital was raised, and that the other director could not appear before the ld AO due to ill health. He also replied that he has no idea about the reason why the other erstwhile director, Mr Manish Jain, did not appear. The ld AO observed that unless the assessee as well as the applicant companies / investors appear with all its books, bank statements, copies of IT returns, copies of ROC returns and income tax returns of the directors, the veracity of the transactions could not be found out. The ld AO further observed that due to non-compliance on the part of Directors in producing all the details requisitioned u/s 131 of the Act, the identity and creditworthiness of the shareholders and genuineness of the transactions between shareholders and assessee company could not be verified and accordingly added the entire money received towards share capital and share premium in the sum of Rs 1,25,00,000/- as unexplained cash credit of the assessee u/s 68 of the Act.

3.2. The assessee pleaded before the ld CITA that all the requisite details that were called for were duly furnished before the ld AO and there is no reason for the ld AO to conclude that the three ingredients of section 68 of the Act were not conclusively proved by the assessee warranting making an addition thereon. It was submitted that the ld AO nowhere in her order had specified that what premium, according to her, ought to be reasonable share premium per share in place of Rs 90 per share considered high by her. The assessee also submitted that the ld AO ignored many vital factors including its book value per share being Rs 29.35 per share before fresh issue of subject share capital, future prospects of doing business in big way without need to service debt liability by way of interest payments, credibility of present management who was 3

M/s Aditya Paper Industries Pvt. Ltd. A.Yr. 2012-13 running a biggest plant of manufacturing of duplex paper board in eastern India and close control of investor companies over affairs and funds of the assessee after their investment in shares of assessee company, the same being a private limited company. The assessee reiterated the submissions made before the ld AO and also furnished the following details before the ld CITA :- a) Bank statements for the year ended 31.3.2012 of share applicant companies. b) Final accounts for year ended 31.3.2012 of share applicant companies. c) Income tax return acknowledgements of share applicant companies for Asst Year 2012-13. d) Master Data of concerned share applicant companies as per website of Ministry of Corporate Affairs (MCA) which shows particulars of their directors and also shows that all of these companies are active. e) The copies of Form No. 18 filed by those share applicant companies for situation of their respective registered offices. f) PAN and address proof of directors of share applicant companies. g) The chart of net worth of concerned share applicants as on 31.3.2012 extracted from their respective balance sheets which shows that their net worth is several times more than the amount invested by them in the shares of the assessee company duly proving their capacity to invest in shares with premium in the assessee company. h) Details of directorships held in various companies by the directors of share applicant companies :-

Name of the Director Name of the Company Urvil Verma Upahar Vanijya P Ltd Winson Vanijya P Ltd Jaswant Kumar Nangalia Extreme Tie Up Private Ltd RBM Impex Private Ltd Rajesh Kumar Singhania Mahamaya Tie Up P Ltd 4

M/s Aditya Paper Industries Pvt. Ltd. A.Yr. 2012-13 The assessee also requested the ld CITA to issue fresh notices u/s 133(6) of the Act or issue summons u/s 131 of the Act to the concerned share applicants as assessee had no power to force any person for his or its personal details. The ld CITA sought for a remand report from the ld AO for examination of the various details filed by the assessee that are available on record.

3.3. The ld AO submitted his remand report by stating that summons were issued to the 6 share applicants . Out of that, three could not be delivered and returned with a remark ‘insufficient address’. Two entities did not prefer to appear but had send their submission along with copy of ITR for Asst Year 2012-13, profit and loss account, bank statements , share application and allotment letter. One of them neither appeared nor submitted any reply in this regard. Accordingly, the ld AO concluded that verification could not be carried out in respect of share applicants as directed by the ld CITA in the remand order.

3.4. The assessee again submitted before the ld CITA that the ld AO had not carried out the requisite enquiry and examination as directed by the ld CITA and that the directors of the share applicant companies were willing to appear before the ld AO. The remand report of ld AO clearly proves that because of his overburden and being pre-occupied with time barring cases, necessary verifications could not be carried out. Instead the ld AO had mentioned about alleged statements of directors of asssesse, share applicant companies allegedly admitting that those companies were created by providing alleged accommodation entities in the form of bogus share capital / bogus share premium , 5

M/s Aditya Paper Industries Pvt. Ltd. A.Yr. 2012-13 bogus unsecured loans. The assessee explained before the ld CITA that this was made by the ld AO based on the proceedings in the case of group company of M/s Krishna Tissues P Ltd (in short KTPL) wherein survey u/s 133A of the Act was conducted on 29.7.2015 and post survey operations, statement was recorded u/s 131 of the Act by DDIT (Inv.) of the following directors of companies from which the Krishna Tissues group raised share capital :-

Name of the Director Statement Statement Name of the related companies Taken on Retracted on in which person is a director Brij Mohan Nangalia 17.8.2015 18.8.2015 RBM Impex Pvt Ltd Extreme Tie-Up Pvt Ltd Jaswant Kumar Nangalia 14.9.2015 16.9.2015 RBM Impex Pvt Ltd Extreme Tie-Up Pvt Ltd Rajesh Kumar Singhania 16.9.2015 18.9.2015 Mahamaya Tie-Up Pvt Ltd Sanjay Bajoria 14.08.2015 16.8.2015 Uphar Vanijya Pvt Ltd 3.5. The assessee submitted that the ld AO placed reliance on the statements recorded from the directors of M/s Krishna Tissues P Ltd by the DDIT (Inv.) pursuant to survey conducted in their business premises on 29.7.2015 wherein they had initially stated that the entities were involved in providing accommodation entries. Later the said statements were retracted by them by filing independent affidavits duly explaining the reasons for the retraction immediately after the survey i.e within few days of completion of the survey and also confirming the fact of their companies in which they are director, for having made the investments in shares with premium in the assessee company as well as Krishna Tissues P Ltd (KTPL in short). The assessee submitted that the ld AO did not mention anything about the retraction statements made by the directors of KTPL 6

M/s Aditya Paper Industries Pvt. Ltd. A.Yr. 2012-13 in his remand report. The assessee filed before the ld CITA , the copies of affidavits with evidence of filing the same with AO and copy of deposition given by Mr B M Nangalia on 16.12.2016 before the AO in assessment proceedings of KTPL (post survey) . It was submitted that the depositions made before the DDIT(Inv.) having been retracted later, does not have any evidentiary value. It was submitted that in the assessment proceedings of KTPL for the Asst Year 2013-14 which was completed post survey in their case on 29.7.2015, the ld AO after examining the records and directors had accepted the share capital and premium received by KTPL in the scrutiny assessment framed for the Asst Year 2013-14 in the hands of KTPL. However, the share capital and premium received by KTPL from the very same shareholders during the Asst Year 2014-15 was subject matter of addition in the scrutiny assessment proceedings for the Asst Year 2014-15, which was also confirmed by the ld CITA. Aggrieved, the assessee preferred an appeal before this tribunal which was decided in favour of the assessee in dated 1.12.2017 in the case of KTPL for Asst Year 2014-15. This tribunal order was also placed before the ld CITA by the assessee before us. The ld CITA however did not heed to the contentions of the assessee and upheld the action of the ld AO. Aggrieved, the assessee is in appeal before us.

Date of Name of No. of Cheque Bank Amount(Rs.) Applicant’s Date of No. of Application Applicant Shares No. PAN Allotment Shares Applied 07.12.2011 Uphar 20000 743750 Allahabad 2,000,000 AABCU2424J 01.02.2012 20000 Vanijya Bank Pvt. Ltd. 17.12.2011 Extreme 20000 858630 IDBI 2,000,000 AACCE0207G 01.02.2012 20000 Tie Up Bank Pvt. Ltd. 19.12.2011 Uphar 10000 743755 Allahabad 1,000,000 AABCU2424J 01.02.2012 10000 Vanijya Bank 7

M/s Aditya Paper Industries Pvt. Ltd. A.Yr. 2012-13 Pvt. Ltd. 06.01.2012 Kamna 10000 734883 Allahabad 1,000,000 AAECK4606K 01.02.2012 10000 Housing Bank Pvt. Ltd. 07.01.2012 Kamna 5000 734885 Allahabad 500,000 AAECK4606K 01.02.2012 5000 Housing Bank Pvt. Ltd. 07.01.2012 Kamna 10000 734884 Allahabad 1,000,000 AAECK4606K 01.02.2012 10000 Housing Bank Pvt. Ltd. 09.01.2012 Winson 5000 735089 Allahabad 500,000 AABCW0316P 01.02.2012 5000 Vanijya Bank Pvt. Ltd. 09.01.2012 Mahamaya 20000 227257 IDBI 2,000,000 AAFCM6647R 01.02.2012 20000 Tie-up Pvt. Bank Ltd. 06.03.2012 R.B.M 25000 584062 Punjab 2,500,000 AADCR6857Q 13.03.2012 25000 Impex Pvt. National Ltd. Bank 125000 12,500,000 125000 4.1. We have gone through the statements recorded from Shri Brij Mohan Nangalia, Shri Rajesh Kumar Singhania, Shri Sanjay Kumar Bajoria and Shri Jaswant Nangalia wherein initially they had stated that they were involved in providing bogus accommodation entries in the form of share capital / share premium for various companies. We find that these statements were subsequently retracted by them within 2 days from the date of recording the statement and an independent affidavits were filed by the said parties. These documents are enclosed in pages 24 to 46 of the Paper Book filed before us. We find the assessee company had substantial income in the form of interest amounting to Rs 10,18,759/- and had paid interest to the tune of Rs 9,55,173/- on the bank loans availed by it. The ld AR argued that the assessee company is incorporated on 26.5.2009 with the object of manufacture and sale of all kinds of papers, board, corrugated board, printing, absorbent and writing paper. It is a sister concern of M/s Krishna Tissues P Ltd (in short KTPL) which is engaged in the business of manufacturing of coated diplex paper board. We find that the share capital was received by the assessee with share premium of Rs 90 per share. In this regard, it was argued that even though the book value per share prior to infusion of the subject mentioned share capital in the assessee company was Rs 29.35 per share, the share 8

M/s Aditya Paper Industries Pvt. Ltd. A.Yr. 2012-13 subscribers had come forward to invest in the assessee company based on future prospects of the assessee company and accordingly investment at Rs 100 per share with premium of Rs 90 per share was worked out by the assessee company.

4.2. It is not in dispute that the assessee had furnished the following documents before the lower authorities to justify the receipt of share capital and share premium from various shareholders :- a) Names and addresses of the shareholders together with their income tax return acknowledgements for the Asst Year 2012-13. b) Bank statements for the year ended 31.3.2012 of share applicant companies. c) Final accounts for year ended 31.3.2012 of share applicant companies. d) Master Data of concerned share applicant companies as per website of Ministry of Corporate Affairs (MCA) which shows particulars of their directors and also shows that all of these companies are active. e) The copies of Form No. 18 filed by those share applicant companies for situation of their respective registered offices. f) PAN and address proof of directors of share applicant companies. g) The chart of net worth of concerned share applicants as on 31.3.2012 extracted from their respective balance sheets which shows that their net worth is several times more than the amount invested by them in the shares of the assessee company duly proving their capacity to invest in shares with premium in the assessee company. h) Details of directorships held in various companies by the directors of share applicant companies.

4.3. It is not in dispute that after collection of all these documents, the ld AO also sought to cross verify the same from the shareholder companies by issuing notice u/s 133(6) of 9

M/s Aditya Paper Industries Pvt. Ltd. A.Yr. 2012-13 the Act independently behind the back of the assessee. All these notices u/s 133(6) of the Act were duly responded by the share applicant companies along with their various documents to prove their identity, their creditworthiness and genuineness of transactions, wherein they had duly confirmed that they had indeed invested in the assessee company with premium. All these documents are enclosed in pages 129 to 211 of the Paper Book filed before us. We find that one of the directors of the assessee company had duly responded to the summons issued u/s 131 of the Act before the ld AO. He had given proper explanations before the ld AO regarding the transactions. The statement recorded from him by the ld AO is enclosed in pages 78 to 80 of the Paper Book filed before us.

4.4. It is not in dispute that the ld AO in the remand proceedings having stated that due to paucity of time and due to heavy pressure of time barring assessments, he could not proceed to make detailed examination of facts that were stated by the assessee company. Having said so, the ld AO placed heavy reliance on the statements recorded from the directors of the assessee company in the course of survey proceedings u/s 133A of the Act in the hands of KTPL. We find that these statements were subsequently retracted within 2 days by all the directors and the same were part of records. We find that the ld AO again recorded the statement of Jaswant Kumar Nangalia and Brij Mohan Nangalia on 16.12.2016 in the course of assessment proceedings of KTPL when they appeared in person in response to summons issued u/s 131 of the Act, wherein they were asked the reason behind investment in KTPL, among other companies. In response, both the parties had stated that their companies invested in the assessee company keeping in mind the growth and future prospects of the company. In the said statement, the ld AO even confronted the deponents (i.e Jaswant Kumar Nangalia and Brij Mohan Nangalia) about the retraction made by them within 2 days of giving statement originally as is evident from the details available in pages 90 & 103 of the Paper Book before us in 10

M/s Aditya Paper Industries Pvt. Ltd. A.Yr. 2012-13 respect of Jaswant Kumar Nangalia and Brij Mohan Nangalia respectively. We find that these deponents had categorically stated before the ld AO that the investments were made by their companies in KTPL and its group of companies based on growth and future prospects of the said group. These deponents had stated that the original statements were signed by them without understanding its contents thereon and the same were recorded under coercion. We find that the ld AO thereafter accepted the contentions of the share subscribers of KTPL and accepted the receipt of share capital with share premium by KTPL for the Asst Year 2013-14 and completed the assessment u/s 143(3) of the Act for KTPL. However, he took a completely contrary stand while completing the scrutiny assessment of KTPL for the Asst Year 2014-15 for the additional receipt of share capital and share premium. This matter had come up before this tribunal in the case of KTPL and this tribunal in dated 1.12.2017 had decided the issue in favour of the assessee. Moreover, we find that the statements recorded by the DDIT(Inv.) from the directors of the share subscribing companies had lost its evidentiary value in as much as the ld AO had recorded further statement from the very same directors during the course of assessment proceedings. Hence the ld AO ought not to have placed any reliance on the statements recorded by DDIT(Inv.) which is not supported by any other corroborative evidences.

4.5. Hence we find that the main reliance placed by the ld AO on the statements recorded from directors in the case of KTPL had been already addressed by this tribunal in the case of KTPL vide order dated 1.12.2017. Hence the reliance placed on those statements which stood retracted later and properly explained cannot be used as an evidence in the scrutiny proceedings of the assessee company before us and no adverse inference could be drawn on the assessee company. We would like to place reliance on the decision of the Hon’ble Apex Court in the case of Vinod Solanki vs Union of India

M/s Aditya Paper Industries Pvt. Ltd. A.Yr. 2012-13 reported in (2009) 233 ELT 157 (SC) wherein in the context of using the retracted statement had held as under:- 22. It is a trite law that evidences brought on record by way of confession which stood retracted must be substantially corroborated by other independent and cogent evidences, which would lend adequate assurance to the court that it may seek to rely thereupon.

4.6. We also find that merely rejecting the evidences filed by the assessee does not entitle the ld AO to make an addition u/s 68 of the Act . Such outright rejection of the evidences by the ld AO is totally contrary to the law as laid down by the Hon’ble Apex Court in the case of CIT vs Orissa Corporation (P) Ltd reported in 159 ITR 78 (SC) wherein it was held that :-

M/s Aditya Paper Industries Pvt. Ltd. A.Yr. 2012-13 matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises.

4.7. We find that all the questions that were relevant for the assessment has already been asked by the ld AO from Shri Jaswant Kumar Nangalia and Shri Brij Mohan Nangalia during the course of assessment proceedings of KTPL, a group company of assessee company. In the said statement, they had categorically replied that their companies had duly invested in the share capital with premium in KTPL group of companies which admittedly includes assessee company also. They had duly explained the purpose of making such investments with proper reasoning thereon in their statements before the ld AO. Hence it could be safely concluded that recording of fresh statements again from the very same persons in the course of assessment proceedings of the assessee company with regard to receipt of share capital and share premium, would not in any way advance the case of the revenue as all the requisite details are already available on record and in view of the fact that the subject mentioned investments in assessee company , among others , were also duly answered by those directors in their respective statements.

4.8. We find that the reliance placed by the ld AR on the decision of the Hon’ble Delhi High Court in the case of Pr.CIT vs Laxman Industrial Resources Ltd in ITA 169/2017, C.M.Appl. 7385/2017 dated 14.3.2017 is well founded, wherein it was held that :-

M/s Aditya Paper Industries Pvt. Ltd. A.Yr. 2012-13 This court notices that the assessee had provided several documents that could have showed light into whether truly the transactions were genuine. It was not a case where the share applicants are merely provided confirmation letters. They had provided their particulars, PAN details, assessment particulars , mode of payment for share application money, i.e. through banks, bank statements, cheque numbers in question, copies of minutes of resolutions authorizing the applications, copies of balance sheets, profit and loss accounts for the year under consideration and even bank statements showing the source of payments made by the companies to the assessee as well as their master data with ROC particulars. The AO strangely failed to conduct any scrutiny of documents and rested content by placing reliance merely on a report of the Investigation Wing. This reveals spectacular disregard to an AO’s duties in the remand proceedings which the Revenue seeks to inflict upon the assessee in this case. No substantial question of law arises. The appeal is dismissed.

4.8.1. We find that the facts before the Hon’ble Delhi High Court supra are the same with the facts in the instant case. Added to that, the only reliance of the revenue as is evident from the remand report of the ld AO is the statements recorded from two directors of the assessee company in the course of proceedings of group company i.e. KTPL. These statements were subsequently retracted and the same were taken due cognizance by this tribunal while disposing off the appeal in the case of KTPL for Asst Year 2014-15 in dated 1.12.2017.

4.9. In view of the aforesaid peculiar facts and peculiar documents relating thereto and respectfully following the various judicial precedents relied upon hereinabove, we have no hesitation in holding that all the three ingredients of section 68 of the Act were duly satisfied in the instant case. We hold that the authorities below erred in making an addition u/s 68 of the Act towards share capital and share premium in these peculiar facts and circumstances of the case. Since the addition made towards share capital and share premium is directed to be deleted on these peculiar facts, the other legal issues raised by the assessee in its grounds are not required to be adjudicated and we refrain to 14

M/s Aditya Paper Industries Pvt. Ltd. A.Yr. 2012-13 give our opinion on the same and those issues are left open. Accordingly, the grounds raised by the assessee are allowed.

Order pronounced in the Court on 11.07.2018